UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

--------------------------------------------------------------------------------
For the Fiscal Year Ended                                 Commission File Number
December 31, 1996                                                        1-11856


                               TIG HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

Delaware                                                              94-3172455
(State of Incorporation)                       (IRS Employer Identification No.)


            65 East 55th Street, 28th Floor, New York, New York 10022
               (Address of principal executive offices) (zip code)

                             Telephone: 212-446-2700
--------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:

   Common Stock, $0.01 Par Value            Registered - New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None
--------------------------------------------------------------------------------
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 twelve (12) months 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.  X
           ---
 
The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant as of March 3, 1997, was $1,890,504,283.

The number of shares  outstanding  of the  issuer's  common stock as of March 3,
1997:

         Common Stock, $0.01 Par Value; 53,822,186 shares outstanding, excluding
11,273,100 Treasury Shares.

Documents Incorporated by Reference:

Portions of the definitive proxy statement for the annual meeting  scheduled for
May 1, 1997, are incorporated by reference into Part III.

                          Exhibit Index is on page 70.

<PAGE>
                                     INDEX
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PART I                                                                      Page

Item 1.    Description of Business ............................................1
      1.1  General ............................................................1
      1.2  Reinsurance ........................................................2
      1.3  Commercial Specialty ...............................................5
      1.4  Retail .............................................................7
      1.5  Other Lines ........................................................8
      1.6  Reserves ...........................................................9
      1.7  Regulation ........................................................13

Item 2.    Business Properties ...............................................15

Item 3.    Legal Proceedings .................................................15

Item 4.    Submission of Matters to a Vote of Security Holders                15


PART II

Item 5.    Market for Registrant's Common Equity and Related Shareholder 
           Matters ...........................................................16

Item 6.    Selected Financial Data ...........................................17

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations .........................................18

      7.1  Consolidated Results ..............................................18
      7.2  Reinsurance .......................................................21
      7.3  Commercial Specialty ..............................................22
      7.4  Retail ............................................................24
      7.5  Other Lines .......................................................25
      7.6  Exposure Management ...............................................26
      7.7  Investments .......................................................28
      7.8  Liquidity and Capital Resources ...................................30
      7.9  Financial Condition ...............................................32
      7.10 Forward-Looking Statements ........................................33
      7.11 Glossary ..........................................................34

Item 8.    Financial Statements and Supplementary Data .......................37

Item 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure ...............................62


PART III

Item 10.   Directors and Executive Officers of the Registrant ................63

Item 11.   Executive Compensation ............................................63

Item 12.   Security Ownership of Certain Beneficial Owners and Management ....63

Item 13.   Certain Relationships and Related Transactions ....................63


PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..64

<PAGE>
                                     PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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1.1 GENERAL
================================================================================

TIG Holdings,  Inc.  ("TIG  Holdings")  is primarily  engaged in the business of
property/casualty  insurance and reinsurance  through its 15 domestic  insurance
subsidiaries  (collectively  "TIG"  or "the  Company"),  one or more of which is
licensed to write substantially all lines of property/casualty  insurance in all
states of the United  States.  Reinsurance  products  are  offered  through  TIG
Reinsurance Company ("TIG Re") which is based in Stamford,  Connecticut, and has
a London branch office. Primary property/casualty insurance products are offered
through TIG  Insurance  Company  ("TIG  Insurance")  and the  remaining  general
insurance  subsidiaries.  Primary  products are marketed  through two divisions,
Commercial  Specialty  and Retail,  which are based in Irving,  Texas and Battle
Creek, Michigan, respectively.

As of  December  31,  1996,  TIG  had  approximately  1,300  salaried  employees
providing sales, underwriting,  claims and service support in 46 active offices.
Of direct premium  written by TIG in 1996, 26% was written in California,  8% in
Michigan, 6% in New York, and 7% each in Hawaii and Texas. No other geographical
area, including foreign operations, accounted for more than 5% of direct premium
written.  Premium  produced  through Aon  Corporation and its  subsidiaries,  an
unaffiliated  company  that  owns  among  other  businesses  numerous  insurance
agencies,  accounted for 23%, 22% and 21% of consolidated net premium written in
1996,  1995 and 1994,  respectively.  In early 1997,  Aon  Corporation  acquired
another of the Company's significant producers.  If this acquisition had been in
effect  for all of  1996,  Aon  Corporation  and  its  subsidiaries  would  have
accounted for 33% of 1996 net premium written.

The following table sets forth  consolidated net premium written,  classified by
statutory line of business:

                                    Years Ended December 31,
                                   -------------------------
(In millions)                        1996    1995     1994
============================================================
Reinsurance operations
   net premium written               $548    $511     $440
------------------------------------------------------------
Workers' compensation                 260     285      342
Automobile liability                  244     260      242
Automobile physical damage            133     136      136
General liability                     110     144      122
Homeowners                             80      81      113
Commercial multiple peril              59      81      103
Ocean and inland marine                24      25       24
Fire and allied lines                  14      28       55
Other                                  57      59       44
------------------------------------------------------------
Primary operations
   net premium written                981   1,099    1,181
------------------------------------------------------------
   Total TIG net premium written   $1,529  $1,610   $1,621
============================================================

Financial  information  about TIG's business  segments is set forth in Note O of
the Consolidated Financial Statements at Item 8 of this Form 10-K. A description
of TIG's three operating divisions, Reinsurance, Commercial Specialty and Retail
follows at Items 1.2,  1.3, and 1.4,  respectively.  Lines of business that have
been  de-emphasized  are  discussed  at Item 1.5.  Statements  contained  in the
Description  of Business and  elsewhere  in the  document  that are not based on
historical   information  are  forward-looking   statements  and  are  based  on
managements  projections,  estimates and  assumptions.  Management would like to
caution  readers  regarding  its  forward-looking  statements  (see  Item 7.10 -
Forward-Looking  Statements).  Key industry terms that appear in the Description
of Business and elsewhere in this document are defined at Item 7.11.

                                     - 1 -
<PAGE>

                                     PART I
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1.2 REINSURANCE
================================================================================

NATURE OF  BUSINESS.  Reinsurance  is a form of  insurance  whereby an insurance
company (the  "reinsurer")  agrees to indemnify  another  insurance company (the
"ceding  company") for all or a portion of the insurance  risks  underwritten by
the ceding  company  under an  insurance  policy or  policies.  Reinsurance  can
benefit a ceding company in a number of ways,  including  reducing net liability
on individual  risks,  providing  catastrophe  protection from large or multiple
losses,  stabilizing results and assisting in maintaining  acceptable  operating
leverage  ratios.  Reinsurance  also provides a ceding  company with  additional
underwriting  capacity by permitting it to accept larger risks and  underwrite a
greater  number of risks  without a  corresponding  increase  in its capital and
surplus.

There  are two basic  types of  reinsurance  agreements:  treaty  contracts  and
facultative  certificates.  A treaty is an  agreement  under  which  the  ceding
company is required to cede and the  reinsurer is required to assume a specified
portion or category of risks under all qualifying  policies issued by the ceding
company  during  the  term  of  the  treaty  contract.  Facultative  reinsurance
arrangements are separately negotiated for each insurance policy to be reinsured
and result in a facultative  certificate  under which the ceding  company cedes,
and the reinsurer  assumes,  all or part of the risk under a specific  insurance
policy.

Reinsurance  can be written on either a pro rata or excess of loss basis.  Under
pro rata reinsurance,  the reinsurer receives a predetermined  percentage of the
insurance  premium  charged by the ceding  company  and  indemnifies  the ceding
company  against a  predetermined  percentage of the losses and loss  adjustment
expenses ("LAE") incurred by the ceding company under the covered primary policy
or policies.  Under excess of loss reinsurance,  the reinsurer,  in return for a
negotiated  premium,  indemnifies  the ceding company against all or a specified
portion  of  losses  and LAE on  underlying  insurance  policies  in excess of a
specified dollar amount, known as the ceding company's  retention,  subject to a
negotiated policy limit.  Excess of loss reinsurance is often written in layers,
with one or a group of reinsurers assuming the risk for each layer. The layer or
layers just above the ceding company's retention are termed "working layers".

PRODUCTS.  The following table shows TIG Re's net premium written by statutory 
line of business:


                               Years Ended December 31,
                              --------------------------
(In millions)                   1996    1995     1994
=======================================================
Property                        $116     $96      $58
Errors and omissions              88     118       81
General liability                 88      94       99
Medical malpractice               85      72       75
Automobile liability              80      44       43
Workers' compensation             33      15        7
Umbrella                          32      37       41
Directors and officers            26      35       36
-------------------------------------------------------
   Total net premium written    $548    $511     $440
-------------------------------------------------------
   Percentage of consolidated
   net premium written            36%     32%      27%
=======================================================

Approximately 52%, 63% and 55% of TIG Re's net premium written in 1996, 1995 and
1994,  respectively,  was written on an excess of loss basis.  TIG Re's  primary
strategy is to focus on excess of loss casualty  coverages,  written on a treaty
basis,  generally  taking large  participations  in working  layers of a limited
number of programs. By assuming a significant  participation in each treaty, TIG
Re exercises  significant  control over the terms and  structure of each treaty.
Management  believes  that its  emphasis on writing  excess of loss  treaties in
lines of business for which it has specific  expertise improves its underwriting
results by allowing it to price reinsurance based on its own underwriting rather
than on the premium  charged by the primary  insurer.  TIG Re generally seeks to
write treaties with working or low layers of  attachment,  where losses are more
quantifiable and which typically carry higher premium.

Approximately  48%, 37%, and 45% of TIG Re's net premium  written in 1996,  1995
and 1994,  respectively,  was written on a pro rata basis.  TIG Re provides  

                                     - 2 -
<PAGE>

                                     PART I
--------------------------------------------------------------------------------

pro rata  coverages  when the ceding  company's  underwriting  capabilities  are
considered  superior and where the relationship with the ceding company provides
an opportunity for long-term  profitability.  Pro-rata  coverage is preferred in
certain  segments  of the  reinsurance  market  where low limits are sold by the
ceding company. Non-standard auto is the prime example of this type of business.
Certain other highly  volatile  lines such as directors  and officers  liability
also merit a pro-rata  position  as the losses are  infrequent  but  potentially
large.  The reinsurer would thus want to capture a pro-rata share of the premium
to cover this volatile exposure.

DISTRIBUTION  SYSTEM.  TIG  Re's  predominant  source  of  business  is  through
reinsurance  intermediaries.  TIG Re writes through over 60 brokers, the largest
of which  accounted for  approximately  26%, 30% and 29% of TIG Re's net premium
written in 1996, 1995 and 1994, respectively. The five largest brokers accounted
for 71%, 83% and 87% of TIG Re's net premium  written  during the same  periods.
There  was no  change  in the top four  brokers  in 1996  from  1995 or 1994.  A
subsidiary of Aon Corporation  accounted for 19% of net premium written in 1996.
In early  1997,  Aon  Corporation  acquired  TIG Re's  largest  broker.  If this
acquisition had been in effect for all of 1996,  subsidiaries of Aon Corporation
would have accounted for 45% of 1996 net premium written.

TIG Re has  approximately  330 insurance  company  "clients".  TIG Re's top five
insurance  company clients  represent 36% of TIG Re's 1996 net premium  written,
exclusive  of  business  assumed  from  TIG  Insurance's   Commercial  Specialty
division. TIG Re maintains an audit staff responsible for performing reinsurance
reviews  at  the  clients'  office.  The  auditors  primarily  test  for  treaty
compliance, including the accuracy and timeliness of premium and loss cessions.

Approximately $50 million of TIG Re's net premium written in each of 1996, 1995,
and 1994 was assumed from the Commercial Specialty division of TIG Insurance. Of
premium  assumed  from TIG  Insurance,  $18 million and $8 million was  "reverse
flow" business in 1996 and 1995 respectively. There was no reverse flow business
written in 1994. Reverse flow is an alternative  distribution  mechanism whereby
general agents submit program  business to TIG Re. TIG Re then works with select
reinsurance  intermediaries  to provide a primary insurer to the transaction who
will issue the primary policy and then cede a significant portion of the risk to
TIG Re. Use of this alternative distribution mechanism allows TIG Re to increase
its  reinsurance  opportunities  and to  develop  or expand  relationships  with
insurance clients (including TIG Insurance) as they expand into new products and
territories.

In January 1994, TIG Re established  an office in London,  England.  On December
29,  1995,  the  United  Kingdom  ("U.  K.")  Department  of Trade and  Industry
authorized  the London office to operate as a branch and  underwrite  stipulated
classes of general  insurance  business in the U. K. Net premium produced by the
London office was $29 million for 1996 as compared to $23 million and $8 million
for 1995 and 1994, respectively. Approximately 74% of the 1996 London office net
premium written pertained to international risks.

In October  1996,  TIG Re  established  a new  operating  unit  dedicated to the
marketing and underwriting of direct facultative reinsurance on an automatic and
individual risk basis. This initiative is designed to diversify TIG Re's premium
base while allowing it access to a new market segment  management  believes will
be characterized by higher underwriting margins and long-term profitability.  As
of December 31, 1996,  the unit had opened nine branch  offices  throughout  the
United States, with headquarters in New York.

During 1996, TIG Re established a fully  integrated  Lloyd's vehicle through the
formation and  capitalization of a wholly owned managing agent that will manage,
and a wholly owned corporate name that will provide sole support for,  syndicate
1218.  This was the  first  fully  integrated  corporate  vehicle  to have  been
approved in the history of Lloyd's of London.  The  formation  of the  syndicate
will allow TIG Re to write insurance and reinsurance  world-wide.  The syndicate
has a stamp  capacity  of  (pound)20  million  for the 1997  account  to  access
international  non-marine casualty and property business.  Also, during December
1996, TIG Re was approved as a licensed reinsurer in Canada.

                                     - 3 -
<PAGE>

                                     PART I
--------------------------------------------------------------------------------

COMPETITION.  Reinsurance  prices and conditions are not normally subject to the
same  state  regulation  applicable  to the  primary  insurance  market  because
reinsurers  contract solely with other insurance  companies.  Reinsurers compete
based on many factors,  including the financial  strength of the reinsurer,  the
A.M. Best ("Best")  rating of the reinsurer,  premium  charged,  other terms and
conditions of the reinsurance  offered,  services offered,  timeliness of claims
payments,  ongoing business relationships,  reputation and experience.  Based on
net premium written, TIG Re is the ninth largest property/casualty  reinsurer in
the  United  States as of  September  30,  1996,  according  to the  Reinsurance
Association of America.  TIG Re has a stand-alone  rating of "A"  (Excellent) by
Best for financial size IX which corresponds to policyholder surplus levels from
$250  million  to $500  million.  The  ratings  assigned  by Best are based upon
factors of concern to policyholders, agents and intermediaries.

TIG  Re  competes  with  independent  reinsurance  companies,   subsidiaries  or
affiliates of established domestic or worldwide insurance companies, reinsurance
departments of certain primary insurance companies, and underwriting syndicates.
TIG Re,  as a broker  market  reinsurer,  competes  with the four  major  direct
marketers of  reinsurance.  TIG Re also competes with a number of reinsurers who
write  reinsurance  through  brokers,   although  in  most  instances,   TIG  Re
participates on treaties with one or more of these companies as a co-reinsurer.

                                     - 4 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
1.3  COMMERCIAL SPECIALTY
================================================================================

NATURE OF  BUSINESS.  Commercial  insurance  policies  are  generally  issued to
business and governmental entities,  organizations,  associations and individual
professionals.  Commercial  coverages provide  protection against property loss,
legal  liability  for  injuries  to other  persons  or damage to their  property
arising  from the  policyholder's  business  operations.  Workers'  compensation
products   provide   benefits  to  employees  as  mandated  by  state  laws  for
employement-related  accidents,  injuries or illnesses.  The principal  benefits
provided by workers'  compensation  policies are medical and indemnity.  Medical
benefits cover physician,  hospitalization and rehabilitation  expenses incurred
as a result of the work-related  injury while indemnity benefits  compensate the
employee for lost wages.

PRODUCTS. The table below shows Commercial Specialty net premium written by 
statutory line of business:

                             Years Ended December 31,
                            --------------------------
(In millions)                  1996     1995    1994
======================================================
Workers' compensation          $203     $228    $288
Other liability                 119      115      96
Automobile liability             31       18      23
Commercial multiple peril        30       22      14
Other accident and health        25       33      19
Automobile physical damage       20       14      21
Other                            32        7       1
------------------------------------------------------
   Total net premium written   $460     $437    $462
------------------------------------------------------
   Percentage of consolidated
   net premium written           30%      27%     29%
======================================================

Commercial  Specialty  offers  products that are  distinctive  due to the unique
nature of risks covered or due to the discrete  composition  of insured  groups.
Significant  business units include Sports and Leisure,  Workers'  Compensation,
Primary  Casualty  and  Excess  Casualty.  The Sports and  Leisure  unit  offers
coverages  for  professional  and amateur  sports events and  represents  36% of
Commercial  Specialty  1996 net  premium  written.  This unit  offers  spectator
liability and participant  legal  liability  coverages,  including  property and
liability  packages  for a variety of  activities  such as  motorsports,  fairs,
festivals, ice skating rinks, stadiums,  arenas, gaming facilities,  ski resorts
and bowling  facilities.  The maximum retention on any one policy or event is $2
million.  During 1995,  the unit expanded  product  offerings  into the Canadian
market.

The Workers' Compensation business unit produced approximately 42% of Commercial
Specialty  net  premium  written  in  1996.   Among  the  products  offered  are
non-participating  plans, sliding scale and group participating plans,  deferral
plans and small  deductible  plans.  During 1995, TIG began  targeting  workers'
compensation premium growth in smaller businesses using a template  underwriting
approach.  Approximately  65%  and 54% of  workers'  compensation  business  was
underwritten  using the template approach in 1996 and 1995  respectively.  TIG's
business plan also includes development of strategic alliances with providers of
health care  coverages to offer a managed care  product.  The maximum  retention
under a workers' compensation policy is $1 million.

TIG is targeting workers' compensation premium growth in approximately 10 states
where  management  believes that reasonable  reform has occurred and a favorable
long-term  operating  environment  exists. Net premium written in California has
declined from $72 million in 1994 to $21 million in 1996. Repeal of California's
minimum  rate laws  effective  January 1, 1995  intensified  competitive  market
conditions in that state. Due to the changing environment, Workers' Compensation
premium  growth plans for the State of California  will continue to be cautious.
Net premium  written by state for the  Workers'  Compensation  business  unit of
Commercial Specialty (excluding incidental workers' compensation premium written
by other units) is shown in the table below:

                              Years Ended December 31,
                             --------------------------
(In millions)                   1996    1995     1994
======================================================
Illinois                         $62     $68      $66
California                        21      48       72
Colorado                          13      15       21
Wisconsin                         13      13       14
Hawaii                            11       6        6
All Other                         71      66      105
------------------------------------------------------
   Total net premium written    $191    $216     $284
======================================================

                                     - 5 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------

The Primary  Casualty unit focuses on commercial auto,  professional  liability,
construction  and marine programs.  These programs  generally offer a customized
package of  coverages  designed for a specific  "niche"  market and are produced
through a limited number of managing  general  agents.  The Excess Casualty unit
principally  offers lead umbrella and excess  umbrella  policies.  Lead umbrella
policies provide liability protection for manufacturing,  financial, and service
business  above the limits of the primary  coverage.  Excess  umbrella  policies
provide  similar  coverage above the lead excess limits.  The maximum  retention
under a Primary Casualty and/or an Excess Casualty policy is $1 million.

DISTRIBUTION  SYSTEM.  Commercial  Specialty  programs  are  generally  marketed
through  selected  managing  general  agents  ("MGAs") which have a demonstrated
knowledge  of  the  particular  specialty  class,  the  coverages  offered,  the
competition,  and the pricing.  Management's  objective is to develop  strategic
long-term  relationships  with profitable  managing general agents by developing
tailored  programs for these key  producers and  providing  responsive  service.
Management  believes  that  these  strategic  relationships  will  enable TIG to
maintain a variable cost structure  while  developing  specialized  underwriting
expertise.  TIG sometimes has exclusive  contracts with managing general agents.
Sports and Leisure  business is produced  under an exclusive  contract  with K&K
Insurance  Agency,  Inc., a wholly-owned  subsidiary of Aon  Corporation.  TIG's
strategic  relationship  with Aon Corporation,  which includes lines of business
other than Sports and  Leisure,  accounted  for  approximately  54% of Specialty
Commercial operations' 1996 net premium written, compared to 51% in 1995 and 43%
in 1994.

Workers'  compensation  and excess  casualty  policies are marketed  principally
through 10 hub  locations  throughout  the United  States  which work with large
regional  independent agents and brokers.  In addition,  regional offices in San
Francisco, Chicago, New York City and Dallas assist with sales, underwriting and
administrative  functions  for  specialty  program  business.  Additional  sales
positions  in  strategic  locations  nationwide  develop  accounts  in  targeted
segments.

In December  1996,  TIG  Insurance  purchased  a majority  interest in a Lloyd's
agency which manages three  syndicates  with an estimated 1997 stamp capacity of
(pound)180 million. In addition, TIG Insurance established a corporate name with
an approximate  20% share of the managed  syndicates  1997 stamp  capacity.  The
syndicates are expected to principally write marine, U.K. property, and aviation
business.

COMPETITION.  The commercial insurance market is highly competitive on the bases
of  price,   service  and   ratings.   TIG   competes   with  other   multi-line
property/casualty companies,  specialty workers' compensation carriers and other
underwriting  organizations,  some of which are  substantially  larger  and have
greater  financial  resources than TIG. The Company also faces  competition from
foreign insurance companies,  captive insurance  companies,  as well as from the
use of self  insurance.  With  respect to  workers'  compensation,  management's
strategy  has  been to  distinguish  TIG  from its  competitors  in four  areas:
dedicated workers' compensation  underwriting,  state and substate segmentation,
dedicated  and  local   market-focused   claims  expertise  and  intensive  loss
management.  Recent  legislative  reforms  in  most  states  have  restored  the
price/cost balance in the workers' compensation system. These reforms, affecting
benefits,  fraud and managed care policies,  significantly increased competition
in the workers' compensation market,  especially in California,  during 1995 and
1996.

                                     - 6 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
1.4 RETAIL
================================================================================

NATURE OF BUSINESS. Retail products provide property and liability coverages for
individuals and small businesses.  Automobile  policies cover liability to third
parties for bodily injury and property damage,  and cover physical damage to the
insured's own vehicle  resulting from collision or various other causes of loss.
Homeowners/commercial    property    policies    protect    against    loss   of
dwellings/buildings  and contents  arising from a variety of perils,  as well as
liability arising from ownership or occupancy.

PRODUCTS.  The following table shows Retail net premium written by statutory 
line of business.

                             Years Ended December 31,
                            --------------------------
(In millions)                  1996     1995     1994
======================================================
Automobile liability           $130     $116      $98
Homeowners                      107      133       81
Automobile physical damage       95       84       73
All other                        38       25       62
------------------------------------------------------
   Total net premium written   $370     $358     $314
------------------------------------------------------
   Percentage of consolidated
   net premium written           24%      22%      19%
======================================================


Retail  provides  single-risk  property  and  automobile  coverages  to targeted
markets, including products such as standard and upscale property, preferred and
standard automobile,  non-standard automobile,  and small business owners. Other
premium written is comprised primarily of small commercial  coverages and surety
bonds.  Approximately  22% of TIG's 1996  automobile  policies  written were for
non-standard  risks, most of which carry  comprehensive  and collision  coverage
only. Non-standard auto policies are purchased by insureds who do not have clean
motor  vehicle  records,  who are  considered  high risk due to  certain  driver
characteristics or who drive non-standard performance cars. Premium per exposure
amount is generally higher for non-standard auto policies due to the higher risk
involved.

Of the preferred and standard  automobile  policies  written,  substantially all
have liability  coverage and approximately 70% have  comprehensive and collision
coverage.  Standard  homeowners' premium accounts for approximately 77%, 80% and
82% of total 1996, 1995 and 1994 property  premium,  while the emerging  upscale
programs account for the remainder. Almost all of the upscale policies have home
value  limits  of $300  thousand  or  higher.  Retail  targets  risks  that lend
themselves to template underwriting.  For automobile policies,  "template" risks
would include  insureds with clean motor vehicle records or which drive standard
performance  cars. For property  policies,  template risks are those that have a
three  year  loss-free  record.  Template  underwriting  is used for  risks  not
exceeding $500 thousand for automobile  liability,  $250 thousand for automobile
physical   damage  and  $500   thousand   for   combined   aggregate   risks  on
homeowners/commercial  property  policies.  Maximum  policy  limits  for  Retail
products are $1 million for automobile  liability,  $250 thousand for automobile
physical  damage,  and  $3  million  for  homeowners/commercial  property  as of
December 31, 1996.

DISTRIBUTION  SYSTEM.  Retail  products  are  distributed   principally  through
independent  agents and a limited number of MGAs. The distribution of Retail net
premium written by state is displayed in the following chart:

                                Years Ended December 31,
                               --------------------------
(Dollars in millions)           1996    1995     1994
=========================================================
California                      $140    $144     $129
Michigan                          87      74       67
Hawaii                            41      36       29
New York                          31      31       24
Other                             71      73       65
---------------------------------------------------------
   Total                        $370    $358     $314
=========================================================

During 1996,  refinement of TIG's  distribution  system  continued,  focusing on
profitable independent agents who have made a commitment to TIG. One of Retail's
key  customer  service and expense  savings  initiatives  has been to  establish
electronic  systems interfaces with its agents. The percentage of electronically
interfaced agencies was 93%, 75% and 51% as of December 31, 1996, 1995 and 1994,
respectively.

The  percentage of retail net premium  written that was generated by independent
agents was 83.7%, 87.0%, and 96.2% for 1996, 1995 and 1994, 

                                     - 7 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
respectively, while MGAs, which principally produce non-standard auto, accounted
for the remainder.  The average  premium written for Retail  independent  agents
increased to $461  thousand in 1996,  compared to $398 thousand in 1995 and $329
thousand in 1994. Approximately 57% of the total 627 agents in 1996 were located
in California  and Michigan  compared to 62% of the total 652 agents in 1995 and
64% of the total 752 agents in 1994. The average tenure with TIG for independent
agents was more than 10 years as of December 31, 1996. The number of active MGAs
has  declined  from  approximately  25 at December 31, 1994 to 5 at December 31,
1996.  No single  production  source  accounted  for more than 5% of Retail  net
premium written in 1996. Consistent with TIG's overall marketing plan, Retail is
focusing on expanding  its  distribution  channels  through the  development  of
strategic  relationships with MGAs and other key distribution partners.  Premium
produced through these initiatives was insignificant in 1996.

COMPETITION.  The retail insurance market is highly cyclical and has experienced
lower  underwriting  profitability and excess  underwriting  capacity during the
past several years.  TIG's Retail  operations  compete  against direct  writers,
national  (upscale)  companies  and  regional  companies,   some  of  which  are
substantially larger and have greater financial resources than TIG.

--------------------------------------------------------------------------------
1.5 OTHER LINES
================================================================================

NATURE OF BUSINESS.  Other Lines principally  includes commercial products which
have been placed in run-off due to failure to meet profitability standards along
with  inter-divisional  reinsurance activity in 1995.  Approximately 41% of 1994
premium  written  was placed in run-off  in June 1995 with the  remainder  being
place in run-off in March 1996. Most premium  written in run-off  programs after
the "exit date" represents contractually required renewals.

PRODUCTS.  The following table shows net premium written by statutory line of 
business:

                              Years Ended December 31,
                             --------------------------
(In millions)                   1996    1995     1994
=======================================================
Automobile liability             $61    $103     $106
Automobile physical damage        16      28       52
Commercial multiple peril         11      65       95
Fire and allied lines              5      15       44
Other                             58      93      108
-------------------------------------------------------
   Net premium written          $151    $304     $405
-------------------------------------------------------
   Percentage of consolidated
   net premium written            10%     19%      25%
=======================================================

In May 1995, TIG sold an MGA subsidiary,  which marketed  collateral  protection
insurance to more than 200 financial  institutions,  to a third party.  This MGA
may produce business for TIG through March 1999,  however,  the majority of this
book is  expected  to be placed  with other  insurance  carriers  in 1997.  This
business  was  reinsured  90% by a third party in April 1995.  As a result,  net
premium  written  declined to $6.5 million in 1996 and $(4) million in 1995 from
$79 million in 1994.

In June 1995, TIG announced plans to discontinue small individually underwritten
commercial  policies.  As a result,  net  premium  written  from these  policies
declined to $4.4  million in 1996 from $95 million and $154  million in 1995 and
1994,  respectively.  As a result of this action, TIG consolidated field offices
and outsourced approximately 155 claims positions.  Additionally,  approximately
180 underwriting and other positions were eliminated.

In February 1996, TIG announced the reorganization of its commercial  operations
and plans to exit certain  lines of business  that failed to meet  profitability
standards (see Item 7.1 - Consolidated  Results).  Net premium written for 1996,
1995 and 1994 from lines of  business  placed in run-off as a result of the 1996
restructure  was $140  million,  $190 million,  and $166 million,  respectively.
Management  estimates that the last renewals for remaining  policies in-force at
December  31, 1996 will be  processed  by late 1997 and that related net written
premium will decline by over 75% in 1997 as compared to 1996.

                                     - 8 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
1.6 RESERVES
================================================================================

GENERAL.  The  reserve  liabilities  for   property/casualty   losses  and  loss
adjustment  expenses ("LAE") represent estimates of the ultimate net cost of all
unpaid losses and LAE incurred  through  December 31 of each year.  The reserves
are  determined  using  estimates of losses for  individual  claims ("case basis
reserves") and statistical projections of reserves for incurred but not reported
("IBNR") claims, allocated LAE and unallocated LAE.

Case basis reserves:  The claims  department of TIG Insurance  establishes  case
basis  reserves for all primary  lines  policies and is managed  centrally  from
TIG's  offices  in  Irving,  Texas.  As of  December  31,  1996 TIG  Insurance's
dedicated  claims staff  totaled  approximately  580 of which 173 are located in
Battle Creek,  Michigan,  280 are located in 22 offices across the United States
and  the  remainder  in  Irving,  Texas.  Case  basis  reserves  for  TIG Re are
established  based on bordereaux  and individual  case  estimates  received from
ceding  companies  and  additional   estimates   provided  by  TIG  Re's  claims
department, consisting of 12 employees located in Stamford, Connecticut.

The adequacy of case basis reserves is evaluated by TIG's  actuarial  department
which  concentrates on those lines of business (third party liability  coverages
and workers'  compensation)  for which claims settle over a long period of time.
The loss projection procedures used in this analysis contain explicit provisions
for quantifying the effect of inflation on loss payments  expected to be made in
the  future.  In those  instances  where  case  reserves  are  determined  to be
deficient,  a bulk supplemental  reserve is added to the total reserve. TIG uses
accident year  methodology to calculate IBNR reserves that provide for both case
reserve deficiency and late reported claims emergence.

IBNR reserves:  The IBNR reserve is based on the historical  relationship of the
emergence  of  late  reported  claims  to  earned  premium.   The  IBNR  reserve
calculation contains an adjustment of the earned premium data base to compensate
for changes in relative rate adequacy.  The adjustment  includes  components for
changes in claim cost resulting  from trends in claims'  frequency and severity.
The effect of  inflation  on IBNR  estimates  is thereby  incorporated  into the
calculations.

Loss adjustment  expense  reserves:  Loss  adjustment  expenses are comprised of
allocated  and  unallocated  expenses.  Allocated  LAE  reserves  are  based  on
long-term historical  relationships of paid loss adjustment expenses to ultimate
incurred  losses.  By using  incurred  losses as a base,  inflation  assumptions
applicable  to loss  reserves  apply  equally  to  allocated  expense  reserves.
Unallocated  LAE  reserves  are  based  on  historical   relationships  of  paid
unallocated  expenses to paid  losses.  As with  allocated  LAE,  the  inflation
assumption  applicable  to loss  reserves  are  presumed  to  apply  equally  to
unallocated expense reserves.

Inherent  Uncertainties:  The process of estimating reserves involves the active
participation   of  an   experienced   actuarial   staff  with  input  from  the
underwriting, claims, reinsurance, financial and legal departments.  Management,
using  the  advice  of loss  reserve  specialists,  makes a  judgment  as to the
appropriate  amount to record in the  financial  statements.  This  process is a
continuous one, involving regular updates for new information and adjustments of
loss reserves based on the  application of  management's  best evaluation of the
revised data. Such adjustments are reflected in current operations.

When significant changes occur, the inherent  uncertainty in estimating reserves
is increased.  The ultimate impact of these changes may not be known for several
years.  Examples of such changes  include (1) changes in production  sources for
existing lines of business;  (2) writings of significant blocks of new business;
(3) non-renewal or cancellation of significant blocks of existing business;  (4)
changes in economic  conditions;  and (5)  changes in state or federal  laws and
regulations,   particularly  insurance  reform  measures.  TIG  has  experienced
significant changes in each of these areas during the past several years.

The inherent  uncertainties  in estimating  reserves are greater with respect to
reinsurance  than for primary  insurance due to the diversity of the development
patterns among different types of reinsurance 

                                     - 9 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
contracts,  the necessary reliance on ceding companies for information regarding
reported claims and differing reserving  practices among ceding companies.  This
uncertainty  is  compounded  in the  case  of TIG  Re by  its  relatively  short
operating  history  (TIG Re was formed in 1987) and rapid  growth in net premium
written.  Internal data must be  supplemented  with industry data to provide the
basis for reserve analysis.  Applying industry data to TIG Re's business adds an
additional element of uncertainty to the reserving process.

While there can be no assurance that the reserves at any given date are adequate
to meet TIG's  obligations,  the  amounts  reported in TIG's  balance  sheet are
management's best estimate of that amount.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT  EXPENSE  DEVELOPMENT.  The following table
shows the cumulative  amount paid against the previously  recorded  liability at
the end of each succeeding year and the cumulative  development of the estimated
liability for the ten years ended December 31, 1996:

<TABLE>
<CAPTION>

                                                                   December 31,
                                 -----------------------------------------------------------------------------------------
(In millions)                     1986      1987    1988    1989    1990    1991    1992    1993    1994    1995    1996
Net estimated ultimate
<S>                               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>   
   liability for losses and LAE   $969    $1,291  $1,501  $1,668  $1,916  $2,085  $2,437  $2,738  $2,721  $2,752  $2,634
--------------------------------------------------------------------------------------------------------------------------
Cumulative paid as of:
     One year later                430       520     580     646     719     794     787     796     778     882
     Two years later               694       837     925   1,035   1,210   1,286   1,316   1,304   1,368
     Three years later             875     1,045   1,160   1,338   1,508   1,641   1,650   1,681
     Four years later              989     1,171   1,328   1,493   1,727   1,848   1,895
     Five years later            1,041     1,261   1,405   1,627   1,856   2,010 
     Six years later             1,084     1,304   1,484   1,698   1,952
     Seven years later           1,110     1,359   1,521   1,748
     Eight years later           1,138     1,383   1,553
     Nine years later            1,154     1,402
     Ten years later             1,165

Net liability re-estimated as of:
     One year later              1,092     1,341   1,525   1,712   1,946   2,343   2,582   2,663   2,697   2,768
     Two years later             1,083     1,368   1,538   1,752   2,129   2,459   2,598   2,638   2,700
     Three years later           1,123     1,367   1,549   1,850   2,209   2,512   2,559   2,608
     Four years later            1,123     1,362   1,637   1,871   2,263   2,465   2,525
     Five years later            1,128     1,440   1,646   1,929   2,228   2,436
     Six years later             1,187     1,443   1,674   1,915   2,212
     Seven years later           1,201     1,474   1,660   1,904
     Eight years later           1,220     1,468   1,660
     Nine years later            1,214     1,471
     Ten years later             1,209
--------------------------------------------------------------------------------------------------------------------------
Net cumulative redundancy
(deficiency)                     $(240)    $(180)   $(159)  $(236)  $(296)  $(351)  $(88)    $130     $21    $(16)
--------------------------------------------------------------------------------------------------------------------------

Gross Liability - End of Year                                                    $3,405   $3,845  $3,873  $3,886  $3,760
Reinsurance Recoverable                                                            (968)  (1,107) (1,152) (1,134) (1,126)
                                                                                 -------  ------- ------- ------- -------
Net Liability - End of Year                                                      $2,437   $2,738  $2,721  $2,752  $2,634
                                                                                 -------  ------- ------- ------- -------

Gross Re-estimated Liability                                                     $3,468   $3,604  $3,791  $3,956
Re-estimated Recoverable                                                           (943)    (996) (1,091) (1,188)
                                                                                 -------  ------- ------- ------- 
Net Re-estimated Liability                                                       $2,525   $2,608  $2,700  $2,768
                                                                                 -------  ------- ------- ------- 

Gross Cumulative Redundancy
(Deficiency)                                                                       $(63)    $241     $82    $(70)
==========================================================================================================================
</TABLE>

                                     - 10 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------

Conditions  and trends that have affected the  development of these reserves and
payments in the past will not necessarily recur in the future.  Accordingly,  it
would not be  appropriate  to use this  cumulative  history  to  project  future
performance.  The re-estimated  liability  portion of the preceeding table shows
the year by year development of the previously estimated liability at the end of
each succeeding year.

The variability in reserve estimates was affected in 1988 and subsequent periods
as a result of TIG's 1987 acquisition of Fairmont  Insurance Company, a workers'
compensation  insurer.  The  acquisition  resulted  in TIG's  existing  workers'
compensation  operation  being  merged  into  the  Fairmont  operation  and  new
operating  procedures and automation  support being developed to integrate these
two dissimilar  operations.  In 1994, TIG  restructured  its  reinsurance  ceded
program (See Item 7.6 - Exposure  Management)  which  changed the pattern of net
reserve development for some business units. For the Sports and Leisure business
unit,  excess of loss  covers  will attach at higher  amounts,  lengthening  the
development tail.

The   re-estimated   liabilities   are  increased  or  decreased  as  additional
information  becomes  known  about the  frequency  and  severity  of claims  for
individual years. The increases or decreases are reflected in the current year's
operating earnings. Each column shows the reserve held at the indicated calendar
year end and cumulative  data on  re-estimated  liabilities for the year and all
prior years making up that calendar year end liability.  The effect on income of
the change during the current period (i.e., the difference between the estimated
liability at December 31 and the liability re-estimated one year later) is shown
in the  following  table for each of the three most  recent  years as  "Increase
(decrease) in estimated ultimate losses and LAE for prior years' claims".

Rollforward  of Net  Liability  for  LOSS  and  LOSS  ADJUSTMENT  EXPENSES.  The
following  table  provides a  reconciliation  of beginning and ending  liability
balances, net of reinsurance recoverable, for the years indicated:


                                                   Years Ended December 31,
                                                  --------------------------
(In millions)                                        1996     1995    1994
============================================================================
Liability for losses and LAE
   at beginning of year, net of
   reinsurance recoverable                         $2,752   $2,721  $2,738
----------------------------------------------------------------------------
Provision for losses and LAE
   for current year claims                          1,122    1,200   1,240
Increase (decrease) in estimated
   ultimate losses and LAE for
   prior years' claims                                 16      (24)    (75)
----------------------------------------------------------------------------
        Total losses and LAE incurred               1,138    1,176   1,165
----------------------------------------------------------------------------
Loss and LAE payments for claims attributable to:
   Current year                                       374      367     386
   Prior years                                        882      778     796
        Total losses and LAE payments               1,256    1,145   1,182
Liability for losses and LAE
   at end of year, net of
   reinsurance recoverable                         $2,634   $2,752  $2,721
============================================================================
Liability for losses and LAE at
   end of year (statutory basis) (a)               $2,649   $2,767  $2,730
============================================================================

(a) Difference from GAAP basis due to inclusion of Loss and LAE reserves related
to discontinued operations.

TIG experienced  unfavorable loss and LAE reserve development for prior years in
1996 of $16 million due  primarily to adverse  development  in Other  Lines.  In
connection with the February 1996  restructuring,  TIG completed a re-evaluation
of loss  and LAE  reserves  related  to  run-off  lines  using  additional  loss
development  data received during the first quarter of 1996. This data confirmed
adverse loss  development  trends  observed in the second half of 1995 and was a
consideration  in the decision to exit certain lines of business as discussed at
Item  7.1  -  Consolidated  Results.  As a  result  of  this  re-evaluation  and
management's  belief  that the  restructuring  decision  will  make  the  claims
settlement process less consistent and more volatile, TIG increased loss and LAE
reserves  by $31  million  in the  first  quarter  of 1996  for  run-off  lines,
principally   for  long  haul   trucking  and  large   accounts.   This  reserve
strengthening was partially offset by continuing  favorable  development of 1993
and prior workers' compensation reserves.

Loss and LAE reserve  development  during 1995 was  favorable by $24 million and
was primarily comprised of $18 million and $16 million of favorable

                                     - 11 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------

development in commercial  multi-peril reserves related primarily to Other Lines
policies and  Commercial  Specialty  workers'  compensation,  respectively.  The
commercial  multi-peril  result is due in part to the favorable loss ratio trend
stemming from corrective  underwriting action instituted since 1993. Most of the
favorable  development  applies to general  liability  coverages  which  benefit
greatly from TIG's  litigation  management  effort as well as other  operational
initiatives  designed to improve the handling of claims for long-tail coverages.
Workers'  Compensation  reserve  development  continues to benefit from external
factors driving the industry-wide  improvement observed in 1994 and 1993. During
1995,  both paid loss  development  and case reserve  development  remained well
below the historical  patterns  underlying TIG's carried  reserves.  Higher than
expected  loss ratio  results  during 1995  account for  offsetting  unfavorable
development recorded in Other Lines automobile liability coverages.  Much of the
1995 adverse development for Other Lines occurred in long-haul trucking programs
which were discontinued in 1996.

In 1994,  TIG  experienced  favorable  development on prior year reserves of $75
million, principally related to workers' compensation reserves for which results
improved nationwide for TIG as well as the rest of the insurance  industry.  For
TIG,  payments  for prior  period  losses were less than  previously  projected,
causing the favorable loss  development.  The improvement was quite extensive in
the state of California due to the combined impacts of reform legislation, tough
anti-fraud  measures,  and an improving economy.  The majority of this favorable
development,  which primarily related to 1993 reserves,  was reallocated to 1994
accident year reserves and policyholder dividend reserves.

ENVIRONMENTAL  RESERVES.  TIG's  reserves  include an estimate of TIG's ultimate
liability for asbestos-related matters,  environmental pollution, toxic tort and
other  non-sudden  and  accidental  claims for which  ultimate  values cannot be
estimated using traditional  reserving  techniques.  Establishing  reserves with
respect to environmental liabilities is one of the most difficult aspects of the
reserving  process.  The legal definition and assignment of  responsibility  for
environmental damage vary widely by state and are still evolving.  Defense costs
on  individual  claims are often much greater than the claims costs  themselves.
Assignment  of  damages  to the  time  covered  by a  particular  policy  can be
difficult to assess and may ultimately be assigned judicially. Claims frequently
emerge long after the policy has expired.

TIG Re was formed in  December  1987 and has no pre-1985  liabilities.  Prior to
1985, policy forms did not typically limit coverage for latent  liabilities such
as pollution, asbestos and other long-tail environmental liabilities. After that
date,  policy  forms  began to  limit  exposures  to  certain  types  of  latent
liabilities.  As a result, management believes that TIG Re has minimal exposures
to such liabilities.

TIG's  environmental  claims activity is predominately  from hazardous waste and
pollution-related claims arising from commercial insurance policies. TIG has not
written primary coverage for the major oil or chemical companies.  Most of TIG's
pollution claims are from small,  regional operations or local business involved
with  disposing  wastes at dump sites or having  pollution on their own property
due to  hazardous  material  use or leaking  underground  storage  tanks.  These
insureds  include  small  manufacturing  operations,   tool  makers,  automobile
dealerships,  contractors,  gasoline stations and real estate developers.  About
22% of open  environmental  claims and 39% of environmental case reserves relate
to losses in years 1972 and prior,  with the oldest  open loss year being  1946.
The  following  table  presents  selected data on  environmental  losses and LAE
incurred and reserves outstanding:

(In millions, except number          Years Ended December 31,
                                    --------------------------
of outstanding claims)                1996    1995     1994
==============================================================
Net liability for environmental
   losses and LAE at the beginning
   of the year                         $48     $56      $62
Incurred losses and LAE                  2       1        2
Loss and LAE payments                  (11)     (9)      (8)
--------------------------------------------------------------
Net liability for environmental 
   losses and LAE at end of year        39      48       56
Reinsurance recoverable                 24      36       25
--------------------------------------------------------------
Gross environmental reserves           $63     $84      $81
--------------------------------------------------------------
Number of outstanding claims           545     543      576
==============================================================

Gross  and net  environmental  loss  and LAE  reserves  declined  by 25% and 19%
respectively  in 1996 as 

                                     - 12 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------

compared to 1995 due  primarily to the  settlement of a
mass tort action involving implants.  The number of outstanding claims indicates
the number of impacted insured accounts and not individual claimants.

An affiliate of Transamerica Corporation ("Transamerica"),  TIG's former parent,
has agreed to pay 75% of up to $119  million of  reserve  development  and newly
incurred  claims,  up to a maximum  reimbursement  of $89  million,  on policies
written  prior to January 1, 1993 with respect to certain  environmental  claims
involving paid losses and certain LAE in excess of TIG's  environmental loss and
LAE reserves at December 31, 1992.  Approximately 99% of environmental  reserves
at December 31, 1996 related to policies  written prior to 1993. At December 31,
1996, the Transamerica affiliate had incurred no liability under this agreement.

Management regularly  reassesses the adequacy of environmental  reserves as part
of the reserve review process.  Based upon information  available on the date of
this  report and the  aforementioned  agreement  with  Transamerica,  management
believes that stated  environmental  reserves are adequate and that the ultimate
resolution  of  environmental  claims  incurred as of December 31, 1996 will not
materially  impact  TIG's   consolidated   financial   position  or  results  of
operations.

--------------------------------------------------------------------------------
1.7 REGULATION
================================================================================
GENERAL. TIG's  property/casualty  insurance companies are subject to regulation
by  governmental  agencies  in the states in which they  conduct  business.  The
nature and extent of this regulation varies among  jurisdictions,  but typically
involves the following:  (1) prior approval of the  acquisition of control of an
insurance  company  or  any  company  controlling  an  insurance  company,   (2)
regulation of certain transactions entered into by an insurance company with any
of its  affiliates,  (3) approval of premium  rates for many lines of insurance,
(4) standards of solvency and minimum  amounts of capital and surplus which must
be  maintained,  (5)  limitations  on types  and  amounts  of  investments,  (6)
restrictions on the size of risks which may be insured by a single company,  (7)
licensing  of insurers and their  agents,  (8)  deposits of  securities  for the
benefit of policyholders,  (9) approval of policy forms,  methods of accounting,
establishing  reserves  for losses and LAE,  and (10) filing of annual and other
reports with  respect to financial  condition  and other  matters.  In addition,
state regulatory examiners perform periodic examinations of insurance companies,
primarily for the protection of policyholders.

As  a  result  of  the  regulatory   supervision  of  TIG's  insurance   company
subsidiaries  under the California  Insurance  Holding Company System Regulatory
Act, and other similar acts in states where TIG has domestic  insurance  company
subsidiaries (the "Holding Company Act"), the insurance company subsidiaries are
required to report  information on TIG Holdings.  Although TIG has relocated the
majority of its  personnel  to Irving,  Texas,  TIG plans to retain  significant
operations  in  California  and maintain  TIG  Insurance's  and other  insurance
company  subsidiaries  domicile in that state.  The Holding Company Act contains
certain reporting requirements including those requiring the insurance companies
to file information  relating to TIG's capital structure,  ownership,  financial
condition and general  business  operations of its insurance  subsidiaries.  The
Holding  Company Act contains  reporting and prior  approval  requirements  with
respect to transactions among affiliates.

RESTRICTIONS   ON  DIVIDENDS  FROM  INSURANCE   SUBSIDIARIES.   TIG's  insurance
subsidiaries are subject to various state statutory and regulatory restrictions,
applicable  generally to each insurance  company in its state of  incorporation,
which limit the amount of dividends or distributions by an insurance  company to
its  shareholders.  The  restrictions  are generally  based on certain levels of
surplus,  investment  income and operating income, as determined under statutory
accounting  practices.  If  insurance  regulators  determine  that  payment of a
dividend or any other  payment to an  affiliate  (such as a payment  under a tax
allocation  agreement) would,  because of the financial  condition of the paying
insurance  companyor  otherwise,  be  detrimental  to such  insurance  company's
policyholders  or creditors,  the regulators

                                     - 13 -
<PAGE>
                                     PART I
--------------------------------------------------------------------------------
may block payment of such dividends or such other payment to the affiliates that
would otherwise be permitted without prior approval.

Subject to the requirements  discussed below, the California Insurance Code (the
"California Code") permits the payment of dividends in any year which,  together
with other dividends or  distributions  made within the preceding 12 months,  do
not exceed  the  greater  of (1) 10% of  statutory  surplus as of the end of the
preceding  year or (2) the  statutory net income for the  preceding  year,  with
larger dividends ("extraordinary  dividends") payable only upon prior regulatory
approval.  All  extraordinary  dividends  must be reported  to the  commissioner
thirty days prior to payment.  In  addition,  California  law  requires  that an
insurer report all dividends  within five days of  declaration  and at least ten
days prior to payment. The interim period would allow the California  Department
of Insurance (the "Department") time to take regulatory action if it so elected,
with respect to the dividend declared.

The California Code provides that stock  property/casualty  insurers may declare
dividends only from earned  surplus.  "Earned  surplus" is defined as unassigned
funds,  as  required  to be  reported on the  insurer's  annual  statement.  The
California  Code  prohibits  dividends  from  being  paid out of earned  surplus
derived from  unrealized net  appreciation of assets or derived from an exchange
of assets, unless either such earned surplus has been realized or the assets are
currently  realizable in cash. An exception to the prohibition allows payment of
dividends  if,  following  the  dividend,   the  insurer's  surplus  as  regards
policyholders is, (1) reasonable in relation to its outstanding  liabilities and
(2) adequate to the insurer's  financial  needs, as prescribed in the California
Code, and the insurance commissioner's prior approval has been obtained.

In June 1993,  the  California  Department of Insurance  permitted TIG Insurance
Company ("TIC"),  TIG's lead insurer,  to record a  quasi-reorganization  of its
statutory  capital  accounts.  The  effect  of the  quasi-reorganization  was to
increase the earned  surplus of TIC to zero from a negative  $285 million and to
decrease contributed surplus by the same amount. This transaction  significantly
increased  TIC's future dividend  paying  capability as insurance  companies may
only pay dividends from earned surplus.

Certain other  extraordinary  transactions  between an insurance company and its
affiliates,  including  sales,  loans, or investments  which in any twelve-month
period  aggregate  at least 5% of its  admitted  assets or 25% of its  statutory
capital  and  surplus,  also are subject to prior  approval  by state  insurance
regulatory  authorities.  Service  agreements  and  reinsurance  agreements  are
included within such requirements.

RISK-BASED   CAPITAL   RULES.   The  NAIC   adopted  a  formula   to   calculate
risk-based-capital  ("RBC")  for  property/casualty   insurance  companies.  The
primary  objective  of the RBC  requirements  is to raise  the  safety  net that
statutory  surplus  provides for  policyholder  obligations.  The formula  first
applied to the  property/casualty  insurance industry beginning in 1994. The RBC
rules do not  have a  material  impact  on TIG's  business  or on its  financial
condition.  The statutory  "risk  adjusted"  capital for each of TIG's insurance
subsidiaries as of December 31, 1996 exceeded minimum requirements.

GUARANTY   ASSOCIATIONS   AND   INVOLUNTARY   MARKETS.   Most   states   require
property/casualty insurers to become members of insolvency funds or associations
which  generally  protect  policyholders  against the  insolvency  of an insurer
writing  insurance  in the  state.  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  premium  written by a member in that state.  Assessments  from  guaranty
funds  were $1  million  for 1996,  1995 and 1994.  Most of these  payments  are
recoverable through future policy surcharges and premium tax reductions.

Provision  of  coverage  for  less  desirable  risks  through  participation  in
mandatory  programs is also  required by most  states.  TIG's  participation  in
assigned risk pools and similar  plans,  mandated now or in the future,  creates
downward  pressure on  earnings.  Involuntary  costs  resulted in  increases  in
underwriting loss of $18 million, $16 million and $22 million in 1996, 1995, and
1994,  respectively.  Excluding a one time buyout  payment of $3.3 million for a
New Jersey auto facility,  involuntary costs for 1996 would have declined to $14
million.

                                     - 14 -
<PAGE>


                                     PART I
--------------------------------------------------------------------------------
ITEM 2.  BUSINESS PROPERTIES
================================================================================

TIG's business  properties  include 53 leased  locations,  one owned facility in
Battle Creek,  Michigan and two locations where client office space is utilized.
The leased locations  represent  approximately  0.9 million square feet, and the
owned location occupies approximately 220,000 square feet.

TIG occupies  approximately  275,000  square feet of space in Irving,  Texas for
which the  lease  expires  in 2009 and may be  extended  by TIG for two  renewal
periods of five years each. All of TIG's other existing leases expire by the end
of 2007.

--------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
================================================================================

TIG's insurance  subsidiaries are routinely  engaged in litigation in the normal
course  of  their  business.   As  a  liability  insurer,  the  Company  defends
third-party  claims  brought  against its insureds.  As an insurer,  the Company
defends against coverage  claims.  In the opinion of TIG, based upon information
available on the date of this report, no individual item of litigation, or group
of similar items of litigation  (including  asbestos-related  and  environmental
pollution  matters  and the matter  referred  to below),  taken net of  reserves
established  therefor and giving effect to insurance and reinsurance,  is likely
to result in judgments  for amounts  material to TIG's  consolidated  results of
operations.

On January 11, 1994, a Los Angeles County Superior Court jury returned a verdict
of $28 million for punitive  damages  against TIG Insurance  Company  ("TIC") in
Talbot Partners v. Cates  Construction,  Inc. and TIC (the "Talbot  Case").  The
award  arose out of TIC's  handling  of a surety  bond  claim on a  construction
project.  Management  is  vigorously  pursuing its right to appeal the judgment.
Management believes that the ultimate liability, if any, arising from the Talbot
Case will not materially impact consolidated operating results.

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

There  were  no  matters  submitted  to a  vote  of  security  holders,  through
solicitation of proxies or otherwise, during the fourth quarter of 1996.

                                     - 15 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
================================================================================

The principal  market in which TIG  Holdings'  common stock is traded is the New
York Stock Exchange. There were 375 shareholders of record on December 31, 1996,
representing  approximately  12,500 beneficial  owners.  Information  concerning
restrictions  on the ability of TIG Holdings'  subsidiaries to transfer funds to
TIG Holdings in the form of cash  dividends is set forth in Item 7.8 - Liquidity
and Capital  Resources - Liquidity  Restrictions  and Note J to the Consolidated
Financial  Statements at Item 8. In February 1997, a dividend of $0.15 per share
was paid.

The closing market price and cash  dividends  paid by calendar  quarter for 1996
and 1995 are as follows:

<TABLE>
<CAPTION>

                                    1996                                        1995
                      ---------------------------------              --------------------------------
                          Market Price        Dividend                  Market Price        Dividend
Quarter                  High       Low       per share                High       Low       per share
=====================================================================================================
<S>                   <C>          <C>         <C>                   <C>         <C>          <C>  
   1                  $33.625      $26.250     $0.05                 $22.500     $18.625      $0.05
   2                  $33.625      $28.500     $0.05                 $24.500     $22.125      $0.05
   3                  $30.125      $27.000     $0.05                 $26.875     $22.250      $0.05
   4                  $34.000      $28.500     $0.05                 $28.500     $25.000      $0.05
-----------------------------------------------------------------------------------------------------

Year end closing price             $33.875                                       $28.500
=====================================================================================================
</TABLE>

                                     - 16 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
================================================================================

The  following  information  should  be  read  in  conjunction  with  Item  7  -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  and with the audited  Consolidated  Financial  Statements  and notes
thereto at Item 8 Financial Statements and Supplementary Data.

<TABLE>
<CAPTION>

(In millions except per share data)                   1996           1995          1994           1993          1992
======================================================================================================================
CONSOLIDATED RESULTS:
<S>                                                <C>            <C>           <C>            <C>            <C> 
    Net premium earned                              $1,539         $1,618        $1,549         $1,542        $1,604
    Net investment income                              290            268           249            241           240
    Realized investment gains (losses)                  (4)           (11)          (20)            98           165
                                                   -------------------------------------------------------------------
    Total revenues                                  $1,825         $1,875        $1,778         $1,881        $2,009
                                                   -------------------------------------------------------------------
    Income (loss) from continuing operations           $79           $118           $52          $(128)         $(42)
    Loss from discontinued operations                    -              -             -              -          (151)
    Cumulative effect of change in accounting            -              -             -              -           (15)
                                                   -------------------------------------------------------------------
    Net income (loss)                                  $79           $118           $52          $(128)        $(208)
----------------------------------------------------------------------------------------------------------------------
PER SHARE RESULTS (a):
    Net income (loss) per common share               $1.30          $1.89         $0.79         $(2.04)            -
    Weighted average common shares                    59.3           61.6          63.1           63.5             -
    Dividends declared per common share              $0.20          $0.20         $0.20          $0.05             -
----------------------------------------------------------------------------------------------------------------------
FINANCIAL  POSITION:
    Investments                                     $4,233         $4,550        $3,919         $4,201        $3,443
    Total assets                                     6,476          6,683         6,116          6,253         5,661
    Reserves for losses and LAE                      3,760          3,886         3,873          3,845         3,405
    Notes payable                                      123            120             -              -            31
    Mandatory redeemable preferred stock                25             25            25             25             -
    Shareholders' equity                             1,207          1,376         1,042          1,203         1,087
    Book value per common share                     $22.41         $23.09        $16.81         $18.86             -
----------------------------------------------------------------------------------------------------------------------
COMMON STOCK (a):
    Market high                                    $34.000        $28.500       $23.250        $28.000             -
    Market low                                      26.250         18.625        17.250         20.375             -
    Market close                                    33.875         28.500        18.750         22.625             -
    Common shares outstanding net of treasury stock   53.9           59.6          62.0           63.8             -
----------------------------------------------------------------------------------------------------------------------
STATUTORY RESULTS  (b):
    Combined Surplus                                  $975           $952          $901           $864          $768
                                                   -------------------------------------------------------------------
    Net income (loss)                                 $184           $136           $13           $(54)         $(97)
                                                   -------------------------------------------------------------------
    Loss and LAE ratio                                73.8           72.9          76.4           92.1          98.9
    Underwriting expense ratio                        30.2           30.7          32.1           31.6          30.5
    Policyholder dividends ratio                       1.0            1.7           1.9            1.5           1.5
                                                   -------------------------------------------------------------------
    Combined ratio                                   105.0          105.3         110.4          125.2         130.9
                                                   -------------------------------------------------------------------
    Net premium written to surplus ratio              1.6x           1.7x          1.8x           1.8x          2.1x
======================================================================================================================
<FN>
   (a)The initial public  offering of TIG Holdings common stock was completed in
      May 1993,  therefore  per share  results  and  common  stock  data are not
      applicable for 1992.
   (b)  Ratios are calculated for continuing operations only.
</FN>
</TABLE>

                                     - 17 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
7.1      CONSOLIDATED RESULTS
================================================================================

The following discussion provides  management's  assessment of financial results
and  material  changes  in  financial  position  for TIG  Holdings,  Inc.  ("TIG
Holdings") and its subsidiaries  (collectively "TIG") and presents  management's
expectations  for the near term future.  The analysis focuses on the performance
of TIG's three major operating divisions, Reinsurance,  Commercial Specialty and
Retail, and its investment portfolio, which are discussed at Items 7.2, 7.3, 7.4
and 7.7,  respectively.  Lines of business that have been de-emphasized  ("Other
Lines") are discussed at Item 7.5. For a better  understanding of this analysis,
reference  should be made to Item 1 -  Description  of Business  and to Item 8 -
Financial Statements and Supplementary Data.

Statements  contained in the Management's  Discussion and Analysis and elsewhere
in  this   document   that  are  not  based  on   historical   information   are
forward-looking statements and are based on management's projections,  estimates
and  assumptions.  Management  would  like  to  caution  readers  regarding  its
forward-looking statements (see Item 7.10 - Forward-Looking Statements).

Key industry terms that appear in the  Management's  Discussion and Analysis and
elsewhere in this document are defined at Item 7.11.  Certain  reclassifications
of prior years' amounts have been made to conform with the 1996 presentation.

OVERVIEW.  The following table shows the major components of net income:

                                      Years Ended December 31
                                     -------------------------
(In millions)                           1996    1995     1994
==============================================================
Gross premium written                 $1,924  $2,036   $1,987
--------------------------------------------------------------
Net premium written                   $1,529  $1,610   $1,621
--------------------------------------------------------------

Net premium earned                    $1,539  $1,618   $1,549
Less:
   Losses and LAE incurred             1,138   1,176    1,165
   Underwriting expenses and
      policyholder dividends             466     501      531
--------------------------------------------------------------
   Underwriting loss                     (65)    (59)    (147)

Net investment income                    290     268      249
Net investment loss                       (4)    (11)     (20)
Interest expense                          (9)     (6)       -
Corporate expense                        (37)    (37)     (37)
Restructuring charges                   (100)      -        -
--------------------------------------------------------------
Income  before tax benefit (expense)      75     155       45
Income tax benefit (expense)               4     (37)       7
--------------------------------------------------------------

   Net income                            $79    $118      $52

   Income excluding restructuring
      charges and investment loss,
      net of tax                        $147    $125      $65
==============================================================


The $39  million  or 33%  decrease  in 1996 net  income as  compared  to 1995 is
attributable  to a $100  million ($65 million  after tax)  restructuring  charge
recorded in the first quarter of 1996 which is discussed below. Income excluding
restructuring  charges and  investment  loss  increased by $22 million or 18% in
1996 over 1995 as reserve strengthening of $31 million was more than offset by a
$22  million  increase  in  investment  income and a $20  million  deferred  tax
benefit. As discussed at Item 1.6 - Reserves,  TIG strengthened Other Lines loss
and LAE reserves by $31 million in March 1996 in response to adverse development
and the decision to 

                                     - 18 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------

exit such business.  As discussed at Item 7.7 -  Investments,  the book yield of
the  investment  portfolio  increased  from 6.7% for the year ended December 31,
1995 to 7.5% for the year ended  December  31, 1996 due to a shift in  portfolio
mix toward  high  yield  bonds.  In March  1996,  TIG  entered  into  settlement
agreements with the IRS on several outstanding audit assessments, which resulted
in a redetermination of certain tax liabilities related to prior tax years. As a
result  of  the  redetermination,   a  $20  million  deferred  tax  benefit  was
recognized.

The $66  million  or 127%  increase  in 1995 net income  compared  to 1994 arose
principally  from  improved  underwriting  results of $88 million,  primarily in
Retail and in Other Lines. Retail's underwriting loss declined by $49 million in
1995 as underwriting  results for 1994 included $45 million in catastrophe costs
arising from the Northridge,  California earthquake.  The underwriting loss from
Other Lines  declined by $56 million in 1995 due to lower  premium  volume and a
decline in the statutory combined ratio from 124.6 in 1994 to 114.6 in 1995 as a
result of the 90% reinsurance of financial  institutions business and corrective
underwriting  actions  taken since 1993.  In  addition,  net  investment  income
increased by $19 million or 7.6% in 1995  compared to 1994 due to an increase in
funds available for investment,  partially  attributable to the issuance of $100
million in notes in April 1995. Net investment losses declined by $9 million due
to a general decline in interest rates in the second half of 1995.

RESTRUCTURING CHARGES. In February 1996, TIG announced the reorganization of its
commercial operations and plans to exit certain lines of business that failed to
meet profitability  standards. As a result of this reorganization,  TIG took the
following   actions:   1)  combined  its  Specialty   Commercial   and  Workers'
Compensation  divisions to form a new division called Commercial  Specialty,  2)
identified field offices for consolidation  and closure,  3) identified lines of
business for non-renewal or cancellation  for which 1995 net premium written was
approximately $190 million,  4) formed a run-off division (called "Other Lines")
to  administer  contractually  required  policy  renewals  for run-off  lines of
business, and 5) notified approximately 600 employees that their positions would
be eliminated.  At December 31, 1996, the consolidation/closure of field offices
was complete although various lease obligations  remain; net written premium for
Other Lines had declined by 50% for the year ended December 31, 1996 as compared
to 1995; and approximately 600 employees'  responsibilities  had been outsourced
to third  party  service  providers  or  their  employment  had  been  otherwise
terminated.  At December  31, 1996,  TIG has  approximately  1,300  employees as
compared to approximately 2,000 employees at December 31, 1995.

TIG  recorded  a $100  million  accrual  in first  quarter  1996  for  estimated
restructuring charges comprised of severance of $17 million;  contractual policy
obligations of $37 million; office lease termination of $18 million;  furniture,
equipment and capitalized software write-downs of $12 million; and a reserve for
litigation and credit issues related to terminated producers of $16 million. The
remaining  reserve at December 31, 1996,  is $53  million.  Charges  against the
restructure  accrual  of $47  million  have been  recorded  during  1996 and are
comprised  of $9  million  in  severance,  $23  million  in  contractual  policy
obligations,  $10  million  in lease  termination  costs and $5 million in asset
write-downs.

PREMIUM.  The following table displays net premium written by division:

                               Year Ended December 31
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Reinsurance                     $548    $511     $440
Commercial Specialty             460     437      462
Retail                           370     358      314
------------------------------------------------------
Ongoing Lines                  1,378   1,306    1,216
Other Lines                      151     304      405
------------------------------------------------------
Total                         $1,529  $1,610   $1,621
======================================================

Growth in ongoing lines net premium written was 5.5% in 1996 and 7.4% in 1995 as
compared to the corresponding prior year. The decline in the premium growth rate
in 1996 is  attributable  to  highly  competitive  market  conditions  for  both
reinsurance  and  primary  insurance  products.  Oversupply  of  capital  in the
insurance industry has resulted in 

                                     - 19 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------

significant downward pricing pressure, making it increasingly difficult to write
business which meets TIG's  profitability  standards.  TIG's marketing focus for
all  operating  divisions,  particularly  Commercial  Specialty,  is to  develop
"program" business.  Programs are typically characterized as having a controlled
production  source,  homogeneous risks and a market niche.  Management  believes
that  programs  generally  have  more  predictable  loss  patterns  and a lower,
variable cost structure which produces higher operating margins.

Since mid-1993,  TIG has sought to improve profitability by eliminating products
requiring high cost manual processing on an individual policy basis or for which
adequate  pricing  could  not be  obtained  due to market  conditions.  Business
targeted for non-renewal  has been  classified as Other Lines. As expected,  the
declines  in Other  Lines  net  premium  written  in 1996 and 1995 has more than
offset  premium  growth in ongoing  lines.  Management  estimates  that the last
renewals for remaining  policies in-force at December 31, 1996 will be processed
by late 1997 and that  related net premium  written  will decline by over 75% in
1997 as compared to 1996.

STATUTORY COMBINED RATIO. A key measure of an insurance company's performance is
its statutory  combined ratio.  The following table shows the combined ratio for
TIG's active operating divisions individually and on a consolidated basis.


                                     Combined Ratio
                                 -----------------------
                                  1996    1995     1994
========================================================
Reinsurance                      102.5   103.6    104.4
Commercial Specialty             104.1   103.9     97.4
Retail                           101.2   101.6    117.6
--------------------------------------------------------
Ongoing lines                    102.7   103.2    105.4
Other Lines                      118.0   114.6    124.6
--------------------------------------------------------
Consolidated                     105.0   105.3    110.4
========================================================

The gradual  improvement  in the combined  ratio for ongoing  lines from 1994 to
1996 is  attributable  to loss cost  management  and  expense  control  programs
implemented  by  management  since 1993. In 1996,  the combined  ratio for Other
Lines  was  increased  by  14.4  percentage   points  as  a  result  of  reserve
strengthening  of $31 million  recorded in March 1996 (see Item 1.6 - Reserves).
In 1994, the combined ratio for Retail was increased by 14.3  percentage  points
and the consolidated  combined ratio was increased by 3.2 percentage  points due
to  losses  of  $49  million  incurred  related  to the  Northridge,  California
earthquake.

                                     - 20 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.2 REINSURANCE
================================================================================

PREMIUM.  TIG's  reinsurance  operations  are conducted  through TIG Re which is
based in Stamford,  Connecticut.  TIG Re's marketing  strategy and  distribution
system are  described at Item 1.2 -  Reinsurance.  The table below shows premium
production for TIG Re:

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Specialty  casualty             $362    $428     $398
Reverse flow                      65      17      -
Specialty property                63      54       35
International                     29      24        8
Other                             29     (12)      (1)
------------------------------------------------------
   Net premium written          $548    $511     $440
   Gross premium written         576     587      522
------------------------------------------------------
   Retention Ratio              95.1%   87.1%    84.3%
======================================================

Growth  in net  premium  written  was 7%,  16% and 27% in 1996,  1995 and  1994,
respectively,  in comparison to the  corresponding  prior year.  The high growth
rate in 1994  and 1995 was  driven  by  widespread  restructuring  of  corporate
reinsurance programs and uncertainty in the Lloyd's of London reinsurance market
where market opportunities for TIG Re expanded to include international property
as well as U.S. casualty business previously placed in London. Market conditions
softened considerably in 1996 in response to the restructuring of the Lloyd's of
London  market and an  oversupply  of capital in both  reinsurance  and  primary
insurance  markets.  As a result of  competitive  primary market  conditions,  a
number of TIG Re's ceding company clients reduced their reinsurance  programs in
1996 to maintain their premium volume.

New business  comprised  $135  million,  $118  million,  and $143 million of net
premium  written  in 1996,  1995 and 1994,  respectively.  The  majority  of new
business is attributable to new ceding company relationships, principally in the
property and auto liability areas,  developed as a result of TIG Re's efforts to
create additional  distribution channels. In January 1994, TIG Re established an
office in London,  England which produced $29 million of net premium  written in
1996, primarily on international  risks,  compared to $23 million and $8 million
in 1995,  and 1994,  respectively.  TIG Re has also  expanded  its  distribution
channels since 1994 by identifying insurance market opportunities and presenting
programs directly to TIG Insurance and other ceding company production partners.
Such "reverse flow" business increased by $48 million in 1996 and $17 million in
1995 as compared to the corresponding prior year.

During 1996, TIG Re established a fully  integrated  Lloyd's vehicle through the
formation and  capitalization of a wholly owned managing agent that will manage,
and a wholly  owned  corporate  name that will  provide  the sole  support  for,
syndicate 1218. This was the first fully  integrated  corporate  vehicle to have
been approved in the history of Lloyd's.  The  formation of the  syndicate  will
allow TIG Re to write insurance and reinsurance  world-wide,  and is expected to
form an important part of any international  expansion undertaken by TIG Re. The
syndicate  has a stamp  capacity of  (pound)20  million for the 1997  account to
access  international  property and casualty business.  Also, during December of
1996, TIG Re was approved as a licensed reinsurer in Canada.

The 8.0 percentage  point increase in the retention ratio in 1996 as compared to
1995 is principally attributable to the change in structure of one large program
to assuming  premium on a net written basis  instead of a gross  written  basis.
Other net premium  written is net of bulk premium  cessions not  applicable to a
specific line of business and includes for 1995,  premium ceded by TIG Re to TIG
Insurance  under an aggregate stop loss  reinsurance  treaty similar to external
reinsurance  coverage purchased by TIG Re in 1996 and 1994. Premium ceded by TIG
Re under the 1995 internal  reinsurance treaty is reflected in the gross and net
premium of Other Lines.

UNDERWRITING RESULTS. The improvement in TIG Re's underwriting results from 1994
to  1996  reflects   management's   expectations   regarding  the  selection  of
clients/programs  that  will  produce  satisfactory  returns  and the  impact of
reduced participation in under-performing  treaties. There have been some


                                     - 21 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
upward changes in commission and brokerage  rates on business  renewed from 1994
to 1996,  but most  casualty  accounts  have been  renewed  at  expiring  terms.
Underwriting expenses increased during 1996, principally due to expenses of $2.1
million  incurred in connection with TIG Re's formation of a facultative unit as
discussed at Item 1.2 -  Reinsurance.  As discussed in Item 1.6 - Reserves,  the
estimation  of TIG Re's loss and LAE  reserves  and  therefore  net loss and LAE
incurred is subject to significant  uncertainty due to TIG Re's relatively short
operating history and rapid premium growth.

The following tables summarize TIG Re's underwriting results:

                              Year Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Net premium earned              $534    $483     $394
Less:
   Net loss and LAE incurred     386     361      299
   Commission expense            137     117       97
   Other underwriting expense     25      22       20
------------------------------------------------------
Underwriting loss               $(14)   $(17)    $(22)
------------------------------------------------------

STATUTORY RATIOS:
------------------------------------------------------
Loss and LAE                    72.3    74.6     75.9
Commission expense              25.5    24.6     24.3
Other underwriting expense       4.7     4.4      4.2
------------------------------------------------------
Combined ratio                 102.5   103.6    104.4
======================================================

--------------------------------------------------------------------------------
7.3 COMMERCIAL SPECIALTY
================================================================================

PREMIUM.  Commercial Specialty provides  specialized  insurance products through
four main business units:  Sports and Leisure,  Workers'  Compensation,  Primary
Casualty and Excess Casualty. Most support services for Commercial Specialty are
provided  by TIG's  national  support  center in  Irving,  Texas.  In  addition,
workers' compensation and excess casualty products are distributed through field
offices  nationwide.  TIG's  marketing  strategy  and  distribution  systems are
described  at Item  1.3 -  Commercial  Specialty.  The  table  below  shows  the
distribution of Commercial Specialty net premium written by business unit:

                             Years Ended December 31,
                            --------------------------
(In millions)                   1996    1995     1994
======================================================
Workers' Compensation           $191    $216     $284
Sports and Leisure               163     166      152
Primary Casualty                  66      30       13
Excess Casualty                   40      25       13
------------------------------------------------------
   Net premium written          $460    $437     $462
   Gross premium written         633     578      588
------------------------------------------------------
   Retention ratio              72.7%   75.6%    78.6%
======================================================

Total  Commercial  Specialty  net  premium  written for 1996  approximated  1994
production  levels  after  dropping  5% in 1995  due to a  decline  in  Workers'
Compensation production. Since 1994, declining Workers' Compensation premium has
offset premium growth in other  Commercial  Specialty  units. A number of states
have enacted  workers'  compensation  reforms which has intensified  competitive
market conditions nationwide.  Although workers' compensation production for the
second half of 1996 was slightly higher than the second half of 1995, management
believes that increasingly  competitive market conditions will make it difficult
to  maintain  1996  production  levels  in  1997.  Sports  and  Leisure  premium
production was flat in 1996 as compared to 1995 due to the loss of several large
accounts.

Growth in Primary Casualty and Excess Casualty net premium written since 1994 is
attributable to TIG's  marketing  focus on the  development of program  business
through strategic MGA relationships.  Growth in 1996 is principally attributable
to expansion of existing  commercial auto programs and development of excess and
surplus lines programs. In late 1996, TIG entered into a quota share reinsurance
arrangement  with another  insurer  with  respect to certain  excess and surplus
lines  programs  in  conjunction  with  such  insurer's  hiring of  certain  TIG
underwriting personnel.  Commercial Specialty will continue to underwrite excess
and surplus lines business  through its Excess Casualty unit and the 

                                     - 22 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
reinsurance arrangement with such insurer. TIG does not anticipate a significant
reduction in Commercial  Specialty net premium  written as a result of the quota
share arrangement.

UNDERWRITING   RESULTS.  The  table  below  presents  underwriting  results  for
Commercial Specialty operations:


                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Net premium earned              $429    $419     $413
Less:
   Net loss and LAE incurred     298     296      273
   Commission expense             84      72       51
   Premium related expense        19      20       23
   Other underwriting expense     39      21       23
   Policyholder dividends          2      14       25
------------------------------------------------------
Total underwriting loss         $(13)    $(4)     $18
------------------------------------------------------

STATUTORY RATIOS:
------------------------------------------------------
Loss and LAE                    69.2    70.5     65.7
Commission expense              19.2    17.4     15.3
Premium related expense          4.0     4.8      4.3
Other underwriting expense       8.5     4.9      5.1
Policyholder dividends           3.2     6.3      7.0
------------------------------------------------------
Combined ratio                 104.1   103.9     97.4
======================================================

Commercial  Specialty's  underwriting  loss  increased  by $9 million in 1996 as
compared to 1995 due primarily to an $18 million increase in other  underwriting
expense.  Approximately $7 million of the increase in other underwriting expense
is  attributable  to  non-recurring  start-up  costs incurred for one excess and
surplus lines program  which was reinsured in late 1996.  Advertising  costs and
additional  staff  costs  related  to the start up of various  other  Commercial
Specialty  programs  account  for  another $5 million  of the  increase  while a
decrease  in  servicing   carrier  fees  received  for   administering   certain
involuntary pools account for $3 million of the increase.

Commercial  Specialty's  underwriting results declined by $22 million in 1995 as
compared to 1994 principally due to favorable development  recognized in 1994 on
prior year workers'  compensation  reserves as discussed at Item 1.6 Reserves. A
portion of the decline in 1995 underwriting results is attributable to increased
commission rates as discussed below.

The statutory  commission  expense ratio  increased by 1.8 percentage  points in
1996 and 2.1 percentage  points in 1995 as compared to the  corresponding  prior
year. The increase in commission rates reflects the increasing volume of program
business produced through MGAs. Although commissions are generally higher, other
underwriting  expenses  associated with program business are generally less than
traditional  business since many "other  underwriting"  costs are covered by the
MGAs' commission.  The shifting of other underwriting expenses to MGAs creates a
variable cost structure for TIG.

Policyholder dividends incurred and the statutory  policyholder's dividend ratio
have  declined  significantly  from  1994 to 1996.  The  decrease  is due to the
combined impact of the repeal of California's  minimum rate law in January 1995,
which  reduced the  emphasis on  policyholder  dividends,  and the  reduction in
California workers'  compensation  business written by TIG. In 1996, premium for
participating  business was $62 million as compared to $146 million in 1994. The
decline  in   policyholder   dividends  has  not   significantly   impacted  net
underwriting results as non-participating policies are generally structured with
lower premium rates.

                                     - 23 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.4 RETAIL
================================================================================

PREMIUM.  Retail  operations are based in Battle Creek,  Michigan.  TIG's retail
marketing  strategy and distribution  system are described at Item 1.4 - Retail.
The table below presents premium production for Retail by major product:

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Standard automobile             $185    $170     $171
Homeowners                       107     133       81
Non-standard automobile           40      30        0
Small Business                     9       2        0
All Other                         29      23       62
------------------------------------------------------
   Net written premium          $370    $358     $314
   Gross written premium         422     404      358
------------------------------------------------------
   Retention Ratio              87.7%   88.6%    87.7%
======================================================

Retail net premium  written  increased by  approximately  $12 million or 3.4% in
1996 from 1995.  Standard  automobile  premium  increased by $15 million or 8.8%
primarily  as a result of  expansion in target  markets  (Michigan,  California,
Connecticut and Hawaii) and represents 50% of total Retail net premium  written.
Non-standard  automobile premium has increased to $40 million,  or approximately
11% of total Retail  premium,  since the market was initially  targeted in 1995.
Growth in auto lines for 1996 was offset by planned  reductions  in  homeowner's
premium in accordance with management plans to decrease  exposure in catastrophe
prone areas (primarily California, New York and Florida).

Retail net premium written increased by approximately $44 million or 14% in 1995
from 1994, principally due to growth of $29 million in automobile lines of which
$30 million related to non-standard automobile. During 1995, Retail targeted the
non-standard  automobile  market  and  developed  strategic  relationships  with
several MGAs.

UNDERWRITING  RESULTS.  The following  table  summarizes  Retails'  underwriting
results:

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Net premium earned              $363    $337     $312
Less:
   Net loss and LAE incurred     259     244      270
   Commission expense             59      56       53
   Premium related expense        17      16       16
   Other underwriting expense     32      27       28
------------------------------------------------------
Underwriting loss                $(4)    $(6)    $(55)
------------------------------------------------------
Underwriting gain (loss)
   excluding catastrophes         $4     $13      $(6)
------------------------------------------------------

STATUTORY RATIOS:
------------------------------------------------------
Loss and LAE                    71.3    72.5     86.7
Commission expense              16.2    16.9     16.9
Premium related expense          4.7     4.6      5.0
Other underwriting expense       9.0     7.6      9.0
------------------------------------------------------
Combined ratio                 101.2   101.6    117.6
======================================================
Combined ratio
   excluding catastrophes       98.9    96.1    103.8
======================================================

Retail's  underwriting gain excluding  catastrophes declined by $9 million to $4
million in 1996 and the combined ratio excluding  catastrophes  increased by 2.8
percentage  points over 1995. The  deterioration in the combined ratio excluding
catastrophes is principally  due to a 2.0 percentage  point rise in the loss and
LAE ratio excluding catastrophes resulting from increased frequency and severity
of reported losses for standard and non-standard  automobile lines. In addition,
the underwriting  expense ratio increased by 1.4 percentage  points due to start
up costs of $3.4 million incurred to develop the Small Business unit and program
business.

Retail's underwriting results excluding  catastrophes improved  substantially in
1995 in  comparison  to 1994 due to rate  increases  effective  in 1995 and cost
containment  measures  implemented in 1994. The 

                                     - 24 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
most  significant  rate  increases were in California and were comprised of 9.9%
for homeowners;  73% for earthquake;  and 6.7% for automobile.  In 1994,  Retail
implemented a number of cost  containment  measures which included  medical cost
control  procedures  and other  vendor  programs.  These  expense  controls  and
increasing premium volume reduced the other underwriting expense ratio in 1995.

Catastrophe costs decreased to $8.4 million in 1996 compared to $18.6 million in
1995 and $48.7  million  in 1994.  TIG's  1996 and 1995  catastrophe  costs were
mainly attributable to various windstorm,  rain and flood losses due to seasonal
storms in western states and to hurricane  activity in southeastern  states. The
January 1994 Northridge earthquake  contributed $44.7 million of the catastrophe
costs for 1994.

--------------------------------------------------------------------------------
7.5 OTHER LINES
================================================================================

Other  lines  principally  includes  commercial  lines that have been  placed in
run-off  due to  failure  to meet  profitability  standards.  See Item 1.5 for a
description of business placed in run-off.

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Gross premium written           $294    $466     $520
------------------------------------------------------
Net premium written             $151    $304     $405
------------------------------------------------------
Net premium earned              $213    $379     $430
Less:
   Net loss and LAE incurred     195     275      323
   Commission expense             24      49       71
   Premium related expense        14      21       23
   Other underwriting expense     13      65       99
   Dividends to policyholders      1       1        2
------------------------------------------------------
        Total underwriting loss $(34)   $(32)    $(88)
------------------------------------------------------

STATUTORY RATIOS:
------------------------------------------------------
Loss and LAE                    91.3    73.5     79.3
Commission expense              10.3    13.0     17.4
Premium related expense          8.3     6.4      6.6
Other underwriting expense       7.4    21.3     21.2
Policyholder dividend ratio      0.7     0.4      0.1
------------------------------------------------------
Combined ratio                 118.0   114.6    124.6
======================================================


PREMIUM.  Non-renewal  of Other Lines  business has  generally  progressed  at a
faster rate than originally expected by TIG management. The rapid elimination of
this  business  is  attributable  to  pro-active  efforts  by TIG  in  assisting
producers  with placing  their  business  with other  insurance  carriers.  As a
result,  TIG has in many cases  avoided  lengthy  cancellation  notice  periods.
Management  estimates that the last renewals for remaining  policies in-force at
December  31, 1996 will be  processed  by late 1997 and that related net premium
written will decline by over 75% in 1997 as compared to 1996.

UNDERWRITING  RESULTS.  As discussed at Item 1.6, TIG strengthened  loss and LAE
reserves  for Other Lines by $31 million  during the first  quarter  1996.  This
reserve  strengthening  increased  the year to date  1996  loss and LAE ratio by
approximately 14.4 percentage points. Commission expense ratio fluctuations with
prior periods are primarily attributable to the changing mix of business as some
products  are  non-renewed  more  quickly  than  others.  Underwriting  expenses
declined in 1996 due to the  elimination of overhead costs and the first quarter
1996 accrual for  contractual  policy  obligations as discussed in Note C to the
Consolidated Financial Statements.

                                     - 25 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.6  EXPOSURE MANAGEMENT
================================================================================

GENERAL  REINSURANCE  PROGRAM.  TIG purchases  reinsurance to allow it to insure
larger risks while controlling exposure to larger losses and catastrophes.  Each
year, TIG's reinsurance program is modified based upon changes in TIG's business
mix,  coverage  availability  and  pricing.  Reinsurance  purchased  may include
treaty,  pro rata,  facultative and aggregate stop loss coverages.  TIG's ceding
reinsurance  agreements  are generally  structured on a treaty basis whereby all
risks meeting certain  criteria are  automatically  reinsured.  During 1994, TIG
centralized  the  reinsurance  purchasing  function for all operating  divisions
except TIG Re and  increased  minimum  retentions.  Limited  authority  is still
granted  to  individual   business  units   regarding   treaty  and  facultative
placements, which adds flexibility to TIG's reinsurance program.

TIG Re purchases  reinsurance  (retrocessional  cover) and  aggregate  stop loss
coverage separately from TIG Insurance's  primary  operations.  TIG Re purchases
property catastrophe coverage and several retrocessional  coverages for specific
treaties or programs.  In 1995, TIG Re purchased aggregate stop loss reinsurance
coverage from TIG Insurance,  similar to external reinsurance  purchased in 1996
and 1994.

The priorities in TIG's reinsurance program are security of reinsurance (ability
of the  reinsurer  to pay losses  now and in the  future),  coverage  and price.
Reinsurers'  financial  acceptability is monitored and recoverables are pursued.
Contract terms are reviewed annually and renegotiated in the interim if required
to  remain  in  compliance   with  program  needs.   Continuity  in  reinsurance
relationships  is a high priority for TIG, with several  coverages  remaining in
place for 20 or more years with the same  reinsurer.  Reinsurers  are subject to
licensing and regulation in the  jurisdictions  in which they conduct  business.
Countries  outside of the United  States have varying  levels of  regulation  of
insurance  and  reinsurance  companies.  Many states allow  financial  statement
credit for reinsurance ceded to a reinsurer that is licensed in another state or
foreign   jurisdiction,   provided  such  reinsurance  meets  certain  financial
requirements or the insurer is provided with collateral  (usually in the form of
a letter of credit) to secure  the  reinsurer's  obligations.  To  maintain  its
ability to receive  financial  statement  credit,  TIG  typically  requires  its
reinsurers to be licensed in the ceding insurer's state of domicile or to submit
collateral  in a form and in an  amount  sufficient  to secure  the  reinsurer's
obligations to TIG.  Reinsurance does not legally  discharge an insurer from its
primary  liability for the full amount of the policies it writes. If a reinsurer
fails to meet its  obligations  under  the  reinsurance  agreement,  the  ceding
company is required to pay the loss.  At December 31, 1996 and 1995,  TIG had an
allowance of $9 million for potentially  unrecoverable  reinsurance.  TIG's five
largest non-affiliated reinsurers are as follows:

                                    Reinsurance
                                  Recoverable at          Best's
(In millions)                   December 31, 1996        Rating (1)
===================================================================
American Reinsurance Company         $175                 A+
Underwriters Reinsurance Company      107                 A+
General Reinsurance Corporation       101                 A++
Hannover Ruckversicherung              99                 A+
Centre Reinsurance Company
     of  NewYork                       88                 A
===================================================================
1)   The ratings are taken from the Best's Key Rating Guide, 1996 Edition.
                                    ------------------------

Ceded written premium equaled approximately 21% of gross premium written in 1996
and 1995 and 18% of gross written premium in 1994. The increase in premium ceded
in 1996 and 1995 as  compared  to 1994 is  principally  attributable  to the 90%
cession of  financial  institutions  business as  discussed  at Item 7.5 - Other
Lines.

CATASTROPHE  REINSURANCE  PROGRAM.  TIG is exposed to  multiple  insured  losses
arising out of a single occurrence,  such as a natural or man-made  catastrophe.
Such an event  may  generate  insured  losses  in any or all of TIG's  operating
divisions.   TIG's  exposure  to  catastrophe  losses  arises  principally  from
hurricane,  windstorm,  earthquake, fire and explosion. TIG manages its exposure
to such losses from an underwriting  perspective by limiting the accumulation of
known risks in exposed areas, and from a reinsurance perspective,  by purchasing
catastrophe  reinsurance.  Catastrophe reinsurance treaties are

                                     - 26 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
written to cover one or two loss events per year.  If the coverage is exhausted,
additional   catastrophe   coverage   under  the  treaty  may  be  purchased  (a
reinstatement  of the original  coverage) by paying an additional  contractually
defined  premium  subsequent to a loss. If all  contractual  reinstatements  are
exhausted,  reinstatement  of coverage may be available by paying an  additional
premium at  prevailing  market  rates.  TIG's  catastrophe  reinsurance  program
provided for $250 million of gross  coverage in 1996 and 1995,  and $200 million
in  1994.  After  consideration  of  reinsurance   reinstatement   premium,  TIG
effectively retained approximately 95% of the first $50 million of losses and 5%
of losses in excess of $50  million  for 1996,  1995 and 1994.  In 1995,  TIG Re
entered into a separate catastrophe  reinsurance agreement providing $25 million
in excess of a $15 million retention for TIG Re's property program.  This treaty
will be in effect for three years.

No major catastrophe losses were incurred by TIG in 1996 or 1995.  However, as a
result of the 1994 Northridge earthquake,  management intensified its efforts to
reduce TIG's  exposure to  catastrophic  loss in any one  geographic  region and
analyzed loss exposures by zip code for catastrophe prone areas. The majority of
TIG's  catastrophe  exposure is from the Retail  division.  Since the Northridge
earthquake,  Retail has  implemented a new catastrophe  management  strategy for
reducing PML hurricane  and  earthquake  exposures  which  includes  disciplined
underwriting guidelines for coastal property, termination of unprofitable agents
with high PML's,  increased rates and deductibles for earthquake  coverage,  and
reduced  writings for tenant,  condominium and mobile home business.  As part of
this  strategy,  TIG  developed  and  received  approval  in July  1995 from the
California  Department  of  Insurance  for a stand alone "no frills"  earthquake
policy for writing in that  state.  This new policy was  effective  in the third
quarter of 1995, and contains only basic  coverage for roofs,  walls and limited
amounts for contents.  At December 31, 1996, all of Retail's earthquake policies
in force were the new "no  frills"  policy.  In  addition,  California  property
policies in force had  decreased by 37% at December 1996 as compared to December
1993.  As a result,  Retail's  estimated  PML at December 1996 for an earthquake
equivalent to the Northridge  earthquake has been reduced approximately 75% from
the estimated December 1993 PML.  Accordingly,  TIG's gross catastrophe coverage
was reduced to $170 million for 1997.

Losses from coverages other than property insurance may also occur from an event
giving rise to  catastrophic  property  losses.  For example,  an  earthquake or
explosion could cause workers'  compensation  losses as well as property losses.
TIG has  estimated  a PML for such an event  and  coordinates  its  underwriting
guidelines  and  reinsurance  covers to limit its probable  maximum  loss. It is
possible  that the PML  estimated  by TIG may either  understate  or  overstate,
perhaps to a  significant  degree,  the  possible  losses to TIG which  could be
generated by insured loss events.

As with all property/casualty  insurers,  TIG expects to pay some losses related
to catastrophes  and prices its products  accordingly.  Total gross  catastrophe
losses  aggregated $15 million,  $34 million and $106 million in 1996,  1995 and
1994,   respectively.   Total  net  catastrophe  costs,   including  reinsurance
reinstatement  premium,  aggregated $11 million,  $24 million and $54 million in
1996, 1995 and 1994, respectively.

                                     - 27 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.7 INVESTMENTS
================================================================================

INVESTMENT  MIX.  Management  continues to emphasize a  conservative  investment
strategy by  maintaining a portfolio of primarily  high-quality,  fixed maturity
investments.  In accordance with SFAS 115, TIG's entire fixed maturity portfolio
has been  classified  as  available-for-sale.  As a result,  all fixed  maturity
investments are recorded in TIG's financial statements at fair value. Unrealized
gains and losses on fixed maturity  investments  and related hedges are recorded
net of tax  directly in  shareholders'  equity.  See Note D to the  Consolidated
Financial Statements at Item 8 for further discussion. Following is a summary of
TIG's investment portfolio by type of investment.

                                                 December 31,
                                 ---------------------------------------------
                                        1996                    1995
                                 ---------------------------------------------
                                  Market  % of Market     Market  % of Market
(In millions)                      Value    Portfolio      Value    Portfolio
==============================================================================
Corporate and other bonds         $1,242         29.3%  $    658         14.5%
Mortgage-backed securities         1,210         28.6      1,405         30.9
United States government bonds     1,070         25.3      1,388         30.5
Municipal bonds                      535         12.6        951         20.9
------------------------------------------------------------------------------
Total fixed maturity investments   4,057         95.8      4,402         96.8
Short-term and other investments     176          4.2        148          3.2
------------------------------------------------------------------------------
Total invested assets             $4,233        100.0%    $4,550        100.0%
==============================================================================

During the first half of 1996,  tax-exempt  municipal  bonds and  certain  other
lower-yielding securities were disposed of in favor of higher-yielding corporate
bonds  and  mortgage-backed  securities.  As a  result,  the  book  yield of the
portfolio  increased to 7.5% for the year ended  December 31, 1996 from 6.7% for
the year ended December 31, 1995.  Invested  assets  declined by $317 million at
December  31,  1996 as  compared to  December  31,  1995 due to  repurchases  of
treasury  stock as discussed at Item 7.8 and a decrease in  unrealized  gains as
discussed below.

Less than one-third of TIG's portfolio  consists of  mortgage-backed  securities
("MBS").  United States federal  government and government  agency mortgages now
represent  approximately  91% of TIG's  exposure  to MBS,  offering  AAA  credit
quality and high yields.  A risk inherent to MBS is  prepayment  risk related to
interest rate  volatility.  The  underlying  mortgages may be repaid  earlier or
later than  originally  anticipated,  dependent on the repayment and refinancing
activity of the  underlying  homeowners.  Should this occur,  TIG would  receive
paydowns on  principal  amounts  which may have been  purchased  at a premium or
discount,  and TIG's  investment  income would be affected by any adjustments to
amortization  resulting  from  the  prepayments.  TIG's  consolidated  financial
results have not been  materially  impacted by  prepayments of MBS. In addition,
interest rate volatility can affect the market value of MBS.  Substantially  all
MBS held in the portfolio can be actively traded in the public market.

In the normal  course of business,  TIG may choose to hedge some of its interest
rate risk with derivative financial instruments.  Such arrangements are intended
to help TIG to more closely  match the cash flow received from its assets to the
payments on its  liabilities.  TIG's interest rate swap  arrangements  generally
provide that one party pays  interest at a floating rate in relation to movement
in an underlying  index and the other party pays interest at a fixed rate. While
TIG is  exposed  to  credit  risk in the event of  non-performance  by the other
party,   non-performance  is  not  anticipated  due  to  credit  rating  of  the
counterparties.

At December 31, 1996, TIG had one open derivative  position for an interest rate
swap  with a  notional  amount  of $14  million  and such  derivative  financial
instrument  was with a  financial  institution  rated A or  better  by the major
credit rating agencies.  Additionally,  there were $85 million of fixed maturity
investments  at  December  31,  1996  which do not meet the GAAP  definition  of
"derivative  financial  instruments",  but derive their coupon payments from the
rate of prepayments of certain GNMA  mortgage-backed  securities.  There were no
open future contracts at December 31, 1996 as compared to open futures contracts
of $25 million at December 31, 1995.  Net  unrealized  losses of $4.4 million at
December 31, 1996 related to previous  futures  contracts are accounted for as a
net  increase  in the cost  basis of the  underlying  securities  and are  being
amortized over the life of the hedged securities.

                                     - 28 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
TIG  routinely  enters  into  commitments  to  purchase  securities  on a "To Be
Announced" ("TBA") basis for which the interest rate risk remains with TIG until
the date of delivery and payment.  Delivery and payment of securities  purchased
on a TBA basis can take place a month or more after the date of the transaction.
These securities are subject to market fluctuations during this period and it is
the  Company's  policy  to  recognize  any  gains or  losses  only when they are
realized.  TIG maintains  cash and  securities  with a fair value  exceeding the
amount of its TBA purchase  commitments.  At December 31, 1996, the TBA purchase
commitments  amounted to $46.3  million,  and had a fair value of $45.9 million,
compared  to TBA  commitments  of  $152.2  million  with a fair  value of $153.1
million at December 31, 1995.

TIG's objective is to maintain the weighted  average  maturity of its investment
portfolio between 8 and 11 years and the weighted-average duration between 4 and
7 years. At December 31, 1996, the weighted average maturity of TIG's investment
portfolio was 10.3 years compared to 8.9 and 10.0 years at December 31, 1995 and
1994. At December 31, 1996, the weighted  average  duration of TIG's  investment
portfolio  was 5.6 years  compared to 5.8 and 6.3 years at December 31, 1995 and
1994.

UNREALIZED GAINS. The unrealized gain on investments decreased by $88 million on
a  pre-tax  basis  during  1996 as a result  of higher  market  interest  rates.
Although  an increase in interest  rates would  decrease  shareholders'  equity,
management   does  not  believe  that  interest  rate  increases  would  have  a
significant adverse impact on TIG's cash flow. The following is a summary of net
unrealized gains/losses by type of security:


                                       December 31,
                                     ----------------
(In millions)                          1996    1995    Change
==============================================================
Municipal bonds                         $33     $60     $(27)
Mortgage-backed securities               (9)     (4)      (5)
United States government bonds           32      91      (59)
Corporate and other bonds                25      22        3
--------------------------------------------------------------
   Net unrealized gains                 $81    $169      $88
--------------------------------------------------------------
   Net unrealized gains, net of tax     $52    $110     $(58)
==============================================================

INVESTMENT  INCOME.  The  following  table  displays  the  components  of  TIG's
investment  income and mean  after-tax  investment  yields.  The yields  include
interest earned and dividends received and exclude realized investment gains and
losses.  These  yields are  computed  using the average of the  month-end  asset
balances during the period.

                                  Years Ended December 31,
                                 --------------------------
(In millions)                      1996    1995     1994
===========================================================
Fixed maturity investments:
   Taxable                         $264    $213     $174
   Tax-exempt                        34      60       78
Short-term and other investments      6       7        6
-----------------------------------------------------------
Total gross investment income       304     280      258
Investment expenses,
   interest and other               (14)    (12)      (9)
-----------------------------------------------------------
Total net investment income        $290    $268     $249
-----------------------------------------------------------
After-tax net investment yield     4.61%   4.49%    4.41%
===========================================================

INVESTMENT QUALITY. The table below shows the rating distribution of TIG's fixed
maturity investment portfolio:


                                            December 31,
                          ----------------------------------------------
                                  1996                     1995
                          ----------------------   ---------------------
                           Market      % of         Market      % of
Standard & Poor's/Moody's   Value     Portfolio      Value    Portfolio
========================================================================
(In millions)
AAA/Aaa                    $2,787         68.7%     $3,361        76.4%
AA/Aa                         194          4.8         369         8.4
A/A                           329          8.1         257         5.8
BBB/Baa                       232          5.7         119         2.7
Below BBB/Baa                 515         12.7         296         6.7
------------------------------------------------------------------------
Total fixed maturity
     investments           $4,057        100.0%     $4,402       100.0%
========================================================================

TIG  minimizes  the credit risk of its fixed  maturity  portfolio  by  investing
primarily  in  investment  grade  securities.   To  enhance  investment  yields,
management  has  authorized  the  purchase of up to $600  million in high yield,
below  investment-grade  securities,   subject  to  statutory  limitations.  The
information on credit quality in the preceding table is based upon the higher of
the rating assigned to each issue of fixed-income  securities by either Standard
& Poor's  Rating  Services or Moody's  Investor  Services,  Inc.  Where  neither
Standard & Poor's  nor  Moody's  has  assigned  a rating to a  particular  fixed
maturity  issue,  

                                     - 29 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
classification  is based on 1) ratings  available from other  recognized  rating
services;   2)  ratings  assigned  by  the  National  Association  of  Insurance
Commissioners  ("NAIC");  or 3) an internal assessment of the characteristics of
the individual security, if no other rating is available.

The NAIC has a bond rating  system that assigns  security  classes.  These "NAIC
designations"  are  used by  insurers  when  preparing  their  annual  statutory
financial  statements.  The designations assigned by the NAIC range from class 1
to class 6, with a rating in class 1 being the highest  quality.  As of December
31,  1996 and 1995,  approximately  87% and 93% of TIG's  investment  portfolio,
measured on a statutory  carrying value basis,  was invested in securities rated
in class 1 or 2,  both  considered  investment-grade  by the NAIC,  compared  to
substantially all of the portfolio as of December 31, 1994.

--------------------------------------------------------------------------------
7.8 LIQUIDITY AND CAPITAL RESOURCES
================================================================================

Liquidity is a measure of an entity's  ability to secure enough cash to meet its
contractual  obligations and operating needs. TIG requires cash primarily to pay
policyholders' claims, operating expenses, and dividend obligations.  Generally,
premium is collected  months or years before  claims are paid under the policies
purchased by the premium.  These funds are used first to pay current  claims and
expenses. The balance is invested in securities to augment the investment income
generated by the existing portfolio.  Historically,  TIG has had, and expects to
continue  to have,  more than  sufficient  funds to pay  claims,  expenses,  and
policyholder dividends.

CASH  FLOW  FROM  OPERATING  ACTIVITIES.  The  following  table  summarizes  the
significant components of cash flow from operations:

                                Years Ended December 31,
                                ------------------------
(In millions)                      1996   1995   1994
========================================================
Reinsurance operations             $161   $209   $180
Primary operations and corporate     36     79    (19)
--------------------------------------------------------
Ongoing operations                  197    288    161
Run-off  (Other Lines) operations  (199)  (141)   (88)
--------------------------------------------------------
   Total                            $(2)  $147    $73
========================================================

Positive cash flow from Reinsurance operations is attributable to premium growth
and a lengthy loss payout period for most lines.  Growth in net premium  written
was 7%, 16%, and 27% for 1996,  1995 and 1994,  respectively.  The  reduction in
Reinsurance  cash flow from  operations in 1996 is  attributable to a slowing in
premium growth due to general  market  conditions and an increase in paid losses
resulting  from a shift in business  mix to lines with  relatively  shorter loss
payout patterns. In addition,  Reinsurance cash flow for 1996 was reduced by $11
million due to the commutation of one treaty.

Net premium written for ongoing primary operations increased by 4.4% in 1996 and
2.4% in 1995 as compared to the prior  year.  The  decrease in cash flow in 1996
from 1995 is  attributable  to a general  shift in  business  mix to lines  with
relatively shorter loss payout patterns and the timing of premium receivable and
reinsurance  recoverable  collections.  Primary operations cash flow was reduced
$50  million in 1994 for claims and  catastrophe  reinsurance  premium  payments
related to the Northridge earthquake.

Net premium  written for run-off  operations has declined by 50%, 25% and 27% in
1996, 1995 and 1994 as compared to the corresponding prior year. The increase in
negative cash flow for 1996 is due to the decline in premium  resulting from the
first quarter 1996  restructure  action as discussed at Item 7.1 -  Consolidated
Results,  restructure  charge  payments and the continuing  payout of prior year
loss and LAE reserves.  Run-off  operations cash flow was reduced by $42 million
in 1996 for  restructure  charge payments and $34 million in 1995 as a result of
the 90% reinsurance of financial  institutions business as discussed at Item 1.5
- Other Lines.

                                     - 30 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
INVESTMENT  LIQUIDITY.  At December 31, 1996, TIG had $139 million in short-term
investments  compared to $138 million at December 31, 1995.  In addition,  as of
December 31, 1996, TIG expects to realize $522 million,  $857 million,  and $554
million in cash flow from  principal  and interest  payments over the next three
years,  respectively,  from its  investment  portfolio.  TIG has  structured its
investment  portfolio to manage the impact of market interest rate  fluctuations
on  liquidity.  Investments  and cash held at the  holding  company  totaled $40
million as of December 31, 1996.

NOTES PAYABLE. In December 1995, TIG Holdings established an unsecured revolving
line of credit with maximum borrowings of $250 million. At December 31, 1996 and
1995, TIG Holdings had no outstanding borrowings under this facility.

In December  1995,  TIG Insurance  Company  entered into a five-year $50 million
credit  facility  of  which  approximately  $25  million  and  $22  million  was
outstanding  as of December 31, 1996 and 1995,  respectively.  The facility is a
direct  financing  arrangement  with a  third  party  related  to the  sale  and
leaseback of certain fixed assets.

In addition,  TIG Holdings had $98 million of 8.125% notes  payable  maturing in
2005  outstanding  at December 31, 1996 and 1995.  Interest of $8 million and $4
million was paid in 1996 and 1995, respectively on these notes.

In January of 1997,  TIG Capital  Trust I, a statutory  business  trust  created
under  Delaware law as a trust  subsidiary of TIG Holdings,  completed a private
offering of $125  million of 8.597%  capital  securities.  TIG  Holdings  issued
$128.75 million in 8.597% Junior Subordinated  Debentures to TIG Capital Trust I
(including  approximately  $3.75 million with respect to the capital contributed
to the Trust by TIG Holdings).  All of the net proceeds received by TIG Holdings
from the issuance of the debentures will be used for general corporate  purposes
which may include  repurchases of the Company's common stock (See Part II, Notes
to Consolidated Financial Statements, Note Q - Subsequent Event).

LIQUIDITY  RESTRICTIONS.  There  are  certain  restrictions  on the  payment  of
dividends  by insurance  subsidiaries  that may limit TIG  Holdings'  ability to
receive funds from its subsidiaries.  Dividends from its insurance  subsidiaries
represent the principal  long-term  source of liquidity to TIG Holdings.  During
1996,  TIG Holdings  received cash  dividends of $130 million from its insurance
subsidiaries.  As of December 31,  1996,  $155 million of dividends is currently
available  for payment to TIG Holdings from its  insurance  subsidiaries  during
1997 without restriction (See Item 1.7 - Regulation).

                                     - 31 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.9  FINANCIAL CONDITION
================================================================================

Key balance sheet data is presented below:

                                        December 31,
                                 ------------------------
(In millions)                      1996    1995     1994
=========================================================
Investments (See Item 7.7)       $4,233  $4,550   $3,919
Reinsurance recoverable
   (See Item 7.6)                 1,264   1,221    1,241
Deferred tax asset
   (See Note G at Item 8)           102      60      261
Total assets                      6,476   6,683    6,116
Loss and loss expense reserves
   (See Item 1.6)                 3,760   3,886    3,873
Shareholders' equity              1,207   1,376    1,042
---------------------------------------------------------
Combined statutory surplus         $975    $952     $901
Net premium written to statutory
   surplus ratio                   1.6x    1.7x     1.8x
=========================================================

SHAREHOLDERS'  EQUITY.  Shareholders'  equity  decreased by $169 million  during
1996, primarily as a result of treasury share repurchases. Unrealized investment
gains as of December  31, 1996 were $52  million  (net of tax)  compared to $110
million (net of tax) in 1995.  Accordingly,  book value per share decreased from
$23.09 at  December  31,  1995 to $22.41 at  December  31,  1996.  Approximately
500,000  unallocated  Employee  Stock Option Plan shares have been excluded from
outstanding  common shares for purposes of computing book value per common share
at December 31, 1996 and 1995, respectively.

As of December 31, 1996,  the TIG Holdings Board of Directors  authorized  stock
repurchases  of up to 11.25 million shares of TIG Holdings  common stock.  Under
the  repurchase  plan,  repurchases  may be made  from  time to time on the open
market at prevailing market prices or in privately negotiated transactions.  The
first  repurchases of stock were made in April 1994.  Through December 31, 1996,
repurchases  of 10.3  million  shares of stock have been made at an average cost
per share of $26.84, for an aggregate cost of $276 million.

CAPACITY.   A  key   measure  of  both   strength   and  growth   capacity   for
property/casualty  insurers  is the ratio of net  premium  written to  statutory
policyholders' surplus. At December 31, 1996, TIG's net premium-to-surplus ratio
was 1.6,  higher  than the  industry  average of 1.1,  but within an  acceptable
range.  Insurance regulators generally accept a ceiling for this ratio of 3.0:1;
therefore,  at its current  ratio,  TIG has the  capacity to grow by writing new
business in its targeted markets.

RATINGS.  A.M. Best has currently  assigned an "A" ("Excellent")  rating to both
TIG Insurance (including  subsidiaries which cede 100% of net premium written to
TIG Insurance) and TIG Re which are separately  rated.  Best's ratings are based
on an  analysis of the  financial  condition  and  operating  performance  of an
insurance  company  as they  relate to the  industry  in  general.  The  ratings
represent an independent  opinion of a company's  financial strength and ability
to meet its obligations to policyholders.  An "A" rating is Best's third highest
of 15 rating classifications.

Standard & Poor's  Insurance  Rating Services  ("S&P") has currently  assigned a
claims-paying rating of "AA-" to TIG and individual insurance company members of
the TIG group.  The assigned  rating  reflects  S&P's  opinion of the  operating
insurance  company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. The "AA-" rating assigned to TIG is the
fourth highest of ten ratings in the "secure claims-paying ability" category and
represents "excellent financial security".

Moody's  Investor  Service  has  currently  confirmed  a "Baa1"  rating  for the
Company's  notes payable  citing its stable rating  outlook.  Moody's  rating is
based on review of the Company's capital  structure,  cash flows,  profitability
and focused business strategy.

                                     - 32 -
<PAGE>
                                     PART II
--------------------------------------------------------------------------------
7.10 FORWARD-LOOKING STATEMENTS
================================================================================

TIG Holdings would like to caution  readers  regarding  certain  forward-looking
statements  in the  Management's  Discussion  and Analysis and elsewhere in this
Form 10-K.  Statements that are not based on historical  information are forward
looking  statements  and are based on  management's  projections,  estimate  and
assumptions. The words "believe", "expect", "anticipate" and similar expressions
generally identify  forward-looking  statements.  While TIG Holdings believes in
the veracity of all  statements  made  herein,  forward-looking  statements  are
necessarily  based  upon a number  of  estimates  and  assumptions  that,  while
considered  reasonable by TIG Holdings,  are  inherently  subject to significant
business,  economic and competitive  uncertainties and contingencies,  including
without limitation:

    o  changes in interest  rates  which could  impact  investment  yields,  the
       market value of invested assets and ultimately product pricing

    o  changes in the frequency and severity of catastrophes which could impact 
       net income, reinsurance costs and cash flow

    o  increased competition (on the basis of price, services, or other factors)
       which could generally reduce operating margins

    o  regulatory  changes which could  increase the Company's  overhead  costs,
       restrict  access  to  profitable   markets  or  force   participation  in
       unprofitable markets

    o  changes in loss payment patterns which could impact cash flow and net 
       investment income

    o  changes in  estimated  overall  adequacy of loss and LAE  reserves  which
       could impact net income,  statutory  surplus  adequacy  and  management's
       decision to continue certain product lines

    o  changes in general market or economic  conditions  which could impact the
       demand for the  Company's  products and loss  frequency  and severity for
       certain lines of business.

Many of these  uncertainties  and  contingencies can affect TIG Holdings' actual
results  and could  cause its  actual  results to differ  materially  from those
expressed  in any  forward-looking  statements  made by,  or on behalf  of,  TIG
Holdings.

                                     - 33 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
7.11  GLOSSARY
================================================================================

AGENT:  An  insurer's  representative  authorized  to market a Company's  policy
coverages for a commission.

ADMITTED  ASSETS:  Assets of an insurer  permitted by an  insurer's  domiciliary
state to be taken into  account  in  determining  its  financial  condition  for
statutory purposes.

BORDEREAU:  A detailed  report of  reinsurance  premiums or  reinsurance  losses
furnished  periodically  by the reinsured.  A loss borderau  contains a detailed
list of claims and claims expenses  outstanding and paid by the reinsured during
the  reporting  period  and  the  amount  of  reinsurance  indemnity  applicable
there-to.

BROKER/INTERMEDIARY: One who negotiates contracts of insurance or reinsurance on
behalf of an insured party, receiving a commission from the insurer or reinsurer
for placement and other services rendered.

CAPACITY:  The percentage of surplus, or the dollar amount of exposure,  that an
insurer or reinsurer is willing to place at risk. Capacity may apply to a single
risk, a program, a line of business or an entire book of business.

CAPTIVE: An insurance company which is generally wholly owned by a non-insurance
organization and whose primary purpose is to insure or reinsure the risks of the
parent organization and its subsidiaries.

CASUALTY  INSURANCE:  Insurance  which is  primarily  concerned  with the losses
caused by injuries to third persons (i.e., not the  policyholder)  and the legal
liability imposed on the insured resulting  therefrom.  It includes,  but is not
limited to,  employers'  liability,  workers'  compensation,  public  liability,
automobile  liability,  personal liability and aviation liability insurance.  It
excludes  certain  types of loss that by law or custom are  considered  as being
exclusively  within  the  scope of other  types  of  insurance,  such as fire or
marine.

CATASTROPHE:  An event that is designated to be a "catastrophe"  by the Property
Claims  Service  Division of American  Services  Group,  an  industry  body.  It
generally  defines  events which are  estimated to cause more than $5 million in
insured  property  damage and which affect a significant  number of insureds and
insurers.

CATASTROPHE  REINSURANCE:  A form of excess of loss property  reinsurance which,
subject to a specified  limit,  indemnifies the ceding company for the aggregate
amount of losses in excess of a specified  retention for losses resulting from a
particular  catastrophic  event.  The actual  reinsurance  document  is called a
"catastrophe cover."

CEDED  REINSURANCE;  CEDING  COMPANY:  When a  company  reinsures  its risk with
another, it "cedes" business and is referred to as the "ceding company."

COMBINED RATIO: A combination of the  underwriting  expense ratio,  the loss and
LAE ratio, and the policyholder  dividends ratio,  determined in accordance with
statutory accounting practices. A combined ratio below 100.0 generally indicates
profitable underwriting results. A combined ratio over 100.0 generally indicates
unprofitable underwriting results.

DIRECT  PREMIUM  WRITTEN:  Premium for insurance  written on a company's  policy
forms during a given period.

EXCESS  OF LOSS:  A generic  term  describing  insurance  or  reinsurance  which
indemnifies  the  policyholder  against all or a specified  portion of losses on
underlying  insurance policies in excess of a specified dollar amount,  called a
"layer" or "retention."

FACULTATIVE  REINSURANCE:  The  reinsurance of all or a portion of the insurance
coverage  provided by a single  policy.  Each  policy  reinsured  is  separately
negotiated.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"):  Accounting principles as set
forth in opinions of the Accounting  Principles Board of the American  Institute
of Certified Public Accountants and/or in statements of the Financial Accounting

                                     - 34 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
Standards Board and/or their  respective  successors and which are applicable in
the circumstances as of the date in question.

GROSS  PREMIUM  WRITTEN:   Total  premium  for  direct  insurance   written  and
reinsurance assumed during a given period.

INCURRED BUT NOT REPORTED ("IBNR")  RESERVES:  Reserves for estimated losses and
LAE which have been incurred but not reported to the insurer  (including  future
developments on losses that are known to the insurer).

INCURRED  LOSSES:  The total losses  sustained by an insurance  company  under a
policy or policies,  whether paid or unpaid. Incurred losses include a provision
for claims that have occurred but have not yet been reported to the insurer.

LOSS ADJUSTMENT  EXPENSES  ("LAE"):  The expenses of settling claims,  including
legal and other fees,  and the portion of general  expenses  allocated  to claim
settlement costs.

LOSS DEVELOPMENT: The emergence of actual loss data as compared to estimates for
specific accident years and for specific lines of business.

LOSS AND LAE RATIO:  The ratio of  incurred  losses  and LAE to earned  premium,
determined in accordance with statutory accounting practices.

LOSS AND LAE RESERVES:  Liabilities  established  by insurers and  reinsurers to
reflect the estimated cost of claims payments that the insurer or reinsurer will
ultimately  be required to pay in respect of  insurance  or  reinsurance  it has
written.  Reserves are  established  for losses and for LAE, and consist of case
reserves and IBNR reserves.

NET PREMIUM EARNED:  The portion of net premium  written in a particular  period
that is recognized for accounting purposes as income during that period.

NET PREMIUM  WRITTEN:  Direct  premium  written  plus assumed  reinsurance  less
premium on ceded business for a given period.

PML:  (probable  maximum  loss).  The  largest  loss the  underwriter  considers
possible based upon the underwriter's experience and judgment.

POLICYHOLDER  DIVIDENDS  RATIO:  The ratio of dividends paid to policyholders to
earned premium, determined in accordance with statutory accounting practices.

PREMIUM-TO-SURPLUS  RATIO:  The  ratio  of  statutory  net  premium  written  to
statutory surplus.

PRIMARY  INSURANCE:  The insurance  coverage  provided  under the primary policy
issued  by  the  primary  insurer  to  the  primary  insured  (sometimes  called
"underlying insurance").

PROGRAM BUSINESS:  Tailored products developed for a particular industry segment
(i.e.,   sporting  events,   trucking)  or  distribution   system  (i.e.,  trade
associations,  affinity groups).  Programs are often developed and controlled by
MGAs.

PROPERTY  INSURANCE:  Insurance  that  provides  coverage  to a  person  with an
insurable  interest in tangible property for that person's property loss, damage
or loss of use.

REINSTATEMENT   PREMIUM:   The  premium  charged  for  the  restoration  of  the
reinsurance  limit of a  catastrophe  treaty to its full amount after payment by
the reinsurer of losses as a result of an occurrence.

REINSURANCE:   The  practice  whereby  one  party,  called  the  reinsurer,   in
consideration of a premium paid to it agrees to indemnify another party,  called
the reinsured, for part or all of the liability assumed by the reinsured under a
policy or  policies  of  insurance  which it has issued.  The  reinsured  may be
referred to as the original or primary insurer,  the direct writing company,  or
the ceding company.  Reinsurance does not legally  discharge the primary insurer
from its liability to the insured.

RESERVE  STRENGTHENING:  The  building  or  enhancement  of loss  reserves to an
actuarially  determined level considered adequate to cover all future claims for
policies in force, generally for a specific accident year or line of business.

                                     - 35 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
RETENTION:  The amount or portion of risk which an insurer or reinsurer  retains
for its own  account.  Losses in excess of the  retention  level are paid by the
reinsurer or  retrocessionaire.  In pro rata  treaties,  the  retention may be a
percentage of the original  policy's limit. In excess of loss  reinsurance,  the
retention is a dollar amount of loss, a loss ratio, or a percentage of loss.

RISK-BASED CAPITAL: A regulatory measurement of statutory capital and surplus to
analyze continuation of operations at existing levels, taking into consideration
various inherent risks.

STAMP  CAPACITY:  The  syndicate's  premium limit for the relevant  underwriting
year.

STATUTORY  ACCOUNTING  PRACTICES  ("SAP"):  Rules and  procedures  prescribed or
permitted by United States state insurance regulatory  authorities for recording
transactions and preparing financial statements. Statutory accounting principles
generally  reflect  a  liquidating,  rather  than a going  concern,  concept  of
accounting.

STATUTORY  SURPLUS:  The  excess  of  admitted  assets  over  total  liabilities
(including loss reserves), determined in accordance with SAP.

TEMPLATE   UNDERWRITING:   A  process  by  which  homogeneous  business  can  be
underwritten using standardized guidelines.

TREATY  PARTICIPATION:  The  portion of risk  exposure  an insurer or  reinsurer
accepts under an insurance  contract.  The insurer or reinsurer with the largest
participation is the lead insurer and therefore has the ability to influence the
terms of the contract.

TREATY  REINSURANCE:  The  reinsurance  of a specified type or category of risks
defined in a  reinsurance  agreement (a "treaty")  between a primary  insurer or
other reinsured and a reinsurer.  Typically, in treaty reinsurance,  the primary
insurer or reinsured  is  obligated  to offer and the  reinsurer is obligated to
accept a  specified  portion of all such type or  category  of risks  originally
underwritten by the primary insurer or reinsured.

UNALLOCATED  LOSS  ADJUSTMENT  EXPENSES  ("ULAE"):   The  expenses  incurred  in
connection with  investigation  and adjustment of claims that cannot be directly
allocated to any specific claims.

UNDERWRITING:  The  insurer's  process of reviewing  applications  submitted for
insurance  coverage,  deciding  whether  to accept  all or part of the  coverage
requested and determining the applicable premium.

UNDERWRITING  EXPENSE RATIO:  The ratio of underwriting  expenses to net premium
written, determined in accordance with statutory accounting practices.

UNDERWRITING  EXPENSES:  The aggregate of policy  acquisition  costs,  including
commissions,  and the portion of  administrative,  general,  and other  expenses
attributable to underwriting operations.

UNDERWRITING  RESULTS:  The measure of profitability of the insurance operations
of an insurer,  calculated as the result of earned  premium,  less losses,  loss
expenses, and underwriting  expenses.  Underwriting results is an indicator of a
company's underwriting success.

WORKING LAYER  REINSURANCE:  Reinsurance  which  absorbs the losses  immediately
above the reinsured's  retention layer. A working layer reinsurer will pay up to
a certain dollar amount of losses over the insured's retention, at which point a
higher layer  reinsurer (or the ceding  company)  will be liable for  additional
losses.  Working  layer  reinsurance  is also known as low layer  excess of loss
reinsurance.

                                     - 36 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
================================================================================

                                                                            Page
Report of Independent Auditors ..............................................38

Consolidated Balance Sheets at December 31, 1996 and 1995 ...................39

Consolidated Statements of Income for each of the three years 
in the period ended December 31, 1996 .......................................40

Consolidated Statements of Cash Flows for each of the three 
years in the period ended December 31, 1996 .................................41

Consolidated Statements of Changes in Shareholders' Equity 
for each of the three years in the period ended December 31, 1996 ...........42

Notes to Consolidated Financial Statements ..................................43

                                     - 37 -
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
TIG Holdings, Inc.

         We have audited the  accompanying  consolidated  balance  sheets of TIG
Holdings,  Inc.  and  subsidiaries  as of December  31,  1996 and 1995,  and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the three years in the period ended  December  31, 1996.  Our audits
also  included the  financial  statement  schedules  listed in the Index at Item
14(a).  These financial  statements and schedules are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and schedules based on our audits.

         We conducted our audits in accordance with 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 consolidated financial position of
TIG  Holdings,  Inc. and  subsidiaries  at December  31, 1996 and 1995,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity  with generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedules,  when  considered  in  relation  to  the  basic  financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information set forth therein.

                                                               ERNST & YOUNG LLP


Dallas, Texas
January 31, 1997


                                     - 38 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                               TIG HOLDINGS, INC.
                                          CONSOLIDATED BALANCE SHEETS
                                                                                              December 31,
                                                                                    -----------------------------
(In millions, except share data)                                                      1996                  1995
=================================================================================================================
ASSETS
     Investments:
<S>                                                                                 <C>                   <C>
         Fixed maturities, at market (cost: $3,976 in 1996 and $4,233 in 1995)      $4,057                $4,402
         Short-term and other  investments, at cost which approximates market          176                   148
-----------------------------------------------------------------------------------------------------------------
              Total  investments                                                     4,233                 4,550
     Cash                                                                               19                     4
     Accrued investment income                                                          57                    56
     Premium receivable (net of allowance of: $4 in 1996 and $3 in 1995)               420                   409
     Reinsurance recoverable (net of allowance of:  $9 in 1996 and 1995)             1,264                 1,221
     Deferred policy acquisition costs                                                 144                   144
     Prepaid reinsurance premium                                                       105                   111
     Income taxes                                                                      102                    60
     Other assets                                                                      132                   128
-----------------------------------------------------------------------------------------------------------------
         Total assets                                                               $6,476                $6,683
=================================================================================================================

LIABILITIES
     Reserves  for:
         Losses                                                                     $3,215                $3,288
         Loss adjustment expenses                                                      545                   598
         Unearned premium                                                              696                   712
-----------------------------------------------------------------------------------------------------------------
              Total reserves                                                         4,456                 4,598
     Reinsurance premium payable                                                        88                    69
     Funds held under reinsurance agreements                                           255                   151
     Notes payable                                                                     123                   120
     Other liabilities                                                                 322                   344
-----------------------------------------------------------------------------------------------------------------
     Total liabilities                                                               5,244                 5,282
-----------------------------------------------------------------------------------------------------------------

MANDATORY REDEEMABLE PREFERRED STOCK                                                    25                    25
-----------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
     Common stock - par value $0.01 per share
         (authorized:  180,000,000 shares; issued and outstanding:
         64,610,109 shares in 1996 and 64,125,050  shares in 1995)                   1,198                 1,186
     Class A convertible common stock - par value $0.01 per share
         (authorized:  1,000,000 shares; issued and outstanding:
         35,793 shares in 1995)                                                          -                     1
     Retained earnings                                                                 234                   168
     Net unrealized gain on fixed maturity investments, net of taxes                    52                   110
     Net unrealized loss on foreign exchange, net of taxes                              (1)                   (1)
-----------------------------------------------------------------------------------------------------------------
                                                                                     1,483                 1,464
     Treasury stock (10,306,000 shares in 1996 and 4,041,100 shares in 1995)          (276)                  (88)
-----------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                                  1,207                 1,376
-----------------------------------------------------------------------------------------------------------------
         Total liabilities and shareholders' equity                                 $6,476                $6,683
=================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


                                     - 39 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                               TIG HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                                 Years Ended December 31
                                                                       ------------------------------------------
(In millions, except share data)                                         1996              1995             1994
=================================================================================================================
REVENUES
<S>                                                                    <C>               <C>              <C>   
     Net premium earned                                                $1,539            $1,618           $1,549
     Net investment income                                                290               268              249
     Net investment loss                                                   (4)              (11)             (20)
-----------------------------------------------------------------------------------------------------------------
         Total revenues                                                 1,825             1,875            1,778
-----------------------------------------------------------------------------------------------------------------

LOSSES AND EXPENSES
     Net losses and loss adjustment expenses incurred                   1,138             1,176            1,165
     Policy acquisition and other underwriting expenses                   463               486              504
     Dividends to policyholders                                             3                15               27
     Corporate expenses                                                    37                37               37
     Interest expense on long-term debt                                     9                 6                -
     Restructuring charges                                                100                 -                -
-----------------------------------------------------------------------------------------------------------------
         Total losses and expenses                                      1,750             1,720            1,733
-----------------------------------------------------------------------------------------------------------------

     Income before income tax benefit (expense)                            75               155               45
     Income tax benefit (expense)                                           4               (37)               7
-----------------------------------------------------------------------------------------------------------------

         Net income                                                       $79              $118              $52
=================================================================================================================

         Net income per common share                                    $1.30             $1.89            $0.79
=================================================================================================================

         Dividend per common share                                      $0.20             $0.20            $0.20
=================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

                                     - 40 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                              TIG HOLDINGS, INC.
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                 Years Ended December 31,
                                                                       ------------------------------------------
(In millions)                                                            1996              1995             1994
=================================================================================================================
OPERATING ACTIVITIES
<S>                                                                    <C>              <C>               <C>
     Net income                                                           $79              $118              $52
     Adjustments to reconcile net income to cash provided
        by (used in) operating activities:
        Changes in:
              Accrued investment income                                    (1)               (5)              11
              Premium receivable                                          (11)              (65)             (31)
              Reinsurance recoverable                                     (43)               20              (47)
              Deferred policy acquisition costs                             -                (7)             (22)
              Prepaid reinsurance premium                                   6               (45)              49
              Income taxes                                                (11)               36               (8)
              Loss reserves                                               (73)               73              (52)
              Loss adjustment expense reserves                            (53)              (60)              80
              Unearned premium reserves                                   (16)               37               22
              Reinsurance premium payable                                  19                15              (28)
              Funds held under reinsurance agreements                     104                59               25
              Other assets and Other liabilities                          (26)              (46)             (24)
     Investment loss                                                        4                11               20
     Other                                                                 20                 6               26
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) operating activities          (2)              147               73
=================================================================================================================

INVESTING ACTIVITIES
     Purchases of fixed maturity investments                           (1,920)           (2,035)          (1,368)
     Sales of fixed maturity investments                                1,907             1,655            1,071
     Maturities and calls of fixed maturity investments                   252               281              269
     Sale of agency subsidiaries                                           -                 (8)               -
     Net increase in short-term and other  investments                    (28)              (55)              (6)
     Other                                                                 (5)              (36)               -
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) investing activities         206              (198)             (34)
=================================================================================================================

FINANCING ACTIVITIES
     Common stock issued                                                    9                 2                3
     Acquisition of treasury stock                                       (188)              (62)             (26)
     Common stock dividends                                               (11)              (12)             (13)
     Preferred stock dividends                                             (2)               (2)              (3)
     Increase in notes payable                                              3               120                -
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) financing activities        (189)               46              (39)
-----------------------------------------------------------------------------------------------------------------
     Increase (decrease) in cash                                           15                (5)               -
     Cash at beginning of period                                            4                 9                9
-----------------------------------------------------------------------------------------------------------------
              Cash at end of period                                       $19                $4               $9
=================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

                                     - 41 -
<PAGE>
                                    PART II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                              TIG HOLDINGS, INC.
                          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                                                                 Years Ended December 31,
=====================================================================================================================
(In millions)                                                                1996              1995             1994
---------------------------------------------------------------------------------------------------------------------
COMMON STOCK
<S>                                                                        <C>               <C>              <C>   
     Balance at beginning of year                                          $1,186            $1,181           $1,173
         Common stock issued                                                    9                 2                4
         Conversion of Class A common stock                                     1                 -                -
         Amortization of unearned compensation                                  2                 3                4
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                 1,198             1,186            1,181
---------------------------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK
     Balance at beginning of year                                               1                 1                2
         Conversion of Class A common stock                                    (1)                -                -
         Common stock issued                                                    -                 -               (1)
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                     -                 1                1
---------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
     Balance at beginning of year                                             168                64               28
         Net income                                                            79               118               52
         Common stock dividends                                               (11)              (12)             (13)
         Preferred stock dividends                                             (2)               (2)              (3)
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                   234               168               64
---------------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT GAIN (LOSS)
     Balance at beginning of year                                             110              (177)               -
         Change in unrealized gain (loss) on fixed maturity investments       (58)              287             (277)
         Adjustment for change in accounting for fixed maturity investments     -                -               100
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                    52               110             (177)
---------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
     Balance at beginning of year                                              (1)               (1)               -
         Net unrealized loss on foreign exchange                                -                 -               (1)
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                    (1)               (1)              (1)
---------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
     Balance at beginning of year                                             (88)              (26)               -
         Treasury stock purchased                                            (188)              (62)             (26)
---------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                  (276)              (88)             (26)
---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY AT END OF YEAR                                  $1,207            $1,376           $1,042
=====================================================================================================================
</TABLE>

                                     - 42 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A.  DESCRIPTION OF BUSINESS
================================================================================

TIG Holdings is primarily engaged in the business of property/casualty insurance
and reinsurance through its 16 insurance subsidiaries collectively "TIG" or "the
Company".  Of  direct  premium  written  by TIG in  1996,  26%  was  written  in
California,  8% in Michigan,  6% in New York and 7% each in Hawaii and Texas. No
other geographical area,  including foreign operations,  accounted for more than
5% of  direct  premium  written.  A  description  of each  operating  division's
principal products follows (see also Note O - Business Segments).

REINSURANCE.  TIG's reinsurance operations are conducted through TIG Reinsurance
Company  ("TIG Re").  Reinsurance  is a form of insurance  whereby the reinsurer
(i.e.  TIG Re)  agrees to  indemnify  another  insurance  company  (the  "ceding
company") for all or a portion of the insurance risks underwritten by the ceding
company under an insurance policy or policies.  TIG Re focuses on excess of loss
casualty  coverages,   written  on  a  treaty  basis,   generally  taking  large
participations in a limited number of programs.  TIG Re's predominant  source of
business is through  reinsurance  intermediaries.  Net  premium  written for the
Reinsurance  division  comprised 36%, 32%, and 27% of  consolidated  net premium
written for the years ended December 31, 1996, 1995 and 1994, respectively.

RETAIL.  Retail's  principal  products  are  standard  automobile,  non-standard
automobile, homeowners and small business owner's insurance. Automobile policies
cover  liability  to third  parties for bodily  injury and  property  damage and
physical damage to the insured's own vehicle resulting from collision or various
other causes of loss.  Homeowners and small commercial property policies protect
against  loss of  dwellings/buildings  and  contents  arising  from a variety of
perils,  as well as liability  arising from  ownership  or  occupancy.  Retail's
products are  distributed  through  approximately  630 independent  agents.  Net
premium  written  for  the  Retail  division  comprised  24%,  22%,  and  19% of
consolidated net premium written for the years ended December 31, 1996, 1995 and
1994, respectively.

COMMERCIAL SPECIALTY.  Commercial Specialty coverages provide protection against
property  loss and legal  liability  for injuries to other  persons or damage to
their property arising from the policyholder's  business operations.  Commercial
Specialty  develops and markets insurance  programs where the nature of the risk
does not lend itself to traditional  commercial insurance.  Significant programs
include Sports and Leisure,  with products for  professional  and amateur sports
events,  and  Workers'  Compensation,   which  provides  liability  coverage  to
employers for payment of employee  benefits  associated with  employment-related
accidents  as  mandated  by  state  laws.   Commercial  Specialty  products  are
principally  marketed  through large  managing  general  agents,  with which TIG
sometimes  has  exclusive  marketing  contracts.  Net  premium  written  for the
Commercial  Specialty  division  comprised 30%, 27%, and 29% of consolidated net
premium  written  for  the  years  ended  December  31,  1996,  1995  and  1994,
respectively.

                                     - 43 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================

BASIS OF  PRESENTATION.  The consolidated  financial  statements are prepared in
accordance with generally accepted  accounting  principles  ("GAAP") and include
the accounts of TIG Holdings,  Inc. and its subsidiaries.  Financial  statements
prepared in  accordance  with GAAP  require the use of  management's  estimates.
Intercompany    transactions   are   eliminated   in   consolidation.    Certain
reclassifications  of prior  years'  amounts  have been made to conform with the
1996 presentation.

EARNINGS PER SHARE ("EPS").  Primary earnings per share is calculated based upon
the weighted average common shares  outstanding  during the period.  In order to
calculate EPS, unallocated ESOP shares and treasury shares are deducted from the
outstanding  common  shares.  Class A common stock and the common stock  options
(See  Note  K -  Incentive  Compensation  Plans)  are  considered  common  stock
equivalents  and are  included in EPS  calculations  to the extent that they are
dilutive.  To obtain  net income  attributable  to common  shareholders  for EPS
computations, the annual preferred stock dividend is deducted from net income.

INVESTMENTS.  Fixed  maturities are classified as available for sale, as TIG has
no positive  intent to hold such securities  until maturity,  and are carried at
market  value.  Equity  securities  are  also  carried  at  market  value  while
short-term  investments are carried at cost,  which  approximates  market value.
Market value is  principally  based upon quoted  market  prices.  Quoted  market
prices are available for  substantially  all equity  securities.  The difference
between the  aggregate  market value and  amortized  cost of  securities,  after
deferred  income tax effect,  is reported as unrealized gain or loss directly in
shareholders' equity and, accordingly, has no effect on net income.

Interest on fixed maturity  investments is recorded as income when earned and is
adjusted  for any  amortization  of  purchase  premium or  accrual of  discount.
Realized gains and losses on the sale of investments are generally determined on
a  first-in-first-out  basis.  Realized losses are recorded when an investment's
net  realizable  value is below cost,  and the decline is considered  other than
temporary.

ADOPTION OF SFAS 123. TIG adopted  Statement of Financial  Accounting  Standards
No. 123,  "Accounting  for  Stock-Based  Compensation"  ("SFAS  123")  effective
January  1,  1996.  SFAS 123  establishes  financial  accounting  and  reporting
standards for stock-based  employee  compensation plans. TIG elected to continue
to account for employee  stock-based  compensation  as prescribed by APB Opinion
No. 25,  "Accounting  for Stock  Issued to  Employees"  and to provide pro forma
disclosures  in the Notes to Financial  Statements of the effects of SFAS 123 on
net income and earnings per share. There was no effect on net income as a result
of adopting SFAS 123.

RECOGNITION  OF PREMIUM  REVENUES.  Premium is earned  principally on a pro rata
basis over the terms of the policies which are generally not more than one year.
Unearned  premium  represents the portion of premium  written  applicable to the
unexpired terms of policies in force.

LOSS AND LOSS  ADJUSTMENT  EXPENSE  RESERVES.  The  liability  for loss and loss
adjustment  expenses  is  based  on an  evaluation  of  reported  losses  and on
estimates  of  incurred  but  unreported  losses.  The reserve  liabilities  are
determined   using   adjusters'   individual   case  estimates  and  statistical
projections.  The liability is reported net of estimated salvage and subrogation
recoverables  of $29  million  and $31  million at  December  31, 1996 and 1995,
respectively.  The  liability is considered to be adequate to cover all payments
that will  ultimately  be made in  settling  the  claims.  However,  final claim
payments may differ from these reserves.  Adjustments to the reserves  resulting
from  subsequent  developments  or revisions  to the  estimate are  reflected in
results of  operations  in the period in which such  adjustments  become  known.
While there can be no assurance that the reserves at any given date are adequate
to meet  TIG's

                                     - 44 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

obligations,  the amounts  reported in the balance sheet are  management's  best
estimate  of that  amount.  Certain  liabilities  for unpaid  losses  related to
long-term  workers'  compensation  coverage are discounted to present value. The
discount  on these  workers'  compensation  loss  reserves  was $39  million  at
December 31, 1996 and 1995.

DEFERRED  POLICY  ACQUISITION  COSTS.  Acquisition  costs that vary with and are
primarily  related to the  production of new business,  consist  principally  of
commissions,  premium taxes, and other expenses  incurred at policy issuance and
renewal.  The costs are generally  deferred and amortized ratably over the terms
of the underlying  policies.  Anticipated losses,  loss expenses,  and remaining
costs of servicing  the policies are  considered  in  determining  the amount of
costs to be deferred. Anticipated investment income is considered in determining
whether a premium deficiency exists. Amortization of deferred policy acquisition
costs totaled $347 million,  $335 million,  and $299 million for the years ended
December 31, 1996, 1995 and 1994, respectively.

PARTICIPATING  INSURANCE  BUSINESS.  Dividends  to  policyholders,  which relate
primarily to workers'  compensation  policies,  are accrued during the period in
which the related premium is earned.  Approximately  4%, 5% and 9% in 1996, 1995
and 1994,  respectively,  of TIG's total premium was subject to participation in
such dividends.

OTHER ASSETS.  Property,  leasehold  improvements and furniture and equipment of
$41 million and $42 million at  December  31, 1996 and 1995,  respectively,  are
included in other assets.  These  balances are carried at cost less  accumulated
depreciation  of $38  million  and $28  million at  December  31, 1996 and 1995,
respectively.  Depreciation is computed under the straight-line  method over the
estimated useful lives of the assets. Goodwill and other intangible assets of $2
million and $3 million at December  31,  1996 and 1995,  respectively,  are also
included in other assets.  These balances are amortized on a straight-line basis
over periods ranging from 10 to 40 years.  TIG's accounting policy governing the
measurement  of  goodwill   impairment   includes  an  annual  analysis  of  the
recoverability of goodwill as of each balance sheet date.

SALE OF AGENCY  SUBSIDIARIES.  On May 1, 1995, TIG sold 100% of the  outstanding
common stock of certain agency subsidiaries which market force-placed collateral
protection insurance to financial institution ("FI") accounts on behalf of TIG's
insurance  subsidiaries.  These FI  agency  subsidiaries  had  total  assets  of
approximately  $25.6 million at the date of sale. TIG recognized no gain or loss
on the transaction.

In connection  with the sale,  effective April 1, 1995, TIG reinsured 90% of the
gross  premium   produced  by  the  FI  agency   subsidiaries   with  reinsurers
unaffiliated with either TIG or the purchaser.  FI gross premium written for the
years ended  December 31, 1996,  1995 and 1994 totaled $77 million,  $88 million
and $92 million,  respectively.  Net earned  premium for the same periods was $8
million,  $31 million and $90 million,  respectively.  TIG also reinsured 90% of
the FI  unearned  premium  reserves  at April 1, 1995  which  resulted  in a net
transfer of cash to the  reinsurers of $34.3  million,  but had no impact on net
income.

                                     - 45 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE C.  RESTRUCTURING CHARGES
================================================================================

RESTRUCTURING CHARGES. In February 1996, TIG announced the reorganization of its
commercial operations and plans to exit certain lines of business that failed to
meet profitability  standards. As a result of this reorganization,  TIG took the
following   actions:   1)  combined  its  Specialty   Commercial   and  Workers'
Compensation  divisions to form a new division called Commercial  Specialty,  2)
identified field offices for consolidation  and closure,  3) identified lines of
business for non-renewal or cancellation  for which 1995 net premium written was
approximately  $190 million or 12% of consolidated 1995 net premium written,  4)
formed a run-off  division  (called "Other  Lines") to administer  contractually
required  policy  renewals  for  run-off  lines  of  business,  and 5)  notified
approximately  600  employees  that  their  positions  would be  eliminated.  At
December  31,  1996,  the  consolidation/closure  of field  offices was complete
although various lease obligations  remain;  net written premium for Other Lines
had  declined by 50% for the year ended  December  31, 1996 as compared to 1995;
and approximately 600 employees'  responsibilities  had been outsourced to third
party service  providers or their employment had been otherwise  terminated.  At
December  31,  1996,  TIG had  approximately  1,300  employees  as  compared  to
approximately 2,000 employees at December 31, 1995.

TIG  recorded  a $100  million  accrual  in first  quarter  1996  for  estimated
restructuring charges comprised of severance of $17 million;  contractual policy
obligations of $37 million; office lease termination of $18 million;  furniture,
equipment and capitalized software write-downs of $12 million; and a reserve for
litigation and credit issues related to terminated producers of $16 million. The
remaining reserve at December 31, 1996 is $53 million.  Charges against the 1996
restructure  accrual  of $47  million  have been  recorded  during  1996 and are
comprised  of $9  million  in  severance,  $23  million  in  contractual  policy
obligations,  $10  million  in lease  termination  costs and $5 million in asset
write-downs.  Management estimates that the last renewals for remaining policies
in-force at December  31, 1996 will be  processed  by late 1997 and that related
net written  premium will  decline by over 75% in 1997 as compared to 1996.  The
underwriting  loss from Other Lines operations was $34 million,  $32 million and
$88 million for 1996, 1995 and 1994, respectively.

                                     - 46 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE D.  INVESTMENTS
================================================================================
<TABLE>
<CAPTION>
MARKET VALUES AND AMORTIZED COST OF INVESTED ASSETS.


                                                                       December 31, 1996
                                               -------------------------------------------------------------------
                                                 Market        Amortized     Unrealized     Unrealized % of Market
(In millions)                                     Value           Cost          Gains          Losses   Portfolio
===================================================================================================================
<S>                                             <C>            <C>            <C>             <C>            <C> 
Municipal bonds                                   $535           $502           $34            $(1)           12.6
Mortgage-backed securities                       1,210          1,219             4            (13)           28.6
United States government bonds                   1,070          1,038            38             (6)           25.3
Corporate and other bonds                        1,242          1,217            35            (10)           29.3
-------------------------------------------------------------------------------------------------------------------
    Total fixed maturity investments             4,057          3,976           111            (30)           95.8
Short-term and other investments                   176            176             -              -             4.2
-------------------------------------------------------------------------------------------------------------------
        Total invested assets                   $4,233         $4,152          $111           $(30)          100.0
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                       December 31, 1995
                                               -------------------------------------------------------------------
                                                Market      Amortized    Unrealized     Unrealized   % of Market
(In millions)                                    Value           Cost         Gains         Losses     Portfolio
===================================================================================================================
<S>                                             <C>            <C>             <C>            <C>            <C>
Municipal bonds                                   $951           $891           $60              -            20.9
Mortgage-backed securities                       1,405          1,409            23           $(27)           30.9
United States government bonds                   1,388          1,297            97             (6)           30.5
Corporate and other bonds                          658            636            24             (2)           14.5
-------------------------------------------------------------------------------------------------------------------
    Total fixed maturity investments             4,402          4,233           204            (35)           96.8
Short-term investments                             148            148             -              -             3.2
-------------------------------------------------------------------------------------------------------------------
        Total invested assets                   $4,550         $4,381          $204           $(35)          100.0
===================================================================================================================
</TABLE>


Less than one-third of TIG's portfolio  consists of  mortgage-backed  securities
("MBS").  United States federal  government and government  agency mortgages now
represent  approximately  91% of TIG's  exposure  to MBS,  offering  AAA  credit
quality and high yields.  A risk inherent to MBS is  prepayment  risk related to
interest rate  volatility.  The  underlying  mortgages may be repaid  earlier or
later than  originally  anticipated,  dependent on the repayment and refinancing
activity of the  underlying  homeowners.  Should this occur,  TIG would  receive
paydowns on  principal  amounts  which may have been  purchased  at a premium or
discount,  and TIG's  investment  income would be affected by any adjustments to
amortization  resulting  from  the  prepayments.  TIG's  consolidated  financial
results have not been  materially  impacted by  prepayments of MBS. In addition,
interest rate volatility can affect the market value of MBS. All MBS held in the
portfolio can be actively traded in the public market.

In the normal  course of business,  TIG may choose to hedge some of its interest
rate risk with derivative financial instruments.  Such arrangements are intended
to help TIG to more closely  match the cash flow received from its assets to the
payments on its  liabilities.  TIG's interest rate swap  arrangements  generally
provide that one party pays  interest at a floating rate in relation to movement
in an underlying  index and the other party pays interest at a fixed rate. While
TIG is  exposed  to  credit  risk in the event of  non-performance  by the other
party,   non-performance  is  not  anticipated  due  to  credit  rating  of  the
counterparties.  At December 31, 1996, TIG had

                                     - 47 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

one open derivative position for an interest rate swap with a notional amount of
$14  million  and such  derivative  financial  instrument  was with a  financial
institution rated A or better by the major credit rating agencies. There were no
open future contracts at December 31, 1996 as compared to open futures contracts
of $25 million at December 31, 1995.  Net  unrealized  losses of $4.4 million at
December 31, 1996 related to previous  futures  contracts are accounted for as a
net  increase  in the cost  basis of the  underlying  securities  and are  being
amortized over the life of the hedged securities.

TIG  routinely  enters  into  commitments  to  purchase  securities  on a "To Be
Announced" ("TBA") basis for which the interest rate risk remains with TIG until
the date of delivery and payment.  Delivery and payment of securities  purchased
on a TBA basis can take place a month or more after the date of the transaction.
These securities are subject to market fluctuations during this period and it is
the  Company's  policy  to  recognize  any  gains or  losses  only when they are
realized.  TIG maintains  cash and  securities  with a fair value  exceeding the
amount of its TBA purchase  commitments.  At December 31, 1996, the TBA purchase
commitments  amounted to $46.3  million,  and had a fair value of $45.9 million,
compared  to TBA  commitments  of  $152.2  million  with a fair  value of $153.1
million at December 31, 1995.

TIG has less than $2  million of  non-income  producing  investments  and has no
geographic  or  other  concentrations  of  investment  risk  which  has not been
disclosed.  Assets of TIG,  carried at $712 million and $649 million at December
31, 1996 and 1995, respectively, were either on deposit with government agencies
as required by law in various states in which TIG insurance subsidiaries conduct
business or were held as collateral for various business transactions.

The estimated  market value and amortized cost of the portfolio,  by contractual
maturity,  at December 31, 1996 are presented  below.  Expected  maturities will
differ from contractual  maturities as certain  borrowers have the right to call
or prepay obligations.

                                            Market  Amortized
(In millions)                                Value      Cost
==============================================================
Due in one year or less                        $39       $38
Due after one year through five years          753       736
Due after five years through ten years         658       645
Due after ten years                          1,397     1,338
Mortgage-backed securities                   1,210     1,219
--------------------------------------------------------------
     Total fixed maturity investments       $4,057    $3,976
==============================================================


COMPONENTS OF NET INVESTMENT INCOME.

                                  Years Ended December 31,
                                  ------------------------
(In millions)                      1996    1995     1994
==========================================================
Fixed maturity investments         $298    $273     $252
Short-term and other investments      6       7        6
----------------------------------------------------------
Total gross investment income       304     280      258
Investment expenses,
   interest and other               (14)    (12)      (9)
----------------------------------------------------------
Total net investment income        $290    $268     $249
==========================================================


NET INVESTMENT GAIN (LOSS).

                                  Years Ended December 31,
                                  ------------------------
(In millions)                      1996    1995     1994
----------------------------------------------------------
Fixed maturity investments
   Gross gains                      $37     $18       $6
   Gross losses                     (41)    (29)     (26)
----------------------------------------------------------
Net investment loss before tax       (4)    (11)     (20)
Less related taxes                    1       4        7
----------------------------------------------------------
Net investment loss, net of taxes   $(3)    $(7)    $(13)
==========================================================

                                     - 48 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE E.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
================================================================================

Activity in the loss and loss  adjustment  expense reserve account is summarized
as follows:

(In millions)                                  1996      1995
==============================================================
Balance January 1, net of reinsurance
     recoverables of $1,134 and $1,152       $2,752    $2,721
Incurred related to:
     Current year                             1,122     1,200
     Prior years                                 16       (24)
--------------------------------------------------------------
Total losses and LAE incurred                 1,138     1,176
--------------------------------------------------------------
Loss and LAE payments related to:
     Current year                               374       367
     Prior years                                882       778
--------------------------------------------------------------
Total losses and LAE payments                 1,256     1,145
--------------------------------------------------------------
Balance December 31, net of reinsurance
     recoverables of  $1,126 and $1,134      $2,634    $2,752
==============================================================

TIG  experienced  unfavorable  loss and LAE reserve  development  in 1996 of $16
million due primarily to adverse  development in Other Lines. In connection with
the February 1996  restructuring,  TIG completed a re-evaluation of loss and LAE
reserves  related  to run-off  lines  using  additional  loss  development  data
received  during the first  quarter of 1996.  This data  confirmed  adverse loss
development  trends  observed in the second half of 1995 and was a consideration
in the  decision to exit  certain  lines of business as  discussed  at Note C. -
Restructuring Charges. As a result of this re-evaluation and management's belief
that the  restructuring  decision will make the claims  settlement  process less
consistent and more volatile, TIG increased loss and LAE reserves by $31 million
in the  first  quarter  of 1996 for  run-off  lines,  principally  for long haul
trucking and large accounts.  This reserve strengthening was partially offset by
continuing  favorable  development  of  1993  and  prior  workers'  compensation
reserves.

Loss and LAE reserve  development  during 1995 was  favorable by $24 million and
was primarily comprised of $18 million and $16 million of favorable development,
in the commercial multi peril reserves  related  primarily to Other Lines and in
Commercial Specialty workers' compensation,  respectively.  The commercial multi
peril  result is due in part to the  favorable  loss ratio trend  stemming  from
corrective  underwriting  action  instituted  during 1993. Most of the favorable
development  applies to general  liability  coverages which benefit greatly from
TIG's  litigation  management  effort as well as other  operational  initiatives
designed to improve the  handling of claims for  long-tail  coverages.  Workers'
compensation  reserve  development  continued to benefit from  external  factors
driving the  industry-wide  improvement  observed in 1994 and 1993. During 1995,
both paid loss development and case reserve development  remained well below the
historical patterns underlying TIG's carried reserves. Higher than expected loss
ratio  results  during  1995  account  for  offsetting  unfavorable  development
recorded in Other Lines automobile liability coverages. Much of the 1995 adverse
development  for Other Lines occurred in long haul trucking  programs which were
discontinued in 1996.

TIG's   reserves   include  an  estimate  of  TIG's   ultimate   liability   for
asbestos-related  matters,   environmental  pollution,   toxic  tort  and  other
non-sudden and accidental  claims for which ultimate  values cannot be estimated
using traditional reserving  techniques.  TIG's environmental claims activity is
predominately  from hazardous  waste and  pollution-related  claims arising from
commercial  insurance  policies.  Most of TIG's pollution  claims are from small
regional  operations or local business  involved with  disposing  wastes at dump
sites or having pollution on their own property due to hazardous material use or
leaking  underground  storage  tanks.  In  connection  with the  initial  public
offering of TIG Holding's  common stock  ("IPO"),  an affiliate of  Transamerica
agreed  to pay  75% of up to $119  million  of  reserve  development  and  newly
incurred  claims,  up to a maximum  reimbursement  of $89  million,  on policies
written  prior to January 1, 1993 with respect to certain  environmental  claims
involving paid losses and certain LAE in excess of TIG's  environmental loss and
LAE  reserves at December  31, 1992.  At December  31,  1996,  the  Transamerica
affiliate had incurred no liability under this agreement.


                                     - 49 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE F.   REINSURANCE
================================================================================

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
Written premium:
   Direct                     $1,274  $1,387   $1,401
   Assumed                       650     649      586
   Ceded                        (395)   (426)    (366)
------------------------------------------------------
   Net                        $1,529  $1,610   $1,621
------------------------------------------------------
Earned premium:
   Direct                     $1,307  $1,377   $1,422
   Assumed                       632     629      549
   Ceded                        (400)   (388)    (422)
------------------------------------------------------
   Net                        $1,539  $1,618   $1,549
------------------------------------------------------
Incurred losses and LAE:
   Gross                      $1,417  $1,443   $1,451
   Ceded                        (279)   (267)    (286)
------------------------------------------------------
   Net                        $1,138  $1,176   $1,165
======================================================


TIG  reinsures  portions of its policy risks with other  insurance  companies or
underwriters  and remains liable under these  contracts.  Reinsurance is used to
transfer  some  policy  risks such that the amount of  individual  claims can be
limited to a fixed  percentage or amount.  Reinsurance is also utilized to limit
the amount of claims related to catastrophes. This strategy allows TIG to insure
larger risks while controlling exposure to large losses.  Reinsurance agreements
currently  in place  are  structured  on both a treaty  basis,  where  all risks
meeting a certain  criteria are  automatically  reinsured,  and on a facultative
basis, where each policy reinsured is separately negotiated. Amounts recoverable
from  reinsurers are estimated in a manner  consistent  with the claim liability
associated  with  the  reinsured  policy.  As a  part  of its  overall  business
strategy,  TIG also  engages  in  assumed  reinsurance  transactions,  primarily
through TIG Re, a wholly-owned subsidiary.

Reinsurance  contracts do not relieve TIG from its obligations to policyholders.
Failure of reinsurers to honor their  obligations could result in losses to TIG;
accordingly,  allowances are established for amounts  estimated to be ultimately
uncollectible.  TIG  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, TIG held collateral related to reinsurance  amounts that remain unpaid for
more than 120 days in the form of letters of credit totaling $370 million, trust
funds totaling $252 million, and funds held totaling $136 million.

--------------------------------------------------------------------------------
NOTE G.  INCOME TAXES
================================================================================

TIG files a consolidated  federal  income tax return.  At December 31, 1996, TIG
had a net operating  loss  carryover of $101  million,  of which $3 million will
expire in 2008 and $98 million will expire in 2009. Additionally,  TIG has a $47
million  capital loss  carryover,  of which $18 million will expire in 1999, $18
million  will  expire in 2000 and $11 million  will expire in 2001.  For the tax
years ended  December 31, 1996 and 1995,  TIG made tax payments of $5.2 and $1.0
million,  respectively.  For the tax year ended  December 31,  1994,  no federal
income tax payments were made.

The components of the income tax asset balance are as follows:

(In millions)                           1996     1995
=======================================================
Current  payable                        $ (9)    $ (6)
Net deferred tax asset                   111       66
-------------------------------------------------------
Total                                   $102      $60
=======================================================

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting

                                     - 50 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

purposes and the amounts used for income tax purposes. Significant components of
TIG's  deferred tax assets and  liabilities as of December 31, 1996 and 1995 are
shown in the following table:

                                              December 31,
                                             --------------
(In millions)                                1996     1995
===========================================================
DEFERRED TAX ASSETS:
Discounting of loss reserves for losses
     and loss adjustment expenses          $  167   $  172
Discounting of unearned premium reserves       42       43
Net operating loss carryforward                35       46
Restructuring charges                          20        4
Capital loss carryforward                      17       14
Business in force                              14       20
Policyholder dividends                          6       10
Postretirement benefits other than pensions     8        8
Other, net                                     15       12
-----------------------------------------------------------
     Total deferred tax assets                324      329
-----------------------------------------------------------

DEFERRED TAX LIABILITIES:
Deferred policy acquisition costs              52       51
Section 338 - marketable securities           128      124
Unrealized gain - marketable securities        28       59
Section 338 - other                             5       29
-----------------------------------------------------------
     Total deferred tax liabilities           213      263
-----------------------------------------------------------
     Net deferred tax asset                $  111   $   66
===========================================================


In accordance with the provisions of Statement of Financial Accounting Standards
No 109,  "Accounting  for Income  Taxes",  TIG's  management  has  reviewed  its
deferred  tax asset  balance and  concluded  that it is more likely than not the
entire deferred tax asset will be realized.  Management's conclusion is based on
its  expectation  that  sufficient  taxable  income will be  generated in future
periods within the carryforward  period.  TIG has reported profits in 1996, 1995
and 1994,  and is  expected  to be  profitable  in the  future.  If TIG does not
achieve its anticipated  earnings level in future periods but maintains its 1996
earnings  level and  converts  all of its  tax-exempt  securities  into  taxable
securities,  it anticipates  that all of its net operating loss and capital loss
carryforward and 90% of its existing  deferred tax asset will be utilized by the
year 2001.

Significant components of the income tax benefit (expense) are as follows:

                                                  Years Ended December 31,
                                                  ------------------------
(In millions)                                      1996     1995     1994
==========================================================================
Current benefit (expense)                        $   (9)  $   (2)      --
Deferred benefit (expense)                           13      (35)  $    7
--------------------------------------------------------------------------
     Total income tax benefit (expense)          $    4   $  (37)  $    7
==========================================================================

The  components  of benefit  (expense)  for total  deferred  income taxes are as
follows:

                                                  Years Ended December 31,
                                                  ------------------------
(In millions)                                      1996     1995     1994
==========================================================================
Discounting of reserves for losses
     and loss adjustment expenses                $   (5)  $   (7)  $   (5)
Discounting of unearned premium
     reserves                                         1       --        4
Net operating loss carryforward                     (11)       2       19
Restructuring charges                                16       (3)      (9)
Capital loss carryforward                             3        3       11
Business in force                                    (6)      (7)      (6)
Policyholder dividends                               (4)      (5)      (1)
Tax liability adjustment                             20       --       --
Deferred investment income                           (4)     (15)      --
Deferred policy acquisition costs                    (1)      (3)      (8)
Other                                                 4       --        2
--------------------------------------------------------------------------
     Total deferred income tax
          benefit (expense)                      $   13   $  (35)  $    7
--------------------------------------------------------------------------


The reconciliation of income tax computed at the U.S. federal statutory rates to
total income tax benefit (expense) is as follows:


                                                  Years Ended December 31,
                                                  ------------------------
(In millions)                                      1996     1995     1994
==========================================================================
Federal income tax benefit
     (expense) at statutory rates                  $(26)  $  (54)  $  (15)
Tax-exempt investment income                          9       17       23
Tax liability adjustment                             20       --       --
Other                                                 1       --       (1)
--------------------------------------------------------------------------
     Total income tax benefit (expense)          $    4   $  (37)  $    7
==========================================================================


In March 1996, TIG entered into  settlement  agreements  with the IRS on several
outstanding audit  assessments,  which resulted in a redetermination  of certain
tax liabilities  related to prior tax years. A $20 million  deferred tax benefit
was recognized in first quarter of 1996 as a result of the redetermination.

                                     - 51 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE H.  FINANCING ARRANGEMENTS
================================================================================

NOTES PAYABLE.  In April 1995, TIG Holdings  issued $100 million of 8.125% Notes
maturing  2005.  Interest  is payable  on a  semi-annual  basis,  and a lump sum
principal  repayment for the non-callable notes is due April 15, 2005.  Included
in the restrictive  covenants are limitations on the disposition of the stock of
TIG Insurance  Company  ("TIC"),  limitations  on liens and  limitations  on the
merger of the Company. Interest expense was $8 million in 1996 and $6 million in
1995.   Interest  paid  was  $8  million  and  $4  million  in  1996  and  1995,
respectively. No interest was expensed or paid in 1994.

SALE -  LEASEBACK.  In  December  1995,  TIG entered  into a $50 million  credit
facility,  of which approximately $25 million was outstanding as of December 31,
1996. The facility is a direct financing  arrangement with a third party related
to the sale and  leaseback of certain fixed assets,  excluding  data  processing
equipment. The initial draw of $22 million against the facility in December 1995
is  being  amortized  over 5 years  with  interest  at 5.9%  payable  quarterly.
Subsequent  draws against the facility are amortized  over 5 years and interest,
based on a floating  rate,  is payable  quarterly.  Interest  rates  during 1996
ranged from 6.440% to 6.475%.

LINE OF CREDIT. In December 1995, TIG established an unsecured revolving line of
credit with maximum borrowings of $250 million. The full amount of the five year
credit facility was available for general corporate  purposes as of December 31,
1996.

--------------------------------------------------------------------------------
NOTE I.  MANDATORY REDEEMABLE PREFERRED STOCK
================================================================================

In April 1993, in connection with its IPO, TIG Holdings issued 250,000 shares of
non-voting  mandatory  redeemable  preferred stock with a cumulative annual cash
dividend   rate   of   $7.75   per   share   and   an   aggregate    liquidation
preference/redemption  value of $25 million plus  accrued and unpaid  dividends.
The  preferred  stock must be  redeemed  on April 27,  2000.  With each  regular
quarterly  dividend declared on the preferred shares,  each holder also receives
one non-transferable right (a "Right").  Each Right will constitute the right to
receive an  additional  amount to the extent that the regular  cash  dividend to
which the related Right was, in whole or in part,  not made out of TIG Holdings'
current or  accumulated  earnings and profits,  as calculated for federal income
tax purposes.  In such event,  the holder of a Right will be entitled to receive
an amount which, when taken together with the regular cash dividend to which the
Right was related,  would cause the net after-tax return to such holder to equal
what the net after-tax return on the mandatory  redeemable preferred stock would
have been had the regular cash dividend been paid entirely out of the current or
accumulated  earnings and profits of TIG Holdings.  No additional  payments were
required  during  1996.  During  1995,  TIG paid an  additional  $0.7 million in
respect to these Rights in connection  with dividends  declared on the mandatory
redeemable  preferred  stock during 1994.  Transamerica  agreed to indemnify TIG
Holdings for any amounts  paid with regard to any rights  issued by TIG Holdings
in connection  with  dividends  declared on the mandatory  redeemable  preferred
stock during 1993. Accordingly, $0.4 million was paid by Transamerica under this
indemnification in 1994 with respect to dividends declared in 1993.

                                     - 52 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE J. SHAREHOLDERS' EQUITY
================================================================================

AUTHORIZED CAPITAL STOCK. TIG Holdings' authorized capital stock consists of one
million shares of $0.01 par value Class A convertible  common stock, 180 million
shares of $0.01 par value common stock, and 15 million shares of $0.01 par value
preferred stock.

CLASS A COMMON STOCK. In April 1993, TIG Holdings issued 224,600 shares of Class
A common  stock of which 81,191 had been  canceled as of December 31, 1996.  The
Class A common stock is  convertible  into shares of common stock one year after
issuance  but not prior to the  vesting of such  shares in  accordance  with the
terms of their  issuance.  Accordingly,  as of December 31, 1996,  the number of
Class A common  shares  converted  to  common  stock was  143,409  (see Note K -
Incentive  Compensation Plans). As of December 31, 1996, no Class A common stock
is outstanding.

SUBSIDIARY  DIVIDEND  RESTRICTIONS.  Payment of dividends to TIG Holdings by its
insurance subsidiaries is subject to certain restrictions.  State insurance laws
limit the amount that may be paid without  prior notice or approval by insurance
regulatory  authorities.  As of December 31, 1996, $155 million of dividends are
currently available for payment to TIG Holdings from its insurance  subsidiaries
during 1997 without restriction. Dividends paid by the insurance subsidiaries in
1996 and 1995 were $130 million and $75 million, respectively. Dividends paid in
1996 consisted of cash of $130 million. Dividends paid in 1995 consisted of cash
of $55  million  and  subsidiary  common  stock of $20  million.  There  were no
dividends paid to TIG Holdings in 1994 by its insurance subsidiaries.

--------------------------------------------------------------------------------
NOTE K.  INCENTIVE COMPENSATION PLANS
================================================================================

As of December 31, 1996, the Company has three stock based  compensation  plans,
which are described  below.  The Company  adopted SFAS 123 effective  January 1,
1996  and  has  elected  to  continue  to  account  for   employee   stock-based
compensation as prescribed by APB Opinion No. 25 (See Note B).

THE 1996 LONG-TERM  INCENTIVE PLAN. The 1996 Long-Term Incentive Plan (the "1996
Plan")  provides  for  awards  of  stock  options,  stock  appreciation  rights,
restricted stock grants,  restricted stock units and/or  performance  units. The
maximum  number of shares of Common  Stock in  respect  for which  awards may be
granted  or paid out under the 1996 Plan is 5  million  shares  plus,  effective
January 1, 2000, the Limitation Amount.  The "Limitation  Amount" is 1.5% of the
total number of issued and  outstanding  shares of Common Stock as of January 1,
2000, plus, effective each January 1 thereafter through and including January 1,
2006, 1.5% of the total number of issued and outstanding  shares of Common Stock
as of such  January  1.  In  addition  to the  shares  available  for  grant  as
previously mentioned,  2 million shares of Common Stock will be available solely
for the grant of awards to employees in connection  with  acquisitions  of other
entities or businesses by the Company and its Related Companies.  As of December
31, 1996,  there were no stock  appreciation  rights,  restricted stock units or
performance units  outstanding.  The 1996 Plan will terminate on the date of the
Company's annual meeting of stockholders in 2006.  Thereafter,  no awards may be
granted.  Stock  options  under the 1996 Plan have a term of ten years  from the
date of the  grant  and vest in  equal  annual  installments  over  four  years.
Restricted stock grants vest in equal annual installments over three years.

THE 1996  NON-EMPLOYEE  DIRECTORS  COMPENSATION  PROGRAM.  The 1996 Non-Employee
Directors Compensation Program (the "1996 Program") provides for awards of stock
options and/or restricted 

                                     - 53 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
shares units.  These awards are not to exceed 200,000 shares. As of December 31,
1996,  there were 30,636 shares of  restricted  stock units and 61,272 shares of
stock  options  outstanding.  The 1996  Program  will  terminate on the close of
business on the date of the Company's  annual meeting of  stockholders  in 1999.
Restricted stock units and stock options granted prior to the date of the annual
meeting  of  stockholders  in  1997  will  vest  in  three  substantially  equal
installments  on the dates of each annual meeting of  stockholders in 1997, 1998
and 1999.  Restricted share units and stock options granted on or after the date
of the 1997  annual  meeting of  stockholders  but prior to the date of the 1998
annual meeting of stockholders will vest in two equal  installments on the dates
of each annual meeting of stockholders in 1998 and 1999.  Restricted share units
and stock  options  granted on or after the date of the 1998  annual  meeting of
stockholders  but prior to the 1999 annual meeting of stockholders  will vest in
one  installment  on the date of the 1999 annual  meeting of  stockholders.  The
maximum  term of any stock  option  granted  will be ten years  from the date of
grant.


THE 1993 LONG-TERM  INCENTIVE PLAN. The 1993 Long-Term Incentive Plan (the "1993
Plan")  provides  for  awards  of  stock  options,  stock  appreciation  rights,
restricted stock grants and/or  performance units  (collectively  referred to as
"awards"). These awards are not to exceed 15 million shares in the aggregate. As
of December 31, 1996,  there were no stock  appreciation  rights or  performance
units outstanding.  The 1993 Plan terminated May 2, 1996, except with respect to
outstanding  awards, with the approval of the 1996 Plan. Stock options under the
1993  Plan  have a term of ten  years  from the date of grant  and vest in equal
annual  installments  over four  years.  Restricted  stock  grants vest in equal
annual installments over three years.

In connection with the IPO, TIG and Transamerica agreed that TIG employees could
surrender their options to purchase  Transamerica  common stock by May 14, 1993,
and receive options to purchase TIG Holdings common stock, retaining the taxable
spread, vesting schedule and term of the surrendered  Transamerica stock options
as of the IPO closing date.  Options  relating to 820,498 shares of common stock
were issued in connection  with this  agreement and are included in  outstanding
options in the following table.

A summary of the status of the Company's three stock based compensation plans as
of December 31, 1996 and changes  during the three years ended December 31, 1996
is presented below:

                                         Restricted    Class A
                                           Shares       Shares        Options
==============================================================================
Oustanding at January 1, 1994              77,047      173,938      9,305,278
Granted                                    13,800           --      1,142,670
Exercised/Earned                          (30,234)     (67,816)       (42,076)
Forfeited or cancelled                     (4,599)     (29,863)      (409,675)
------------------------------------------------------------------------------
Outstanding at December 31, 1994           56,014      76,259       9,996,197
------------------------------------------------------------------------------
Granted                                     4,600           --      1,391,100
Exercised/Earned                          (30,911)     (39,800)      (100,133)
Forfeited or cancelled                       (843)        (666)      (275,982)
------------------------------------------------------------------------------
Outstanding at December 31, 1995           28,860       35,793     11,011,182
------------------------------------------------------------------------------
Granted                                   110,170           --      1,456,736
Exercised/Earned                          (25,436)     (35,793)      (383,594)
Forfeited or cancelled                    (14,380)          --       (472,089)
------------------------------------------------------------------------------
Outstanding at December 31, 1996           99,214           --     11,612,235
==============================================================================

The weighted  average  option  exercise  price was $22.08 and $22.74 for options
outstanding at December 31, 1995 and 1996,  respectively.  The weighted  average
option  exercise price was $27.39 for options  granted  during 1996,  $20.37 for
options exercised in 1996 and $23.67 for options forfeited in 1996.

The weighted  average fair value of options  granted during 1996 was $8.78 while
the weighted  average fair value of restricted stock granted during the year was
$27.46.  The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions  used for grants in 1995 and 1996,  respectively:  dividend yield of
1.75 percent of all years;  expected volatility of .201; 

                                     - 54 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
risk-free interest rate of 7 percent;  and expected life of 7 years. Because the
Company's employee stock options have  characteristics  significantly  different
from  those of traded  options,  and  because  changes in the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

If the fair value of the stock compensation granted had been accounted for under
SFAS 123,  the  proforma  net income  for 1996 would have been $73.4  million or
$1.21 per share and $115.5  million or $1.84 per share for 1995. For purposes of
proforma  disclosures,  the estimated  fair value of the stock  compensation  is
amortized to expense over the stock compensation's vesting period. The effect on
net income of the stock compensation  amortization for the years presented above
is not likely to be  representative  of the effects on  reported  net income for
future years.

The following tables summarize  information about stock options  outstanding and
exercisable at December 31, 1996:

                                   Options Outstanding
                     ------------------------------------------------
    Range of              Number        Weighted-Avg    Weighted-Avg
    Excercise      Outstanding @           Remaining        Exercise
     Prices             12/31/96    Contractual Life           Price
=====================================================================
$13.00 to $18.00         274,272             4.4 yrs          $16.40
$18.01 to $24.00       9,857,927             6.7 yrs          $22.24
$24.01 to $28.00       1,036,300             8.9 yrs          $26.11
$28.01 to $32.00         443,736             9.9 yrs          $29.89
---------------------------------------------------------------------
$13.00 to $32.00      11,612,235             6.9 yrs          $22.74
=====================================================================

                                      Options Excercisable
                          -------------------------------------------
   Range of                       Number            Weighted-Avg
   Exercise               Excercisable @                Exercise
    Prices                      12/31/96                   Price
=====================================================================
$13.00 to $18.00                 259,522                  $16.34
$18.01 to $24.00               8,688,232                  $22.53
$24.01 to $28.00                 128,350                  $25.66
$28.01 to $32.00                       -                       -
---------------------------------------------------------------------
$13.00 to $32.00               9,076,104                  $22.39
=====================================================================

--------------------------------------------------------------------------------
NOTE L.  EMPLOYEE BENEFIT PLANS
================================================================================

TIG  Holdings'  employee  benefit plans (the  "Plans")  include the  Diversified
Savings Plan,  the Employee Stock  Ownership  Plan, and the Profit Sharing Plan.
Effective  January 1, 1994,  TIG  Holdings  adopted the ESOP and Profit  Sharing
Restoration Plans. TIG Holdings may amend,  terminate,  or suspend contributions
to the  Plans  at any  time  as it  may  deem  advisable.  TIG  Holdings  is the
administrator of the Plans. Any subsidiary of TIG Holdings  participating in the
Plans  may  withdraw  at any time with the  consent  of the  Holdings'  Board of
Directors. The Board of Directors has fiduciary responsibilities relating to the
interpretation  and  operation  of  the  Plans.  As  of  January  1,  1997,  the
Diversified  Savings  Plan and Profit  Sharing Plan were  combined  into the TIG
Holdings, Inc. Diversified Savings and Profit Sharing Plan.

DIVERSIFIED  SAVINGS PLAN.  TIG  Holdings,  Inc.  Diversified  Savings Plan (the
"DSP") is qualified  under Section 401 (a) of the Internal  Revenue Code ("IRC")
and the trust  established  to hold the  assets of the DSP is  tax-exempt  under
Section 501 (a) of the IRC. The DSP is available to all salaried employees. Most
employees  who elect to  participate  may  contribute up to 12% of their pre-tax
salary, plus bonuses,  commissions,  and overtime pay ("Employee  Compensation")
for each calendar year. TIG Holdings  administers the DSP and will make matching
contributions  to  the  DSP in an  amount  equal  to  75%  of the  participant's
contribution  up to a  maximum  of  6% of  Employee  Compensation.  Certain  IRC
required  limitations may be imposed for participants who are treated as "highly
compensated employees" for purposes of the IRC. Generally,  an employee vests in
the  matching  employer  contributions  based  upon years of  service.  Prior to
January 1, 1995, 

                                     - 55 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
an employee  vested 25% after  three  years of service,  50% after four years of
service,  and 100% after five years of service.  Effective  January 1, 1995,  an
employee vests 25% after one year of service, 50% after two years of service and
100% after three years of service.  Employer  matching  contributions  were $3.3
million, $3.8 million, and $4.0 million for 1996, 1995 and 1994, respectively.


EMPLOYEE STOCK OWNERSHIP PLAN.  Prior to the IPO closing,  TIG Holdings  adopted
the TIG  Holdings,  Inc.  Employees  Stock  Ownership  Plan (the  "ESOP").  Most
salaried  employees  are eligible to  participate  in the ESOP.  Generally,  TIG
Holdings will contribute, for each calendar year, an amount equal to one percent
of Employee Compensation,  as defined, on behalf of each participant employed on
the last  working day of that year or who was employed but died during the year.
No employee contributions are permitted to be made to the ESOP. Prior to January
1, 1995 an employee fully vested at the end of five years.  Effective January 1,
1995,  an employee  vests 25% after one year of service,  50% after two years of
service and 100% after three years of service.  In April 1993, the ESOP borrowed
$24.1  million from TIG Holdings to purchase  1,124,754  newly issued  shares of
common stock.  The loan obligation of the ESOP is considered  unearned  employee
compensation,  and  as  such,  is  recorded  as a  reduction  of  TIG  Holdings'
shareholders'  equity.  As loan repayments are made by the ESOP, common stock is
released to participant  accounts.  Unearned  compensation is amortized based on
the  number of shares  committed  to be  released  and  compensation  expense is
recognized  based  on  the  current  market  price.   Compensation   expense  of
$2.1million,  $2.3 million and $1.3  million was  recognized  in 1996,  1995 and
1994, respectively.  At December 31, 1996, 230,928 shares are allocated,  58,601
shares are committed to be released,  and 503,766 shares are in suspense.  As of
December 31, 1996,  the market value of  unallocated  shares was $17.1  million.
Contributions  to the ESOP were $2.0 million,  $2.3 million and $1.2 million for
1996,  1995  and  1994,  respectively.  A  participant's  ESOP  account  will be
distributed in full shares of common stock or cash after termination of service.

Employees  who were  actively  employed  on April 27,  1993  received an initial
allocation  of 100  shares  of TIG  Holdings  common  stock in which  they  were
immediately  fully vested.  Effective January 1, 1995, all active associates who
did not previously receive the initial allocation of shares in 1993 are eligible
for 100 shares of TIG Holdings,  Inc. common stock upon attainment of six months
of service.  These shares are  allocated to the  associates'  accounts as of the
last day of the plan year.

ESOP  RESTORATION  PLAN.  The TIG  Holdings,  Inc. ESOP  Restoration  Plan is an
unfunded plan for the purpose of providing  deferred  compensation  for a select
group of management or highly compensated  employees whose allocations under the
qualified  ESOP plan are limited by annual  restrictions  as  determined  by the
Internal Revenue Code. Highly compensated  employees whose allocations under the
qualified  plan are limited by the Internal  Revenue Code  restrictions  will be
eligible for participation immediately upon the date of hire if annual earnings,
including bonus in the year paid,  exceed a specified  threshold.  The threshold
for each year will be the  amount of the cap on  compensation  that may be taken
into account under the qualified  plan for that year, or such greater  amount as
may be determined by the Committee in its discretion. Effective January 1, 1995,
a  Participant  vests  25%  after  one year of  service,  50% after two years of
service  and 100% after  three  years of  service.  Participants'  accounts  are
credited  in dollar  amounts  for the  difference  between the cash value of the
stock that would have been  allocated  to the  participant's  account  under the
qualified  ESOP  plan and the cash  value of the  stock  that  would  have  been
allocated in the absence of the restrictions noted above. Participants' accounts
are adjusted for gains, losses and earnings as if invested in the same manner as
such associate's  account under the qualified ESOP plan.  Liabilities due to the
participants were approximately $227 thousand, $118 thousand and $28 thousand as
of December 31, 1996, 1995 and 1994.

PROFIT SHARING PLAN. The TIG Holdings,  Inc. Employees' Profit Sharing Plan (the
"Profit Sharing Plan"),  benefits eligible  employees of TIG Holdings.  Eligible
employees  are those who either were  employed by TIG  Holdings on December  31,
each year or were  employed  during the plan year but who died prior to the plan
year end.  Generally,  each 

                                     - 56 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
salaried  employee is eligible to participate in the Profit Sharing Plan.  Prior
to January 1, 1995 an employee fully vested at the end of five years.  Effective
January 1, 1995, an employee vests 25% after one year of service,  50% after two
years  of  service,   and  100%  after  three  years  of  service.  No  employee
contributions are permitted to be made to the Profit Sharing Plan. The amount of
any  contribution  for any calendar year made by TIG Holdings will be determined
at the sole discretion of the TIG Holdings'  Board of Directors.  For 1996, 1995
and 1994, TIG  contributed on behalf of each  participant an amount equal to the
sum of (i) two percent of the participant's Employee  Compensation,  as defined,
for the Plan Year and (ii) four  percent of the  participant's  annual  Employee
Compensation  in excess  of a  determined  wage  base.  Contributions  were $1.4
million, $2.0 million and $2.1 million for 1996, 1995 and 1994, respectively.

PROFIT  SHARING  RESTORATION  PLAN.  The  TIG  Holdings,   Inc.  Profit  Sharing
Restoration  Plan is an  unfunded  plan for the  purpose of  providing  deferred
compensation  for a select group of management or highly  compensated  employees
whose  allocations  under the qualified  Profit  Sharing plan are limited by the
annual   restrictions  as  determined  by  the  Internal  Revenue  Code.  Highly
compensated  employees will be eligible for  participation  immediately upon the
date of hire if annual  earnings,  including  bonus in the year  paid,  exceed a
specified  threshold.  The threshold for each year will be the amount of the cap
on compensation that may be taken into account under the qualified plan for that
year,  or such  greater  amount as may be  determined  by the  Committee  in its
discretion. Effective January 1, 1995, a Participant vests 25% after one year of
service,  50% after two years of service  and 100% after three years of service.
Participants' accounts are credited for the difference between the dollar amount
credited to the  participants'  account under the qualified  Profit Sharing Plan
and the amount that would have been credited in the absence of the  restrictions
noted above.  Participants' accounts are adjusted for gains, losses and earnings
as if  invested  in the  same  manner  as such  associate's  account  under  the
qualified  Profit  Sharing  Plan.  Liabilities  due  to  the  participants  were
approximately $916 thousand,  $447 thousand and $111 thousand as of December 31,
1996, 1995 and 1994.

POSTRETIREMENT  BENEFITS OTHER THAN PENSIONS. TIG participated in Transamerica's
defined  benefit  health  care plan that  provided  postretirement  benefits  to
eligible  retirees of Transamerica  and affiliates.  TIG assumed all liabilities
with  respect  to its  retirees  and  active  employees  at the date of the IPO.
Contributions for these contributory plans are adjusted annually. Considerations
for the adjustments  include  deductibles and coinsurance.  Medical benefits are
based  on the  employee's  length  of  service  and age at  retirement  from the
Company.  Assets  held in trust  consist of short term  investments  with a fair
value of  approximately  $4.5  million and $3.0 million at December 31, 1996 and
1995, respectively.

A summary of the components of net periodic other postretirement benefit cost is
as follows:

                                      Years Ended December 31,
                                      ------------------------
(In millions)                           1996    1995     1994
==============================================================
Service cost - benefits earned
   during the period                    $0.3    $0.3     $0.3
Interest cost on projected
   benefit obligation                    1.4     1.4      1.4
Amortization of prior service cost      (0.1)   (0.1)    (0.1)
--------------------------------------------------------------
Net periodic other postretirement
   benefit cost                         $1.6    $1.6     $1.6
==============================================================

The following  table sets forth the amounts  recognized in the balance sheet for
other postretirement benefit plans:

                                                December 31,
                                              ----------------
(In millions)                                 1996       1995
==============================================================
Actuarial present value of other
     postretirement obligations:
   Retirees                                  $17.2      $17.8
   Active participants                         3.4        3.5
   Unrecognized net gain (loss)                  -       (0.1)
   Prior service cost                          0.7        0.8
--------------------------------------------------------------
Other postretirement benefit obligation      $21.3      $22.0
==============================================================

The  weighted  average  annual  assumed rate of increase in the health care cost
trend rate is 11.0  percent for 1996 and 10.0 percent for 1997 and is 

                                     - 57 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
assumed to  decrease  gradually  to 8.0 percent in 1999 and remain at that level
thereafter.  The health care cost trend rate assumption has a significant effect
on the amounts reported.

Increasing  the trend rate by one  percentage  point in each year would increase
the actuarial present value obligation for postretirement medical benefits as of
December 31, 1996, 1995 and 1994 by $1.9 million, $2.0 million and $1.9 million,
respectively,  and the aggregate of the service and interest cost  components of
net periodic  postretirement  benefit  cost by $0.1  million for 1996,  1995 and
1994. The weighted average discount rate used in determining the  postretirement
benefit obligation was 7.0% at December 31, 1996 and 1995.

--------------------------------------------------------------------------------
NOTE M. COMMITMENTS AND CONTINGENCIES
================================================================================

Leases.  Future  minimum  rental  commitments  as of  December  31, 1996 for all
noncancelable operating leases are as follows:

(In millions)
===========================================
1997                                   $16
1998                                    15
1999                                    14
2000                                    13
2001                                    10
Thereafter                              46
-------------------------------------------
                                       114
Sublease rental income                   9
-------------------------------------------
Net commitments                       $105
===========================================

Substantially  all of the  leases are for rental of office  space,  the  initial
terms of which range from 1 to 20 years. Total rental expense for 1996, 1995 and
1994 was $35.1  million,  $29.9 million and $30.0  million,  respectively.  As a
result of reorganization of TIG's commercial  operations in the first quarter of
1996, certain lease termination costs in the amount of $18 million were incurred
and are included in the $100 million  restructuring  charges recorded in 1996 as
discussed in Note C.

LITIGATION.  TIG's insurance subsidiaries are routinely engaged in litigation in
the normal course of their business. As a liability insurer, the Company defends
third-party  claims  brought  against its insureds.  As an insurer,  the Company
defends against coverage  claims.  In the opinion of TIG, based upon information
available on the date of this report, no individual item of litigation, or group
of similar items of litigation  (including  asbestos-related  and  environmental
pollution  matters  and the matter  referred  to below),  taken net of  reserves
established  therefor and giving effect to insurance and reinsurance,  is likely
to result in judgments  for amounts  material to TIG's  consolidated  results of
operations.

On January 11, 1994, a Los Angeles County Superior Court jury returned a verdict
of $28 million for punitive  damages  against TIG Insurance  Company  ("TIC") in
Talbot Partners v. Cates  Construction,  Inc. and TIC (the "Talbot  Case").  The
award  arose out of TIC's  handling  of a surety  bond  claim on a  construction
project.  Management  is  vigorously  pursuing its right to appeal the judgment.
Management believes that the ultimate liability, if any, arising from the Talbot
Case will not materially impact consolidated operating results.

LONDON MARKET ACTIVITY. Through various indirect subsidiaries,  the Company will
become a limited  liability  participant  in the  Lloyd's of London  ("Lloyd's")
market  in  1997.  As a  prerequisite  to  admittance  to  the  Lloyd's  market,
irrevocable  letters of credit totalling  (pound)42.5 million and collateralized
by $79.0 million of the Company's  investment  securities were provided in favor
of the Society and Council of Lloyd's in 1996. The letters of credit effectively
secure the future  contingent  obligations  of the  Company  should the  Lloyd's
underwriting  syndicates in which the Company participates incur net losses. The
Company's  contingent liability to the Society and Council of Lloyd's is limited
to the amount of the letters of credit.

                                     - 58 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE N.    REGULATORY MATTERS
================================================================================

REGULATORY  RISK-BASED  CAPITAL.  The  states  of  domicile  of TIG's  insurance
subsidiaries  impose  minimum  risk-based  capital   requirements  on  insurance
companies  which  were  developed  by  the  National  Association  of  Insurance
Commissioners  ("NAIC").  The formulas for  determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk.  Regulatory
compliance  is  determined  by a  ratio  of the  enterprise's  regulatory  total
adjusted  capital,  as  defined by the NAIC,  to its  authorized  control  level
risk-based capital,  as defined by the NAIC.  Enterprises below specific trigger
points or ratios are classified  within certain  levels,  each of which requires
specified corrective action. The levels and ratios are as follows:

                                Ratio of Total Adjusted Capital to
                               Authorized Control Level Risk-Based
   Regulatory Event                Capital (Less Than or Equal to)
---------------------------------------------------------------------
Company action level               2.0 (or 2.5 with negative trends)
Regulatory action level            1.5
Authorized control level           1.0
Mandatory control level            0.7
=====================================================================

At December 31, 1996, the statutory  "risk-based" capital for each TIG insurance
subsidiary was such that no action (company or regulatory) would be required.

PERMITTED STATUTORY ACCOUNTING  PRACTICES.  TIG prepares its statutory financial
statements in accordance with accounting  principles and practices prescribed or
permitted by the domiciliary state insurance  department.  Prescribed  statutory
accounting practices include state laws, regulations, and general administrative
rules,  as well as a variety of publications  of the NAIC.  Permitted  statutory
accounting practices encompass all accounting practices that are not prescribed;
such  practices  differ from state to state,  may differ from company to company
within  a state,  and may  change  in the  future.  Furthermore,  the NAIC has a
project  to  codify  statutory  accounting  practices,  the  result  of which is
expected to  constitute  the only source of  "prescribed"  statutory  accounting
practices.  Accordingly, that project, which is expected to be completed in 1997
and  implemented  in 1998 will likely change the  definitions  of what comprises
prescribed versus permitted statutory  accounting  practices,  and may result in
changes to the  accounting  policies that insurance  enterprises  use to prepare
their statutory financial statements.

Statutory  amounts  for TIG's  business  segments  are as follows  (see Note O -
Business Segments):

                              Years Ended December 31,
                              ------------------------
(In millions)                   1996    1995     1994
======================================================
STATUTORY NET INCOME (LOSS):
Primary operations              $ 88    $ 67     $(29)
Reinsurance operations            96      69       42
------------------------------------------------------
   Total                        $184    $136      $13
======================================================

                                     December 31,
                                ----------------------
(In millions)                   1996    1995     1994
======================================================
STATUTORY SURPLUS:
Primary operations              $460    $512     $529
Reinsurance operations           515     440      372
------------------------------------------------------
   Total                        $975    $952     $901
======================================================

In June 1993,  the  California  Department of Insurance  permitted TIG Insurance
Company ("TIC"),  TIG's lead insurer,  to record a  quasi-reorganization  of its
statutory  capital  accounts.  The  effect  of the  quasi-reorganization  was to
increase the earned  surplus of TIC to zero from a negative  $285 million and to
decrease contributed surplus by the same amount. This transaction  significantly
increased  TIC's future dividend  paying  capability as insurance  companies may
only pay dividends from earned surplus.

Under the State of California insurance regulations, TIG is required to maintain
minimum  capital and surplus of  $5,400,000.  The Company's  surplus and capital
exceeds the NAIC's "risk-based-capital" requirements at the end of 1996.

                                     - 59 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE O.  BUSINESS SEGMENTS
================================================================================

TIG's operations are comprised of two business segments.  Reinsurance operations
and Primary  Insurance  operations.  Primary  Insurance  operations  are further
broken down into Commercial Specialty, Retail, and Other Lines. Premium produced
through Aon Corporation and its  subsidiaries  accounted for 23%, 22% and 21% of
consolidated  net  premium  written  in 1996,  1995 and 1994,  respectively.  In
addition,  inter-segment  premium for 1995 was $43  million.  Revenues,  pre-tax
operating income and identifiable assets for each segment were as follows:

<TABLE>
<CAPTION>

                                                                                Segments - 1996
                                                     --------------------------------------------------------------
(In millions)                                         Reinsurance         Primary          Parent     Consolidated
===================================================================================================================
Revenues:
<S>                                                    <C>                <C>             <C>             <C>   
Earned premium                                           $534             $1,005           $  -           $1,539
Net investment income                                     120                163              7              290
Net investment gain (loss)                                 18                (22)             -               (4)
-------------------------------------------------------------------------------------------------------------------
Total revenues                                           $672             $1,146            $ 7           $1,825
-------------------------------------------------------------------------------------------------------------------
Underwriting loss                                        $(14)              $(51)          $  -             $(65)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                        $124                $89          $(138)             $75
-------------------------------------------------------------------------------------------------------------------
Identifiable assets                                    $2,372             $4,046            $58           $6,476
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                Segments - 1995
                                                     --------------------------------------------------------------
(In millions)                                         Reinsurance         Primary          Parent     Consolidated
===================================================================================================================
Revenues:
<S>                                                    <C>                <C>             <C>             <C>   
Earned premium                                           $483             $1,135          $   -           $1,618
Net investment income                                     100                158             10              268
Net investment gain (loss)                                  8                 (2)           (17)             (11)
-------------------------------------------------------------------------------------------------------------------
Total revenues                                           $591             $1,291            $(7)          $1,875
-------------------------------------------------------------------------------------------------------------------
Underwriting loss                                        $(17)              $(42)           $ -             $(59)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                         $91                $98           $(34)         $   155
-------------------------------------------------------------------------------------------------------------------
Identifiable assets                                    $2,219             $4,282           $182           $6,683
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                                Segments - 1994
                                                     --------------------------------------------------------------
(In millions)                                         Reinsurance         Primary          Parent     Consolidated
===================================================================================================================
Revenues:
<S>                                                    <C>                <C>             <C>             <C>   
Earned premium                                           $394             $1,155           $  -           $1,549
Net investment income                                      85                155              9              249
Net investment gain (loss)                                  1                (18)            (3)             (20)
-------------------------------------------------------------------------------------------------------------------
Total revenues                                           $480             $1,292             $6           $1,778
-------------------------------------------------------------------------------------------------------------------
Underwriting loss                                        $(22)             $(125)           $ -            $(147)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                         $64               $(13)           $(6)             $45
-------------------------------------------------------------------------------------------------------------------
Identifiable assets                                    $1,815             $4,180           $121           $6,116
===================================================================================================================
</TABLE>


                                     - 60 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following table is a summary of TIG's Primary insurance  operations by major
division:

<TABLE>
<CAPTION>

                                                                                   Years Ended December 31,
                                                                        -----------------------------------------
(In millions)                                                            1996              1995             1994
=================================================================================================================
Primary earned premium:
<S>                                                                    <C>               <C>              <C> 
     Commercial Specialty                                                $429              $419             $413
     Retail                                                               363               337              312
     Other Lines                                                          213               379              430
-----------------------------------------------------------------------------------------------------------------
Total primary earned premium                                           $1,005            $1,135           $1,155
-----------------------------------------------------------------------------------------------------------------

Underwriting loss:
     Commercial Specialty                                                $(13)              $(4)             $18
     Retail                                                                (4)               (6)             (55)
     Other Lines                                                          (34)              (32)             (88)
-----------------------------------------------------------------------------------------------------------------
Total underwriting loss                                                  $(51)             $(42)           $(125)
=================================================================================================================
</TABLE>

--------------------------------------------------------------------------------
NOTE P.  INTERIM FINANCIAL DATA (Unaudited)
================================================================================

<TABLE>
<CAPTION>
                                                                    Quarter
                                              ----------------------------------------------------
(In millions)                                  First         Second          Third         Fourth           Total
==================================================================================================================
Summary Quarterly Results:
<S>                               <C>        <C>             <C>             <C>           <C>            <C>   
     Revenues                     1996          $455           $457           $460           $453          $1,825
                                  1995           470            476            466            463           1,875
                                  1994           425            468            432            453           1,778

     Pre-tax income (loss) from   1996           (82)            49             53             55              75
          continuing operations   1995            20             44             47             44             155
                                  1994           (13)            27              8             23              45

     Net income (loss)            1996           (31)            34             37             39              79
                                  1995            18             33             34             33             118
                                  1994            (3)            23             10             22              52
------------------------------------------------------------------------------------------------------------------

Earnings per Common Share:
     Net income (loss)            1996        $(0.53)         $0.55          $0.64          $0.67           $1.30
                                  1995         $0.28          $0.53          $0.54          $0.54           $1.89
                                  1994        $(0.05)         $0.36          $0.15          $0.33           $0.79
==================================================================================================================
</TABLE>



The 1994 first and third quarters were impacted by pre-tax  catastrophe costs of
$32 and $13 million,  respectively,  arising  from the January  1994  Northridge
earthquake.  In the  second  quarter  of 1995,  a reserve  of $6.3  million  was
established for exit costs resulting from management's  decision to reduce small
individually  underwritten commercial policies,  while a normal re-evaluation of
the Company's  allowance for  reinsurance  recoverables in the fourth quarter of
1995 resulted in an increase to pretax income of  approximately  $11 million for
the quarter. In the first quarter of 1996, an after-tax  restructuring change of
$65 million was taken for costs related to management's  decision to restructure
operations (see Note C. - Restructuring Charges).

                                     - 61 -
<PAGE>
                                    PART II

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE Q.  SUBSEQUENT EVENT
================================================================================

In January of 1997,  TIG  Capital  Trust I ("TIG  Capital"  or the  "Trust"),  a
statutory  business trust created under  Delaware law and a trust  subsidiary of
TIG Holdings,  completed a private  offering for $125 million of 8.597%  capital
securities.  TIG Holdings is the inital holder of 100% of the common  securities
of TIG  Capital.  Holders  of the  capital  securities  of the Trust will have a
preference under certain  circumstances over the holders of common securities of
the Trust with respect to cash distributions and amounts payable on liquidation,
redemption, or otherwise.

TIG Holdings issued $128.75 million in 8.597% Junior Subordinated  Debentures to
TIG Capital Trust I (including  approximately  $3.75 million with respect to the
capital  contributed to the Trust by TIG Holdings).  TIG Holdings guaranteed the
payment of  distributions  and  payments on  liquidation  or  redemption  of the
capital  securities  but only in each case to the  extent  of funds  held by the
Trust. The guarantee does not cover payment of distributions when the Trust does
not have  sufficient  funds to pay such  distributions.  All of the net proceeds
received by TIG Holdings  from the issuance of the  debentures  will be used for
general corporate purposes which may include repurchases of the Company's common
stock.

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

Not applicable.

                                     - 62 -
<PAGE>
                                    PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
================================================================================

Information  required by this item is incorporated  herein by reference from the
sections  entitled  "Election of Directors",  "Stock Ownership and Section 16(a)
Beneficial  Ownership   Compliance"  and  "Certain  Information   Regarding  the
Executive  Officers" in the Company's  definitive proxy statement for its annual
meeting of shareholders to be held May 1, 1997.  Notwithstanding  the foregoing,
the   subsection   entitled   "Compensation   Committee   Report  on   Executive
Compensation" is not incorporated herein by reference.

--------------------------------------------------------------------------------
ITEM 11.  EXECUTIVE COMPENSATION
================================================================================

Information  required by this item is incorporated by reference from the section
entitled "Certain Information Regarding the Executive Officers" in the Company's
definitive proxy statement for its annual meeting of shareholders to be held May
1, 1997.  Notwithstanding the foregoing,  the subsection entitled  "Compensation
Committee  Report  on  Executive  Compensation"  is not  incorporated  herein by
reference.

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

Information required by this item is incorporated by reference from the sections
entitled "Stock  Ownership and Section 16 (a) Beneficial  Ownership  Compliance"
from  the  Company's  definitive  proxy  statement  for its  annual  meeting  of
shareholders to be held May 1, 1997.

--------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
================================================================================

Not applicable.

                                     - 63 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON  FORM 8-K
================================================================================

                                                                            Page
(A) (1) FINANCIAL STATEMENTS

Consolidated Balance Sheets at December 31, 1996 and 1995 ...................39

Consolidated Statements of Income for
each of the three years in the period ended December 31, 1996 ...............40

Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 1996 ...............41

Consolidated Statements of Changes in Shareholders' Equity for
each of the three years in the period ended December 31, 1996 ...............42

Notes to Consolidated Financial Statements ..................................43

(A) (2) SCHEDULES SUPPORTING FINANCIAL STATEMENTS 

Schedule II. Financial Statements of TIG Holdings, Inc. 
(Parent Company Only) .......................................................65

Schedule III. Supplementary Insurance Information ...........................68

Schedule IV. Reinsurance ....................................................69

All other  schedules  specified by Article 7 of Regulation  S-X are not required
pursuant to the related  instructions or are inapplicable and,  therefore,  have
been omitted.

(A) (3) EXHIBITS ............................................................70

Exhibit 11. Computation of Earnings Per Share ...............................73

Exhibit 12. Computation of Ratio of
Consolidated Earnings to Fixed Charges and Preferred Stock Dividends ........74

A copy of exhibits not included with this Form 10-K may be obtained upon request
and  payment  of the cost of  reproduction  to the  Secretary  at the  Company's
principal  executive office, 65 East 55th Street, 28th Floor, New York, New York
10022.

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the fourth quarter of 1996.

                                     - 64 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                                
                               TIG HOLDINGS, INC.                                                    SCHEDULE II
                                 BALANCE SHEETS
                              (Parent Company Only)

                                                                                               December 31,
                                                                                        -------------------------
(In millions)                                                                            1996               1995
=================================================================================================================
ASSETS
     Investments:
         Fixed maturity investments, at market (cost: $-0- in 1996,
<S>                                                                                    <C>                 <C> 
         $131 in 1995)                                                                 $    -               $127
         Short-term and other investments, at cost which approximates market               40                 42
-----------------------------------------------------------------------------------------------------------------
              Total investments                                                            40                169
-----------------------------------------------------------------------------------------------------------------
     Investments in subsidiaries                                                        1,318              1,364
     Accrued investment income                                                              -                  1
     Income taxes                                                                          32                (26)
     Other assets                                                                          18                 12
-----------------------------------------------------------------------------------------------------------------

         Total assets                                                                  $1,408             $1,520
=================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
     Notes payable                                                                        $98                $98
     Accounts payable and other liabilities                                                78                 21
-----------------------------------------------------------------------------------------------------------------
         Total liabilities                                                                176                119
-----------------------------------------------------------------------------------------------------------------
MANDATORY REDEEMABLE PREFERRED STOCK                                                       25                 25
-----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
     Common stock - par value $0.01 per share
         (authorized: 180,000,000 shares
         issued and outstanding: 64,610,109 shares in 1996, and
         64,125,050 shares in 1995 )                                                    1,198              1,186
     Class A common stock - par value $0.01 per share
         (authorized: 1,000,000 shares; issued and
         outstanding: 35,793 shares in 1995)                                                -                  1
     Retained earnings                                                                    234                168
     Net unrealized investment gain, net of taxes                                          52                110
     Net unrealized loss on foreign exchange, net of tax                                   (1)                (1)
-----------------------------------------------------------------------------------------------------------------
                                                                                        1,483              1,464
     Treasury stock (10,306,000 shares in 1996 and
         4,041,100 shares in 1995)                                                       (276)               (88)
-----------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                                     1,207              1,376
-----------------------------------------------------------------------------------------------------------------

         Total liabilities and shareholders' equity                                    $1,408             $1,520
=================================================================================================================
</TABLE>


These financial  statements  should be read in conjunction with the Consolidated
Financial Statements and the accompanying notes thereto.


                                     - 65 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                               TIG HOLDINGS, INC.                                                    SCHEDULE II
                              STATEMENTS OF INCOME
                              (Parent Company Only)


                                                                                Years Ended December 31,
                                                                        -----------------------------------------   
(In millions)                                                            1996              1995             1994
=================================================================================================================
REVENUES
<S>                                                                      <C>               <C>               <C>
     Net investment income                                                 $7               $10               $9
     Net investment loss                                                    -               (17)              (3)
-----------------------------------------------------------------------------------------------------------------
         Total revenues                                                     7                (7)               6
-----------------------------------------------------------------------------------------------------------------
EXPENSES
     Selling and administration expenses                                   37                21               12
     Interest expense                                                       8                 6                -
     Restructuring charges                                                100                 -                -
-----------------------------------------------------------------------------------------------------------------
         Total  expenses                                                  145                27               12
-----------------------------------------------------------------------------------------------------------------
Loss before income tax benefit                                           (138)              (34)              (6)
Income tax benefit                                                         76                42               22
-----------------------------------------------------------------------------------------------------------------
     Income (loss) before equity in earnings of subsidiaries              (62)                8               16
Equity in undistributed earnings of subsidiaries                          141               110               36
-----------------------------------------------------------------------------------------------------------------
     Net income                                                           $79              $118              $52
=================================================================================================================
</TABLE>


These financial  statements  should be read in conjunction with the Consolidated
Financial Statements and the accompanying notes thereto.


                                     - 66 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                               
                               TIG HOLDINGS, INC.                                          SCHEDULE II
                             STATEMENTS OF CASH FLOW
                              (Parent Company Only)
                                                                                Years Ended December 31,
                                                                        -----------------------------------------
(In millions)                                                            1996              1995             1994
=================================================================================================================
OPERATING ACTIVITIES
<S>                                                                      <C>               <C>               <C>
     Net income                                                           $79              $118              $52
     Adjustments to reconcile net income to net cash provided by (used in)
         operating activities:
     Changes in:
         Income taxes                                                     (58)              (25)               3
         Accrued investment income                                          1                 -                1
         Equity in undistributed earnings of subsidiaries                (141)             (110)             (36)
         Dividends received from subsidiaries                             130                75                -
         Other                                                             54                 6              (42)
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) operating activities          65                64              (22)
-----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
         Purchases of fixed maturity investments                          (67)             (118)             (51)
         Sales of fixed maturity investment                               187                75               99
         Maturities and calls of fixed maturities investments               5                 9               19
         Purchase of common stock investments                              (2)               (8)               -
         Net change in short-term investments                               4               (27)              10
         Capital contributions to subsidiaries                              -               (20)              (5)
         Other                                                              2                 1              (11)
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) investing activities         129               (88)              61
-----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
         Net proceeds from issuance of notes payable                        -                98                -
         Net proceeds from issuance of common stock                         8                 2                3
         Acquisition of treasury stock                                   (188)              (62)             (26)
         Common stock dividends                                           (12)              (12)             (13)
         Preferred stock dividends                                         (2)               (2)              (3)
-----------------------------------------------------------------------------------------------------------------
              Net cash provided by (used in) financing activities        (194)               24              (39)
-----------------------------------------------------------------------------------------------------------------
         Increase (decrease) in cash                                        -                 -                -
         Cash at beginning of period                                        -                 -                -
-----------------------------------------------------------------------------------------------------------------
         Cash at end of period                                           $  -             $   -             $  -
=================================================================================================================
</TABLE>


These financial  statements  should be read in conjunction with the Consolidated
Financial Statements and the accompanying notes thereto.


                                     - 67 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                               
                               TIG HOLDINGS, INC.                                              SCHEDULE III
                       SUPPLEMENTARY INSURANCE INFORMATION

                            Future
                            Policy                Other                                    
                         Benefits,               Policy                       Benefits,   Amortization
                Deferred   Losses,               Claims                         Claims,    of Deferred          Other
                 Policy     Claims                  And                 Net  Losses And         Policy      Operating          Net
            Acquisition   And Loss   Unearned  Benefits  Premium Investment  Settlement    Acquisition       Expenses      Premium
(In millions)     Costs   Expenses    Premium   Payable  Revenue Income (1)    Expenses          Costs            (2)      Written
==================================================================================================================================
Year Ended

12/31/96:
<S>                <C>      <C>          <C>          <C> <C>          <C>       <C>              <C>           <C>         <C>   
Primary             $80     $2,418       $470         -   $1,005       $163        $752           $205            $95         $981
Reinsurance          64      1,342        226         -      534        120         386            142             20          548
Parent                -          -          -         -        -          7           -              -             37            -
----------------------------------------------------------------------------------------------------------------------------------
        Total      $144     $3,760       $696         -   $1,539       $290      $1,138           $347           $152       $1,529
----------------------------------------------------------------------------------------------------------------------------------
Year Ended
12/31/95:
Primary             $83     $2,600       $495         -   $1,135       $158        $815           $216           $132       $1,099
Reinsurance          61      1,286        217         -      483        100         361            119             20          511
Parent                -          -          -         -        -         10           -              -             36            -
----------------------------------------------------------------------------------------------------------------------------------
        Total      $144     $3,886       $712         -   $1,618       $268      $1,176           $335           $188       $1,610
----------------------------------------------------------------------------------------------------------------------------------
Year Ended
12/31/94:
Primary             $85     $2,784       $481         -   $1,155       $155        $866           $198           $189       $1,181
Reinsurance          52      1,089        194         -      394         85         299            101             16          440
Parent                -          -          -         -        -          9           -              -             37            -
----------------------------------------------------------------------------------------------------------------------------------
        Total      $137     $3,873       $675         -   $1,549       $249      $1,165            $299          $242       $1,621
----------------------------------------------------------------------------------------------------------------------------------
<FN>
 (1)     Net investment income is based on each segment's investable assets.
 (2)     Other  operating  expenses  are  allocated  primarily  on the  specific
         identification  basis.  Where  indirect  expenses  cannot  be  directly
         related to a segment,  these expenses are allocated on a rational basis
         depending on the nature of the expense  (e.g.,  premium  written,  head
         count, etc.).
</FN>
</TABLE>

                                     - 68 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                SCHEDULE IV
                               TIG HOLDINGS, INC.
                                   REINSURANCE

                                                                              Assumed
                                                                                 From
                                                                                Other
                                                                            Companies                     Percentage
                                                              Ceded To            And                      Of Amount
                                                 Gross           Other    Involuntary          Net           Assumed
(In millions)                                   Amount       Companies          Pools       Amount            To Net
---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
    Property and casualty
<S>                                             <C>               <C>            <C>        <C>               <C>   
        premium                                 $1,307            $400           $632       $1,539            41.07%
---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
    Property and casualty
        premium                                 $1,377            $388           $629       $1,618            38.88%
---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994
    Property and casualty
        premium                                 $1,422            $422           $549       $1,549            35.44%
=====================================================================================================================
</TABLE>


                                     - 69 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

EXHIBIT 3.1:  Amended and Restated  Certificate of Incorporation of TIG Holdings
as filed with the Delaware Secretary of State on April 16, 1993 (incorporated by
reference to Exhibit 3.1 to TIG Holdings'  Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  3.2:  Amended  and  Restated  Bylaws of TIG  Holdings as adopted by TIG
Holdings'  Board of  Directors  on May 18, 1993  (incorporated  by  reference to
Exhibit  3.2 to TIG  Holdings'  Registration  Statement  on Form  S-8,  File No.
33-63148).

EXHIBIT 4.1:  Certificate of  Designation of TIG Holdings  relating to the $7.75
Cumulative  Preferred Stock of TIG Holdings as filed with the Delaware Secretary
of State on April 16,  1993  (incorporated  by  reference  to Exhibit 4.1 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT 4.2:  Indenture dated as of April 1, 1995,  between TIG Holdings and the
First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit
4.2 to Registration Statement No. 33-90594, filed March 24, 1995).

EXHIBIT  10.1:  Master  Leasing  Agreement  dated  December 1, 1995  between BLC
Corporation as Lessor,  and TIG Insurance  Company,  as Lessee  (incorporated by
reference to Exhibit 10.1 to TIG  Holdings'  Annual  Report on Form 10-K for the
year ended December 31, 1995, Commission File No. 1-11856).

EXHIBIT 10.2: Trade Name and Service Mark License Agreement dated April 16, 1993
by and between  Transamerica and TIG Insurance Group  (incorporated by reference
to Exhibit 10.5 to TIG Holdings'  Quarterly  Report on Form 10-Q for the quarter
ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.3:  Employment  Agreement  dated  April 19,  1993 by and between TIG
Holdings and Jon W. Rotenstreich  (incorporated by reference to Exhibit 10.10 to
TIG  Holdings'  Quarterly  Report on Form 10-Q for the  quarter  ended March 31,
1993, Commission File No. 1-11856).

EXHIBIT  10.4:  Employment  Agreement  dated  April 19,  1993 by and between TIG
Holdings and Don D. Hutson  (incorporated  by reference to Exhibit  10.11 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT  10.5:  Employment  Agreement  dated  March  23,  1993  by  and  between
Transamerica Reinsurance Company and William G. Clark (incorporated by reference
to Exhibit 10.12 to TIG Holdings'  Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.6:  Employment  Agreement  dated  March  23,  1993  by  and  between
Transamerica   Reinsurance  Company  and  Edwin  M.  Millette  (incorporated  by
reference to Exhibit 10.18 to TIG  Holdings'  Annual Report on Form 10-K for the
year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT 10.7: Letter to Edwin M. Millette re: Employment Agreement (incorporated
by reference to Exhibit  10.19 to TIG  Holdings'  Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT  10.8:  Letter from TIG Holdings to Edwin G. Pickett dated June 15, 1993
and June 22, 1993 concerning certain provisions of Mr. Pickett's employment with
TIG Holdings  (incorporated  by reference to Exhibit 10.32 to Amendment No. 1 to
TIG Holdings'  Annual Report on Form 10-K for the year ended  December 31, 1993,
Commission File No. 1-11856).

EXHIBIT 10.9: TIG Holdings,  Inc. 1993 Non-Employee  Directors  Restricted Share
Program  (incorporated by reference to Exhibit 10.21 to TIG Holdings'  Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, Commission File No.
1-11856).

                                     - 70 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

EXHIBIT  10.10:  Amendment to TIG  Holdings,  Inc. 1993  Non-Employee  Directors
Restricted  Share  Program  (incorporated  by  reference  to  Exhibit  10.22  to
Amendment No. 1 to TIG  Holdings'  Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.11:  TIG Holdings,  Inc.  Common Stock  Restricted  Share  Agreement
(incorporated  by  reference  to  Exhibit  4.1  to  TIG  Holdings'  Registration
Statement on Form S-8, File No. 33-66650).

EXHIBIT 10.12: TIG Holdings, Inc. 1993 Long-Term Incentive Plan (incorporated by
reference to Exhibit  10.13 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.13: TIG Holdings, Inc. Employee Stock Ownership Plan (incorporated by
reference to Exhibit  10.14 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.14:  Employee Stock  Ownership Plan Trust  Agreement  dated April 27,
1993 by and between TIG Holdings and Bank of America  National Trust and Savings
Association,  as trustee  (incorporated  by  reference  to Exhibit  10.15 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT  10.15:  Loan and Stock Purchase  Agreement  dated April 27, 1993 by and
between TIG Holdings and Bank of America National Trust and Savings Association,
as trustee of the TIG Holdings, Inc. Employee Stock Ownership Plan (incorporated
by reference to Exhibit 10.16 to TIG Holdings' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.16:  TIG Holdings,  Inc.  Diversified  Savings Plan  (incorporated by
reference to Exhibit  10.17 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.17:  Diversified Savings Plan Trust Agreement dated April 27, 1993 by
and between Holdings and Bank of America National Trust and Savings Association,
as  trustee  (incorporated  by  reference  to  Exhibit  10.18  to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856).

EXHIBIT 10.18: TIG Holdings,  Inc. Employee Profit Sharing Plan (incorporated by
reference to Exhibit  10.19 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.19:  Profit Sharing Plan Trust  Agreement dated April 27, 1993 by and
between TIG Holdings and Bank of America National Trust and Savings Association,
as  trustee  (incorporated  by  reference  to  Exhibit  10.19  to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856).

EXHIBIT 10.20: Amendment No. 3 dated February 16, 1995 to each of Employee Stock
Ownership  Plan,  Employees'  Profit Sharing Plan and  Diversified  Savings Plan
(incorporated  by reference to Exhibit 10.34 to TIG  Holdings'  Annual Report on
Form 10-K for the year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT 10.21: Credit Agreement, dated as of December 14, 1995, by and among TIG
Holdings, Inc., the lenders party thereto,  Chemical Bank, as the Administrative
Agent,  and Morgan  Guaranty  Trust Company of New York,  as the Document  Agent
(incorporated  by reference to Exhibit 10.21 to TIG  Holdings'  Annual Report on
Form 10-K for the year ended December 31, 1995, Commission File No. 1-11856).

EXHIBIT  10.22:  Office Lease dated October 4, 1993 by and between T-Las Colinas
Towers  Corp.  and TIC  (incorporated  by  reference  to  Exhibit  10.28  to TIG
Holdings' Registration Statement on Form S-1, File No. 33-71818).

EXHIBIT  10.23:  Amendment No. 1 dated November 7, 1994 to each of TIG Holdings,
Inc.  Employee  Stock  Ownership  Plan,   Employees'  Profit  Sharing

                                     - 71 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------
Plan and Diversified Savings Plan (incorporated by reference to Exhibit 10.32 to
TIG  Holdings'  Annual  Report on 10-K for the year  ended  December  31,  1994,
Commission File No. 1-11856).


EXHIBIT 10.24:  Amendment No. 2 dated December 14, 1994 to each of TIG Holdings,
Inc.  Employee  Stock  Ownership  Plan,   Employees'  Profit  Sharing  Plan  and
Diversified  Savings Plan  (incorporated  by  reference to Exhibit  10.33 to TIG
Holdings' Annual Report on 10-K for the year ended December 31, 1994, Commission
File No. 1-11856).

EXHIBIT 10.25:  Environmental  Reimbursement  of Loss Agreement  dated April 27,
1993 by and between Transamerica Insurance Company and Pyramid Insurance Company
of Bermuda,  Ltd.  (incorporated  by reference to Exhibit 10.2 to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856.)

EXHIBIT 10.26: TIG Holding,  Inc. 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to TIG Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, Commission File No. 1-11856).

EXHIBIT 10.27:  TIG  Holdings,   Inc.  1996   Non-Employee   Directors  Program
(incorporated by reference to Exhibit 10.2 to TIG Holdings'  Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, Commission File No. 1-11856).

EXHIBIT 10.28: TIG Holdings, Inc. Annual Incentive Compensation Plan for Certain
Executives  (incorporated by reference to Exhibit 10.4 to TIG Holdings Quarterly
Report  on Form  10-Q for the  quarter  ended  June 30,  1996,  Commission  File
No.1-11856).

EXHIBIT  10.29:  TIG Holdings  Inc. 1993 Long Term  Incentive  Plan Stock Option
Agreement  (incorporated by reference to Exhibit 10.4 to TIG Holdings' Quarterly
Report  on Form  10-Q for the  quarter  ended  June 30,  1996,  Commission  File
1-11856).

EXHIBIT 10.30: TIG Holdings, Inc. 1993 Long Term Incentive Plan Restricted Share
Award  Agreement  (incorporated  by reference  to Exhibit 10.5 to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1996,  Commission
File 1-11856).

EXHIBIT  10.31:  TIG Holdings Inc. 1996  Long-Term  Incentive  Plan Stock Option
Agreement  (incorporated  by  reference to Exhibit  10.6 to TIG  Holdings,  Inc.
Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1996,  Commission
File 1-11856).

EXHIBIT  10.32:  TIG Holdings,  Inc. 1996  Long-Term  Incentive  Plan  Executive
Non-Qualified Stock Option Agreement  (incorporated by reference to Exhibit 10.7
to TIG  Holdings'  Quarterly  Report on Form 10-Q for the quarter ended June 30,
1996, Commission File 1-11856).

EXHIBIT 10.33:  TIG Holdings, Inc. ESOP Restoration Plan.

EXHIBIT 10.34:  TIG Holdings, Inc. Profit Sharing Restoration Plan.

EXHIBIT 10.35:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Diversified Savings Plan.

EXHIBIT 10.36:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
ESOP Restoration Plan.

EXHIBIT 10.37:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Profit Sharing Plan.

EXHIBIT 11.1:  Statement re: Computation of Per Share Earnings.

Exhibit 12.1:  Statement re:  Computation of Ratio of  Consolidated  Earnings to
Fixed Charges and Preferred Stock Dividends.

EXHIBIT 21:  Subsidiaries of TIG Holdings, Inc.

EXHIBIT 23.1:  Consent of Ernst & Young LLP

EXHIBIT 24.1:  Powers of Attorney.

                                     - 72 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                 
                               TIG HOLDINGS, INC.                                                     EXHIBIT 11
                        COMPUTATION OF EARNINGS PER SHARE
                                   (unaudited)
                                                                                    Years Ended December 31,
                                                                           -----------------------------------------
(In millions, except per share data)                                        1996              1995             1994
====================================================================================================================
Primary:
<S>                                                                        <C>              <C>               <C> 
Weighted average shares outstanding                                         56.4              60.8             63.1
Net effect of dilutive stock options - based on the
     treasury stock method using average market price                        2.9               0.8                -

--------------------------------------------------------------------------------------------------------------------
Total primary common shares                                                 59.3              61.6             63.1
--------------------------------------------------------------------------------------------------------------------
Net income                                                                 $78.9            $118.3            $51.5
Less preferred stock dividend requirements                                  (1.9)             (1.9)            (1.9)
--------------------------------------------------------------------------------------------------------------------
Net income available to common stock                                       $77.0            $116.4            $49.6
--------------------------------------------------------------------------------------------------------------------
Net income per common share                                                $1.30             $1.89            $0.79
====================================================================================================================


====================================================================================================================
Fully diluted:
Weighted average shares outstanding                                         56.4              60.8             63.1
Net effect of dilutive stock options - based on the
     treasury stock method using higher of average market price
     or end of period market price                                           3.9               2.5                -
--------------------------------------------------------------------------------------------------------------------

Total fully diluted common stock                                            60.3              63.3             63.1
--------------------------------------------------------------------------------------------------------------------
Net income                                                                 $78.9            $118.3            $51.5
Less preferred stock dividend requirements                                  (1.9)             (1.9)            (1.9)
--------------------------------------------------------------------------------------------------------------------
Net income available to common stock                                       $77.0            $116.4            $49.6
--------------------------------------------------------------------------------------------------------------------
Net income per common share                                                $1.28             $1.84            $0.79
====================================================================================================================
</TABLE>

                                     - 73 -
<PAGE>
                                    PART IV
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                          EXHIBIT 12
                               TIG HOLDINGS, INC.
                  COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                 TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
                                   (unaudited)
                                                                           Years Ended December 31,
                                                           ---------------------------------------------------------
(In millions)                                               1996             1995             1994             1993
--------------------------------------------------------------------------------------------------------------------
EARNINGS:
<S>                                                          <C>             <C>               <C>            <C>   
    Pretax income from continuing operations                 $75             $155              $45            $(218)
    Fixed charges, excluding preferred
        stock dividends                                       16               15               11               13
--------------------------------------------------------------------------------------------------------------------
           Earnings                                          $91             $170              $56            $(205)
====================================================================================================================

FIXED CHARGES:
    Interest expense                                         $ 9            $   6             $  -             $  1
    Interest portion of operating leases,
        net of subleasing income                               7                9               11               12
    Preferred stock dividends requirements                     2                2                2                2
--------------------------------------------------------------------------------------------------------------------
        Fixed charges                                        $18              $17              $13              $15
====================================================================================================================

RATIO OF EARNINGS TO FIXED CHARGES                           5.1             10.0              4.3                -
====================================================================================================================
</TABLE>

                                     - 74 -
<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.

                               TIG HOLDINGS, INC.


                              By /s/STEVEN A. COOK
                              -----------------------
                                 Steven A. Cook
                                   Controller

Date:  March 21, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


By     /s/JON W. ROTENSTREICH*         By     /s/GEORGE B. BEITZEL*        
------------------------------------   ------------------------------------
Jon W. Rotenstreich                    George B. Beitzel                   
Chairman of the Board and              Director                            
Chief Executive Officer and Director                                       
(Principal Executive Officer)                                              
                                       By     /s/WILLIAM G. CLARK*         
By     /s/DON D. HUTSON*               ------------------------------------
------------------------------------   William G. Clark                    
Don D. Hutson                          Director                            
President, Chief Operating Officer
and Director
                                       By     /s/JOEL S. EHRENKRANZ*       
By     /s/EDWIN G. PICKETT*            ------------------------------------
------------------------------------   Joel S. Ehrenkranz                  
Edwin G. Pickett                       Director                            
Executive Vice President and                                               
Chief Financial Officer                By     /s/GEORGE D. GOULD*          
(Principal Financial Officer)          ------------------------------------
                                       George D. Gould                     
By    /s/STEVEN A. COOK                Director                            
------------------------------------                                       
Steven A. Cook                         By     /s/THE RT. HON. LORD MOORE*  
Controller                             ------------------------------------
(Principal Accounting Officer)         The Rt. Hon. Lord Moore             
                                       Director                            
                                                                           
                                       By     /s/WILLIAM W. PRIEST, JR.*   
                                       ------------------------------------
                                       William W. Priest, Jr.              
                                       Director                            
                                                                           
                                       By     /s/ANN W. RICHARDS*          
                                       ------------------------------------
                                       Ann W. Richards                     
                                       Director                            
                                                                           
                                       By     /s/HAROLD TANNER*            
                                       ------------------------------------
                                       Harold Tanner                       
                                       Director




Date:  March 21, 1997

*By     /s/LOUIS J. PAGLIA
------------------------------------


<PAGE>

                               INDEX TO EXHIBITS
-------------------------------------------------------------------------------

EXHIBIT 3.1:  Amended and Restated  Certificate of Incorporation of TIG Holdings
as filed with the Delaware Secretary of State on April 16, 1993 (incorporated by
reference to Exhibit 3.1 to TIG Holdings'  Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  3.2:  Amended  and  Restated  Bylaws of TIG  Holdings as adopted by TIG
Holdings'  Board of  Directors  on May 18, 1993  (incorporated  by  reference to
Exhibit  3.2 to TIG  Holdings'  Registration  Statement  on Form  S-8,  File No.
33-63148).

EXHIBIT 4.1:  Certificate of  Designation of TIG Holdings  relating to the $7.75
Cumulative  Preferred Stock of TIG Holdings as filed with the Delaware Secretary
of State on April 16,  1993  (incorporated  by  reference  to Exhibit 4.1 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT 4.2:  Indenture dated as of April 1, 1995,  between TIG Holdings and the
First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit
4.2 to Registration Statement No. 33-90594, filed March 24, 1995).

EXHIBIT  10.1:  Master  Leasing  Agreement  dated  December 1, 1995  between BLC
Corporation as Lessor,  and TIG Insurance  Company,  as Lessee  (incorporated by
reference to Exhibit 10.1 to TIG  Holdings'  Annual  Report on Form 10-K for the
year ended December 31, 1995, Commission File No. 1-11856).

EXHIBIT 10.2: Trade Name and Service Mark License Agreement dated April 16, 1993
by and between  Transamerica and TIG Insurance Group  (incorporated by reference
to Exhibit 10.5 to TIG Holdings'  Quarterly  Report on Form 10-Q for the quarter
ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.3:  Employment  Agreement  dated  April 19,  1993 by and between TIG
Holdings and Jon W. Rotenstreich  (incorporated by reference to Exhibit 10.10 to
TIG  Holdings'  Quarterly  Report on Form 10-Q for the  quarter  ended March 31,
1993, Commission File No. 1-11856).

EXHIBIT  10.4:  Employment  Agreement  dated  April 19,  1993 by and between TIG
Holdings and Don D. Hutson  (incorporated  by reference to Exhibit  10.11 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT  10.5:  Employment  Agreement  dated  March  23,  1993  by  and  between
Transamerica Reinsurance Company and William G. Clark (incorporated by reference
to Exhibit 10.12 to TIG Holdings'  Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.6:  Employment  Agreement  dated  March  23,  1993  by  and  between
Transamerica   Reinsurance  Company  and  Edwin  M.  Millette  (incorporated  by
reference to Exhibit 10.18 to TIG  Holdings'  Annual Report on Form 10-K for the
year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT 10.7: Letter to Edwin M. Millette re: Employment Agreement (incorporated
by reference to Exhibit  10.19 to TIG  Holdings'  Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT  10.8:  Letter from TIG Holdings to Edwin G. Pickett dated June 15, 1993
and June 22, 1993 concerning certain provisions of Mr. Pickett's employment with
TIG Holdings  (incorporated  by reference to Exhibit 10.32 to Amendment No. 1 to
TIG Holdings'  Annual Report on Form 10-K for the year ended  December 31, 1993,
Commission File No. 1-11856).

EXHIBIT 10.9: TIG Holdings,  Inc. 1993 Non-Employee  Directors  Restricted Share
Program  (incorporated by reference to Exhibit 10.21 to TIG Holdings'  Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993, Commission File No.
1-11856).

<PAGE>
                               INDEX TO EXHIBITS
-------------------------------------------------------------------------------

EXHIBIT  10.10:  Amendment to TIG  Holdings,  Inc. 1993  Non-Employee  Directors
Restricted  Share  Program  (incorporated  by  reference  to  Exhibit  10.22  to
Amendment No. 1 to TIG  Holdings'  Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-11856).

EXHIBIT  10.11:  TIG Holdings,  Inc.  Common Stock  Restricted  Share  Agreement
(incorporated  by  reference  to  Exhibit  4.1  to  TIG  Holdings'  Registration
Statement on Form S-8, File No. 33-66650).

EXHIBIT 10.12: TIG Holdings, Inc. 1993 Long-Term Incentive Plan (incorporated by
reference to Exhibit  10.13 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.13: TIG Holdings, Inc. Employee Stock Ownership Plan (incorporated by
reference to Exhibit  10.14 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.14:  Employee Stock  Ownership Plan Trust  Agreement  dated April 27,
1993 by and between TIG Holdings and Bank of America  National Trust and Savings
Association,  as trustee  (incorporated  by  reference  to Exhibit  10.15 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1993,
Commission File No. 1-11856).

EXHIBIT  10.15:  Loan and Stock Purchase  Agreement  dated April 27, 1993 by and
between TIG Holdings and Bank of America National Trust and Savings Association,
as trustee of the TIG Holdings, Inc. Employee Stock Ownership Plan (incorporated
by reference to Exhibit 10.16 to TIG Holdings' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.16:  TIG Holdings,  Inc.  Diversified  Savings Plan  (incorporated by
reference to Exhibit  10.17 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.17:  Diversified Savings Plan Trust Agreement dated April 27, 1993 by
and between Holdings and Bank of America National Trust and Savings Association,
as  trustee  (incorporated  by  reference  to  Exhibit  10.18  to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856).

EXHIBIT 10.18: TIG Holdings,  Inc. Employee Profit Sharing Plan (incorporated by
reference to Exhibit  10.19 to TIG Holdings'  Quarterly  Report on Form 10-Q for
the quarter ended March 31, 1993, Commission File No. 1-11856).

EXHIBIT 10.19:  Profit Sharing Plan Trust  Agreement dated April 27, 1993 by and
between TIG Holdings and Bank of America National Trust and Savings Association,
as  trustee  (incorporated  by  reference  to  Exhibit  10.19  to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856).

EXHIBIT 10.20: Amendment No. 3 dated February 16, 1995 to each of Employee Stock
Ownership  Plan,  Employees'  Profit Sharing Plan and  Diversified  Savings Plan
(incorporated  by reference to Exhibit 10.34 to TIG  Holdings'  Annual Report on
Form 10-K for the year ended December 31, 1994, Commission File No. 1-11856).

EXHIBIT 10.21: Credit Agreement, dated as of December 14, 1995, by and among TIG
Holdings, Inc., the lenders party thereto,  Chemical Bank, as the Administrative
Agent,  and Morgan  Guaranty  Trust Company of New York,  as the Document  Agent
(incorporated  by reference to Exhibit 10.21 to TIG  Holdings'  Annual Report on
Form 10-K for the year ended December 31, 1995, Commission File No. 1-11856).

EXHIBIT  10.22:  Office Lease dated October 4, 1993 by and between T-Las Colinas
Towers  Corp.  and TIC  (incorporated  by  reference  to  Exhibit  10.28  to TIG
Holdings' Registration Statement on Form S-1, File No. 33-71818).

EXHIBIT  10.23:  Amendment No. 1 dated November 7, 1994 to each of TIG Holdings,
Inc.  Employee  Stock  Ownership  Plan,   Employees'  Profit  Sharing

<PAGE>
                               INDEX TO EXHIBITS
-------------------------------------------------------------------------------
Plan and Diversified Savings Plan (incorporated by reference to Exhibit 10.32 to
TIG  Holdings'  Annual  Report on 10-K for the year  ended  December  31,  1994,
Commission File No. 1-11856).


EXHIBIT 10.24:  Amendment No. 2 dated December 14, 1994 to each of TIG Holdings,
Inc.  Employee  Stock  Ownership  Plan,   Employees'  Profit  Sharing  Plan  and
Diversified  Savings Plan  (incorporated  by  reference to Exhibit  10.33 to TIG
Holdings' Annual Report on 10-K for the year ended December 31, 1994, Commission
File No. 1-11856).

EXHIBIT 10.25:  Environmental  Reimbursement  of Loss Agreement  dated April 27,
1993 by and between Transamerica Insurance Company and Pyramid Insurance Company
of Bermuda,  Ltd.  (incorporated  by reference to Exhibit 10.2 to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter ended March 31, 1993,  Commission
File No. 1-11856.)

EXHIBIT 10.26: TIG Holding,  Inc. 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to TIG Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, Commission File No. 1-11856).

EXHIBIT 10.27:  TIG  Holdings,   Inc.  1996   Non-Employee   Directors  Program
(incorporated by reference to Exhibit 10.2 to TIG Holdings'  Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, Commission File No. 1-11856).

EXHIBIT 10.28: TIG Holdings, Inc. Annual Incentive Compensation Plan for Certain
Executives  (incorporated by reference to Exhibit 10.4 to TIG Holdings Quarterly
Report  on Form  10-Q for the  quarter  ended  June 30,  1996,  Commission  File
No.1-11856).

EXHIBIT  10.29:  TIG Holdings  Inc. 1993 Long Term  Incentive  Plan Stock Option
Agreement  (incorporated by reference to Exhibit 10.4 to TIG Holdings' Quarterly
Report  on Form  10-Q for the  quarter  ended  June 30,  1996,  Commission  File
1-11856).

EXHIBIT 10.30: TIG Holdings, Inc. 1993 Long Term Incentive Plan Restricted Share
Award  Agreement  (incorporated  by reference  to Exhibit 10.5 to TIG  Holdings'
Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1996,  Commission
File 1-11856).

EXHIBIT  10.31:  TIG Holdings Inc. 1996  Long-Term  Incentive  Plan Stock Option
Agreement  (incorporated  by  reference to Exhibit  10.6 to TIG  Holdings,  Inc.
Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1996,  Commission
File 1-11856).

EXHIBIT  10.32:  TIG Holdings,  Inc. 1996  Long-Term  Incentive  Plan  Executive
Non-Qualified Stock Option Agreement  (incorporated by reference to Exhibit 10.7
to TIG  Holdings'  Quarterly  Report on Form 10-Q for the quarter ended June 30,
1996, Commission File 1-11856).

EXHIBIT 10.33:  TIG Holdings, Inc. ESOP Restoration Plan.

EXHIBIT 10.34:  TIG Holdings, Inc. Profit Sharing Restoration Plan.

EXHIBIT 10.35:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Diversified Savings Plan.

EXHIBIT 10.36:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
ESOP Restoration Plan.

EXHIBIT 10.37:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Profit Sharing Plan.

EXHIBIT 11.1:  Statement re: Computation of Per Share Earnings.

Exhibit 12.1:  Statement re:  Computation of Ratio of  Consolidated  Earnings to
Fixed Charges and Preferred Stock Dividends.

EXHIBIT 21:  Subsidiaries of TIG Holdings, Inc.

EXHIBIT 23.1:  Consent of Ernst & Young LLP

EXHIBIT 24.1:  Powers of Attorney.
<PAGE>

                                  EXHIBIT 10.33

<PAGE>
                               TIG HOLDINGS, INC.

                              ESOP RESTORATION PLAN




                                                                Effective
                                                                January 1, 1994

<PAGE>
                               TIG HOLDINGS, INC.
                              ESOP RESTORATION PLAN

TABLE OF CONTENTS                                                          PAGE
-----------------                                                          ----

ARTICLE I - PURPOSE AND ESTABLISHMENT.....................................   1
         1.1      Purpose.................................................   1
         1.2      Establishment...........................................   1

ARTICLE II - DEFINITIONS..................................................   2
         2.1      Beneficiary.............................................   2
         2.2      Board...................................................   2
         2.3      Committee...............................................   2
         2.4      Disability..............................................   2
         2.5      Effective Date..........................................   2
         2.6      Eligible Employee.......................................   2
         2.7      Employee Stock Ownership Plan...........................   2
         2.8      Employer................................................   3
         2.9      Employer Contributions..................................   3
         2.10     ESOP Restoration Account ...............................   3
         2.11     Minimum Eligible Salary ................................   3
         2.12     Participant.............................................   3
         2.13     Plan ...................................................   4
         2.14     Plan Year...............................................   4
         2.15     Profit Sharing Plan.....................................   4
         2.16     Profit Sharing Restoration Plan.........................   4
         2.17     Vested .................................................   4

ARTICLE III - ELIGIBILITY AND PARTICIPATION...............................   5
         3.1      Eligibility.............................................   5
         3.2      Participation...........................................   5

ARTICLE IV - ESTABLISHMENT OF ACCOUNT.....................................   6
         4.1      ESOP Restoration Account................................   6
         4.2      Vesting/Forfeiture of Benefits..........................   8

ARTICLE V - PAYMENT OF BENEFITS...........................................  11
         5.1      Lump Sum Distribution...................................  11
         5.2      Separateness of Plan ...................................  11
         5.3      Inapplicability of Retirement Equity Act of 1984........  11

ARTICLE VI - UNFUNDED NATURE OF PLAN......................................  12
<PAGE>
TABLE OF CONTENTS                                                          PAGE
-----------------                                                          ----


ARTICLE VII -  ADMINISTRATION; AMENDMENTS AND TERMINATION;
                  RIGHTS AGAINST THE EMPLOYER.............................  14
         7.1      Administration..........................................  14
         7.2      Liability of Committee; Indemnification.................  14
         7.3      Amendment and/or Termination............................  15
         7.4      Rights Against the Employer.............................  16
         7.5      Expenses................................................  16

ARTICLE VIII - GENERAL AND MISCELLANEOUS..................................  17
         8.1      Spendthrift Clause......................................  17
         8.2      Severability............................................  17
         8.3      Construction............................................  17
         8.4      Governing Law...........................................  17
         8.5      Payment Due an Incompetent..............................  18
         8.6      Taxes...................................................  18
<PAGE>
                               TIG HOLDINGS, INC.
                              ESOP RESTORATION PLAN
                              ---------------------

                                    ARTICLE I
                            PURPOSE AND ESTABLISHMENT
                            -------------------------

     1.1 Purpose. TIG Holdings, Inc. ("the Employer") desires to establish an "a
         -------
plan which is unfunded  and is  maintained  by the  employer  primarily  for the
purpose of providing  deferred  compensation for a select group of management or
highly compensated employees," within the meaning of Sections 201(2),  301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"),  solely for the purpose of  benefiting  participants  in the Employee
Stock  Ownership  Plan  (as  hereinafter  defined)  who (i) are  precluded  from
receiving a full allocation of Employer  Contributions  under the Employee Stock
Ownership Plan by the limitations of Section 415 of the Internal Revenue Code of
1986 ("the Code") or by the  limitation on the  compensation  taken into account
under such Plan,  imposed by Section  401(a)(17)  of the Code, as amended by the
Omnibus Budget  Reconciliation  Act of 1993 ("OBRA 93"), and (ii) are designated
for participation in this Plan, in accordance with the terms hereof.

     1.2 Establishment.  The Employer hereby establishes the TIG Holdings,  Inc.
         -------------
ESOP Restoration Plan, effective January 1, 1994.
<PAGE>
                                   ARTICLE II
                                   DEFINITIONS
                                   -----------

     2.1  Beneficiary  means the  person or  persons  whom the  Participant  has
          -----------
designated  or,  pursuant to the provisions of Section 7.7 of the Employee Stock
Ownership Plan is deemed to have designated,  to receive a distribution from the
Employee Stock Ownership Plan, in the event of the Participant's death.

     2.2  Board means the Board of Directors of the Employer.
          -----

     2.3  Committee  means the TIG Benefits  Committee  established  pursuant to
          ---------
Section 10.2 of the Employee Stock  Ownership  Plan or any such other  committee
designated by the Board, which shall consist of at least three members.

     2.4  Disability  shall have the  meaning  set forth in Section  2.12 of the
          ----------
Employee  Stock  Ownership  Plan and shall be determined  pursuant to procedures
established by the Committee.

     2.5 Effective Date means January 1, 1994.
         --------------

     2.6 Eligible  Employee  means an employee of the Employer who has satisfied
         ------------------
the requirements of Section 3.1.

     2.7 Employee  Stock  Ownership Plan means the TIG Holdings,  Inc.  Employee
         -------------------------------
Stock Ownership Plan, effective as of April 27, 1993, and as in effect from time
to time.

     2.8 Employer means TIG Holdings, Inc. and any Affiliate, within the meaning
         --------
of  Section  2.3 of the Profit  Sharing  Plan,  that has become a  participating
Affiliate  in the Profit  Sharing  Plan in  accordance  with Section 2.16 of the
Profit Sharing Plan,  provided however,  that for the purpose of Sections 4.2(b)
and 7.3 the term Employer shall refer only to TIG Holdings, Inc.
<PAGE>

     2.9  Employer  Contributions  means the ESOP  Contributions  as  defined in
          -----------------------
Section 2.17 of the Employee  Stock  Ownership  Plan,  made in  accordance  with
Section 4.1 of the Employee Stock Ownership Plan.

     2.10 ESOP Restoration Account means the book reserve account established on
          ------------------------
behalf of a Participant in accordance with Section 4.1.

     2.11 Minimum  Eligible  Salary means,  for any Plan Year, a Salary equal to
          -------------------------
the greater of (a) the  maximum  amount of  compensation  that may be taken into
account  under a qualified  plan in  accordance  with Section  4019a)(17) of the
Code,  as in  effect  for  such  Plan  Year,  or (b) an  amount  determined  and
designated  for such  Plan  Year by the  Committee  in its sole  discretion.  In
exercising the  discretion to determine the amount  described in item (b) of the
foregoing sentence, the Committee shall not designate an amount that would cause
the Minimum Eligible Salary for any Plan Year to be inconsistent with the status
of the Plan as a plan  which  is  unfunded  and is  maintained  by the  Employer
primarily for the purpose of providing deferred  compensation for a select group
of management or highly  compensated  employees,  within the meaning of Sections
201(2), 301(a)(3), and 401(a)(1) of ERISA.

     2.12  Participant  means an employee or former employee of the Employer who
           ----------- 
has satisfied the requirements of Section 3.2 hereof.

     2.13 Plan means the TIG Holdings,  Inc. ESOP Restoration Plan, as set forth
          ----
in this document, and as it may be amended from time to time.

     2.14 Plan Year means the twelve consecutive month period commencing January
          ---------
1, 1994 and ending  December  31, 1994 and each  successive  twelve  consecutive
month period thereafter, each commencing on January 1st.
<PAGE>

     2.15 Profit  Sharing Plan means the TIG Holdings,  Inc.  Employees'  Profit
          --------------------
Sharing  Plan,  effective  as of April 27,  1993,  and as in effect from time to
time.
<PAGE>

     2.16 Profit Sharing  Restoration  Plan means the TIG Holdings,  Inc. Profit
          ---------------------------------
Sharing  Restoration  Plan,  established  and maintained by the Employer,  as in
effect from time to time.

     2.17  "Vested",  as used herein,  refers only to the  restriction  provided
           --------- 
hereunder  against  the  reduction  of  a  Participant's   Restoration  Account.
Notwithstanding  the use of the  term  "vested,"  no  provision  of the  Plan is
intended  to grant to any  Participant  any right,  title,  interest or claim to
property,  within the meaning of Section 83 of the Code or any other  applicable
provision of the Code, except upon the payment of benefits hereunder.
<PAGE>
                                   ARTICLE III
                          ELIGIBILITY AND PARTICIPATION
                          -----------------------------

     3.1 Eligibility.  An employee of the Employer shall be an Eligible Employee
         -----------
for any Plan Year  hereunder if (i) he is a  participant  in the Employee  Stock
Ownership  Plan,  (ii) the  amount of the ESOP  Contributions  allocable  to his
account under the Employee Stock  Ownership Plan for such Plan Year beginning on
or after  the  Effective  Date is less  than the  amount  that  would  have been
allocable to his account,  if the limitations imposed by Sections 401(a)(17) and
415 of the Code had not been in effect, and (iii) his salary exceeds the Minimum
Eligible Salary for such Plan Year.

     3.2  Participation.   An  Eligible  Employee  shall  become  a  Participant
          --------------
hereunder on the date as of which any amount is credited to his ESOP Restoration
Account in accordance with Section 4.1. A Participant shall cease to participate
in the Plan on the date that the  balance  of his ESOP  Restoration  Account  is
reduced  to zero as a result  of a  distribution  pursuant  to  Section  5.1,  a
forfeiture pursuant to Section 4.2(a), or a combination of such distribution and
such forfeiture.
<PAGE>
                                   ARTICLE IV
                            ESTABLISHMENT OF ACCOUNT
                            ------------------------ 

         4.1      ESOP Restoration Account.
                  -------------------------

                  (a) For each Plan Year  beginning on or after January 1, 1994,
the Employer shall credit to the ESOP Restoration  Account established on behalf
of each  Participant  who is an Eligible  Employee  for such Plan Year an amount
equal to the excess, if any,  determined by subtracting item (ii) from item (i),
where:

                           (i)      equals   the   cash   value   of    Employer
                                    Contributions that would have been allocated
                                    to  the  Participant's   account  under  the
                                    Employee Stock  Ownership Plan for such Plan
                                    Year,  if  (1)  the  limitation  imposed  by
                                    Section 401(a)(17) of the Code on the amount
                                    of compensation taken into account under the
                                    Employee  Stock  Ownership Plan had not been
                                    in effect and (2) the  limitation of Section
                                    415 of the Code had not been in effect; and

                           (ii)     equals   the   cash   value   of    Employer
                                    Contributions allocated to the Participant's
                                    account under the Employee  Stock  Ownership
                                    Plan for such Plan Year.

                  (b) For  purposes of  subsection  (a),  the term cash value of
Employer  Contributions  means  the fair  market  value,  as  determined  by the
Committee, of the shares of Holdings Common Stock, within the meaning of Section
2.21  of  the  Employee  Stock   Ownership  Plan,  that  are  allocated  to  the
Participant's  account  under the Employee  Stock  Ownership  Plan,  pursuant to
Sections 4.4.2 or 4.4.3(b) of the Employee Stock  Ownership Plan (or would be so
allocated, but for the limitations of Sections 401(a)(17) or 415 of the Code).
<PAGE>

                  (c) The amount  determined in accordance  with  subsection (a)
shall be credited to the Participant's  ESOP Restoration  Account as of the last
day of each Plan Year during the term of this Plan.

                  (d)  The  Employer  shall  credit  each   Participant's   ESOP
Restoration  Account,  as of the last day of each Plan  Year,  with an  earnings
credit (or debit)  equal to the amount of  investment  gain (or loss) that would
have been earned on the amount credited to such ESOP  Restoration  Account as of
the first day of such Plan Year,  if such  amount had been held in the  Employee
Stock  Ownership Plan as of such date and invested  during such Plan Year in the
same manner as the  Participant's  account  under the Employee  Stock  Ownership
Plan, in accordance  with Sections 4.4.1,  4.4.2,  4.6, 5.6, 5.7, and 6.3 of the
Employee Stock Ownership Plan. In the event that a Participant  becomes entitled
to receive a distribution from the Plan in accordance with Section 5.1, the date
of his  retirement,  death,  termination  of employment  or Disability  shall be
treated for purposes of this Section  4.1(d) as the last day of a Plan Year. The
Committee in its sole discretion may determine amounts to be credited under this
subsection  without  reference to any charges made  against  accounts  under the
Employee Stock  Ownership Plan in accordance  with Section 6.4.7 of the Employee
Stock Ownership Plan, but in any event such charges shall not be deemed expenses
of the Plan, for purposes of Section 7.5.

                  (e) The ESOP  Restoration  Account  established  hereunder for
each  Participant  shall be  maintained  as a book  reserve  on the books of the
Employer,  and amounts credited thereto in accordance with this Section shall be
added to such book reserve.

                  (f)  In  addition  to  amounts  credited  in  accordance  with
subsection  (a),  there shall be credited to a  Participant's  ESOP  Restoration
Account,  as of the  Effective  Date, an amount  determined  in accordance  with
subsection  (a), with respect to the Plan Year of the Employee  Stock  Ownership
Plan that ended on December 31, 1993, if and only if such Participant's  Salary,
for such Plan Year of the Employee  Stock  Ownership  Plan  exceeded the maximum
amount of  compensation  permitted  to be taken into  account  under a qualified
plan, in accordance
<PAGE>
         4.2      Vesting/Forfeiture of Benefits.
                  ------------------------------

                  (a) Except as provided in paragraph (b) of this Section 4.2, a
Participant  shall become vested in his ESOP  Restoration  Account in accordance
with the vesting provisions set forth under Sections 8.1 and 8.3 of the Employee
Stock Ownership Plan. If a Participant's employment with the Employer and all of
its  affiliates is  terminated  (whether  such  termination  is initiated by the
Participant, or the Employer or its affiliates, and without regard to the reason
therefor) before a Participant is fully vested in his account under the Employee
Stock Ownership Plan, said  Participant or his Beneficiary  shall be entitled to
receive,  in  accordance  with Article V of this Plan,  that portion of his ESOP
Restoration  Account  (inclusive of deemed  earnings  thereunder)  determined by
multiplying  the value of said ESOP  Restoration  Account  by the  Participant's
non-forfeitable  percentage  determined  pursuant to Section 8.1 of the Employee
Stock Ownership Plan and any other  applicable  provisions of the Employee Stock
Ownership  Plan. The nonvested  portion of the  Participant's  ESOP  Restoration
Account, if any, shall be forfeited upon such termination date.

         (b) Upon a change of control of Employer,  each Participant who is then
an employee shall become fully vested in his ESOP Restoration Account.

               4.2(b).1  Change of  Control.  For the  purpose  of this  Section
                         ------------------
          4.2(b), "Change of Control" shall mean:

               (a)  The acquisition, after the Effective Date, by an individual,
                    entity or group  (within the meaning of Section  13(d)(3) or
                    14(d)(2) of the Securities  Exchange Act of 1934, as amended
                    ("the Exchange  Act")) of beneficial  ownership  (within the
                    meaning of Rule 13d-3 promulgated under the Exchange Act) of
                    20% or more of  either  (i) the  shares  of the  issued  and
                    outstanding  common  stock  of  the  Employer  (the  "Common
                    Stock"),  or (ii) the  combined  voting  power of the voting
                    securities of the Employer entitled to 
                    

<PAGE>
                    vote  generally in the  election of  directors  (the "Voting
                    Securities");   provided,   however,   that  the   following
                                    ---------   --------      
                    acquisitions  shall not constitute a Change of Control:  (A)
                    any  acquisition  by an  employee  benefit  plan (or related
                    trust)  sponsored  or  maintained  by  the  Employer  or any
                    Affiliate,  or (B) any  acquisition by any  corporation  if,
                    immediately following such acquisition, more than 80% of the
                    then outstanding  shares of common stock of such corporation
                    and the combined voting power of the then outstanding voting
                    securities of such  corporation  (entitled to vote generally
                    in  the  election  of  directors),  is  beneficially  owned,
                    directly or indirectly,  by all or substantially  all of the
                    individuals  and  entities  who,  immediately  prior to such
                    acquisition,  were the beneficial owners of the Common Stock
                    and  the  Voting   Securities  in  substantially   the  same
                    proportions,  respectively, as their ownership,  immediately
                    prior to such  acquisition,  of the Common  Stock and Voting
                    Securities; or


               (b)  Individuals  who, as of the Effective  Date,  constitute the
                    Board  (the  "Incumbent  Board")  cease  for any  reason  to
                    constitute  at  least a  majority  of the  Board;  provided,
                                                                       --------
                    however,  that any individual becoming a director subsequent
                    -------
                    to the Effective  Date whose  election,  or  nomination  for
                    election by the Employer's  shareholders,  was approved by a
                    vote of at least a majority of the  directors  then  serving
                    and  comprising  the Incumbent  Board shall be considered as
                    though such individual were a member of the Incumbent Board,
                    but excluding,  for this purpose,  any such individual whose
                    initial assumption of office occurs as a result of either an
                    actual or  threatened  election  contest  (as such terms are
                    used in Rule 14a-11 of Regulation 14A promulgated  under the
                    Exchange Act) or other actual or threatened  solicitation of
                    proxies or consents; or
<PAGE>
               (c)  Approval   by    shareholders   of   the   Employer   of   a
                    reorganization,   merger  or  consolidation,  other  than  a
                    reorganization,  merger or  consolidation  with  respect  to
                    which  all  or  substantially  all of  the  individuals  and
                    entities who were the beneficial  owners,  immediately prior
                    to such  reorganization,  merger  or  consolidation,  of the
                    Common  Stock  and  Voting   Securities   beneficially  own,
                    directly    or    indirectly,    immediately    after   such
                    reorganization, merger or consolidation more than 80% of the
                    then   outstanding   common  stock  and  voting   securities
                    (entitled to vote generally in the election of directors) of
                    the corporation  resulting from such reorganization,  merger
                    or consolidation  in  substantially  the same proportions as
                    their  respective  ownership,   immediately  prior  to  such
                    reorganization, merger or consolidation, of the Common Stock
                    and the Voting Securities; or

               (d)  Approval  by  the  shareholders  of  the  Employer  of (i) a
                    complete liquidation or dissolution of the Employer, or (ii)
                    the sale or other disposition of all or substantially all of
                    the  assets of the  Employer,  other  than to an  Affiliate,
                    wholly-owned, directly or indirectly, by the Employer.

         (c) If a Change of  Control,  within the  meaning of Section  4.2(b).1,
occurs and if a  Participant's  employment is  terminated  before such Change of
Control  and  its is  reasonably  demonstrated  by  the  Participant  that  such
employment  termination  (i) was at the request,  directly or  indirectly,  of a
third party who has taken steps  reasonably  calculated  to effect the Change of
Control,  or (ii) otherwise  arose in connection  with or in anticipation of the
Change of Control,  then for purposes of Section  4.2(b),  the Change of Control
shall  be  deemed  to have  occurred  immediately  prior  to such  Participant's
employment termination.
<PAGE>

                                    ARTICLE V
                               PAYMENT OF BENEFITS
                               -------------------
     
     5.1  Lump  Sum  Distribution.  Payment  of the  Participant's  vested  ESOP
          -----------------------
Restoration  Account  hereunder  shall be made in the form of a cash lump sum to
the   Participant  or  his   Beneficiary  as  soon  as  practicable   after  the
Participant's  employment  with the Employer and any of its  affiliates has been
terminated for any reason. Payment to a Participant's  Beneficiary shall be made
only  in  the  event  of  a  Participant's  death  prior  to  his  receipt  of a
distribution of his ESOP Restoration Account.

     5.2  Separateness  of Plan. Any benefit  payable under the Employee  Stock
          ---------------------     
Ownership  Plan  shall be  determined  solely in  accordance  with the terms and
provisions thereof. Any benefit payable under the Profit Sharing Plan and Profit
Sharing Restoration Plan shall be determined solely in accordance with the terms
and  provisions  thereof.  Nothing in this Plan shall operate or be construed in
any way to modify,  amend or affect  the terms and  provisions  of the  Employee
Stock Ownership Plan, the Profit Sharing Plan or the Profit Sharing  Restoration
Plan .

     5.3  Inapplicability of Retirement Equity Act of 1984. Nothing contained in
          ------------------------------------------------     
this Plan is  intended  to give or shall give any  spouse or former  spouse of a
Participant  or any other person any right to benefits  under the Plan by virtue
of Sections  401(a)(11) and 417 of the Code or Section 205 of ERISA (relating to
qualified  pre-retirement  survivor  annuities and qualified  joint and survivor
annuities) or Sections 401(a)(13)(B) and 414(p) of the Code or Section 206(d) of
ERISA (relating to qualified domestic relations orders).
<PAGE>

                                   ARTICLE VI
                             UNFUNDED NATURE OF PLAN
                             ----------------------- 

     6.1 The Plan is an "unfunded  plan  primarily  for the purpose of providing
deferred  compensation  for a select group of management  or highly  compensated
employees,"  within the meaning of Section  301(a)(3) of ERISA. The Employer has
established  ESOP  Restoration  Accounts  on its books  solely as a  bookkeeping
convenience,  in order to account  for the  amounts  earned by each  Participant
hereunder.   The  Employer   shall  not  be  required  to  segregate  any  funds
representing  the ESOP  Restoration  Accounts  and nothing in this Plan shall be
construed as providing for such segregation. In addition, the Employer shall not
be deemed to be a Trustee  for the  Participants  and their  Beneficiaries  with
respect to any amounts deferred hereunder. The Participant,  his Beneficiary and
any other person or persons having or claiming a right to payments  hereunder or
to any interest in this Plan shall rely solely on the  unsecured  promise of the
Employer to make payments  hereunder.  Nothing herein shall be construed to give
the  Participant,  his  Beneficiary  or any other  person or persons  any right,
title, interest or claim in or to any specific asset, fund, reserve,  account or
property of any kind  whatsoever  owned by the  Employer or in which it may have
any right, title or interest now or in the future;  provided,  however, that the
Participant or any Beneficiary shall have the right to enforce his claim against
the Employer in the same manner as any unsecured creditor.  Nothing herein shall
be construed to give the Participant,  his Beneficiary,  or any other person any
rights,  including,  without  limitation,  voting  rights,  with  respect to any
capital stock of the Employer,  nor to cause any person to be deemed an owner or
holder of any capital stock of the Employer.

     6.2  Notwithstanding  Section  6.1,  the  Employer  may,  in  its  absolute
discretion, establish a trust fund and contribute to such trust fund assets that
shall be held therein,  subject to the claims of the Employer's creditors in the
event  of  the  insolvency  of the  Employer,  until  paid  to  Participants  or
Beneficiaries  in accordance  with the terms of the Plan. The Employer shall not
establish  any trust fund that would cause the Plan not to be deemed an unfunded
plan for purposes of Title I of ERISA.
<PAGE>
                                   ARTICLE VII
                         ADMINISTRATION; AMENDMENTS AND
                    TERMINATION; RIGHTS AGAINST THE EMPLOYER
                    ----------------------------------------

     7.1 Administration.
         --------------  
          
                  (a) The Committee shall administer the Plan and shall have the
full and absolute  discretionary  power and  authority to construe and interpret
the  provisions  of the Plan and to determine a  Participant's  eligibility  for
benefits hereunder.

                  (b) In exercising the power and authority granted to it by
subsection  (a), the Committee  shall adhere to the claims and appeal  procedure
adopted by it pursuant to Section 10.4(n) of the Employee Stock Ownership Plan.

                  (c) Any  determination  made  by the  Committee  pursuant  to
the authority  granted under  subsection (a) and, if  applicable,  in accordance
with  subsection  (b),  shall be  conclusive  and  binding on all  Participants,
Beneficiaries  and any other person who at any time have, or claim to have,  any
interest whatsoever under this Plan.

                  (d) Pursuant to Section  401(a)(1) of ERISA,  it is intended 
that the Plan and the  administration  thereof  shall be  exempt  from Part 4 of
Title I of ERISA.  The Committee and the members  thereof shall not be deemed to
be fiduciaries,  within the meaning of Section 3(21) of ERISA,  and shall not be
subject to the terms of Part 4 of Title 1 of ERISA.

     7.2 Liability of Committee; Indemnification. To the extent permitted
         -----------------------------------------
by law, no member of the Committee  shall be liable to any person for any action
taken or omitted in connection with the  interpretation  and  administration  of
this  Plan,  unless   attributable  to  his  own  gross  negligence  or  willful
misconduct.  The Employer shall  indemnify the members of the Committee  against
any and all claims, losses, damages, and expenses, including any amounts paid in
settlement with their  approval,  arising from their action or failure to act to
the maximum extent 
<PAGE>
required or permitted under the Delaware General Corporation Law as presently in
effect and as hereafter amended from time to time.

     7.3 Amendment and/or Termination. (a) The Employer reserves the right
         ------------------------------
to alter,  amend or terminate the Plan or any part hereof.  Any such alteration,
amendment or  termination  may be effected by  resolution of the Board acting in
accordance  with the by-laws (or other  applicable  governing  document)  of the
Employer,  in such  manner  as the  Board  may  determine  and  for  any  reason
whatsoever. Without limiting the power and decision of a majority of the members
of the Committee  then in office  constituting  the final and binding act of the
Committee  acting with or without a meeting  being  called or held,  and keeping
minutes  of all  meetings  held and a record  of all  actions  taken by  written
consent,  may  alter or amend  the  Plan,  or any part  hereof,  in any  manner,
provided that the Committee determines,  which determination shall be conclusive
and  binding  on all  persons,  that any such  alteration  or  amendment  is (a)
necessary  or  appropriate  to comply with any  applicable  law,  regulation  or
administrative  pronouncement  or (b) of an  administrative  nature  and  has no
material  adverse cost effect on the Employer or any  Affiliate of the Employer.
Any such  amendment or termination  shall become  effective upon the date stated
herein and shall be binding upon all Participants and  Beneficiaries;  provided,
however,  that no such amendment or  termination  shall reduce the amount of, or
the  vested  interest  in, the ESOP  Restoration  Account  of a  Participant  or
Beneficiary hereunder as of the effective date of such amendment or termination.

                  (b) Unless otherwise,  specifically  provided in any amendment
to the Employee Stock Ownership Plan made after the Effective Date, the terms of
the Plan shall be subject to the terms of the Employee Stock  Ownership Plan, as
amended from time to time.

     7.4 Rights Against the Employer. The establishment of this Plan shall
         ----------------------------        
not be  construed  as  giving  to any  Participant,  Beneficiary  or any  person
whomsoever,  any legal,  equitable or other rights against the Employer,  or its
officers,  directors, agents or shareholders, or as giving to any Participant or
Beneficiary  any  equity or other  interest  in the  assets or  business  of the
Employer or in shares of Employer  stock or giving any  employee the right to be
retained in the  employment of 
<PAGE>

Employer. All Participants shall be subject to discharge to the same extent they
would have been if this Plan had never been adopted.
<PAGE>
     7.5 Expenses. The cost of this Plan and the expenses of administering
         ---------
the Plan shall be borne by the Employer.
<PAGE>
                                  ARTICLE VIII
                            GENERAL AND MISCELLANEOUS
                            -------------------------

     8.1 Spendthrift Clause. No right, title or interest of any kind in the Plan
         ------------------- 
shall be  transferable  or assignable by any  Participant  or  Beneficiary or be
subject  to  alienation,  anticipation,  encumbrance,  garnishment,  attachment,
execution or levy of any kind, whether voluntary or involuntary,  nor subject to
the debts, contracts,  liabilities,  engagements, or torts of the Participant or
Beneficiary.  Any attempt to alienate,  anticipate,  encumber,  sell,  transfer,
assign,  pledge,  garnish,  attach or  otherwise  subject to legal or  equitable
process or dispose of any interest in the Plan shall be void.

     8.2  Severability.  In the event that any  provision  of this Plan shall be
          ------------
declared illegal or invalid for any reason,  said illegality or invalidity shall
not affect the remaining  provisions  of this Plan but shall be fully  severable
and this Plan shall be  construed  and  enforced  as if said  illegal or invalid
provision had never been a part of this Plan.

     8.3 Construction. The article and section headings and numbers are included
         ------------
only  for  convenience  of  reference  and are not to be taken  as  limiting  or
extending the meaning of any of the terms and provisions of this Plan.  Whenever
appropriate,  words used in the singular  shall include the plural or the plural
may be read as the singular. When used herein, the masculine gender includes the
feminine gender.

     8.4 Governing  Law. The validity and effect of this Plan and the rights and
         -------------- 
obligations of all persons  affected hereby shall be construed and determined in
accordance with the laws of the State of New York,  unless superseded by federal
law.
<PAGE>
     8.5 Payment Due an Incompetent.  If the Committee  receives evidence that a
         -------------------------- 
Participant  or  Beneficiary  entitled to receive any payment  under the Plan is
physically or mentally  incompetent to receive such payment,  the Committee may,
in its sole  discretion,  direct the payment to any other  person or trust which
has been legally appointed by a court of competent jurisdiction or, in the event
that no such person has been appointed, to any person whom the Committee, in its
sole discretion, determines to be responsible for the care of the Participant or
Beneficiary. Payment to any person or trust in accordance with this Section will
fully discharge the obligations of the Plan to such Participant or Beneficiary.

     8.6 Taxes. All amounts payable  hereunder to any Participant or Beneficiary
         ------ 
shall be reduced by any and all federal,  state and local taxes imposed upon the
Participant  or  Beneficiary  which are  required  to be paid or withheld by the
Employer.


     IN WITNESS WHEREOF, the Employer,  as authorized by its Board of Directors,
has  caused  this  Plan to be signed by its duly  appointed  officers  as of the
effective date set forth in Section 1.2 above.


ATTEST:                             TIG Holdings, Inc.


__________________                  By:
Secretary                           Title:
<PAGE>





                                  EXHIBIT 10.34



<PAGE>










                               TIG HOLDINGS, INC.

                         PROFIT SHARING RESTORATION PLAN























                                                                Effective
                                                                January 1, 1994
<PAGE>
                               TIG HOLDINGS, INC.
                         PROFIT SHARING RESTORATION PLAN

TABLE OF CONTENTS                                                          PAGE
-----------------                                                          ----

ARTICLE I - PURPOSE AND ESTABLISHMENT........................................1
         1.1      Purpose....................................................1
         1.2      Establishment..............................................1

ARTICLE II - DEFINITIONS.....................................................2
         2.1      Beneficiary................................................2
         2.2      Board......................................................2
         2.3      Committee..................................................2
         2.4      Disability.................................................2
         2.5      Effective Date.............................................2
         2.6      Eligible Employee..........................................2
         2.7      Employee Stock Ownership Plan..............................2
         2.8      Employer...................................................3
         2.9      Employer Contributions.....................................3
         2.10     ESOP Restoration Plan .....................................3
         2.11     Minimum Eligible Salary ...................................3
         2.12     Participant................................................3
         2.13     Plan ......................................................3
         2.14     Plan Year..................................................4
         2.15     Profit Sharing Plan........................................4
         2.16     Restoration Account .......................................4
         2.17     Salary ....................................................4
         2.18     Vested.....................................................4

ARTICLE III - ELIGIBILITY AND PARTICIPATION..................................5
         3.1      Eligibility................................................5
         3.2      Participation..............................................5

ARTICLE IV - ESTABLISHMENT OF ACCOUNT........................................6
         4.1      Restoration Account........................................6
         4.2      Vesting/Forfeiture of Benefits.............................8

ARTICLE V - PAYMENT OF BENEFITS.............................................11
         5.1      Lump Sum Distribution.....................................11
         5.2      Separateness of Plan .....................................11
         5.3      Inapplicability of Retirement Equity Act of 1984..........11

ARTICLE VI - UNFUNDED NATURE OF PLAN........................................12
<PAGE>



<PAGE>

TABLE OF CONTENTS                                                          PAGE
-----------------                                                          ----

ARTICLE VII -  ADMINISTRATION; AMENDMENTS AND TERMINATION;
                  RIGHTS AGAINST THE EMPLOYER...............................13
         7.1      Administration............................................13
         7.2      Liability of Committee; Indemnification...................13
         7.3      Amendment and/or Termination..............................14
         7.4      Rights Against the Employer...............................15
         7.5      Expenses..................................................15

ARTICLE VIII - GENERAL AND MISCELLANEOUS....................................16
         8.1      Spendthrift Clause........................................16
         8.2      Severability..............................................16
         8.3      Construction..............................................16
         8.4      Governing Law.............................................16
         8.5      Payment Due an Incompetent................................17
         8.6      Taxes.....................................................17
<PAGE>

                               TIG HOLDINGS, INC.
                         PROFIT SHARING RESTORATION PLAN
                         -------------------------------

                                    ARTICLE I
                            PURPOSE AND ESTABLISHMENT
                            -------------------------  

     1.1 Purpose.  TIG Holdings,  Inc. ("the Employer")  desires to establish "a
         --------
plan which is unfunded  and is  maintained  by the  employer  primarily  for the
purpose of providing  deferred  compensation for a select group of management or
highly compensated employees," within the meaning of Sections 201(2),  301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"),  solely for the  purpose  of  benefiting  participants  in the Profit
Sharing Plan (as  hereinafter  defined) who (i) are precluded  from  receiving a
full allocation of Employer  Contributions  under the Profit Sharing Plan by the
limitations of Section 415 of the Internal  Revenue Code of 1986 ("the Code") or
by the  limitation  on the  compensation  taken  into  account  under such Plan,
imposed by Section  401(a)(17)  of the Code,  as amended by the  Omnibus  Budget
Reconciliation Act of 1993 ("OBRA 93") and (ii) are designated for participation
in this Plan, in accordance with the terms hereof.

     1.2 Establishment.  The Employer hereby establishes the TIG Holdings,  Inc.
         --------------
Profit Sharing Restoration Plan, effective January 1, 1994.
<PAGE>
                                   ARTICLE II
                                   DEFINITIONS
                                   -----------

     2.1  Beneficiary  means the  person or  persons  whom the  Participant  has
          -----------
designated  or,  pursuant to the provisions of Section 7.6 of the Profit Sharing
Plan is deemed to have  designated,  to receive a  distribution  from the Profit
Sharing Plan, in the event of the Participant's death.

     2.2  Board means the Board of Directors of TIG Holdings, Inc.
          -----

     2.3  Committee  means the TIG Benefits  Committee  established  pursuant to
          ---------
Section 10.2 of the Profit Sharing Plan or any such other  committee  designated
by the Board, which shall consist of at least three members.

     2.4  Disability  shall have the  meaning  set forth in Section  2.12 of the
          ----------
Profit Sharing Plan and shall be determined  pursuant to procedures  established
by the Committee.

     2.5  Effective Date means January 1, 1994.
          -------------- 
          
     2.6  Eligible  Employee means an employee of the Employer who has satisfied
         -------------------
the requirements of Section 3.1.

     2.7 Employee  Stock  Ownership Plan means the TIG Holdings,  Inc.  Employee
         ------------------------------- 
Stock Ownership Plan, effective as of April 27, 1993, and as in effect from time
to time.

     2.8 Employer means TIG Holdings, Inc. and any Affiliate, within the meaning
         -------- 
of  Section  2.3 of the Profit  Sharing  Plan,  that has become a  participating
Affiliate  in the Profit  Sharing  Plan in  accordance  with Section 2.16 of the
Profit Sharing Plan, provided,  however, that for the purpose of Sections 4.2(b)
and 7.3, the term Employer shall refer only to TIG Holdings, Inc.
<PAGE>

     2.9 Employer  Contributions means Employer Profit Sharing  Contributions as
         ----------------------- 
defined in Section 2.17 of the Profit  Sharing  Plan,  made in  accordance  with
Section 4.1 of the Profit Sharing Plan.

     2.10 ESOP  Restoration  Plan means the TIG Holdings,  Inc. ESOP Restoration
          -----------------------
Plan,  established  and  maintained by the  Employer,  as in effect from time to
time.

     2.11 Minimum  Eligible  Salary means,  for any Plan Year, a Salary equal to
          -------------------------     
the greater of (a) the  maximum  amount of  compensation  that may be taken into
account  under a qualified  plan in  accordance  with Section  401(a)(17) of the
Code,  as in  effect  for  such  Plan  Year,  or (b) an  amount  determined  and
designated  for such  Plan  year by the  Committee  in its sole  discretion.  In
exercising the  discretion to determine the amount  described in item (b) of the
foregoing sentence, the Committee shall not designate an amount that would cause
the Minimum Eligible Salary for any Plan Year to be inconsistent with the status
of the Plan as a plan  which  is  unfunded  and is  maintained  by the  Employer
primarily for the purpose of providing deferred  compensation for a select group
of management or highly  compensated  employees,  within the meaning of Sections
201(2), 301(a)(3), and 401(a)(1) of ERISA.

     2.12  Participant  means an employee or former employee of the Employer who
           -----------
has satisfied the requirements of Section 3.2 hereof.

     2.13 Plan means the TIG Holdings,  Inc. Profit Sharing Restoration Plan, as
          ----
set forth in this document, and as it may be amended from time to time.

     2.14 Plan Year means the twelve consecutive month period commencing January
          ---------
1, 1994 and ending  December  31, 1994 and each  successive  twelve  consecutive
month period thereafter, each commencing on January 1st.
<PAGE>
     2.15 Profit  Sharing Plan means the TIG Holdings,  Inc.  Employees'  Profit
          --------------------
Sharing  Plan,  effective  as of April 27,  1993,  and as in effect from time to
time.

     2.16  Restoration  Account means the book reserve  account  established  on
           --------------------
behalf of a Participant in accordance with Section 4.1.

     2.17 Salary  shall have the meaning set forth in Section 2.32 of the Profit
          ------
Sharing Plan, without regard to the second sentence thereof.

     2.18  "Vested",  as used herein,  refers only to the  restriction  provided
           ---------
hereunder  against  the  reduction  of  a  Participant's   Restoration  Account.
Notwithstanding  the use of the  term  "vested,"  no  provision  of the  Plan is
intended  to grant to any  Participant  any right,  title,  interest or claim to
property,  within the meaning of Section 83 of the Code or any other  applicable
provision of the Code, except upon the payment of benefits hereunder.
<PAGE>
                                   ARTICLE III
                          ELIGIBILITY AND PARTICIPATION
                          -----------------------------

     3.1 Eligibility.  An employee of the Employer shall be an Eligible Employee
         ------------
for any Plan Year  hereunder if (i) he is a  participant  in the Profit  Sharing
Plan, (ii) the amount of contributions allocable to his account under the Profit
Sharing Plan for such Plan Year beginning on or after the Effective Date is less
than what would have been allocable to his account,  if the limitations  imposed
by Sections 401(a)(17) and 415 of the Code had not been in effect, and (iii) his
salary exceeds the Minimum Eligible Salary for such Plan Year.

     3.2  Participation.   An  Eligible  Employee  shall  become  a  Participant
          --------------
hereunder  on the date as of which any  amount is  credited  to his  Restoration
Account in accordance with Section 4.1. A Participant shall cease to participate
in the Plan on the date that the balance of his  Restoration  Account is reduced
to zero as a result of a  distribution  pursuant  to Section  5.1, a  forfeiture
pursuant to Section  4.2(a),  or a  combination  of such  distribution  and such
forfeiture.
<PAGE>
                                   ARTICLE IV
                            ESTABLISHMENT OF ACCOUNT
                            ------------------------

     4.1  Restoration Account.
          --------------------

          (a) For each Plan Year  beginning  on or after  January 1,  1994,  the
Employer shall credit to the Restoration  Account  established on behalf of each
Participant  who is an Eligible  Employee  for such Plan Year an amount equal to
the excess, if any, determined by subtracting item (ii) from item (i), where:




               (i)  equals the amount of Employer  Contributions that would have
                    been allocated to the Participant's account under the Profit
                    Sharing  Plan  for such  Plan  Year,  if (1) the  limitation
                    imposed by Section  401(a)(17)  of the Code on the amount of
                    compensation  taken into  account  under the Profit  Sharing
                    Plan  had not  been in  effect  and  (2) the  limitation  of
                    Section 415 of the Code had not been in effect; and


               (ii) equals the amount of Employer Contributions allocated to the
                    Participant's account under the Profit Sharing Plan for such
                    Plan Year.

          (b) The amount determined in accordance with subsection (a) shall be 
credited  to the  Participant's  Restoration  Account as of the last day of each
Plan Year during the term of this Plan.





          (c) The Employer shall credit each Participant's  Restoration Account,
as of the last day of each Plan Year,  with an earnings  credit (or debit) equal
to the amount of  investment  gain (or loss) that would have been  earned on the
amount  credited  to such  Restoration  Account as of the first day of such Plan
Year, if such amount had been held in the Profit Sharing Plan as of such date
<PAGE>
and  invested  during  such  Plan Year in the same  manner as the  Participant's
account  under the Profit  Sharing  Plan,  in  accordance  with Section 5 of the
Profit Sharing Plan. In the event that a Participant becomes entitled to receive
a  distribution  from the Plan in  accordance  with Section 5.1, the date of his
retirement,  death, termination of employment or Disability shall be treated for
purposes of this Section 4.1(c) as the last day of a Plan Year. The Committee in
its sole  discretion may determine  amounts to be credited under this subsection
without  reference to any charges made against accounts under the Profit Sharing
Plan in  accordance  with Section 6.3.2 of the Profit  Sharing Plan,  but in any
event such charges  shall not be deemed  expenses of this Plan,  for purposes of
Section 7.5.

          (d) The Restoration Account established hereunder for each Participant
shall be maintained as a book reserve on the books of the Employer,  and amounts
credited  thereto in  accordance  with this Section  shall be added to such book
reserve.

          (e) In addition to amounts  credited in accordance  with  subsection  
(a), there shall be credited to a Participant's  Restoration  Account, as of the
Effective  Date, an amount  determined in accordance  with  subsection (a), with
respect to the Plan Year of the Profit  Sharing  Plan that ended on December 31,
1993, if and only if such Participant's Salary, for such Plan Year of the Profit
Sharing Plan exceeded the maximum amount of  compensation  permitted to be taken
into account under a qualified  plan, in accordance  with Section  401(a)(17) of
the Code as in effect during such Plan Year of the Profit Sharing.


          4.2 Vesting/Forfeiture of Benefits.
              -------------------------------
                   

          (a) Except as provided in paragraph (b) of this Section 4.2, a 
Participant  shall become vested in his  Restoration  Account in accordance with
the vesting  provisions set forth under Sections 8.1, 8.3, 12.3, and 12.4 of the
Profit Sharing Plan. If a Participant's  employment with the Employer and all of
its  affiliates is  terminated  (whether  such  termination  is initiated by the
Participant, or the Employer or its affiliates, and without regard to the reason
therefor)  before a Participant  is fully vested in his account under the Profit
Sharing Plan, said Participant or his Beneficiary  shall be entitled to receive,
in accordance with Article V of this Plan, that portion of his
<PAGE>
Restoration  Account  (inclusive of deemed  earnings  thereunder)  determined by
multiplying  the  value  of  said  Restoration   Account  by  the  Participant's
non-forfeitable  percentage  determined  pursuant  to Section  8.1 of the Profit
Sharing Plan and any other applicable provisions of the Profit Sharing Plan. The
nonvested portion of the  Participant's  Restoration  Account,  if any, shall be
forfeited upon such termination date.

          (b) Upon a Change of Control of the Employer,  each  Participant  who 
is then an employee shall become fully vested in his Restoration Account.

               4.2(b).1 Change of Control.  For the purpose of this Section 
4.2(b), "Change of Control" shall mean:

               (a)  The acquisition, after the Effective Date, by an individual,
                    entity or group  (within the meaning of Section  13(d)(3) or
                    14(d)(2) of the Securities  Exchange Act of 1934, as amended
                    ("the Exchange  Act")) of beneficial  ownership  (within the
                    meaning of Rule 13d-3 promulgated under the Exchange Act) of
                    20% or more of  either  (i) the  shares  of the  issued  and
                    outstanding  common  stock  of  the  Employer  (the  "Common
                    Stock"),  or (ii) the  combined  voting  power of the voting
                    securities of the Employer entitled to vote generally in the
                    election of directors (the "Voting  Securities");  provided,
                                                                       ---------
                    however,   that  the   following   acquisitions   shall  not
                    -------
                    constitute a Change of Control:  (A) any  acquisition  by an
                    employee  benefit  plan  (or  related  trust)  sponsored  or
                    maintained  by the  Employer  or any  Affiliate,  or (B) any
                    acquisition by any  corporation  if,  immediately  following
                    such  acquisition,  more  than 80% of the  then  outstanding
                    shares of common stock of such  corporation and the combined
                    voting power of the then  outstanding  voting  securities of
                    such corporation (entitled to vote generally in the election
                    of   directors),   is   beneficially   owned,   directly  or
                    indirectly,  by all or substantially  all of the individuals
                    and entities  who,  immediately  prior to such  acquisition,
                    were the  beneficial  owners  of the  Common  Stock  and the
                    Voting Securities in
<PAGE>
                    substantially the same proportions, respectively, as their
                    ownership, immediately prior to such acquisition, of the 
                    Common Stock and Voting Securities; or



               (b)  Individuals  who, as of the Effective  Date,  constitute the
                    Board  (the  "Incumbent  Board")  cease  for any  reason  to
                    constitute  at  least a  majority  of the  Board;  provided,
                                                                       --------
                    however,  that any individual becoming a director subsequent
                    -------
                    to the Effective  Date whose  election,  or  nomination  for
                    election by the Employer's  shareholders,  was approved by a
                    vote of at least a majority of the  directors  then  serving
                    and  comprising  the Incumbent  Board shall be considered as
                    though such individual were a member of the Incumbent Board,
                    but excluding,  for this purpose,  any such individual whose
                    initial assumption of office occurs as a result of either an
                    actual or  threatened  election  contest  (as such terms are
                    used in Rule 14a-11 of Regulation 14A promulgated  under the
                    Exchange Act) or other actual or threatened  solicitation of
                    proxies or consents; or

               (c)  Approval   by    shareholders   of   the   Employer   of   a
                    reorganization,   merger  or  consolidation,  other  than  a
                    reorganization,  merger or  consolidation  with  respect  to
                    which  all  or  substantially  all of  the  individuals  and
                    entities who were the beneficial  owners,  immediately prior
                    to such  reorganization,  merger  or  consolidation,  of the
                    Common  Stock  and  Voting   Securities   beneficially  own,
                    directly    or    indirectly,    immediately    after   such
                    reorganization, merger or consolidation more than 80% of the
                    then   outstanding   common  stock  and  voting   securities
                    (entitled to vote generally in the election of directors) of
                    the corporation  resulting from such reorganization,  merger
                    or consolidation  in  substantially  the same proportions as
                    their  respective  ownership,   immediately  prior  to  such
                    reorganization, merger or consolidation, of the Common Stock
                    and the Voting Securities; or
<PAGE>
               (d)  Approval  by  the  shareholders  of  the  Employer  of (i) a
                    complete liquidation or dissolution of the Employer, or (ii)
                    the sale or other disposition of all or substantially all of
                    the  assets of the  Employer,  other  than to an  Affiliate,
                    wholly-owned, directly or indirectly, by the Employer.
<PAGE>
          (c) If a Change of Control, within the meaning of Section 4.2(b).1,
occurs and if a  Participant's  employment is  terminated  before such Change of
Control  and  its is  reasonably  demonstrated  by  the  Participant  that  such
employment  termination  (i) was at the request,  directly or  indirectly,  of a
third party who has taken steps  reasonably  calculated  to effect the Change of
Control,  or (ii) otherwise  arose in connection  with or in anticipation of the
Change of Control,  then for purposes of Section  4.2(b),  the Change of Control
shall  be  deemed  to have  occurred  immediately  prior  to such  Participant's
employment termination.
<PAGE>
                                    ARTICLE V
                               PAYMENT OF BENEFITS
                               -------------------

     5.1 Lump Sum Distribution.  Payment of the Participant's vested Restoration
         ----------------------
Account  hereunder shall be made in the form of a lump sum to the Participant or
his Beneficiary as soon as practicable after the  Participant's  employment with
the  Employer  and any of its  affiliates  has been  terminated  for any reason.
Payment  to a  Participant's  Beneficiary  shall be made  only in the event of a
Participant's  death prior to his receipt of a distribution  of his  Restoration
Account.

     5.2  Separateness  of Plan. Any benefit  payable under the Profit  Sharing
          ---------------------
Plan shall be  determined  solely in  accordance  with the terms and  provisions
thereof,  any  benefit  payable  under the  Employee  Stock  Ownership  and ESOP
Restoration  Plan shall be determined  solely in  accordance  with the terms and
provisions  thereof.  Nothing in this Plan shall  operate or be construed in any
way to modify,  amend or affect the terms and  provisions of the Profit  Sharing
Plan, the Employee Stock Ownership Plan or the ESOP Restoration Plan .

     5.3  Inapplicability of Retirement Equity Act of 1984. Nothing contained in
          ------------------------------------------------
this Plan is  intended  to give or shall give any  spouse or former  spouse of a
Participant  or any other person any right to benefits  under the Plan by virtue
of Sections  401(a)(11) and 417 of the Code or Section 205 of ERISA (relating to
qualified  pre-retirement  survivor  annuities and qualified  joint and survivor
annuities) or Sections 401(a)(13)(B) and 414(p) of the Code or Section 206(d) of
ERISA (relating to qualified domestic relations orders).
<PAGE>
                                   ARTICLE VI
                             UNFUNDED NATURE OF PLAN
                             -----------------------

     6.1 The Plan is an "unfunded  plan  primarily  for the purpose of providing
deferred  compensation  for a select group of management  or highly  compensated
employees,"  within the meaning of Section  301(a)(3) of ERISA. The Employer has
established   Restoration   Accounts  on  its  books  solely  as  a  bookkeeping
convenience,  in order to account  for the  amounts  earned by each  Participant
hereunder.   The  Employer   shall  not  be  required  to  segregate  any  funds
representing  the  Restoration  Accounts  and  nothing  in this  Plan  shall  be
construed as providing for such segregation. In addition, the Employer shall not
be deemed to be a Trustee  for the  Participants  and their  Beneficiaries  with
respect to any amounts deferred hereunder. The Participant,  his Beneficiary and
any other person or persons having or claiming a right to payments  hereunder or
to any interest in this Plan shall rely solely on the  unsecured  promise of the
Employer to make payments  hereunder.  Nothing herein shall be construed to give
the  Participant,  his  Beneficiary  or any other  person or persons  any right,
title, interest or claim in or to any specific asset, fund, reserve,  account or
property of any kind  whatsoever  owned by the  Employer or in which it may have
any right, title or interest now or in the future;  provided,  however, that the
Participant or any Beneficiary shall have the right to enforce his claim against
the Employer in the same manner as any unsecured creditor.

     6.2  Notwithstanding  Section  6.1,  the  Employer  may,  in  its  absolute
discretion, establish a trust fund and contribute to such trust fund assets that
shall be held therein,  subject to the claims of the Employer's creditors in the
event  of  the  insolvency  of the  Employer,  until  paid  to  Participants  or
Beneficiaries  in accordance  with the terms of the Plan. The Employer shall not
establish  any trust fund that would cause the Plan not to be deemed an unfunded
plan for purposes of Title I of ERISA.
<PAGE>

                                   ARTICLE VII
                         ADMINISTRATION; AMENDMENTS AND
                    TERMINATION; RIGHTS AGAINST THE EMPLOYER
                    ----------------------------------------

     7.1 Administration.
         --------------

          (a) The Committee shall administer the Plan and shall have the full
and absolute  discretionary  power and  authority to construe and  interpret the
provisions of the Plan and to determine a Participant's eligibility for benefits
hereunder.

          (b) In exercising the power and authority  granted to it by subsection
(a), the Committee shall adhere to the claims and appeal procedure adopted by it
pursuant to Section 10.4(o) of the Profit Sharing Plan.

          (c) Any determination made by the Committee pursuant to the authority 
granted under  subsection (a) and, if applicable,  in accordance with subsection
(b), shall be conclusive and binding on all Participants,  Beneficiaries and any
other person who at any time have,  or claim to have,  any  interest  whatsoever
under this Plan.

          (d) Pursuant to Section 401(a)(1) of ERISA, it is intended that the 
Plan and the  administration  thereof  shall be exempt from Part 4 of Title I of
ERISA.  The  Committee  and  the  members  thereof  shall  not be  deemed  to be
fiduciaries,  within the  meaning of  Section  3(21) of ERISA,  and shall not be
subject to the terms of Part 4 of Title 1 of ERISA.

     7.2 Liability of  Committee;  Indemnification.  To the extent  permitted by
         ------------------------------------------
law,  no member of the  Committee  shall be liable to any  person for any action
taken or omitted in connection with the  interpretation  and  administration  of
this  Plan,  unless   attributable  to  his  own  gross  negligence  or  willful
misconduct.  The Employer shall  indemnify the members of the Committee  against
any and all claims, losses, damages, and expenses, including any amounts paid in
settlement with their  approval,  arising from their action or failure to act to
the maximum extent
<PAGE>
required or permitted under the Delaware General Corporation Law as presently in
effect and as hereafter amended from time to time.

     7.3  Amendment  and/or  Termination.  (a) The Board shall have the right to
          -------------------------------
alter,  amend or  terminate  the Plan or any part hereof.  Any such  alteration,
amendment or  termination  may be effected by  resolution of the Board acting in
accordance  with the by-laws (or other  applicable  governing  document)  of the
Employer,  in such  manner  as the  Board  may  determine  and  for  any  reason
whatsoever.  Without limiting the power and authority of the Board, as described
in the previous  sentence,  the Committee  may, by decision of a majority of the
members of the Committee then in office  constituting  the final and binding act
of the  Committee  acting with or without a meeting  being  called or held,  and
keeping  minutes  of all  meetings  held and a record  of all  actions  taken by
written consent, may alter or amend the Plan, or any part hereof, in any manner,
provided that the Committee determines,  which determination shall be conclusive
and  binding  on all  persons,  that any such  alteration  or  amendment  is (a)
necessary  or  appropriate  to comply with any  applicable  law,  regulation  or
administrative  pronouncement  or (b) of an  administrative  nature  and  has no
material  adverse cost effect on the Employer or any Affiliate of the herein and
shall be binding upon all Participants  and  Beneficiaries;  provided,  however,
that no such amendment or termination  shall reduce the amount of, or the vested
interest in, the Restoration  Account of a Participant or Beneficiary  hereunder
as of the effective date of such amendment or termination.

          (b)  Unless  otherwise  specifically  provided  in any  amendment  to 
the Profit  Sharing Plan made after the  Effective  Date,  the terms of the Plan
shall be subject to the terms of the Profit  Sharing  Plan, as amended from time
to time.

     7.4 Rights Against the Employer.  The  establishment of this Plan shall not
         ----------------------------
be construed as giving to any Participant, Beneficiary or any person whomsoever,
any legal,  equitable or other rights  against the  Employer,  or its  officers,
directors,  agents  or  shareholders,   or  as  giving  to  any  Participant  or
Beneficiary  any  equity or other  interest  in the  assets or  business  of the
Employer or in shares of Employer  stock or giving any  employee the right to be
retained in the employment of
<PAGE>
Employer. All Participants shall be subject to discharge to the same extent they
would have been if this Plan had never been adopted.


     7.5 Expenses.  The cost of this Plan and the expenses of administering  the
         ---------
Plan shall be borne by the Employer.
<PAGE>
                                  ARTICLE VIII
                            GENERAL AND MISCELLANEOUS
                            -------------------------

     8.1 Spendthrift Clause. No right, title or interest of any kind in the Plan
         ------------------ 
shall be  transferable  or assignable by any  Participant  or  Beneficiary or be
subject  to  alienation,  anticipation,  encumbrance,  garnishment,  attachment,
execution or levy of any kind, whether voluntary or involuntary,  nor subject to
the debts, contracts,  liabilities,  engagements, or torts of the Participant or
Beneficiary.  Any attempt to alienate,  anticipate,  encumber,  sell,  transfer,
assign,  pledge,  garnish,  attach or  otherwise  subject to legal or  equitable
process or dispose of any interest in the Plan shall be void.

     8.2  Severability.  In the event that any  provision  of this Plan shall be
          -------------
declared illegal or invalid for any reason,  said illegality or invalidity shall
not affect the remaining  provisions  of this Plan but shall be fully  severable
and this Plan shall be  construed  and  enforced  as if said  illegal or invalid
provision had never been a part of this Plan.

     8.3 Construction. The article and section headings and numbers are included
         -------------
only  for  convenience  of  reference  and are not to be taken  as  limiting  or
extending the meaning of any of the terms and provisions of this Plan.  Whenever
appropriate,  words used in the singular  shall include the plural or the plural
may be read as the singular. When used herein, the masculine gender includes the
feminine gender.

     8.4 Governing  Law. The validity and effect of this Plan and the rights and
         ---------------
obligations of all persons  affected hereby shall be construed and determined in
accordance  with  the  laws  of the  State  of the  State  of New  York,  unless
superseded by federal law.
<PAGE>
     8.5 Payment Due an Incompetent.  If the Committee  receives evidence that a
         ---------------------------
Participant  or  Beneficiary  entitled to receive any payment  under the Plan is
physically or mentally  incompetent to receive such payment,  the Committee may,
in its sole  discretion,  direct the payment to any other  person or trust which
has been legally appointed by a court of competent jurisdiction or, in the event
that no such person has been appointed, to any person whom the Committee, in its
sole discretion, determines to be responsible for the care of the Participant or
Beneficiary. Payment to any person or trust in accordance with this Section will
fully discharge the obligations of the Plan to such Participant or Beneficiary.

     8.6 Taxes. All amounts payable  hereunder to any Participant or Beneficiary
         ------ 
shall be reduced by any and all federal,  state and local taxes imposed upon the
Participant  or  Beneficiary  which are  required  to be paid or withheld by the
Employer.


         IN WITNESS WHEREOF, the Employer,  as authorized by its Board of 
Directors, has  caused  this  Plan to be signed by its duly  appointed  officers
as of the effective date set forth in Section 1.2 above.


ATTEST:                             TIG Holdings, Inc.


______________                 By:
Secretary                           Title:
<PAGE>


                                  EXHIBIT 10.35




<PAGE>



AMENDMENT OF TIG HOLDINGS, INC. DIVERSIFIED SAVINGS PLAN

         1.       Section 4.1 is amended to read as follows:

         4.1      Pre-Tax  Contributions.  Pursuant to the elections described
                  ----------------------- 
in Section 3.3, a  Participant  may defer,  and have the amount of such deferral
contributed  by his or her  Employer  to the  Trust  Fund as his or her  Pre-Tax
Contributions,  a portion of each payment of Salary that would otherwise be made
to the  Participant  after his or her election  becomes  effective  and while it
remains so  pursuant  to Section  4.2.1  equal to any whole  percentage  from 1%
through 12%;  provided,  however,  that the  Committee  may increase the maximum
percentage  from  12%  to  any  other  whole  percentage  by  action  taken  and
communicated  to  Participants  prior to the  period  with  respect to which the
Committee  determines  that  such  increased  percentage  may be  elected;  and,
provided further,  however,  that the maximum  percentage of deferral  permitted
with respect to a Senior Participant (as defined in Section 4.1.2) is 8%.

<PAGE> 






                                  EXHIBIT 10.36


<PAGE>
AMENDMENT OF THE TIG HOLDINGS, INC. ESOP RESTORATION PLAN

          1.   Section  4.2(b) is  amended  so that the  first  sentence thereof
               reads as follows:

               To  the  extent  (but  only  to  the  extent)  that  the  general
          applicability  of this Section 4.2(b) to  Participants  will not cause
          any   transaction   under  the  Plan  (other  than  a   "discretionary
          transaction" as defined by Rule  16b-3(b)(1)) to fail to qualify as an
          exempt transaction under Rule 16b-3 of the Securities  Exchange Act of
          1934, then, upon a Change of Control of the Employer, each Participant
          who is then an employee of the Employer or an  Affiliate  shall become
          fully vested in his ESOP Restoration Account.


          2. Section 5.1 is amended in its entirety to read as follows:

               5.1  Form of  Distribution  Effective  January  1,1997,  each new
                    ---------------------
          Participant  shall elect,  upon  commencement of  participation in the
          Plan (which election shall be irrevocable except as otherwise provided
          in the  Plan),  which  of the  forms  of  distribution  set  forth  in
          subsections  (a),  (b) and (c) of this  Section  5.1 will apply to the
          distribution of his benefits (if any) under the Plan. Each Participant
          who commenced participation prior to January 1, 1997 shall be required
          to make a similar  election  with respect to the  distribution  of his
          Plan  benefits,  except  that the  election  shall  apply to  benefits
          accrued  prior  to  January  1,  1997  only if a  distribution  is not
          otherwise  required  before January 1, 1999; any  distribution of such
          pre-1997  accrued  benefits  before January 1, 1999 shall be made as a
          Lump Sum Distribution in accordance with Section 5.1(a) hereof.


               All Participant  elections shall be made in the manner and on the
          form  selected by the  Committee,  and shall be final and binding upon
          the Participant, except as otherwise provided by the Plan.

               (a) Lump Sum  Distribution.  Payment of the vested portion of the
                   -----------------------
          Participant's  ESOP Restoration  Account  hereunder may be made in the
          form of a lump sum to the Participant or his Beneficiary, paid as soon
          as practicable  after the  Participant's  employment with the Employer
          and any of its Affiliates  has  terminated for any reason.  Payment to
          the  Participant's  Beneficiary shall be made only in the event of the
          Participant's death prior to the distribution of the vested portion of
          his ESOP Restoration Account.

               (b) Ten Year  Installment  Distribution.  Payment  of the  vested
                   ------------------------------------
          portion of the Participant's ESOP Restoration Account hereunder may be
          made in the  form  of a  series  of ten  annual  distributions  to the
          Participant  or his  Beneficiary,  commencing  as soon as  practicable
          after  the   Participant's   employment  with  the  Employer  and  its
          Affiliates  has been  terminated  for any  reason.  The amount of each
          installment  shall be equal to the then  current  value of the  vested
          portion of the Participant's ESOP Restoration  Account multiplied by a
          fraction,  the numerator of which shall be one and the  denominator of
          which shall be the
<PAGE>
          number  of   installments   remaining   to  be  paid.   Payment  to  a
          Participant's  Beneficiary  shall  be made  only in the  event  of the
          Participant's death prior to the distribution of the vested portion of
          his ESOP Restoration  Account.  The balance of the Participant's  ESOP
          Restoration  Account during such pay-out period shall be credited with
          deemed  interest and  earnings  (or debited with losses and  expenses)
          using the same measure as used under  Section  4.1(d)  hereof.  In the
          event that a  Participant  no longer has an account under the Employee
          Stock  Ownership  Plan, the deemed  earnings  credit or debit shall be
          determined by the Committee based on the weighted average earnings for
          all Participants in the Employee Stock Ownership Plan.

               (c) Deferred Lump Sum Distribution  Payment of the vested portion
                   ------------------------------
          of the Participant's ESOP Restoration Account hereunder may be made in
          the form of a deferred lump sum distribution, whereby a lump sum shall
          be paid in the first quarter of the calendar  year next  following the
          calendar year in which the Participant's  employment with the Employer
          and  its  Affiliates   terminated   for  any  reason.   Payment  to  a
          Participant's  Beneficiary  shall  be made  only in the  event  of the
          Participant's death prior to the distribution of the vested portion of
          his  ESOP   Restoration   Account.   During  the  delay  period,   the
          Participant's  ESOP Restoration  Account shall be credited with deemed
          interest and earnings (or debited with losses and expenses)  using the
          same measure as used under  Section  4.1(d)  hereof.  In the event the
          Participant  no  longer  has  an  account  under  the  Employee  Stock
          Ownership   Plan,  the  deemed  earnings  credit  or  debit  shall  be
          determined by the Committee based on the weighted average earnings for
          all Participants in the Employee Stock Ownership Plan.

               Participant may elect, at least two years before any distribution
          is to be made or would commence  pursuant to this Article V, to change
          the optional form of distribution that he previously elected, provided
          that he elects one of the  distribution  options  specified above, and
          provided  further that any  acceleration  of a  distribution  requires
          prior Committee consent. Any election under this Section 5.1 to change
          a distribution  which is made within two years of a distribution event
          shall be null and void.
<PAGE>

                               TIG HOLDINGS, INC.
                               ------------------

EMPLOYEE STOCK OWNERSHIP RESTORATION PLAN (the "ESORP")
-----------------------------------------

         RESOLVED,  that the ESORP,  in such form as authorized  and approved by
the Board of  Directors  as of  September  21,  1994 shall be hereby  amended to
delete in its  entirety  Section  4.1(f),  such section  having been  mistakenly
included in the form of the ESORP,  the effect of this section being contrary to
the intended  purpose of the ESORP,  as presented to the Board of Directors  for
approval.
<PAGE>




                                  EXHIBIT 10.37





<PAGE>





AMENDMENT OF THE TIG HOLDINGS, INC. PROFIT SHARING RESTORATION PLAN

               1. Section 5.1 is amended in its entirety to read as follows:

               5.1  Form of  Distribution  Effective  January  1,1997,  each new
                    ---------------------
          Participant  shall elect,  upon  commencement of  participation in the
          Plan (which election shall be irrevocable except as otherwise provided
          in the  Plan),  which  of the  forms  of  distribution  set  forth  in
          subsections  (a),  (b) and (c) of this  Section  5.1 will apply to the
          distribution of his benefits (if any) under the Plan. Each Participant
          who commenced participation prior to January 1, 1997 shall be required
          to make a similar  election  with respect to the  distribution  of his
          Plan  benefits,  except  that the  election  shall  apply to  benefits
          accrued  prior  to  January  1,  1997  only if a  distribution  is not
          otherwise  required  before January 1, 1999; any  distribution of such
          pre-1997  accrued  benefits  before January 1, 1999 shall be made as a
          Lump Sum Distribution in accordance with Section 5.1(a) hereof.

               All Participant  elections shall be made in the manner and on the
          form  selected by the  Committee,  and shall be final and binding upon
          the Participant, except as otherwise provided by the Plan.

               (a) Lump Sum  Distribution.  Payment of the vested portion of the
                   -----------------------
          Participant's Restoration Account hereunder may be made in the form of
          a lump  sum to the  Participant  or his  Beneficiary,  paid as soon as
          practicable after the  Participant's  employment with the Employer and
          its  Affiliates  has been  terminated  for any  reason.  Payment  to a
          Participant's  Beneficiary  shall  be made  only in the  event  of the
          Participant's death prior to the distribution of the vested portion of
          his Restoration Account.

               (b) Ten Year  Installment  Distribution.  Payment  of the  vested
                   ------------------------------------
          portion of the Participant's Restoration Account hereunder may be made
          in the form of a series of ten annual distributions to the Participant
          or his  Beneficiary,  commencing  as soon  as  practicable  after  the
          Participant's  employment  with the  Employer and its  Affiliates  has
          terminated  for any reason.  The amount of each  installment  shall be
          equal  to  the  then  current  value  of  the  vested  portion  of the
          Participant's  Restoration  Account  multiplied  by  a  fraction,  the
          numerator of which shall be one and the  denominator of which shall be
          the  number  of  installments  remaining  to be paid.  Payment  to the
          Participant's  Beneficiary  shall  be made  only in the  event  of the
          Participant's death prior to the distribution of the vested portion of
          his Restoration Account. The balance of the Participant's  Restoration
          Account  during such  pay-out  period  shall be  credited  with deemed
          interest and earnings (or debited with losses and expenses)  using the
          same measure as used under Section 4.1(c) hereof.  In the event that a
          Participant  no longer has an account  under the Profit  Sharing Plan,
          the deemed earnings credit or debit shall be determined by the
<PAGE>

          Committee based on the weighted  average earnings for all Participants
          in the Profit Sharing Plan.

               (c) Deferred Lump Sum Distribution  Payment of the vested portion
                   ------------------------------
          of the Participant's  Restoration Account hereunder may be made in the
          form of a deferred lump sum distribution,  whereby a lump sum shall be
          paid in the first  quarter of the  calendar  year next  following  the
          calendar year in which the Participant's  employment with the Employer
          and  its  Affiliates  terminated  for  any  reason.   Payment  to  the
          Participant's  Beneficiary  shall  be made  only in the  event  of the
          Participant's death prior to the distribution of the vested portion of
          his Restoration  Account.  During the delay period,  the Participant's
          Restoration  Account  shall  be  credited  with  deemed  interest  and
          earnings (or debited with losses and expenses)  using the same measure
          as used under Section 4.1(c) hereof.  In the event the  Participant no
          longer  has an  account  under the  Profit  Sharing  Plan,  the deemed
          earnings credit or debit shall be determined by the Committee based on
          the  weighted  average  earnings  for all  Participants  in the Profit
          Sharing Plan.

               A  Participant   may  elect,   at  least  two  years  before  any
          distribution is to be made or would commence  pursuant to this Article
          V, to change the  optional  form of  distribution  that he  previously
          elected,  provided  that he  elects  one of the  distribution  options
          specified  above,  and  provided  further that any  acceleration  of a
          distribution requires prior Committee consent. Any election under this
          Section 5.1 to change a distribution which is made within two years of
          a distribution event shall be null and void.
<PAGE>

                               TIG HOLDINGS, INC.
                               ------------------

PROFIT SHARING RESTORATION PLAN (the "PSRP")
-------------------------------

     RESOLVED,  that the PSRP,  in such form as  authorized  and approved by the
Board of Directors as of September 21, 1994 shall be hereby amended to delete in
its entirety Section 4.1(e), such section having been mistakenly included in the
form of the PSRP,  the effect of this  section  being  contrary to the  intended
purpose of the PSRP as presented to the Board of Directors for approval.

<PAGE>




                                   EXHIBIT 11





<PAGE>
<TABLE>
<CAPTION>
                                                                                                                 
                               TIG HOLDINGS, INC.                                                     EXHIBIT 11
                        COMPUTATION OF EARNINGS PER SHARE
                                   (unaudited)
                                                                                    Years Ended December 31,
                                                                           -----------------------------------------
(In millions, except per share data)                                        1996              1995             1994
====================================================================================================================
Primary:
<S>                                                                        <C>              <C>               <C> 
Weighted average shares outstanding                                         56.4              60.8             63.1
Net effect of dilutive stock options - based on the
     treasury stock method using average market price                        2.9               0.8                -

--------------------------------------------------------------------------------------------------------------------
Total primary common shares                                                 59.3              61.6             63.1
--------------------------------------------------------------------------------------------------------------------
Net income                                                                 $78.9            $118.3            $51.5
Less preferred stock dividend requirements                                  (1.9)             (1.9)            (1.9)
--------------------------------------------------------------------------------------------------------------------
Net income available to common stock                                       $77.0            $116.4            $49.6
--------------------------------------------------------------------------------------------------------------------
Net income per common share                                                $1.30             $1.89            $0.79
====================================================================================================================


====================================================================================================================
Fully diluted:
Weighted average shares outstanding                                         56.4              60.8             63.1
Net effect of dilutive stock options - based on the
     treasury stock method using higher of average market price
     or end of period market price                                           3.9               2.5                -
--------------------------------------------------------------------------------------------------------------------

Total fully diluted common stock                                            60.3              63.3             63.1
--------------------------------------------------------------------------------------------------------------------
Net income                                                                 $78.9            $118.3            $51.5
Less preferred stock dividend requirements                                  (1.9)             (1.9)            (1.9)
--------------------------------------------------------------------------------------------------------------------
Net income available to common stock                                       $77.0            $116.4            $49.6
--------------------------------------------------------------------------------------------------------------------
Net income per common share                                                $1.28             $1.84            $0.79
====================================================================================================================
</TABLE>
<PAGE>




                                   EXHIBIT 12





<PAGE>

<TABLE>
<CAPTION>

                                                                                                          EXHIBIT 12
                               TIG HOLDINGS, INC.
                  COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                 TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
                                   (unaudited)
                                                                           Years Ended December 31,
                                                           ---------------------------------------------------------
(In millions)                                               1996             1995             1994             1993
--------------------------------------------------------------------------------------------------------------------
EARNINGS:
<S>                                                          <C>             <C>               <C>            <C>   
    Pretax income from continuing operations                 $75             $155              $45            $(218)
    Fixed charges, excluding preferred
        stock dividends                                       16               15               11               13
--------------------------------------------------------------------------------------------------------------------
           Earnings                                          $91             $170              $56            $(205)
====================================================================================================================

FIXED CHARGES:
    Interest expense                                         $ 9            $   6             $  -             $  1
    Interest portion of operating leases,
        net of subleasing income                               7                9               11               12
    Preferred stock dividends requirements                     2                2                2                2
--------------------------------------------------------------------------------------------------------------------
        Fixed charges                                        $18              $17              $13              $15
====================================================================================================================

RATIO OF EARNINGS TO FIXED CHARGES                           5.1             10.0              4.3                -
====================================================================================================================
</TABLE>
<PAGE>












                                   EXHIBIT 21



<PAGE>


                               TIG HOLDINGS, INC.
                              LIST OF SUBSIDIARIES



                                                             State of
                                                           Incorporation
                                                           -------------
TIG Holdings, Inc.                                         Delaware
   TIG Holdings 1, Inc.                                    Delaware
      TIG Excess & Surplus Lines, Inc.                     Delaware
         TIG Specialty Insurance Company                   California
   TIG Insurance Group                                     California
      Rusco Services, Inc.                                 California
      TIG Holdings 3, Inc.                                 Delaware
         PW Financial Solutions                            Delaware
      TIG Insurance Company                                California
         TIG Holdings 4, Inc.                              Delaware
         TIG Premier Insurance Company                     California
         TIG Countrywide Insurance Company                 California
         Countrywide Corporation                           Texas
            Industrial County Mutual Insurance Company     Texas
         TIG Lloyds Insurance Company                      Texas
         TIG Indemnity Company                             California
         TIG Insurance Company of Texas                    Texas
         TIG Reinsurance Company                           Connecticut
            Investment Subsidiary Two Corporation          Delaware
            Investment Subsidiary Three Corporation        Delaware
            Investment Subsidiary Four Corporation         Delaware
            TIG RE UK Holdings Company                     Delaware
         Fairmont Insurance Company                        California
         TIG American Specialty Insurance Company          Texas
         TIG Insurance Company of Colorado                 Colorado
         TIG Insurance Corporation of America              Michigan
         TIG Insurance Company of Michigan                 Michigan
         TIG Insurance Company of New York                 New York
         Investment Subsidiary One Corporation             Delaware

<PAGE>












                                  EXHIBIT 23.1



<PAGE>






                 Exhibit 23.1 - Consent of Independent Auditors



      We consent to the incorporation by reference in the Registration Statement
      (Form  S-8)  No.  33-61564)  pertaining  to the TIG  Holdings,  Inc.  1993
      Long-Term  Incentive  Plan, in the  Registration  Statement  (Form S-8 No.
      33-61970)  pertaining to the TIG Holdings,  Inc. Diversified Savings Plan,
      in the Registration  Statement (Form S-8 No.  33-63148)  pertaining to the
      TIG Holdings,  Inc. 1993 Non-Employee  Directors Restricted Share Program,
      in the Registration  Statement (Form S-8 No.  33-66650)  pertaining to the
      Common Stock  Restricted Share  Agreement,  in the Registration  Statement
      (Form S-3 No.  33-90594)  of TIG  Holdings,  Inc.  and related  Prospectus
      pertaining to the  registration  of $100,000,000 of 8 1/8% Notes due 2005,
      in the Registration  Statement (Form S-8 No. 333-18281)  pertaining to the
      TIG Holdings, Inc. Diversified Savings Restoration,  in the Post Effective
      Amendment  No. 1 to the  Registration  Statement  (Form S-8 No.  33-61564)
      pretaining to the TIG Holdings,  Inc. 1993 Long-Term  Incentive  Plan, the
      TIG Holdings,  Inc. 1996 Long-Term Incentive Plan, the TIG Holdings,  Inc.
      1996  Non-Employee  Directors  Compensation  Program and the TIG Holdings,
      Inc.   September  1996  Consultant  Stock  Option  Agreement  and  in  the
      Registration  Statements  (Form S-8 No.  333-15735)  pertaining to the TIG
      Holdings,  Inc. 1996 Long-Term Incentive Plan, the TIG Holdings, Inc. 1996
      Non-Employee  Directors  Compensation  Program and the TIG  Holdings  Inc.
      September  1996  Consultant  Stock  Option  Agreement  of our report dated
      January 31, 1997 with respect to the consolidated financial statements and
      schedules of TIG Holdings,  Inc. included in the Annual Report (Form 10-K)
      for the year ended December 31, 1996.




                                                  /s/ERNST & YOUNG LLP



Dallas, Texas
March 21, 1997
<PAGE>





                                  EXHIBIT 24.1



<PAGE>
                                POWER OF ATTORNEY
                                -----------------

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes  and appoints Jon W.  Rotenstreich,  Louis J. Paglia,
Edwin  G.  Pickett  and  Steven  A.  Cook  (each  of them  with  full  power  of
substitution  and with full power to act without the others) his or her true and
lawful  attorneys-in-fact  and agent for the  undersigned in such person's name,
place and stead, in any and all capacities, to sign an Annual Report for 1996 on
Form  10-K and any and all  subsequent  amendments  thereto  and to file them so
signed, with all exhibits thereto, and any and all other documents in connection
therewith,  with the Securities and Exchange  Commission,  hereby  granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises,  as fully to all intents and purposes as he or she might
or  could  do  in  person,   hereby  ratifying  and  confirming  all  that  said
attorneys-in-fact and agents or any of them, or their substitutes,  may lawfully
do or cause to be done by virtue hereof.

Dated:  March 19, 1997
        --------------

By  /s/JON W. ROTENSTREICH              By  /s/DON D. HUTSON
-------------------------------------   ----------------------------------------
Name:  Jon W. Rotenstreich              Name:  Don D. Hutson
Title: Director, Chairman of the Board  Title: Director, President and
       and Chief Executive Officer             Chief Operating Officer
       (Principal Executive Officer)

By  /s/EDWIN G. PICKETT                 By  /s/STEVEN A. COOK
-------------------------------------   ----------------------------------------
Name:  Edwin G. Pickett                 Name:  Steven A. Cook
Title: Executive Vice President and     Title: Controller
       Chief Financial Officer                 (Principal Accounting Officer)
       (Principal Financial Officer)

By  /s/GEORGE B. BEITZEL                By  /s/WILLIAM G. CLARK
-------------------------------------   ----------------------------------------
Name:  George B. Beitzel                Name:   William G. Clark
Title: Director                         Title:  Director

By  /s/JOEL S. EHRENKRANZ               By  /S/GEORGE D. GOULD
-------------------------------------   ----------------------------------------
Name:  Joel S. Ehrenkranz               Name:   George D. Gould
Title: Director                         Title:  Director

By  /s/LORD MOORE                       By  /s/WILLIAM W. PRIEST
-------------------------------------   ----------------------------------------
The Rt. Hon. Lord Moore                 Name:   William W. Priest
Director                                Title:  Director

By  /S/ANN W. RICHARDS                  By  /s/HAROLD TANNER
-------------------------------------   ----------------------------------------
Name:  Ann W. Richards                  Name:   Harold Tanner
Title: Director                         Title:  Director

<PAGE>