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                             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, 1997                                                 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

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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

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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.

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant as of March 6, 1998, was $1,377,823,979.

The number of shares  outstanding  of the  issuer's  common stock as of March 6,
1998:

         Common Stock, $0.01 Par Value; 51,753,833 shares outstanding, excluding
15,717,021 Treasury Shares.

Documents Incorporated by Reference:

Portions of the definitive proxy statement for the annual meeting  scheduled for
April 30, 1998, are incorporated by reference into Part III.

                          Exhibit Index is on page 91.



<PAGE>


                                      INDEX
--------------------------------------------------------------------------------

PART I

Item 1.       Description of Business.........................................1
      1.1     General.........................................................1
      1.2     Reinsurance.....................................................2
      1.3     Commercial Specialty............................................5
      1.4     Retail..........................................................8
      1.5     Other Lines....................................................10
      1.6     Reserves.......................................................11
      1.7     Regulation.....................................................17

Item 2.       Business Properties............................................18

Item 3.       Legal Proceedings..............................................19

Item 4.       Submission of Matters to a Vote of Security Holders............19

PART II

Item 5.       Market for Registrant's Common Equity and Related Shareholder
              Matters........................................................20

Item 6.       Selected Financial Data........................................21

Item 7.       Management's Discussion and Analysis of Financial Condition
              and Results of  Operations.....................................22

      7.1     Consolidated Results...........................................22
      7.2     Reinsurance....................................................26
      7.3     Commercial Specialty...........................................28
      7.4     Retail.........................................................30
      7.5     Other Lines....................................................33
      7.6     Exposure Management............................................34
      7.7     Investments....................................................37
      7.8     Liquidity and Capital Resources................................41
      7.9     Financial Condition............................................43
      7.10    Year 2000......................................................44
      7.11    Forward-Looking Statements.....................................45
      7.12    Glossary.......................................................46

Item 8.       Financial Statements and Supplementary Data....................50

Item 9.       Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosures...........................84

PART III

Item 10.      Directors and Executive Officers of the Registrant.............84

Item 11.      Executive Compensation.........................................84

Item 12.      Security Ownership of Certain Beneficial Owners and 
              Management.....................................................84

Item 13.      Certain Relationships and Related Transactions.................84

PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports 
              on Form 8-K....................................................85

<PAGE>

                                             
                                     PART I

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ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------------------------------------------------------
1.1 GENERAL
--------------------------------------------------------------------------------

TIG Holdings,  Inc. ("TIG Holdings") is a holding company organized in 1993 as a
Delaware corporation.  Prior to April 27, 1993, TIG Holdings was wholly-owned by
Transamerica Corporation ("Transamerica").  On April 27, 1993, an initial public
offering of TIG Holdings'  common stock closed,  reducing to 27%  Transamerica's
ownership interest. In December 1993,  Transamerica sold this remaining interest
through a secondary  public offering.  TIG Holdings is primarily  engaged in the
business of property/casualty  insurance and reinsurance through its 14 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.  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.

As of  December  31,  1997,  TIG  had  approximately  1,100  salaried  employees
providing sales, underwriting,  claims and service support in 45 active offices.
Of direct premium  written by TIG in 1997, 26% was written in California,  9% in
Michigan,  7% in  Hawaii  and  6%  each  in  Florida  and  New  York.  No  other
geographical area,  including foreign operations,  accounted for more than 5% of
direct  premium  written.  Premium  produced  through  Aon  Corporation  and its
subsidiaries  ("Aon"), an unaffiliated  company that owns among other businesses
numerous  insurance  agencies  and  brokers,  accounted  for 32%, 23% and 22% of
consolidated net premium written in 1997, 1996 and 1995,  respectively.  Premium
produced by Aon increased in 1997 due to the acquisition by Aon early in 1997 of
another  of  TIG's  significant  producers.   The  following  table  sets  forth
consolidated net premium written, classified by statutory line of business:

                                                   Years Ended December 31,
                                                   -------------------------
 (In millions)                                      1997     1996     1995
 ============================================================================
 Reinsurance operations net premium written       $  515   $  548   $  511
 --------------------------------------------------------------------------
 Workers' compensation                               295      260      285
 Automobile liability                                236      244      260
 General liability                                   135      110      144
 Automobile physical damage                          118      133      136
 Commercial multiple peril                            45       59       81
 Lloyd's Syndicates                                   29        -        -
 Homeowners                                           33       80       81
 Other                                                30       95      112
 --------------------------------------------------------------------------
 Primary operations net premium written              921      981    1,099
 --------------------------------------------------------------------------
 Total net premium written                        $1,436   $1,529   $1,610
 ==========================================================================

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
management's  projections,  estimates and assumptions.  Management would like to
caution  readers  regarding  its  forward-looking   statements  (see  Item  7.11
Forward-Looking  Statements).  Key industry terms that appear in the Description
of Business  and  elsewhere in this  document are defined at Item 7.12.  Certain
reclassifications  of prior  years'  amounts  have been made to conform with the
1997 presentation.

                                       1
<PAGE>

                                     PART I

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1.2 REINSURANCE
--------------------------------------------------------------------------------

Products.  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.  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".
Excess of loss also includes  contracts which are a proportional share of excess
of loss policies written over the policyholders' primary coverage. The following
table shows TIG Re's net premium written by statutory line of business:

                                                       Years Ended December 31,
                                                      --------------------------
(In millions)                                            1997     1996     1995
================================================================================
Property                                                 $118     $95      $91
Automobile liability                                      107      80       44
General liability                                          77      88       94
Workers' compensation                                      49      33       15
Errors and omissions                                       46      88      118
Medical malpractice                                        34      85       72
Umbrella                                                   31      32       37
Directors and officers                                     25      26       35
Automobile physical damage                                 23      21        5
Accident and health                                         5       -        -
--------------------------------------------------------------------------------
Total net premium written                                $515    $548     $511
--------------------------------------------------------------------------------
Percentage of consolidated net premium written            36%     36%      32%
================================================================================

Approximately 42%, 52% and 63% of TIG Re's net premium written in 1997, 1996 and
1995,  respectively,  was written on an excess of loss basis.  TIG Re's  primary
strategy for excess of loss treaties is to take 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.

                                       2
<PAGE>

                                     PART I

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

Approximately 58%, 48% and 37% of TIG Re's net premium written in 1997, 1996 and
1995,  respectively,  was written on a pro rata basis. TIG Re's philosophy is to
provide 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.

The decrease in medical malpractice and errors and omissions net premium written
in  1997  is  due  to  the  termination  or  reduced  participation  in  several
significant treaties as further discussed at Item 7.2 Reinsurance.

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  31%, 26% and 30% of TIG Re's net premium
written in 1997, 1996 and 1995, respectively. The five largest brokers accounted
for 65%, 71% and 83% of TIG Re's net premium  written  during the same  periods.
There was no change in the top four brokers in 1997 from 1996 or 1995.  In early
1997, Aon Corporation  acquired TIG Re's largest broker. Aon Corporation and its
subsidiaries  accounted for 31%, 19% and 22% of TIG Re's net premium  written in
1997,  1996 and 1995,  respectively.  There  are no  commitments  which  require
subsidiaries of Aon Corporation to continue to place business with TIG Re.

TIG Re has  approximately  615 insurance  company  "clients".  TIG Re's top five
insurance company clients  represented 34% of TIG Re's 1997 net premium written,
exclusive of business assumed from TIG Insurance.  Approximately  $58 million of
TIG Re's net premium written in 1997, and $50 million for both of 1996 and 1995,
respectively  was  assumed  from  the  Commercial   Specialty  division  of  TIG
Insurance.  Of premium assumed from TIG Insurance,  $49 million, $18 million and
$8 million was "reverse  flow"  business in 1997,  1996 and 1995,  respectively.
Reverse flow is an alternative  distribution mechanism whereby general agents or
intermediaries  submit  program  business  to TIG Re. TIG Re then works with the
reinsurance  intermediary  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 $64  million  for 1997 as  compared  to $29  million  and $23
million for 1996 and 1995,  respectively.  Approximately  77% of the 1997 London
office net premium written pertained to international risks.


                                       3
<PAGE>

                                     PART I

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

During 1996, TIG Re established a fully integrated Lloyd's vehicle with a wholly
owned  managing  agent that  manages,  and a wholly  owned  corporate  name that
provides,  sole support for  syndicate  1218.  The  formation of syndicate  1218
allows TIG Re to write  insurance  and  reinsurance  world-wide.  The  syndicate
produced  $13 million in net premium  written in 1997 and has stamp  capacity of
(pound)25  million  (approximately  $40  million)  for  the  1998  account.  The
syndicate allows TIG Re access to international non-marine casualty and property
business.

In late 1996,  TIG Re  established  a new business  unit composed of nine branch
offices  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 by  allowing it access to a new
market  segment  which  will  broaden  its  product  base  and  provide  for new
opportunities.  The facultative unit produced net premium written of $23 million
in 1997.

During 1996, TIG Re was approved as a licensed reinsurer in Canada. In addition,
during 1997 TIG Re  established a Miami branch as the center for expansion  into
the Latin America market place. Satellite offices will be opened in target areas
depending on the political  environment,  the insurance and reinsurance  market,
and licensing requirements. Currently, the Company has opened a satellite office
in Santiago, Chile.

Competition.  Competition  in the  highly  competitive  reinsurance  market  has
intensified  during  the past  several  years as a result  of an  oversupply  of
capital in both the  reinsurance  and  primary  insurance  markets.  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 Co.  ("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 tenth largest property/casualty  reinsurer in the United States as
of September 30, 1997, according to the Reinsurance  Association of America. TIG
Re has a stand-alone  rating of "A"  (Excellent)  by Best for  financial  size X
which  corresponds  to  policyholder  surplus  levels from $500  million to $750
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

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1.3 COMMERCIAL SPECIALTY
--------------------------------------------------------------------------------

Products.  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   employment-related
accidents,  injuries or illness.  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 a
work related injury while  indemnity  benefits  compensate the employee for lost
wages.  The table  below  shows  Commercial  Specialty  net  premium  written by
statutory line of business:

                                                     Years Ended December 31,
                                                    -------------------------
(In millions)                                          1997     1996    1995
=============================================================================
Workers' compensation                                 $ 305     $203    $228
Other liability                                         140      108     115
Automobile liability                                     39       29      18
Commercial multiple peril                                39       24      22
Lloyd's syndicates                                       29        -       -
Other accident and health                                26       25      33
Automobile physical damage                               14       20      14
Other                                                    (4)      31       4
-----------------------------------------------------------------------------
     Total net premium written                        $ 588     $440    $434
-----------------------------------------------------------------------------
     Percentage of consolidated net premium written      41%      29%     27%
=============================================================================

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,
Lloyd's  Syndicates,   Primary  Casualty,   Excess  Casualty  and  Special  Risk
Operations   ("SRO").   The  Sports  and  Leisure  unit  offers   coverages  for
professional  and  amateur  sports  events  and  represents  31%  of  Commercial
Specialty  1997 net premium  written.  The 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  typical  retention  on any one policy or event is $1 million,  however,  in
limited cases,  higher net exposure  limits are retained.  During 1995, the unit
expanded product offerings into the Canadian market.

The Workers' Compensation business unit produced approximately 49% of Commercial
Specialty  net  premium  written  in  1997.   Among  the  products  offered  are
non-participating  plans, sliding scale and group participating plans,  deferral
plans and small deductible plans. During 1997, this unit built upon its template
underwritten  workers' compensation business by focusing on reducing the overall
cost of workers' compensation  injuries.  This was accomplished through a series
of  occupational  care  management  initiatives   including:   formation  of  an
occupational  medical  management and case management  company;  entering into a
long-term  strategic  relationship  with a general  agent  ("GA") that will also
provide loss management services to TIG; and, establishment of 24 hour toll free
injury reporting and early intervention services. Management believes that these
initiatives,  combined  with  TIG's  contracted  network of  Preferred  Provider
Organizations and medical bill review platform,  have positioned TIG as a leader
in managed care workers' compensation  services.  Approximately 33%, 65% and 54%
of workers'  compensation  business was underwritten using the template approach
in 1997, 1996 and 1995 respectively.  TIG targets workers'  compensation premium
growth in states where management  believes that reasonable  reform has occurred
and a favorable long-term operating environment exists.


                                       5
<PAGE>



                                     PART I

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

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)                                      1997     1996     1995
================================================================================
Illinois                                           $36      $65      $69
California                                          30       21       47
Florida                                             24        2        -
Wisconsin                                           15       13       13
Hawaii                                              15       11        6
Georgia                                             14        2        -
Texas                                               12        3        3
New York                                            12        3        4
Colorado                                            11       13       15
Massachusetts                                       10        -        -
All Other                                          108       66       65
--------------------------------------------------------------------------------
Total net premium written                         $287     $199     $222
================================================================================

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 GAs. The Excess  Casualty unit  principally  offers
lead  umbrella and excess  umbrella  policies.  Lead umbrella  policies  provide
liability  protection for manufacturing,  financial and service businesses above
the limits of the primary  coverage.  Excess umbrella  policies  provide similar
coverage above the lead excess limits.  The SRO unit focuses on excess property,
healthcare liability and excess casualty coverages.  The standard retention on a
primary casualty policy is $1 million. For excess casualty policies,  retentions
vary from $1 million up to $5 million in limited cases.

Distribution System. Commercial Specialty and Workers' Compensation programs are
generally  marketed through selected GAs which have a demonstrated  knowledge of
the particular specialty class, the coverages offered, the competition,  and the
pricing.  Management's  objective is to develop profitable  strategic  long-term
relationships  with GAs by developing  tailored programs for these key producers
and providing  responsive  service.  Management  believes  that these  strategic
relationships  will  enable TIG to  maintain  an optimal  cost  structure  while
developing  specialized  underwriting  expertise.  TIG  sometimes  has exclusive
contracts with 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 51% of Commercial Specialty  operations' 1997 net premium written,
compared to 54% in 1996 and 51% in 1995.

The majority of excess casualty  policies are marketed  through 10 hub locations
throughout the United States which work with large regional  independent  agents
and  brokers.  In  addition,  a regional  office in Chicago  assists with sales,
underwriting and administrative functions for specialty program business.


                                       6
<PAGE>



                                     PART I

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

In December  1996,  TIG  Insurance  purchased  a majority  interest in a Lloyd's
managing  agency which  manages  three  syndicates.  In addition,  TIG Insurance
established  a  corporate  name with an  approximate  18%  share of the  managed
syndicates' 1997 stamp capacity.  In 1997, TIG Insurance  increased its share of
the managed  syndicates 1998 stamp capacity to approximately 40%. Stamp capacity
in 1998 totals (pound)199 million  (approximately $325 million).  The syndicates
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,  have  significantly  increased
competition in the workers' compensation market.


                                       7
<PAGE>



                                     PART I

--------------------------------------------------------------------------------
1.4  RETAIL
--------------------------------------------------------------------------------

Products.   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.

On  December  31,  1997,  TIG sold the  Independent  Agents  unit of its  Retail
Division,  based in  Battle  Creek,  Michigan  to  Nationwide  Mutual  Insurance
Company.  This transaction is discussed at Item 7.1 - Consolidated  Results.  As
Independent  Agents business is 100% reinsured  effective December 31, 1997, the
following  discussion  focuses on TIG's remaining  Retail business unit,  Custom
Markets.  The following table shows Retail net premium written by statutory line
of business:

                                                Years Ended December 31,
                                               -------------------------
(In millions)                                     1997     1996    1995
========================================================================
Custom Markets
Automobile liability                             $ 116     $ 44    $ 35
Automobile physical damage                          42       29      30
Homeowners                                           9       10       9
All other                                           15       16      17
------------------------------------------------------------------------
Total Custom Markets                               182       99      91
------------------------------------------------------------------------

Independent Agents
Automobile liability                                40       91      84
Homeowners                                          70      100     127
Automobile physical damage                          51       70      59
All other                                           (6)       1     (19)
------------------------------------------------------------------------
Total Independent Agents                           155      262     251
------------------------------------------------------------------------
Total net premium written                        $ 337     $361    $342
------------------------------------------------------------------------
Percentage of consolidated net premium written      23%      23%     21%
========================================================================

Custom Markets  provides  property and liability  coverages for  individuals and
small  businesses.  Products  include  non-standard  automobile,  preferred  and
standard  automobile,  standard  and upscale  property and  commercial  risks in
support of small business owners.  Approximately 59% of 1997 automobile policies
written  by  Custom  Markets  were for  non-standard  risks.  Non-standard  auto
policies  are  purchased  by insureds who have  difficulty  obtaining  insurance
through normal distribution channels, because of characteristics that place them
in a higher risk profile.  The non-standard  business has a higher percentage of
physical damage premium compared to preferred or standard risks,  with liability
coverage  typically  written for minimum financial  responsibility  limits only.
Premium per exposure is higher than standard or preferred  automobile due to the
higher  risk  involved.   For  preferred  and  standard   automobile   policies,
substantially  all have liability  coverage and over 75% have  comprehensive and
collision  coverage.  Preferred  and standard  automobile  policies are template
underwritten  for  insureds  with  "acceptable"  driving  records  and who  have
standard  performance  automobiles.  With the exception of Hawaii business,  all
personal lines automobile policies are template underwritten.


                                       8
<PAGE>



                                     PART I

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

Standard  and  upscale  homeowners  is  primarily  written in  Hawaii.  Standard
homeowner's  policies provide maximum property limits of $350,000 with a minimum
required limit of $50,000.  A liability  limit of $100,000 is typical but may be
increased in $100,000  increments up to $500,000.  The Excel upscale homeowner's
policy  provides  property  limits of up to $1,000,000,  with the same liability
limits applicable as standard homeowners' policies.

The small business owners product  consists  primarily of small package policies
and business owners policies  ("BOP"),  both having premiums of $50,000 or less.
Both  products  are  written  for  low to  medium  hazard  classes.  The  BOP is
completely automated and is template  underwritten.  Template BOP eligibility is
restricted  to  property  location  limits of  $10,000,000  for  lessors'  risk,
$5,000,000  for retail  risks,  $3,000,000  for office  risks,  and a $3,000,000
property  aggregate  limit for all other eligible  classes.  Commercial  package
policies  have a property  location  limit of  $25,000,000  which  includes auto
physical damage. Maximum net retentions on any one policy is $1 million.

Distribution  System. The distribution of Retail net premium written by state is
displayed in the following table:
                                      Years Ended December 31,
                                    ---------------------------
(In millions)                          1997     1996     1995
===============================================================
Custom Markets
California                             $66      $31      $24
Hawaii                                  58       55       49
Other                                   58       13       18
---------------------------------------------------------------
Total Custom Markets                   182       99       91
---------------------------------------------------------------

Independent Agents
California                              74      110      119
Michigan                                72       90       76
Other                                    9       62       56
---------------------------------------------------------------
Total Independent Agents               155      262      251
---------------------------------------------------------------
Total                                 $337     $361     $342
===============================================================

Custom  Markets'  principal   distribution  strategy  is  to  develop  strategic
relationships  with general agents ("GAs") and other key distribution  partners.
GAs are the  predominate  production  source for California and Hawaii.  Premium
production in other states is generated  through a number of sources,  including
GAs,  alternative  distribution  channels  and a limited  number of  independent
retail agents.  Of the 42 production  sources in 1997, 12 generated  premiums in
excess of $5 million.  As additional  states are implemented in the non-standard
and  alternative  distribution  channels,  the  geographic  distribution  of net
premium written is expected to shift.

Independent  Agents products were distributed by approximately 660, 627, and 652
independent agents in 1997, 1996 and 1995, respectively.

Competition.  The  retail  insurance  market is highly  cyclical.  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.  Competition  is  principally  based  on  price
(including   differentiation   on  policy   limits,   coverages   offered,   and
deductibles),   agent   commissions,   customer   service  and  claims  handling
reputation.

                                       9
<PAGE>



                                     PART I

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

Products.  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.  Most Other Lines net  premium  written
represents contractually required renewals.  Non-renewal of Other Lines business
has  generally   progressed  at  a  faster  rate  than  originally  expected  by
management.  Net premium written in 1997 was negative due to premium  receivable
write-offs and retro adjustments on certain policies.  The following table shows
net premium written by statutory line of business:

                                                 Years Ended December 31,
                                                -------------------------
(In millions)                                     1997     1996     1995
=========================================================================
Automobile liability                              $ 8     $ 63      $103
Automobile physical damage                          3       16        28
Commercial multiple peril                          (1)      17        65
Fire and allied lines                               3        5        18
Other                                             (17)      79       109
-------------------------------------------------------------------------
Net premium written                               ($4)    $180      $323
-------------------------------------------------------------------------
Percentage of consolidated net premium written      -       12%      20%
=========================================================================

In June 1995, TIG announced plans to discontinue small individually underwritten
commercial  policies.  As a result,  net  premium  written  from these  policies
declined to ($2.8)  million in 1997 from $4.4 million in 1996 and $95 million in
1995. 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 1997,
1996 and 1995 from lines of  business  placed in run-off as a result of the 1996
restructure was $4 million, $140 million and $190 million, respectively.


                                       10
<PAGE>



                                     PART I

--------------------------------------------------------------------------------
1.6  RESERVES
--------------------------------------------------------------------------------

General.  The  reserve  liabilities  for   property/casualty   losses  and  loss
adjustment  expenses 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. Both TIG Insurance and TIG
Re  maintain   actuarial   departments  which  evaluate  the  adequacy  of  each
subsidiary's loss and LAE reserves. Oversight is provided by TIG Holdings' Chief
Actuary. As described below,  reserve procedures differ somewhat between primary
insurance and reinsurance.

TIG Insurance. The claims department of TIG Insurance oversees the establishment
of case basis reserves for all primary lines  policies and is managed  centrally
from TIG's offices in Irving,  Texas.  As of December 31, 1997,  TIG's dedicated
claims staff  totaled  approximately  350 of which 250 are located in 20 offices
across  the United  States  and the  remainder  are  located  in Irving,  Texas.
Approximately  50% of primary  lines claims are  processed by  approximately  75
third party  administrators  located across the United  States.  The adequacy of
case basis reserves is evaluated by TIG Insurance'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
actuarial  evaluation uses accepted actuarial reserving techniques which combine
quantitative and qualitative information. The loss projection procedures used in
this analysis  implicitly  incorporate  the effect of inflation on loss payments
expected  to be  made  in the  future.  Accident  year  methodology  is  used to
calculate IBNR reserves that provides for both case reserve  deficiency and late
reported claims emergence.

The IBNR reserve is based on the historical  emergence of reported  claims.  The
calculations  make  appropriate  adjustments  for  changes in rate  adequacy  in
instances  where  premiums are used in the reserve  calculations.  The effect of
inflation  is   implicitly,   and   sometimes   explicitly,   reflected  in  the
calculations.

LAE is 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 for some lines of  business  and by direct
projection of claim closures and average unallocated LAE costs for others.

TIG Re. 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 17 employees
located in Stamford, Connecticut. Loss reserves are based upon underwriting year
projections  which  provide  for both case  reserve  deficiency  as well as late
reported claim emergence.  Analyses are conducted either by class of business or
by individual  program/account.  Supplemental ceding company information is used
to increase the  reliability of the  estimates.  The actuarial  evaluation  uses
accepted  actuarial   reserving   techniques  which  combine   quantitative  and
qualitative  information.  The  calculations  make  appropriate  adjustments for
changes in rate  adequacy in  instances  where  premiums are used in the reserve
calculations.  The effect of inflation is implicitly,  and sometimes explicitly,
reflected in the calculations.  Losses and allocated LAE are typically projected
together.

Unallocated  LAE  reserves  are  based  upon  historical  relationships  of paid
unallocated loss adjustment  expenses to paid losses. The inflation  assumptions
built into the loss  reserves  are  presumed  to apply to the  unallocated  loss
adjustment expense reserves as well.


                                       11
<PAGE>



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

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.  Because reserves are
estimates of ultimate losses and LAE,  management monitors reserve adequacy over
time,  evaluating new information as it becomes known and adjusting reserves, as
necessary. Such adjustments are reflected in current operations.

The inherent  uncertainty in estimating  reserves is increased when  significant
changes  occur.  Examples of such  changes  include:  (1) changes in  production
sources for existing lines of business;  (2) writings of  significant  blocks of
new business;  (3) changes in economic  conditions;  and (4) 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  contracts,  the
necessary reliance on ceding companies for information regarding reported claims
and differing reserving practices among ceding companies.

Management considers many factors when setting reserves,  including: (i) current
legal interpretations of coverage and liability;  (ii) economic conditions;  and
(iii) internal  methodologies which analyze TIG's experience with similar cases,
information  from ceding  companies  and  historical  trends,  such as reserving
patterns, loss payments,  pending levels of unpaid claims and product mix. Based
on these  considerations,  management  believes that adequate provision has been
made for TIG's loss and LAE  reserves.  Actual  losses and LAE paid may deviate,
perhaps substantially, from such reserves.


                                       12
<PAGE>



                                     PART I

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

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, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
  (In millions)                1987    1988    1989   1990    1991    1992    1993    1994    1995    1996    1997
=====================================================================================================================
<S>                          <C>     <C>    <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
  Net estimated ultimate
       liability for losses   
       and LAE               $1,291  $1,501 $1,668  $1,916  $2,085  $2,437  $2,738  $2,721  $2,752  $2,634  $2,531
---------------------------------------------------------------------------------------------------------------------
  Cumulative paid as of:
       One year later           520     580    646     719     794     787     796     778     882     837
       Two years later          837     925  1,035   1,210   1,286   1,316   1,304   1,368   1,405
       Three years later      1,045   1,160  1,338   1,508   1,641   1,650   1,681   1,678
       Four years later       1,171   1,328  1,493   1,727   1,848   1,895   1,857
       Five years later       1,261   1,405  1,627   1,856   2,010   1,981
       Six years later        1,304   1,484  1,698   1,952   2,044
       Seven years later      1,359   1,521  1,748   1,948
       Eight years later      1,383   1,553  1,721
       Nine years later       1,402   1,532
       Ten years later        1,388

  Net liability re-estimated
  as of:
       One year later         1,341   1,525  1,712   1,946   2,343   2,582   2,663   2,697   2,768   2,709
       Two years later        1,368   1,538  1,752   2,129   2,459   2,598   2,638   2,700   2,824
       Three years later      1,367   1,549  1,850   2,209   2,512   2,559   2,608   2,700
       Four years later       1,362   1,637  1,871   2,263   2,465   2,525   2,602
       Five years later       1,440   1,646  1,929   2,228   2,436   2,505
       Six years later        1,443   1,674  1,915   2,212   2,425
       Seven years later      1,474   1,660  1,904   2,209
       Eight years later      1,468   1,660  1,907
       Nine years later       1,471   1,657
       Ten years later        1,472
---------------------------------------------------------------------------------------------------------------------
  Net cumulative redundancy
       (deficiency)           ($181)  ($156) ($239)  ($293)  ($340)   ($68)   $136     $21    ($72)   ($75)
---------------------------------------------------------------------------------------------------------------------
  Gross liability - end of                                           $3,405  $3,845  $3,873  $3,886  $3,760  $3,935
     year
  Reinsurance recoverable                                              (968) (1,107) (1,152) (1,134) (1,126) (1,404)
                                                                     ------- ------- ------- ------- ------- -------
                                                                      
  Net liability - end of year                                        $2,437  $2,738  $2,721  $2,752  $2,634  $2,531
                                                                     ------- ------- ------- ------- ------- ------

  Gross re-estimated                                                 $3,432  $3,582  $3,786  $4,091  $3,923
     liability
  Re-estimated recoverable                                             (927)   (980) (1,086) (1,267) (1,214)
                                                                     ------- ------- ------- ------- -------
                                                                     
  Net re-estimated liability                                         $2,505  $2,602  $2,700  $2,824  $2,709
                                                                     ------- ------- ------- ------- ------

  Gross cumulative redundancy
       (deficiency)                                                   ($27)   $263     $87   ($205)  ($163)
=====================================================================================================================
</TABLE>

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 preceding table shows the
year by year  development  of the previously  estimated  liability at the end of
each succeeding year.


                                       13
<PAGE>



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

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  centralized  its  reinsurance  ceded
program  and  increased  minimum  retentions  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
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)                                1997          1996          1995
================================================================================
Net liability for losses and LAE
  at beginning of year                      $2,634        $2,752        $2,721
--------------------------------------------------------------------------------
Provision for losses and LAE for current
  year claims                                1,076         1,122         1,200
Increase (decrease) in estimated ultimate
  losses and LAE for prior years' claims        75            16           (24)
--------------------------------------------------------------------------------
    Total losses and LAE incurred            1,151         1,138         1,176
--------------------------------------------------------------------------------
Loss and LAE payments for claims 
  attributable to:
      Current year                             417           374           367
      Prior years                              837           882           778
--------------------------------------------------------------------------------
         Total losses and LAE payments       1,254         1,256         1,145
--------------------------------------------------------------------------------
Net liability for losses and LAE at 
  end of year                                2,531         2,634         2,752
Reinsurance recoverable on unpaid
  losses and LAE                             1,404         1,126         1,134
--------------------------------------------------------------------------------
Gross liabilities for losses and LAE
  at end of year                            $3,935        $3,760        $3,886
================================================================================

                                       14
<PAGE>




                                     PART I

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

In 1997, TIG recognized  unfavorable prior year loss and LAE reserve development
of  $75  million,   of  which  unfavorable   development  of  $106  million  was
attributable to TIG Re reserve  strengthening  and favorable  development of $31
million was attributable to TIG Insurance.  The reserve  strengthening by TIG Re
in  December  1997 was  based on  actuarial  evaluations  of loss  data  through
September  30,  1997,  which  incorporated  enhancements  to TIG Re's  actuarial
process  and  previously  unavailable  data.  This  intensive  actuarial  review
indicated that reserving  issues were  concentrated in a limited number of large
proportional excess of loss programs, the majority of which were restructured or
non-renewed  effective January 1, 1997. TIG Re also increased 1997 accident year
reserves by $39 million as a result of the September 30, 1997  actuarial  study.
The total $145 million reserve increase  recorded by TIG Re in December 1997 was
net of corporate aggregate stop loss reinsurance coverage, including $40 million
under a 1995 intercompany agreement with TIG Insurance. The favorable prior year
loss  reserve  development  of $31  million  for  primary  lines  written by TIG
Insurance  was  principally   attributable  to  continuing   favorable  workers'
compensation  development.  The  majority  of  this  favorable  development  was
reallocated  to the 1997  accident  year for workers'  compensation  and various
other lines for statutory reporting purposes. The assumption by TIG Insurance in
Other  Lines of $40  million  in losses  under the  aforementioned  intercompany
reinsurance  agreement  was  principally  offset by a $27  million  cession to a
corporate aggregate stop loss reinsurance treaty.

The unfavorable loss and LAE reserve  development for prior years in 1996 of $16
million is 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  development
in commercial multi-peril reserves related primarily to Other Lines policies and
Commercial  Specialty  workers'  compensation,   respectively.   The  commercial
multi-peril  result was due in part to the favorable  loss ratio trend  stemming
from corrective underwriting action instituted since 1993. Most of the favorable
development  applied to general  liability  coverages which benefited from TIG's
litigation  management effort as well as other operational  initiatives designed
to  improve  the  handling  of  claims  from   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 for auto liability  coverages accounted for offsetting
unfavorable  development  recorded  in Other  Lines.  Much of the  1995  adverse
development  of Other Lines occurred in long-haul  trucking  programs which were
discontinued in 1996.


                                       15
<PAGE>



                                     PART I

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

Environmental Reserves. TIG's reserves include an estimate of 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 Insurance's  environmental  claims activity is predominately  from hazardous
waste and  pollution-related  claims arising from commercial  insurance polices.
Most of TIG Insurance'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.

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 such  liabilities.  As a result,
management believes that TIG Re has minimal exposure to such liabilities.

The  following  table  presents  selected data on  environmental  losses and LAE
incurred and reserves outstanding:

                                                      Years Ended December 31,
                                                   -----------------------------
(In millions, except number of outstanding claims)     1997     1996      1995
================================================================================
Net liability for environmental losses and LAE
  at the beginning of the year                         $39      $48       $56
Incurred losses and LAE                                  6        2         1
Loss and LAE payments                                  (11)     (11)       (9)
--------------------------------------------------------------------------------
Net liability for environmental
  losses and LAE at end of year                         34       39        48
Reinsurance recoverable                                 18       24        36
--------------------------------------------------------------------------------
Gross environmental reserves                           $52      $63       $84
--------------------------------------------------------------------------------
Number of outstanding claims(1)                        531      545       543
================================================================================
1)Indicates the number of impacted insured accounts and not individual claimants

An  affiliate  of  Transamerica  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.  Environmental
reserves at  December  31, 1997 are  predominantly  related to policies  written
prior to 1993. At December 31, 1997, the Transamerica  affiliate has 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 the  ultimate
resolution  of  environmental  claims  incurred as of December 31, 1997 will not
materially  impact  TIG's   consolidated   financial   position  or  results  of
operations.



                                       16
<PAGE>



                                     PART I

--------------------------------------------------------------------------------
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  financial  and  market  conduct
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. 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 certain 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 domicile,  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
company or otherwise,  be detrimental to such insurance company's  policyholders
or creditors,  the  regulators 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 allows the  California  Department of
Insurance (the  "Department")  time to take regulatory  action if it so chooses,
with respect to the dividend declared.



                                       17
<PAGE>



                                     PART I

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

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  realized 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,
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 TIG  Insurance  to zero from a negative  $285 million and to decrease
contributed surplus by the same amount. This transaction significantly increased
TIG Insurance's  future dividend  paying  capability as insurance  companies may
only pay dividends from earned surplus.

Certain other  intercompany  transactions  between an insurance  company and its
affiliates,  including  sales,  loans, or investments  which in any twelve month
period  aggregate  at least 3% of its  admitted  assets or 25% of its  statutory
capital  and  surplus,  are also  subject  to prior  notice  to state  insurance
regulatory  authorities.  Service  agreements  and  reinsurance  agreements  are
included within such requirements.

Risk-Based  Capital Rules. The National  Association of Insurance  Commissioners
("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 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,  1997  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 1997,  1996 and 1995.  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 $2 million,  $9 million and $16 million in 1997,  1996 and
1995, respectively.


--------------------------------------------------------------------------------
ITEM 2.  BUSINESS PROPERTIES
--------------------------------------------------------------------------------

TIG's  business   properties  include  45  leased  locations,   which  represent
approximately  950,000  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.



                                       18
<PAGE>



                                     PART I

--------------------------------------------------------------------------------
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 matters  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.  On March 28, 1997,  the  California  Court of Appeal reduced the trial
court's  punitive damage award to $15 million.  On July 23, 1997, the California
Supreme Court granted TIC's  petition to review the Court of Appeal's  decision.
Management  believes  that the ultimate  liability  arising from the Talbot Case
will not materially impact consolidated operating results.

On February 12, 1998, a purported class action complaint,  naming TIG and two of
its executive  officers as defendants,  was filed in the United States  District
Court for the Southern  District of New York on behalf of persons who  purchased
TIG common  stock  during the period from  October 21, 1997 to January 30, 1998,
when TIG announced its fourth quarter 1997 results.  The complaint  alleges that
TIG violated the federal securities laws by misrepresenting  the adequacy of its
underwriting and monitoring  standards and loss reserves,  and that three of its
officers and directors sold shares at prices that were artificially  inflated as
a result of the alleged misrepresentations. Plaintiffs seek unspecified monetary
damages,  including  punitive damages.  Management  believes that the lawsuit is
without merit and it will be vigorously defended.

TIG's Federal income tax returns are routinely  audited by the Internal  Revenue
Service  (IRS)  and  provisions   are  made  in  the  financial   statements  in
anticipation of the results of these audits.  Following a routine federal income
tax audit by the IRS, in September  1997,  the IRS issued a Statutory  Notice of
Deficiency  for the tax year 1993 and a Revenue Agents Report for 1994 asserting
a tax liability of  approximately  $170 million  excluding  interest.  The IRS's
asserted tax adjustments principally relate to the acquisition made by TIG under
the Section 338(h)(10)  election of April 27, 1993 in conjunction with TIG's IPO
and primarily  generate  temporary  differences by creating  income in 1993 with
corresponding  deductions in 1993 and future tax years.  TIG strongly  disagrees
with the  IRS's  position  and,  on  December  11,  1997,  TIG filed a Tax Court
Petition  challenging it. In connection with the Statutory  Notice of Deficiency
issued  by the IRS for the 1993 tax year,  TIG made a $40  million  advance  tax
payment in December 1997, that has been reflected as a current tax asset.  While
the  timing of cash tax  payments  may be  impacted,  management  believes  that
revisions to TIG's recorded tax liability,  if any, arising from the IRS's audit
will not materially impact consolidated net income or financial condition.


--------------------------------------------------------------------------------
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 1997.



                                       19
<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 365 shareholders of record on December 31, 1997,
representing  approximately  15,000 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.

The closing market price and cash  dividends  paid by calendar  quarter for 1997
and 1996 are as follows:


                             1997                            1996
            ----------------------------------   -------------------------------
                Market Price        Dividend         Market Price     Dividend
            --------------------                 -------------------
 Quarter      High        Low       per Share       High     Low      per Share
================================================================================

    1        $38.000    $31.750       $0.15       $33.625   $26.250    $0.05
    2        $31.938    $26.625       $0.15       $33.625   $28.500    $0.05
    3        $35.000    $30.125       $0.15       $30.125   $27.000    $0.05
    4        $36.375    $31.063       $0.15       $34.000   $28.500    $0.05
--------------------------------------------------------------------------------
Year end closing price  $33.188                             $33.875
================================================================================

The closing  price of TIG  Holdings'  common stock on March 6, 1998 was $26.938.
For the period from January 1, 1998 through March 6, 1998, the high market price
was $33.938 and the low market price was $24.625.




                                       20
<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.

(In millions except per
 share data)                      1997      1996      1995      1994      1993
================================================================================
Consolidated Results:
Net premium earned              $1,466    $1,539    $1,618    $1,549    $1,542
Net investment income              290       290       268       249       241
Net investment and other
  gain (loss)                        1        (4)      (11)      (20)       98
--------------------------------------------------------------------------------
     Total revenues              1,757     1,825     1,875     1,778     1,881
--------------------------------------------------------------------------------
Insurance claims and 
  operating expenses             1,631     1,604     1,677     1,696     1,988
Corporate expenses                  44        37        37        37        38
Interest expense                    20         9         6         -         -
Restructuring charges                -       100         -         -        73
--------------------------------------------------------------------------------
     Total expenses              1,695     1,750     1,720     1,733     2,099
--------------------------------------------------------------------------------
Income (loss) before tax           $62       $75      $155       $45     ($218)
--------------------------------------------------------------------------------
Net income (loss)                  $52       $79      $118       $52     ($128)
--------------------------------------------------------------------------------
Per Share Results:
Basic net income (loss) per 
  common share                   $0.97     $1.36     $1.91     $0.79    ($2.04)
Basic weighted average 
  common shares                   51.8      56.4      60.8      63.1      63.5
Diluted net income per 
  common share                   $0.94     $1.32     $1.90     $0.78         -
Diluted weighted average
  common shares                   53.5      58.3      61.4      63.2         -
--------------------------------------------------------------------------------
Financial Position:
Investments                     $4,192    $4,233    $4,550    $3,919    $4,201
Total assets                     6,867     6,476     6,683     6,116     6,253
Reserves for losses and LAE      3,935     3,760     3,886     3,873     3,845
Notes payable                      122       123       120         -         -
Mandatory redeemable
  preferred stock                   25        25        25        25        25
Mandatory redeemable capital
  securities                       125         -         -         -         -
Shareholders' equity             1,163     1,207     1,376     1,042     1,203
--------------------------------------------------------------------------------
Common Stock:
Market high                    $38.000   $34.000   $28.500   $23.250   $28.000
Market low                      26.625    26.250    18.625    17.250    20.375
Market close                    33.188    33.875    28.500    18.750    22.625
Common shares outstanding
  net of treasury stock           51.0      53.9      59.6      62.0      63.8
Dividends declared per 
  common share                   $0.60     $0.20     $0.20     $0.20     $0.05
Book value per common 
  share                         $22.82    $22.41    $23.09    $16.81    $18.86
--------------------------------------------------------------------------------
Statutory Results:
Combined Surplus                $1,013      $975      $952      $901      $864
--------------------------------------------------------------------------------
Net income (loss)                 $121      $184      $136       $13      ($54)
--------------------------------------------------------------------------------
Loss and LAE ratio                78.6      73.8      72.9      76.4      92.1
Underwriting expense ratio        32.1      30.2      30.7      32.1      31.6
Policyholder dividends ratio       0.8       1.0       1.7       1.9       1.5
--------------------------------------------------------------------------------
Combined ratio                   111.5     105.0     105.3     110.4     125.2
Net premium written to 
  surplus ratio                   1.4X      1.6X      1.7X      1.8X      1.8X
================================================================================
                                       21
<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. 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.

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 (see Item 7.11- Forward-Looking  Statements).  Key industry terms that
appear  in the  Management's  Discussion  and  Analysis  and  elsewhere  in this
document  are defined at Item 7.12.  Certain  reclassifications  of prior years'
amounts have been made to conform with the 1997 presentation.

Overview. Net income decreased by $27 million or 34% in 1997 as compared to 1996
due primarily to a $145 million ($94 million after tax) strengthening of current
and prior year loss and LAE  reserves  by the  Reinsurance  division in December
1997 (see Item 1.6 - Reserves).  Excluding  the $100 million ($65 million  after
tax)  restructuring  charge recorded in 1996, net income would have decreased by
$92 million in 1997 as  compared  to 1996.  Interest  expense  increased  by $11
million  in 1997  over 1996  from the  issuance  of $125  million  of  mandatory
redeemable  capital  securities in January 1997 (see Note H to the  Consolidated
Financial Statements at Item 8.). Corporate expenses increased by $7 million due
primarily to expansion of corporate actuarial and underwriting staffs and system
initiatives,  including  analysis of "Year 2000" exposures (see Item 7.10 - Year
2000).

Net income  decreased by $39 million or 33% in 1996 as compared to 1995 due 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 net  investment  loss  increased  by $22 million or 18% in 1996 over 1995 as
reserve  strengthening  of $31 million  (see Item 1.6 - Reserves)  was more than
offset by a $22 million increase in investment income and a $20 million deferred
tax benefit.  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.



                                       22
<PAGE>



                                     PART II

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

The following table shows the major components of net income:

                                               Years Ended December 31,
                                      ------------------------------------------
(In millions)                           1997          1996           1995
================================================================================
Gross premium written                  $1,943        $1,924         $2,036
--------------------------------------------------------------------------------
Net premium written                    $1,436        $1,529         $1,610
--------------------------------------------------------------------------------

Net premium earned                     $1,466        $1,539         $1,618
Less:
   Losses and LAE incurred              1,151         1,138          1,176
   Underwriting expenses and
     policyholder dividends               480           466            501     
--------------------------------------------------------------------------------
   Underwriting loss                     (165)          (65)           (59)

Net investment income                     290           290            268
Net investment and other gain (loss)        1            (4)           (11)
Interest expense                          (20)           (9)            (6)
Corporate expense                         (44)          (37)           (37)
Restructuring charges                       -          (100)             -
--------------------------------------------------------------------------------
Income before tax benefit (expense)        62            75            155
Income tax benefit (expense)              (10)            4            (37)
--------------------------------------------------------------------------------

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

Sale of  Independent  Agents  Business Unit. On December 31, 1997, TIG completed
the sale of the Retail  Independent  Agents  business unit to Nationwide  Mutual
Insurance  Company  ("Nationwide").  This unit produced gross premium written of
$286  million,   $299  million  and  $291  million  in  1997,   1996  and  1995,
respectively.  As of December 31, 1997, all Independent Agents business was 100%
reinsured by a subsidiary  of  Nationwide,  including  outstanding  loss and LAE
reserves, unearned premium reserves and premium receivables.  Under the purchase
agreement,  Nationwide assumed the risk of loss and LAE reserve  development and
receivable  collectibility.  To  allow  Nationwide's  subsidiary  time  to  make
appropriate  regulatory  filings,  TIG will continue to write Independent Agents
business and cede such business 100% to the Nationwide subsidiary for two years,
or  longer,  if  needed.  In  addition,   approximately  300  employees  of  the
Independent  Agents unit became employees of Nationwide on December 31, 1997. As
the  sale  was  principally  effected  through  reinsurance  transactions,   TIG
recognized  no capital  gain or loss (See Note C to the  Consolidated  Financial
Statements at Item 8).

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

                                            Years Ended December 31,
                                  ----------------------------------------------
(In millions)                          1997           1996           1995
================================================================================
Reinsurance                            $515           $548           $511
Commercial Specialty                    588            440            434
Retail                                  337            361            342
--------------------------------------------------------------------------------
Ongoing Lines                         1,440          1,349          1,287
Other Lines                              (4)           180            323
--------------------------------------------------------------------------------
Total                                $1,436         $1,529         $1,610
================================================================================



                                       23
<PAGE>



                                     PART II

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

Growth in on-going  lines net premium  written was 6.7% in 1997 and 4.8% in 1996
as compared to the  corresponding  prior year.  Excluding net premium written by
the Retail  Independent  Agents  business unit which was sold in December  1997,
ongoing lines net premium written would have increased 18.2% in 1997 as compared
to 1996.  The increase in the 1997 growth rate is the result of TIG's  marketing
focus for all divisions, particularly Commercial Specialty, to develop "program"
business. Programs are typically characterized as having a controlled production
source,  homogenous risks and a market niche.  Management believes that programs
generally  have  more  predictable  loss  patterns  and a lower,  variable  cost
structure which provides higher operating margins.

Highly  competitive  market conditions in both reinsurance and primary insurance
products continued in 1997.  Oversupply of capital in the insurance industry has
resulted  in  significant  downward  pricing  pressure,  making it  increasingly
difficult to write business which meets TIG's profitability standards;  however,
TIG will  continue to invest in new business  initiatives  that meet its focused
"program"  criteria.  Continuing soft market conditions are expected to increase
the  time   required  for  new   business   initiatives   to  achieve   targeted
profitability.

Two executive officers announced their retirement in 1997. The retirement of TIG
Holdings' president was effective December 31, 1997, while the retirement of TIG
Re's  chairman  was  effective  February  2,  1998.  Mary  Hennessy,  previously
Executive Vice President and Chief Underwriting Officer, was named President and
Chief Operating Officer of TIG Holdings effective January 1, 1998, while Michael
Wacek,  a  seasoned  insurance  executive,  was  appointed  President  and Chief
Executive  Officer of TIG Re in February 1998. The retirement of these executive
officers and the  appointment of their  successors  could impact,  positively or
negatively, existing producer relationships and the availability of new business
opportunities

Statutory Combined Ratio. A key measure of an insurance company's performance is
its statutory  combined ratio. The following table shows the components of TIG's
consolidated   combined  ratio  for  TIG's  active  operating   divisions  on  a
consolidated basis:

                                            Statutory Ratio
                                    --------------------------------
                                       1997       1996      1995
====================================================================
 Loss and LAE                          78.6       73.8      72.9

 Commission expense                    20.1       19.8      18.7
 Premium related expense                2.9        3.2       3.6
 Operating expense                      9.1        7.2       8.4
 -------------------------------------------------------------------
    Total underwriting expense         32.1       30.2      30.7
 Policyholder dividends                 0.8        1.0       1.7
 -------------------------------------------------------------------
 Combined ratio                       111.5      105.0     105.3
 ===================================================================

Reserve  strengthening for current and prior accident years recorded in 1997 for
Reinsurance and in 1996 for Other Lines (see Item 1.6 - Reserves) increased both
the loss and LAE ratio  and  combined  ratio by 9.9  percentage  points  and 2.0
percentage points for 1997 and 1996, respectively.  Favorable loss experience in
Commercial Specialty and Retail partially offset TIG Re reserve strengthening in
1997. Increases in the commission ratio for both 1996 and 1997 reflect the shift
in business mix toward  specialty  programs  produced by GAs. The 1997 operating
expense ratio  increase of 1.9  percentage  points over 1996 is primarily due to
start up costs incurred for new programs,  principally the  Facultative  unit of
Reinsurance  (see Item 7.2 - Reinsurance)  and a Retail Custom Markets unit (see
Item 7.4 - Retail).



                                       24
<PAGE>



                                     PART II

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

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)
consolidated  field offices,  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) outsourced to
third party service providers or otherwise  terminated the  responsibilities  of
approximately  600  employees.  TIG  recorded  a $100  million  accrual in first
quarter 1996 for  estimated  restructuring  charges.  The  remaining  reserve at
December 31,  1997,  is $15 million  (see Note B to the  Consolidated  Financial
Statements at Item 8 for further discussion).




                                       25
<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 products and distribution  system are
described at Item 1.2 -  Reinsurance.  The table below shows premium  production
for TIG Re by business unit:

                                              Years Ended December 31,
                                      ---------------------------------------
(In millions)                             1997        1996           1995
=============================================================================
Specialty casualty                       $207         $340           $429
Traditional treaty                        106           63             30
Reverse flow                               79           66             17
London branch & Syndicate 1218             77           29             24
Specialty property                         48           50             54
Finite                                     31           21              -
Facultative                                23            -              -
Other                                    (56)          (21)           (43)
-----------------------------------------------------------------------------
      Net premium written                $515         $548           $511
      Gross premium written              $591         $576           $587
-----------------------------------------------------------------------------
      Retention ratio                    87.1%        95.1%          87.1%
=============================================================================

Growth in gross premium  written was 3%, (2%),  and 12% in 1997,  1996 and 1995,
respectively,  in comparison to the  corresponding  prior year.  The increase in
gross  premium  written  in 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.

Competitive market conditions continued to intensify in 1997,  especially in TIG
Re's core Specialty Casualty market.  Reunderwriting  initiatives  instituted by
TIG Re in response  to soft  market  conditions  and  re-evaluations  of current
treaty profitability  resulted in non-renewal or reduced  participation in three
significant Specialty Casualty programs.  In addition,  one Reverse Flow program
was canceled with an effective date of January 1, 1998. Gross premium related to
these four programs was $33 million, $106 million and $100 million in 1997, 1996
and 1995 respectively.

TIG Re's focus on development of new  distribution  channels  resulted in modest
gross premium written growth in 1997. New business comprised $190 million,  $135
million  and $118  million,  of net  premium  written  in 1997,  1996 and  1995,
respectively.  The majority of new business is  attributable  to  production  in
marketing segments  established during the past several years such as the London
Branch,  Lloyd's Syndicate 1218, Reverse Flow, Finite and Facultative.  However,
management  believes that competitive  market  conditions will continue and that
TIG Re's gross premium written may be lower in 1998 than 1997.




                                       26
<PAGE>



                                     PART II

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

The 8.0 percentage  point decrease in the retention ratio in 1997 as compared to
1996 is principally attributable to increased premium ceded under aggregate stop
loss  reinsurance  treaties.  Other net premium  written is reduced by aggregate
stop loss  reinsurance  premium  cessions not  applicable  to a specific line of
business  (see Item 7.6  Exposure  Management).  For 1995,  aggregate  stop loss
premium  of  $43  million  was  ceded  by  TIG  Re to  TIG  Insurance  under  an
inter-company  aggregate  stop  loss  reinsurance  treaty  similar  to  external
reinsurance  coverage purchased by TIG Re in 1996 and 1997. Premium ceded by TIG
Re under the 1995 inter-company reinsurance treaty is reflected in the gross and
net premium of Other Lines. The retention ratio increased 8.0 percentage  points
in 1996 as  compared  to 1995 due to a decline in  aggregate  stop loss  premium
cessions and the change in structure of one large program to assuming premium on
a net written basis instead of a gross written basis.

Underwriting Results. The following table summarizes TIG Re's underwriting
results:

                                             Years Ended December 31,
                                    ------------------------------------------
(In millions)                           1997          1996          1995
==============================================================================
Net premium earned                      $516          $534          $483
Less:
   Net loss and LAE incurred             506           386           361
   Commission expense                    134           136           116
   Premium related expense                 2             1             1
   Other underwriting expense             37            25            22
------------------------------------------------------------------------------
Underwriting loss                      ($163)         ($14)         ($17)
------------------------------------------------------------------------------

Statutory ratios:
------------------------------------------------------------------------------
Loss and LAE                            98.0          72.3          74.6
Commission expense                      25.5          25.3          24.5
Other underwriting expense               8.6           4.9           4.5
------------------------------------------------------------------------------
Combined ratio                         132.1         102.5         103.6
==============================================================================

TIG Re  strengthened  reserves  for  current  and prior  accident  years by $145
million in December 1997 based on actuarial evaluations as of September 30, 1997
(see Item 1.6 -  Reserves).  The  reserve  increase  was net of $40  million  of
reinsurance  benefit,  under the  aforementioned  1995 intercompany  reinsurance
treaty.  Losses ceded by TIG Re under the 1995 reinsurance  treaty are reflected
in Other Lines loss and LAE incurred.

The $12  million  increase  in 1997  other  underwriting  expense  over  1996 is
principally  attributable to start-up costs associated with the Facultative unit
which was  formed in late  1996.  For 1997 the  Facultative  unit  produced  $13
million of earned premium;  however,  operating expenses increased by $7 million
and  underwriting  loss  increased  by $5 million in 1997 as  compared  to 1996.
Management  anticipates  that this new initiative will continue to operate at an
underwriting  loss  through 1998 while both the volume and number of sources for
business are expanded.

The  improvement  in TIG Re's  underwriting  results in 1996 as compared to 1995
reflected management's  expectations regarding the selection of clients/programs
that would produce satisfactory returns and the impact of reduced  participation
in under-performing  treaties.  There were some upward changes in commission and
brokerage  rates,  but most casualty  accounts  were renewed at expiring  terms.
Underwriting  expenses  increased  during  1996,  principally  due to  operating
expenses of $2 million incurred in connection with the aforementioned  formation
of the Facultative unit.




                                       27
<PAGE>



                                     PART II

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

Premium.  Commercial Specialty provides  specialized  insurance products through
six main  business  units:  Workers'  Compensation,  Sports &  Leisure,  Primary
Casualty, Lloyd's Syndicates,  Excess Casualty and Special Risk Operations. Most
Commercial Specialty units are based in Irving,  Texas. 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)                           1997          1996          1995
==============================================================================
Workers' Compensation                   $287          $199          $222
Sports and Leisure                       183           169           170
Primary Casualty                          94            68            31
Excess Casualty and SRO                   37            21            23
Lloyd's Syndicates                        29             -             -
Other                                    (42)          (17)          (12)
------------------------------------------------------------------------------
    Net premium written                 $588          $440          $434
    Gross premium written               $792          $605          $574
------------------------------------------------------------------------------
    Retention ratio                     74.2%         72.7%         75.6%
==============================================================================

Commercial Specialty net premium written increased 34% in 1997 compared to 1996.
This increase was  primarily  derived from  increases in Workers'  Compensation,
Primary Casualty, and the new Lloyd's Syndicates, with marginal growth in Sports
and Leisure. The growth in Workers' Compensation was driven by the assumption of
an existing book of program  business.  TIG will directly write this business in
1998 and has entered into a strategic  relationship with the GA that writes this
business to also  provide  loss  management  services to TIG.  Growth in Primary
Casualty  comes  from new  programs  in  Construction,  Marine and  Energy,  and
Professional  lines.  The increases  noted for Lloyd's  Syndicates is due to the
acquisition of a majority  interest in a Lloyd's managing agency as described at
Item  1.3  -  Commercial   Specialty.   Other  net  premium  written  represents
allocations  of  corporate  aggregate  stop loss  coverage not  applicable  to a
specific business unit (see Item 7.6 - Exposure Management).

Total  Commercial  Specialty  net  premium  written for 1996  approximated  1995
production  levels.  Declining  Workers'  Compensation  premium  in 1996  offset
premium   growth  in  the  Primary   Casualty  unit.  The  decline  in  Workers'
Compensation  premium in 1996 was due to  reforms  enacted by a number of states
which intensified  competitive market conditions  nationwide.  Growth in Primary
Casualty and Excess  Casualty net premium  written since 1995 is attributable to
TIG's marketing focus on the development of program business  through  strategic
GA relationships  and expansion of existing programs in 1996. Sports and Leisure
premium  production was flat in 1996 compared to 1995 due to the loss of several
large accounts.



                                       28
<PAGE>



                                     PART II

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

Underwriting Results.  The table below presents underwriting results for 
Commercial Specialty operations:

                                                  Years Ended December 31,
                                             ---------------------------------
(In millions)                                    1997      1996       1995
==============================================================================
Net premium earned                               $496      $416       $419
Less:
   Net loss and LAE incurred                      319       288        295
   Commission expense                              98        80         73
   Premium related expense                         19        18         20
   Other underwriting expense                      45        33         19
   Policyholder dividends                          14         2         14
------------------------------------------------------------------------------
Underwriting gain (loss)                           $1       ($5)       ($2)
------------------------------------------------------------------------------

Statutory ratios:
------------------------------------------------------------------------------
Loss and LAE                                      64.4       68.9      70.6
Commission expense                                19.8       18.9      17.2
Premium related expense                            3.5        4.1       4.8
Other underwriting expense                         8.6        7.3       4.6
Policyholder dividends                             2.1        3.3       6.3
------------------------------------------------------------------------------
Combined ratio                                    98.4      102.5     103.5
==============================================================================

Commercial Specialty's underwriting results improved $6 million in 1997 compared
to 1996. The  improvement is primarily  derived from continued  favorable  prior
year loss reserve development in Workers'  Compensation as discussed at Item 1.6
- Reserves.  Also  contributing to the improvement are generally  improving loss
trends in Workers'  Compensation,  including favorable  involuntary  results, as
more states  enact  workers'  compensation  reforms.  Partially  offsetting  the
favorable  loss  reserve  development  and loss  trends is an  increase in other
underwriting  expenses  as a result of  additional  staff  costs  related to the
startup of various Commercial Specialty programs.

Commercial  Specialty's  underwriting  results  deteriorated  $3 million in 1996
compared to 1995. This  deterioration  is attributable to advertising  costs and
additional  staff costs related to the startup of various  Commercial  Specialty
programs and a decrease in servicing  carrier  fees  received for  administering
certain involuntary pools.  Partially offsetting this deterioration was a slight
improvement in loss trends, principally in Workers' Compensation.

The statutory  commission  expense ratio increased 0.9 percentage points in 1997
and 1.7 percentage points in 1996 as compared to the  corresponding  prior year.
The 1997 increase is primarily  attributable  to increased  corporate  aggregate
stop loss cessions which do not carry a ceding commission.  The 1996 increase in
commission  rates reflects the increasing  volume of program  business  produced
through GAs.  This business  carries a higher  commission  structure  since most
underwriting costs are covered by the GAs' commission.

Policyholder dividends have fluctuated significantly in the 1995 to 1997 period.
The increase in 1997 is due to an increase in premium written on a participating
basis from $62  million  in 1996 to $97  million  in 1997.  The  decline in 1996
compared  to 1995 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.  The  fluctuating   policyholder   dividends  amounts  do  not
significantly  impact net  underwriting  results as  participating  policies are
generally structured with higher premium rates than non-participating policies.



                                       29
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
7.4  RETAIL
--------------------------------------------------------------------------------

Sale  of  Independent   Agents  Business  Unit.  As  discussed  at  Item  7.1  -
Consolidated Results and Note C to the Consolidated Financial Statements at Item
8,  Retail's  Independent  Agents  business  unit was sold and all business 100%
reinsured effective December 31, 1997. As net premium written and earned for the
Independent  Agents' unit will be zero for 1998,  results for Independent Agents
and Custom Markets,  Retail's remaining  business unit, are analyzed  separately
below.

Premium.  TIG's Retail marketing strategy and distribution  system are described
at Item 1.4 - Retail.  The table  below  presents  premium  production  by major
product for Custom Markets and Independent Agents:

                                           Years Ended December 31,
                                     ------------------------------------
(In millions)                          1997        1996         1995
=========================================================================

Custom Markets
   Non-standard automobile              $86         $38          $36
   Alternative Distribution              36           1            -
   Hawaii                                57          53           50
   Small Business                        12          11            7
   Other                                 (9)         (4)          (2)
-------------------------------------------------------------------------
       Total Custom Markets             182          99           91
-------------------------------------------------------------------------

Independent Agents
   Standard & preferred automobile      128         217          166
   Standard & preferred homeowners       29          54           93
   Other                                 (2)         (9)          (8)
-------------------------------------------------------------------------
       Total Independent Agents         155         262          251
-------------------------------------------------------------------------
       Net premium written             $337        $361         $342
       Gross premium written           $497        $412         $388
-------------------------------------------------------------------------
       Retention ratio                 67.8%       87.6%        88.1%
=========================================================================

Custom Markets net premium  written  increased by 84% and 9% in 1997 and 1996 as
compared  to the  corresponding  prior year  principally  due to  expansion  and
development of new Non-standard Auto and Alternative Distribution Programs.

Independent  Agents net premium written decreased by approximately  $107 million
or 41% in 1997 from 1996 due to the cession of $94  million of unearned  premium
reserves to a Nationwide subsidiary on December 31, 1997 (see above).  Excluding
the unearned  premium cession and increased  allocations of corporate  aggregate
stop loss  reinsurance  premium,  Independent  Agents 1997 net  premium  written
approximated 1996. The lack of premium growth in 1997 is primarily the result of
TIG re-evaluating its relationship with certain agents in first quarter 1997 and
identifying  underperforming business for future non-renewal.  Business targeted
for non-renewal comprised $90 million and $115 million of net premium written in
1997 and 1996, respectively.

Independent Agents business increased by approximately $11 million or 4% in 1996
from 1995. Standard automobile premium increased by $51 million or 31% primarily
as  a  result  of  expansion  in  target  markets  (Michigan,   California,  and
Connecticut).  Growth in  automobile  premium  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).



                                       30
<PAGE>



                                     PART II

-------------------------------------------------------------------------------
Underwriting Results.  The following table summarizes underwriting results for 
the Custom Markets business unit:



Custom Markets                                       Years Ended December 31,
                                               ---------------------------------
(In millions)                                    1997       1996        1995
================================================================================
Net premium earned                               $155        $95         $68
Less:
   Net loss and LAE incurred                      106         55          44
   Commission expense                              31         18          14
   Premium related expense                          9          4           6
   Other underwriting expense                      22         12           9
--------------------------------------------------------------------------------
Underwriting gain (loss)                         ($13)        $6         ($5)
--------------------------------------------------------------------------------

Statutory ratios:
--------------------------------------------------------------------------------
Loss and LAE                                      68.2       58.0        65.7
Commission expense                                19.5       18.8        19.2
Premium related expense                            5.7        4.3         6.7
Other underwriting expense                        13.2       12.5        10.5
--------------------------------------------------------------------------------
Combined ratio                                   106.6       93.6       102.1
================================================================================

Custom markets underwriting loss increased by $19 million in 1997 as compared to
1996,  principally  as a  result  of  program  start up  costs  incurred  in the
Alternative  Distribution unit which began operations in late 1996. This unit is
focused on the development of strategic  alternative  distribution  channels and
additional  start-up costs are anticipated for 1998. The underwriting  loss from
Alternative  Distribution  was $14 million for 1997.  The remaining  increase in
underwriting loss resulted from lower profitability for the Hawaii unit in 1997,
as the Hawaii unit benefited from favorable loss experience in 1996.

Custom Markets  underwriting loss improved $11 million in 1996 compared to 1995,
principally  due to favorable  loss  experience in the Hawaii unit in 1996,  and
improved results in the non-standard auto unit.

The following table summarizes  underwriting  results for the Independent Agents
business unit:

Independent Agents                                   Years Ended December 31,
                                               ---------------------------------
(In millions)                                       1997      1996       1995
================================================================================
Net premium earned                                  $263      $255       $255
Less:
   Net loss and LAE incurred                         186       198        194
   Commission expense                                 37        36         37
   Premium related expense                             8        13          9
   Other underwriting expense                          9        19         17
--------------------------------------------------------------------------------
Underwriting gain (loss)                             $23      ($11)       ($2)
--------------------------------------------------------------------------------

Statutory ratios:
--------------------------------------------------------------------------------
Loss and LAE                                        70.8      77.4        75.5
Commission expense                                   6.9      14.3        15.1
Premium related expense                              3.0       4.9         3.8
Other underwriting expense                           5.0       7.8         6.9
--------------------------------------------------------------------------------
Combined ratio                                      85.7     104.4       101.3
================================================================================



                                       31
<PAGE>



                                     PART II

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

Independent  Agents  underwriting  results  improved by $34 million in 1997 over
1996. The principal  components of the improvement  include reduced  catastrophe
premium  costs of $8  million,  reduced  catastrophe  loss costs of $4  million,
favorable loss  experience  excluding  catastrophes of $10 million and favorable
adjustments of premium related and operating  expenses of $12 million  resulting
from procedures performed in connection with the 100% reinsurance of Independent
Agents  business.   The  decrease  in  statutory  expense  ratios  for  1997  is
principally  attributable  to ceding  commission  received  upon the  cession of
unearned  premium  reserves to  Nationwide  on December  31,  1997.  This ceding
commission had no impact on GAAP underwriting results as $19 million was applied
to the recovery of deferred policy  acquisition  costs and the remainder will be
recognized in income as the related premium is earned.

Independent  Agents  underwriting  loss increased $9 million in 1996 compared to
1995. The  deterioration is principally the result of increased loss and LAE and
premium related expenses.



                                       32
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
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)                             1997            1996           1995
================================================================================
Gross premium written                      $63            $331           $487
--------------------------------------------------------------------------------
Net premium written                        ($4)           $180           $323

Net premium earned                         $36            $239           $393
Less:
   Net loss and LAE incurred                34             211            282
   Commission expense                        2              33             55
   Premium related expense                   5              15             21
   Other underwriting expense                8              20             67
   Dividends to policyholders                -               1              1
--------------------------------------------------------------------------------
     Underwriting loss                    ($13)           ($41)          ($33)
================================================================================
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. These
efforts will continue in 1998 with gross premium written expected to continue to
decline.  Net  premium  written in 1997 is  negative  due to premium  receivable
write-offs and retro adjustments on certain policies.

Underwriting Results. As discussed at Item 1.6 - Reserves,  Other Lines incurred
net  losses  of $13  million  in 1997 as a result  of  intercompany  reinsurance
activated  by TIG Re reserve  strengthening  and, in 1996,  loss and LAE reserve
strengthening  of $31 million.  These  actions are the  principal  driver of the
underwriting  losses in each of those years.  The general  decline in commission
expense,  premium related expense,  and other underwriting expense is due to the
overall decline noted in premiums written, the elimination of overhead costs and
the first quarter 1996 accrual for contractual  policy  obligations as discussed
in Note B to the Consolidated Financial Statements at Item 8.



                                       33
<PAGE>
                                     PART II

--------------------------------------------------------------------------------
7.6  EXPOSURE MANAGEMENT
--------------------------------------------------------------------------------

General  Reinsurance   Program.  For  primary  lines,  TIG  Insurance  purchases
reinsurance  to allow it to insure  larger risks while  controlling  exposure to
larger losses and catastrophes.  Each year, the primary  reinsurance  program is
modified based upon changes in business mix, coverage  availability and pricing.
Reinsurance  purchased may include treaty,  pro rata,  facultative and aggregate
stop loss coverages. TIG Insurance's ceding reinsurance agreements are generally
structured  on a treaty basis  whereby all risks  meeting  certain  criteria are
automatically  reinsured.  During 1997, the reinsurance  purchasing function for
all primary  operating  divisions,  was  decentralized.  Authority is granted to
individual  business units regarding  treaty and facultative  placements  adding
flexibility to TIG Insurance's reinsurance program;  however,  minimum retention
limits were not significantly changed in 1997.

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 1997.

The priorities in both TIG  Insurance's  and TIG Re's  reinsurance  programs 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, 1997 and 1996,  TIG had an allowance of $6 million for  potentially
unrecoverable  reinsurance.  TIG's  largest  non-affiliated  reinsurers  are  as
follows:
<TABLE>
<CAPTION>

                                                                       Reinsurance Recoverable
                                                                           at December 31,               Best's
                                                                  ----------------------------------
(In millions)                                                           1997             1996          Rating (1)
----------------------------------------------------------------- ----------------- ---------------- ---------------
<S>                                                                     <C>               <C>             <C> 
Centre Reinsurance Company of New York                                  $198              $88              A
TIG Countrywide Insurance Co. (a Nationwide company)                     174                -             (3)
American Reinsurance Company                                             167              174              A+
Underwriters Reinsurance Company                                         122              107              A+
London Life & Casualty Reinsurance Corp.                                  96               17              A
General Reinsurance Corporation                                           93               93              A++
Hanover Ruckversicherung(2)                                                6               99              A+
All others                                                               673              686
----------------------------------------------------------------- ----------------- ---------------- ---------------
Total reinsurance recoverable                                         $1,529           $1,264
----------------------------------------------------------------- ----------------- ---------------- ---------------
<FN>
      1) The ratings are taken from the Best's Key Rating  Guide,  1997 Edition.
      2) Principal treaty commuted in late 1997.
      3) No  independent  A.M.  Best rating has been assigned due to the sale of
         this  company on  December  31,  1997 to  Nationwide  Mutual  Insurance
         Company.
</FN>
</TABLE>

                                       34
<PAGE>



                                     PART II
--------------------------------------------------------------------------------

Reinsurance  recoverable  increased  by  $265  million  or 21% in  1997  as
compared to 1996. The 100% reinsurance of Independent  Agents business (see Item
7.1 - Consolidated  Results and Note C to the Consolidated  Financial Statements
at Item 8) accounted for $174 million of the increase. The remaining increase is
principally  attributable to increases in recoverables under aggregate stop loss
reinsurance treaties resulting from the reserve strengthening recorded by TIG Re
in 1997 (see Item 1.6 - Reserves).

Catastrophe  Reinsurance.  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  Insurance  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 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  Insurance's   catastrophe  reinsurance  program
provided for $170 million of gross  coverage in 1997,  and $250 million for 1996
and  1995.  After  consideration  of  reinsurance   reinstatement  premium,  TIG
Insurance  effectively  retained  approximately  95% of the first $50 million of
losses and 5% of losses in excess of $50 million for 1997,  1996,  and 1995.  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
through 1997.

Effective  January  1, 1998,  TIG  Insurance  elected to retain all  catastrophe
exposure  without the benefit of catastrophe  reinsurance.  Excluding the Retail
Independent  Agents  business,  which  was 100%  reinsured  by a  subsidiary  of
Nationwide  effective  December 31, 1997 (see Item 7.1 - Consolidated  Results),
TIG Insurance's  single largest  probable  maximum loss ("PML") is approximately
$36 million as of January 1, 1998. TIG Insurance monitors  geographical exposure
accumulations  and will  purchase  property  catastrophe  coverage  when certain
trigger  points  are  reached.  As  long as TIG  Insurance  continues  to  write
Independent  Agents  policies on a direct basis ceding 100% to  Nationwide  (see
Item 7.1 - Consolidated  Results), TIG Insurance will retain contingent exposure
for catastrophes impacting Independent Agents business.

No major  catastrophe  losses were  incurred by TIG in 1997 or 1996. 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  $5 million,  $15  million  and $34  million in 1997,  1996 and 1995,
respectively.  Total net catastrophe costs, including reinsurance  reinstatement
premium,  aggregated $5 million,  $11 million and $24 million in 1997,  1996 and
1995, respectively.

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.



                                       35
<PAGE>


                                     PART II

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

Aggregate  Stop  Loss  Reinsurance.  Both  TIG  Insurance  and  TIG Re  purchase
aggregate stop loss reinsurance to protect against  unanticipated  exposures not
considered in other  reinsurance  coverages.  In addition,  aggregate  stop loss
coverage  can be utilized to cover  exposure  to large  deductibles  under other
reinsurance  treaties,   especially  catastrophe  treaties,  and  mitigate  risk
inherent in a changing book of business.  TIG's aggregate stop loss  reinsurance
treaties generally provide excess of loss protection on all business written for
losses  incurred  in excess of a specified  loss  retention  ratio  ("attachment
point").  Stop loss reinsurance is "umbrella" protection which is utilized after
all other specific reinsurance coverages have been exhausted.

TIG has consistently  maintained aggregate stop loss protection in various forms
since 1994.  Coverages provide benefit of 70% to 100% of losses in excess of the
attachment point. Premium cessions are generally made on a funds withheld basis.
Funds  withheld  balances  generally bear interest at rates of 7.0% to 8.5% (see
Item 7.7  Investments).  At December 31, 1997 and 1996, funds withheld  balances
related to aggregate stop loss reinsurance  contracts were $264 million and $210
million, respectively,  while related reinsurance recoverable balances were $466
million and $305 million, respectively.


                                       36
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                                     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,
                                  ----------------------------------------------
                                          1997                     1996
                                  ----------------------- ----------------------
                                                 % of                    % of
                                     Market      Market     Market       Market
(In millions)                        Value     Portfolio     Value     Portfolio
================================= =========== =========== =========== ==========

Corporate and other bonds           $1,282        30.6%     $1,242        29.3%
United States government bonds       1,014        24.2       1,070        25.3
Mortgage-backed securities             941        22.4       1,210        28.6
Municipal bonds                        637        15.2         535        12.6
--------------------------------- ----------- ----------- ----------- ----------
Total fixed maturity investments     3,874        92.4       4,057        95.8
Short-term and other investments       318         7.6         176         4.2
--------------------------------- ----------- ----------- ----------- ----------
Total invested assets               $4,192       100.0%     $4,233       100.0%
================================= =========== =========== =========== ==========

In 1997,  TIG reduced its investment in  mortgage-backed  securities in favor of
tax-preferred municipal bonds and short-term investments.  As a result, the book
yield of the portfolio  decreased  slightly to 7.4% for the year ended  December
31,  1997  from 7.5% for the year  ended  December  31,  1996.  Invested  assets
declined by $41 million at  December  31, 1997 as compared to December  31, 1996
due to  repurchases  of  treasury  stock  (see Item 7.8  Liquidity  and  Capital
Resources)  and the  transfer  of funds  related to the sale of the  Independent
Agents book of business (see Item 7.1 - Consolidated Results).  These reductions
were partially offset by proceeds from the issuance of $125 million in mandatory
redeemable  capital  securities and an increase in unrealized gains as discussed
below.

Approximately   one-fourth  of  TIG's  portfolio   consists  of  mortgage-backed
securities  ("MBS").  United States federal  government  and  government  agency
mortgages now represent approximately 82% of TIG's exposure to MBS, offering AAA
credit  quality.  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,  depending 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.


                                       37
<PAGE>



                                     PART II

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

Derivatives/Hedges.  In the normal  course of business,  TIG may choose to hedge
some of its  interest  rate risk with futures  contracts  and/or  interest  rate
swaps.  Alternatively,  derivative financial instruments may also be utilized to
enhance  prospective  returns.  TIG's interest rate swap arrangements  generally
provide that one party pays interest at a floating rate in relation to movements
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 nonperformance by the other party,
nonperformance   is  not   anticipated   due  to  the   credit   rating  of  the
counterparties. No futures contract positions were open at December 31, 1997, or
December 31, 1996.  There were $14 million notional face amount of interest rate
swaps at December 31, 1997, unchanged from December 31, 1996. All TIG derivative
financial instruments were with financial  institutions rated A or better by one
or more of the major credit rating  agencies.  Total  derivative  positions were
approximately  $94 million  par value,  $78 million  fair value,  and  represent
approximately  1.8% of the  total  consolidated  investment  asset  holdings  at
December 31, 1997.

Investments  in  TBA's.  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  short-term
investments  with a  fair  value  exceeding  the  amount  of  its  TBA  purchase
commitments.  At December 31, 1997, the TBA purchase commitments amounted to $24
million, and had a fair value of $26 million, compared to TBA commitments of $46
million with a fair value of $46 million at December 31, 1996.

Investment  Life and  Duration.  TIG's  objective  is to maintain  the  weighted
average  life  of its  investment  portfolio  between  8 and 11  years  and  the
weighted-average  duration  between 4 and 7 years.  At December  31,  1997,  the
weighted average life of TIG's  investment  portfolio was 10.7 years compared to
10.3 years at December 31, 1996.  At December  31,  1997,  the weighted  average
duration of TIG's  investment  portfolio was 5.4 years  compared to 5.6 years at
December 31, 1996.

Unrealized gains. The unrealized gain on investments increased by $70 million on
a pre-tax  basis  during  1997.  The  following  is a summary of net  unrealized
gains/losses by type of security:

                                                December 31,
                                            --------------------------------
(In millions)                                 1997       1996      Change
============================================================================
Municipal bonds                               $41         $33         $8
Mortgage-backed securities                      8         (9)         17
United States government bonds                 73          32         41
Corporate bonds and other                      29          25          4
----------------------------------------------------------------------------
     Net unrealized gains                    $151         $81        $70
----------------------------------------------------------------------------
     Net unrealized gains, net of tax         $98         $52        $46
============================================================================


                                       38
<PAGE>



                                     PART II

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

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.  Increased  interest  expense on funds  withheld is
expected for 1998 as a result of the  utilization  of corporate  aggregate  stop
loss reinsurance treaties in 1997 (see Item 7.6 - Exposure Management).

                                                  Years Ended December 31,
                                              ----------------------------------
(In millions)                                    1997       1996         1995
================================================================================
Fixed maturity investments:
   Taxable                                       $264       $264         $213
   Tax-exempt                                      33         34           60
Short-term and other investments                    8          6            7
--------------------------------------------------------------------------------
Total gross investment income                     305        304          280
Investment expenses                                (3)        (3)          (2)
Interest expense on funds withheld and other      (12)       (11)         (10)
--------------------------------------------------------------------------------
Total net investment income                      $290       $290         $268
--------------------------------------------------------------------------------
After-tax net investment yield                    4.80%     4.61%        4.49%
================================================================================

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



                                                      December 31,
                                    --------------------------------------------
Standard & Poor's/Moody's                  1997                   1996
================================================================================
                                                % of                   % of
                                      Market    Market      Market     Market
(In millions)                         Value    Portfolio    Value     Portfolio
----------------------------------- --------- ----------- --------- ------------
 AAA/Aaa                             $2,541      65.6%     $2,787       68.7%
 AA/Aa                                  261       6.7%        194        4.8%
 A/A                                    209       5.4%        329        8.1%
 BBB/Baa                                220       5.7%        232        5.7%
 Below BBB/Baa                          643      16.6%        515       12.7%
----------------------------------- --------- ----------- -------- -------------
 Total fixed maturity investments    $3,874     100.0%     $4,057      100.0%
================================================================================

TIG  minimizes  the credit risk of its fixed  maturity  portfolio  by  investing
primarily in investment grade securities; however, management has authorized the
purchase of high yield,  less than investment  grade  securities up to statutory
limitations.  The  Company's  high yield  portfolio  is comprised of bonds whose
issuers  are  subjected  to  rigorous  credit   analysis,   including  tests  of
prospective  profitability,  liquidity,  leverage,  and interest coverage.  This
analysis is updated regularly as financial  results are released,  and bonds are
constantly evaluated for their value.

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  Service  or Moody's  Investor  Services,  Inc.  Where
neither  Standard & Poor's nor  Moody's  has  assigned a rating to a  particular
fixed maturity issue, classification is based on 1) ratings available from other
recognized rating services,  2) ratings assigned by the National  Association of
Insurance  Commissioner's  Securities  Valuation  Office (the  "SVO"),  or 3) an
internal  assessment of the  characteristics of the individual  security,  if no
other rating is available.


                                       39
<PAGE>


                                     PART II

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

The SVO assigns bond ratings for most publicly  held bonds.  The SVO ratings are
used by insurers when preparing  their annual  statutory  financial  statements.
State  departments  of  insurance  use the bond rating data when  attempting  to
determine whether an insurer's  holdings are sound.  Investments must fit within
certain regulatory  guidelines of an insurer's domiciliary state in order for an
insurer to be licensed to do business in that state.  The SVO ratings range from
"1" to "6", with "1" and "2" being higher quality,  "3" being medium grade,  and
"4" through "6" being lower grade obligations. As of December 31, 1997 and 1996,
approximately  84% and 87%,  respectively,  of TIG's  portfolio,  measured  on a
statutory carrying value basis, was invested in securities rated as "1" or "2".


                                       40
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
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,  policyholder dividends, and interest
expense. 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,
operating expenses, policyholder dividends, and interest expense.

Cash Flow From Operating  Activities.  The following  table  summarizes the
significant components of cash flow from operations:

                                              Years Ended December 31,
                                     -------------------------------------------
(In millions)                           1997           1996            1995
================================================================================
Reinsurance operations                  $119           $161            $209
Primary operations and corporate          74             36              79
--------------------------------------------------------------------------------
Ongoing operations                       193            197             288
Other Lines operations                  (181)          (199)           (141)
--------------------------------------------------------------------------------
Total                                    $12            ($2)           $147
================================================================================

The  reduction  in  Reinsurance  operations  cash  flow in both 1997 and 1996 is
primarily  attributable to slowing premium production as a result of soft market
conditions,  the non-renewal or reduced participation on several large accounts,
and an increase in paid losses. The increase in paid losses is due to a shift in
business mix to lines with relatively shorter loss payout patterns and increased
paid loss  trends  on  accounts  that  have  subsequently  been  non-renewed  or
participations  reduced.  Reinsurance  operating  cash flow was also reduced $11
million in 1996 due to the commutation of one treaty.

The  increase in Primary  and  corporate  cash flow in 1997 is due to  increased
premium  receipts  and lower  paid  losses,  and  improvements  in the timing of
premium receivable and reinsurance recoverable collections. These increases were
partially  offset by  increased  payments  for taxes and an  increase in general
operating  expenses,  including  debt  interest.  In  addition,  the  cession of
Independent  Agents  unearned  premium  reserves  (see  Item 7.1 -  Consolidated
Results)  reduced primary  operations cash flow by $29 million.  The decrease in
1996 cash flow is  attributable to a general shift in business mix to lines with
generally shorter loss payout patterns and the timing of premium  receivable and
reinsurance recoverable collections.

Other Lines  operations  negative  cash flow  improved in 1997 compared to 1996.
This  improvement is principally  driven by a reduction in paid losses and other
operating  expenses partially offset by the planned decline in premium writings.
In  addition,  Other  Lines  operations  cash flow for 1997 was reduced by a $40
million tax deposit (see Item 3 - Legal  Proceedings) which was partially offset
by $26 million in funds  received in commutation  of a reinsurance  treaty.  The
increase  in  negative  cash  flow  for 1996 as  compared  to 1995 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.


                                       41
<PAGE>

                                     PART II

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

Investment  Liquidity.  At December 31, 1997, TIG had $308 million in short-term
investments  compared to $139 million at December 31, 1996.  In addition,  as of
December 31, 1997, TIG expects to realize $968 million,  $502 million,  and $390
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 $39
million as of December 31, 1997.

Notes  Payable.  In December 1995 as amended and restated in 1997,  TIG Holdings
established  an unsecured  revolving  line of credit with maximum  borrowings of
$250  million.  At December 31, 1997 and 1996,  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  $24  million  and  $25  million  was
outstanding  as of December 31, 1997 and 1996,  respectively.  The facility is a
direct  financing  arrangement  with a  third  party  related  to the  sale  and
leaseback of certain fixed assets. Interest of $1.6 million and $1.4 million was
paid on this facility in 1997 and 1996.

In addition,  TIG Holdings had $98 million of 8.125% notes  payable  maturing in
2005 outstanding at December 31, 1997 and 1996.  Interest of $8 million was paid
in both 1997 and 1996 on these notes.

In January 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% mandatory redeemable 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  are being used for general
corporate  purposes which includes,  repurchases of TIG Holding's  common stock.
Interest of $4.9 million was paid on the debentures in 1997.

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.  TIG
Holdings  received  cash  dividends  of $145  million and $130  million from its
insurance subsidiaries in 1997 and 1996, respectively.  As of December 31, 1997,
$180 million of dividends  is  currently  available  for payment to TIG Holdings
from its insurance  subsidiaries during 1998 without restriction (see Item 1.7 -
Regulation).  In December 1997, TIG Holdings  contributed $70 million in captial
to TIG Insurance which will be paid in early 1998.


                                       42
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
7.9 FINANCIAL CONDITION
--------------------------------------------------------------------------------

Key balance sheet data is presented below:

                                                     Years Ended December 31,
                                                 -------------------------------
(In millions)                                      1997      1996        1995
================================================================================
Investments (See Item 7.7)                       $4,192    $4,233      $4,550
Reinsurance recoverable (See Item 7.6)            1,529     1,264       1,221
Income tax asset (See Note G at Item 8)             140       102          60
Loss and loss expense reserves (See Item 1.6)     3,935     3,760       3,886
Shareholders' equity                              1,163     1,207       1,376

--------------------------------------------------------------------------------
Combined statutory surplus (see Note N at        $1,013      $975        $952
   Item 8)
Net premium written to statutory surplus ratio     1.4x      1.6x        1.7x   
================================================================================

Shareholders' Equity. Shareholders' equity decreased by $44 million during 1997,
primarily as a result of treasury  share  repurchases,  partially  offset by net
income,  issuance of common stock and an increase in net  unrealized  investment
gains  (see  Consolidated   Statements  of  Changes  in  Shareholders'  Equity).
Unrealized  investment  gains as of December  31, 1997 were $98 million  (net of
tax)  compared to $52 million as of December  31, 1996.  Although  shareholders'
equity  decreased,  book value per share  increased  from $22.41 at December 31,
1996 to $22.82 at December 31, 1997 due to a decrease in shares outstanding as a
result of the Company's ongoing share repurchase program.  Approximately 500,000
unallocated  Employee Stock Ownership shares have been excluded from outstanding
common shares for purposes of computing  book value per common share at December
31, 1997 and 1996, respectively.

As of December 31, 1997,  the TIG Holdings Board of Directors  authorized  stock
repurchases  of up to 18.75 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, 1997,
repurchases  of 15.6  million  shares of stock have been made at an average cost
per share of $28.43, for an aggregate cost of $443 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, 1997, TIG's net premium-to-surplus ratio
was 1.4,  higher  than the  industry  average of 1.0,  but within an  acceptable
range.  Insurance  regulators  generally accept a ceiling for this ratio of 3.0;
therefore,  at its current  ratio,  TIG has the  capacity to grow by writing new
business in its targeted markets.

Ratings.  Both TIG  Insurance  (including  subsidiaries  which  cede 100% of net
premium  written to TIG  Insurance)  and TIG Re are rated "A"  ("Excellent")  by
Best.  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. An "A" rating is Best's third highest of 15 rating classifications.

TIG and  individual  insurance  company  members  of the TIG group have a claims
paying rating of "AA-" from Standard & Poor's Insurance Rating Services ("S&P").
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.

The Company's notes payable are rated "Baa1" by Moody's Investor Services, Inc.



                                       43
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
7.10  YEAR 2000
--------------------------------------------------------------------------------

TIG has conducted a review of its core processing  computer  systems to identify
and address all code changes, testing and implementation  procedures required to
make its systems Year 2000  compliant.  The Company has instituted a centralized
management   process  to   facilitate   the  necessary   changes,   testing  and
implementation procedures. Based upon the nature of TIG's business, TIG believes
that the  failure to make its  systems  Year 2000  compliant  could  result in a
material  disruption  of its  operations  commencing  at the  end of the  fourth
quarter of 1998.

Although TIG has not determined the aggregate costs to be incurred in making the
necessary modifications to its systems for Year 2000 compatibility, TIG does not
expect amounts  expensed for Year 2000 projects to be significant to its results
of  operations.  TIG expects the  necessary  modifications  of its systems to be
completed by the end of 1998.

In addition, TIG, has initiated procedures to identify key suppliers, producers,
customers and facilities  (e.g.  telephone and electric  systems) with potential
Year  2000  issues.   Currently,  TIG  does  not  have  substantive  information
concerning the compliance  status of such entities.  Further,  at this time, TIG
does not have enough  information  to  determine  the impact on TIG in the event
that one or more of such  entities  are unable to make their  systems  Year 2000
compliant.


                                       44
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
7.11  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 based on management's projections,  estimates and
assumptions  are  forward-looking  statements.  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:

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

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

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

     *   regulatory and legislative  changes which could increase the Company's
         overhead costs,  increase federal and state tax  assessments,  restrict
         access to profitable  markets or force  participation  in  unprofitable
         markets;

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

     *   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;

     *   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 and

     *   loss of key management  personnel  which could impact the  development
         and  execution  of the  Company's  business  strategy  and  impact  key
         customer and vendor relationships.

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.


                                       45
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
7.12  GLOSSARY
--------------------------------------------------------------------------------

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

Aggregate Stop Loss Reinsurance:  A form of reinsurance that generally  provides
protection on all business or a specified portion of business for losses and LAE
incurred in excess of a specified loss retention ratio. This form of reinsurance
is often used as "umbrella" protection that is utilized after all other specific
reinsurance coverages have been exhausted.

Bordereaux:  A detailed  report of reinsurance  premiums or  reinsurance  losses
furnished  periodically by the reinsured.  A loss bordereaux 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 thereto.

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.

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 $25 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.


                                       46
<PAGE>



                                     PART II

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

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.

General  Agent:  A licensed  property-casualty  broker-agent  who  under  the
terms of a written  contract with an insurer  manages the  transaction of one or
more classes of insurance  written by the insurer and generally has the power to
1) appoint, supervise, and terminate local agents, 2) accept or  decline  risks 
and 3) collect premium moneys from producing broker-agents or  from the insured.


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
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.

Independent Agent: A licensed property-casualty agent who usually represents two
or more  insurance  companies  in a sales and  service  capacity  typically  for
personal lines  homeowners and automobile  coverages and is paid on a commission
basis.

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.



                                       47
<PAGE>



                                     PART II

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

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
GAs.

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.

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.



                                       48
<PAGE>



                                     PART II

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

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 reinsurers.  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.



                                       49
<PAGE>



                                     PART II

--------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------------------------------

                                                                           Page

Report of Independent Auditors..............................................51

Consolidated Balance Sheets at December 31, 1997 and 1996...................52

Consolidated Statements of Income for each of the three years
in the period ended December 31, 1997 ......................................53

Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997.......................................54

Consolidated Statements of Changes in Shareholders' Equity for 
each of the three years in the period ended December 31, 1997 ..............55

Notes to Consolidated Financial Statements..................................56


                                       50
<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,  1997 and 1996,  and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the three years in the period ended  December  31, 1997.  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, 1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, 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 30, 1998,
except for Note M, as to which the
date is February 12, 1998


                                       51
<PAGE>
                                     PART II
--------------------------------------------------------------------------------

                               TIG HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                        ---------------------------
    (In millions, except share data)                                                        1997           1996
    ==================================================================================== =========== ==============
    <S>                                                                                    <C>          <C> 
    Assets
          Investments:
                   Fixed  maturities,  at market  (cost:  $3,725 in 1997 and  $3,976 in    $3,874        $4,057
                     1996)
                   Short-term  and other  investments  (cost:  $316 in 1997 and $176 in       318           176
                     1996)
    ------------------------------------------------------------------------------------ ----------- --------------
                                 Total investments                                          4,192         4,233
          Cash                                                                                 18            19
          Accrued investment income                                                            56            57
          Premium receivable (net of allowance of $5 in 1997 and $4 in 1996)                  453           420
          Reinsurance recoverable on paid losses (net of allowance of $6 in 1997
               and 1996)                                                                      125           138
          Reinsurance recoverable on unpaid losses                                          1,404         1,126
          Deferred policy acquisition costs                                                   155           144
          Prepaid reinsurance premium                                                         177           105
          Income taxes                                                                        140           102
          Other assets                                                                        147           132
    ------------------------------------------------------------------------------------ ----------- --------------

                   Total assets                                                            $6,867        $6,476
    ------------------------------------------------------------------------------------ ----------- --------------

    Liabilities
           Reserves for:
                   Losses                                                                  $3,459        $3,215
                   Loss adjustment expenses                                                   476           545
                   Unearned premium                                                           738           696
    ------------------------------------------------------------------------------------ ----------- --------------
                                 Total reserves                                             4,673         4,456
           Reinsurance premium payable                                                         61            88
           Funds held under reinsurance agreements                                            319           255
           Notes payable                                                                      122           123
           Other liabilities                                                                  379           322
    ------------------------------------------------------------------------------------ ----------- --------------
           Total liabilities                                                                5,554         5,244
    ------------------------------------------------------------------------------------ ----------- --------------

    Mandatory redeemable 8.597% capital securities of subsidiary trust                        125             -

    Mandatory redeemable preferred stock                                                       25            25

    Shareholders' Equity
           Common stock - par value $0.01 per share
                   (authorized:  180,000,000 shares; issued and outstanding:
                     66,955,288 shares in 1997 and  64,610,109 shares in 1996)              1,257         1,198
           Class A convertible common stock - par value $0.01 per share
                    (authorized: 1,000,000 shares; issued and outstanding: none)                -             -
           Retained earnings                                                                  253           234
           Net unrealized gain on fixed maturity investments, net of taxes                     98            52
           Net unrealized loss on foreign exchange, net of taxes                              (2)            (1)
    ------------------------------------------------------------------------------------ ----------- --------------
                                                                                            1,606         1,483

           Treasury stock (15,597,021 shares in 1997 and 10,306,000 shares in 1996)         (443)          (276)
    ------------------------------------------------------------------------------------ ----------- --------------
                   Total shareholders' equity                                               1,163         1,207
    ------------------------------------------------------------------------------------ ----------- --------------

                   Total liabilities and shareholders' equity                              $6,867        $6,476
    ==================================================================================== =========== ==============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

                                       52
<PAGE>



                                     PART II

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

                               TIG HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                           -----------------------------------
       (In millions, except share data)                                       1997        1996        1995
      ==================================================================== =========== =========== ===========
       <S>                                                                   <C>          <C>        <C>   
       Revenues
              Net premium earned                                             $1,466      $1,539      $1,618
              Net investment income                                             290         290         268
              Net investment and other gain (loss)                                1          (4)       (11)
      -------------------------------------------------------------------- ----------- ----------- -----------
                      Total revenues                                          1,757       1,825       1,875
      -------------------------------------------------------------------- ----------- ----------- -----------

       Losses and expenses
              Net losses and loss adjustment expenses incurred                1,151       1,138       1,176
              Policy acquisition and other underwriting expenses                466         463         486
              Dividends to policyholders                                         14           3          15
              Corporate expenses                                                 44          37          37
              Interest expense on long-term debt                                 20           9           6
              Restructuring charges                                               -         100           -
      -------------------------------------------------------------------- ----------- ----------- -----------
                     Total losses and expenses                                1,695       1,750       1,720
      -------------------------------------------------------------------- ----------- ----------- -----------

              Income before income tax benefit (expense)                         62          75         155
              Income tax benefit (expense)                                      (10)          4        (37)
      -------------------------------------------------------------------- ----------- ----------- -----------

                      Net income                                                $52         $79        $118
      -------------------------------------------------------------------- ----------- ----------- -----------
       Net income per common share:
                      Basic                                                   $0.97       $1.36       $1.91
                      Diluted                                                 $0.94       $1.32       $1.90
      -------------------------------------------------------------------- ----------- ----------- -----------

       Dividends per common share                                             $0.60       $0.20       $0.20
      ==================================================================== =========== =========== ===========
<FN>
      See Notes to Consolidated Financial Statements.
</FN>
</TABLE>



                                       53
<PAGE>



                                     PART II

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

                               TIG HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                   Years Ended December 31,
                                                                           -----------------------------------------
      (In millions)                                                            1997          1996          1995
     ===================================================================== ============= ============= =============
      <S>                                                                    <C>            <C>          <C>   
      Operating Activities
             Net income                                                         $52           $79          $118
             Adjustments to reconcile net income to cash provided
                   by (used in) operating activities:
                   Changes in:
                                 Accrued investment income                        1            (1)           (5)
                                 Premium receivable                             (33)          (11)          (65)
                                 Reinsurance recoverable                       (265)          (43)           20
                                 Deferred policy acquisition costs              (11)            -            (7)
                                 Prepaid reinsurance premium                    (72)            6           (45)
                                 Income taxes                                   (62)          (11)           36
                                 Loss reserves                                  374           (73)           73
                                 Loss adjustment expense reserves               (44)          (53)          (60)
                                 Unearned premium reserves                       42           (16)           37
                                 Reinsurance premium payable                    (27)           19            15
                                 Funds held under reinsurance agreements         64           104            59
                                 Other assets and other liabilities              (9)          (26)          (46)
             Net investment and other (gain) loss                                (1)            4            11
             Other                                                                3            20             6
     --------------------------------------------------------------------- ------------- ------------- -------------
                                 Net cash provided by (used in)                  12            (2)          147
                                    operating activities
     --------------------------------------------------------------------- ------------- ------------- -------------

      Investing Activities
             Purchases of fixed maturity investments                         (2,884)       (1,920)       (2,035)
             Sales of fixed maturity investments                              2,822         1,907         1,655
             Maturities and calls of fixed maturity investments                 365           252           281
             Sales of agency subsidiaries                                         -             -            (8)
             Sale of Independent Agents business                               (120)            -             -
             Net increase in short-term investments                            (169)          (28)          (55)
             Other                                                               (6)           (5)          (36)
     --------------------------------------------------------------------- ------------- ------------- -------------
                                 Net cash provided by (used in)                   8           206          (198)
                                    investing activities
     --------------------------------------------------------------------- ------------- ------------- -------------

      Financing Activities
             Common stock issued                                                 42             9             2
             Income tax benefit from stock options exercised                     13             -             -
             Mandatory redeemable capital securities issued                     125             -             -
             Acquisition of treasury stock                                     (167)         (188)          (62)
             Common stock dividends                                             (31)          (11)          (12)
             Preferred stock dividends                                           (2)           (2)           (2)
             Increase (decrease) in notes payable                                (1)            3           120
     --------------------------------------------------------------------- ------------- ------------- -------------
                                 Net cash provided by (used in)                 (21)         (189)           46
                                    financing activities
     --------------------------------------------------------------------- ------------- ------------- -------------
             Increase (decrease) in cash                                         (1)           15            (5)
             Cash at beginning of period                                         19             4             9
     --------------------------------------------------------------------- ------------- ------------- -------------
                                 Cash at end of period                          $18           $19            $4
     ===================================================================== ============= ============= =============
<FN>
     See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


                                       54
<PAGE>



                                     PART II

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

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

<TABLE>
<CAPTION>

                                                                                  Years Ended December 31,
                                                                          -----------------------------------------
     (In millions)                                                            1997          1996          1995
    ===================================================================== ============= ============= =============
     <S>                                                                     <C>           <C>           <C>   
     Common Stock
            Balance at beginning of year                                     $1,198        $1,186        $1,181
                    Common stock issued                                          42             9             2
                     Income tax benefit from stock options exercised             13             -             -
                    Conversion of Class A common stock                            -             1             -
                    Amortization of unearned compensation                         4             2             3
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                            1,257         1,198         1,186
    --------------------------------------------------------------------- ------------- ------------- -------------
     Class A common stock
            Balance at beginning of year                                          -             1             1
                    Conversion of Class A common stock                            -            (1)            -
                    Common stock issued                                           -             -             -
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                                -             -             1
    --------------------------------------------------------------------- ------------- ------------- -------------
     Retained earnings
            Balance at beginning of year                                        234           168            64
                    Net income                                                   52            79           118
                    Common stock dividends                                     (31)          (11)          (12)
                    Preferred stock dividends                                   (2)           (2)           (2)
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                              253           234           168
    --------------------------------------------------------------------- ------------- ------------- -------------
     Net unrealized investment gain (loss)
            Balance at beginning of year                                         52           110         (177)
                    Change in unrealized gain (loss) on fixed maturity
                         investments                                             46          (58)           287
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                               98            52           110
    --------------------------------------------------------------------- ------------- ------------- -------------
     Foreign currency translation adjustments
            Balance at beginning of year                                        (1)           (1)           (1)
                    Net unrealized loss on foreign exchange                     (1)             -             -
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                              (2)           (1)           (1)
    --------------------------------------------------------------------- ------------- ------------- -------------
     Treasury stock
            Balance at beginning of year                                      (276)          (88)          (26)
                    Treasury stock purchased                                  (167)         (188)          (62)
    --------------------------------------------------------------------- ------------- ------------- -------------
            Balance at end of year                                            (443)         (276)          (88)
    --------------------------------------------------------------------- ------------- ------------- -------------
     Total shareholders' equity at end of year                               $1,163        $1,207        $1,376
    ===================================================================== ============= ============= =============
<FN>
      See Notes to Consolidated Financial Statements.
</FN>
</TABLE>



                                       55
<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 14 domestic  insurance  subsidiaries,  collectively
"TIG" or "the  Company".  Of  direct  premium  written  by TIG in 1997,  26% was
written in California,  9% in Michigan, 7% in Hawaii, and 6% each in Florida and
New York. 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 writes both pro rata and
excess of loss  coverages.  TIG Re provides 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.  TIG Re's primary strategy for excess of loss treaties is to take
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.  TIG Re's
predominant  source of  business  is  through  reinsurance  intermediaries.  Net
premium  written for the  Reinsurance  division  comprised  36%,  36% and 32% of
consolidated net premium written for the years ended December 31, 1997, 1996 and
1995, 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  primarily 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,  Workers'  Compensation,  which provides  liability  coverage to
employers for payment of employee  benefits  associated with employment  related
accidents  as  mandated  by  state  laws,  Primary  Casualty  which  focuses  on
commercial  auto,  professional  liability,  construction  and marine  programs,
Excess  Casualty  which offers lead  umbrella and excess  umbrella  policies and
participation in three Lloyd's of London syndicates  writing marine, UK property
and aviation business.  Commercial  Specialty products are principally  marketed
through large general agents,  with which TIG sometimes has exclusive  marketing
contracts.  Net premium written for the Commercial  Specialty division comprised
41%,  29% and 27% of  consolidated  net  premium  written  for the  years  ended
December 31, 1997, 1996 and 1995, 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  700  independent  agents and
through  strategic  relationships  with  general  agents  ("GAs")  and other key
distribution  partners.  Net premium written for the Retail  division  comprised
23%,  23% and 21% of  consolidated  net  premium  written  for the  years  ended
December  31,  1997,  1996  and  1995,  respectively.  (See  Note  C. - Sale  of
Independent Agents Business Unit).


                                       56
<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
1997 presentation.

Earnings per Share ("EPS"). In December 1997, TIG adopted Statement of Financial
Accounting  Standards  No. 128  "Earnings  Per Share",  which  established a new
calculation  of EPS. Prior period amounts have been restated to conform with the
new requirements. Basic earnings per share is calculated based upon the weighted
average common shares  outstanding during the period. In order to calculate EPS,
unallocated  Employee Stock  Ownership Plan ("ESOP")  shares and treasury shares
are deducted from the outstanding common shares. For diluted EPS, Class A common
stock and common  stock  options  (See Note K -  Incentive  Compensation  Plans)
increase  weighted  average  shares  outstanding  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.
The following schedule presents the calculation of Basic and Diluted EPS:

(In millions)                                    1997       1996     1995
=============================================  ========= ========= ========= 
Numerator:
  Net Income                                     $52        $79      $118
  Less:  Preferred stock dividends                 2          2         2
---------------------------------------------  --------- --------- ---------
  Income available to common
     stockholders                                $50        $77      $116
Denominator:
  Weighted average shares outstanding for 
     basic EPS                                   51.8       56.4      60.8
  Effect of dilutive options                      1.7        1.9       0.6
---------------------------------------------  --------- --------- ---------
  Adjusted weighted average shares for 
     diluted EPS                                 53.5       58.3      61.4

Basic EPS                                        $0.97      $1.36     $1.91
---------------------------------------------  --------- --------- ---------
Diluted EPS                                      $0.94      $1.32     $1.90
=============================================  ========= ========= =========

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  fixed  maturities  and  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.


                                       57
<PAGE>




                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Stock Compensation.  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 or earnings per share
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 ("LAE") is based on an evaluation of reported losses and on
estimates of incurred but unreported  losses ("IBNR").  The reserve  liabilities
are  determined  using  estimates  of losses for  individual  claims (case basis
reserves) and statistical projections of reserves for IBNR. Management considers
many factors when setting reserves, including: (i) current legal interpretations
of coverage  and  liability;  (ii)  economic  conditions;  and,  (iii)  internal
methodologies  which analyze TIG's  experience  with similar cases,  information
from ceding companies and historical trends,  such as reserving  patterns,  loss
payments,  pending  levels of unpaid  claims  and  product  mix.  Based on these
considerations,  management  believes that adequate  provision has been made for
TIG's loss and LAE  reserves.  Actual  losses and LAE paid may deviate,  perhaps
substantially,  from such 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. The liability
is reported net of estimated salvage and subrogation recoverables of $31 million
and $29 million at December 31, 1997 and 1996, respectively. 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 $31 million at December  31, 1997 and $39 million at December  31,
1996.

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 $391  million,  $347 million and $335 million for the years ended
December 31, 1997, 1996 and 1995, 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  7%, 4% and 5% in 1997, 1996
and 1995,  respectively,  of TIG's total premium was subject to participation in
such dividends.




                                       58
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other Assets.  Property,  leasehold  improvements and furniture and equipment of
$40 million and $41 million at  December  31, 1997 and 1996,  respectively,  are
included in other assets.  These  balances are carried at cost less  accumulated
depreciation  of $24  million  and $38  million at  December  31, 1997 and 1996,
respectively.  Depreciation is computed under the straight-line  method over the
estimated  useful  lives of the assets over  periods  ranging  from three to ten
years.  Goodwill  and other  intangible  assets of $18 million and $4 million at
December 31, 1997 and 1996,  respectively,  are also  included in other  assets.
These balances are amortized on a straight-line  basis over periods ranging from
10 to 20 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.

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)  outsourced  to third party  service  providers  or  otherwise
terminated  the   responsibilities   of   approximately   600   employees.   The
consolidation/closure  of field  offices was  completed  by December  31,  1996,
although various lease obligations remain at December 31, 1997.

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. In
1997, TIG re-evaluated the $100 million restructuring charge. Although the total
amount of the  restructuring  charge  remained  unchanged,  the components  were
revised  to  the  following:   severance  of  $13  million;  contractual  policy
obligations of $43 million; office lease terminations of $16 million; furniture,
equipment and capitalized software write-downs of $10 million; and a reserve for
litigation  and credit issues  related to  terminated  producers of $18 million.
Severance  costs were less than  originally  estimated due to the  employment of
certain TIG  associates  by third party  service  providers.  The  reduction  in
severance  was  effectively  offset by increased  costs for  contractual  policy
obligations  associated with outsourcing  contracts.  The revised  estimates for
leases, asset write-downs,  and producer credit issues reflect minor adjustments
to original  assumptions  based on activity through  December 31, 1997.  Charges
against the  restructure  accrual of $85 million have been recorded  since March
1996 and are comprised of $12 million in severance,  $43 million in  contractual
policy obligations, $12 million in lease termination costs, $10 million in asset
write-downs and $8 million  related to producer  credit issues.  At December 31,
1997, TIG's exit plan was substantially  complete with the remaining restructure
accrual  of $15  million  projected  to be paid out over the next  three to four
years.




                                       59
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
NOTE C.  SALE OF INDEPENDENT AGENTS BUSINESS UNIT
--------------------------------------------------------------------------------

On  December  31,  1997,  TIG sold the  Independent  Agents  unit of its  Retail
Division, based in Battle Creek, Michigan, for $65 million in cash to Nationwide
Mutual Insurance Company ("Nationwide"). The purchase price was adjusted for the
surplus of TIG Countrywide Insurance Company ("CIC"),  which was included in the
sale, after giving effect to certain transactions.  There was no capital gain or
loss  recognized on the sale. At closing,  TIG entered into several  reinsurance
arrangements with CIC and ceded all outstanding loss and LAE reserves,  unearned
premium reserves and premium  receivables related to the Independent Agents unit
at book value. Under the purchase agreement, Nationwide assumed the risk of loss
and LAE reserve  development  and  receivable  collectibility.  To allow CIC and
Nationwide time to make  appropriate  regulatory  filings,  TIG will continue to
write  Independent  Agents  business and cede such  business 100% to CIC for two
years,  or  longer,  if  needed.  TIG has  also  agreed  to  provide  transition
assistance  services to CIC for the  processing of this business for a period of
up to two years.  Independent  Agents gross premium  written for the years ended
December 31, 1997,  1996 and 1995  totaled $286  million,  $299 million and $291
million, respectively.


                                       60
<PAGE>
                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE D.  INVESTMENTS
--------------------------------------------------------------------------------
Market Values and Amortized  Cost of Invested Assets:
<TABLE>
<CAPTION>
                                                                  December 31, 1997
                                        ----------------------------------------------------------------------
                                                                                                     % of
                                            Market       Amortized     Unrealized    Unrealized      Market
    (In millions)                            Value         Cost         Gains         Losses      Portfolio
    =================================== ============== ============= ============= ============= =============
    <S>                                    <C>           <C>              <C>          <C>          <C>  
    Municipal bonds                          $637          $596            $42          ($1)         15.2%
    Mortgage-backed securities                941           933             11           (3)         22.4
    United States government bonds          1,014           941             77           (4)         24.2
    Corporate and other bonds               1,282         1,255             41          (14)         30.6
    ----------------------------------- -------------- ------------- ------------- ------------- -------------
           Total fixed maturity             3,874         3,725            171          (22)         92.4
             investments
    Short-term and other investments          318           316              3           (1)          7.6
    ----------------------------------- -------------- ------------- ------------- ------------- -------------
           Total invested assets           $4,192        $4,041           $174         ($23)        100.0%
    =================================== ============== ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
                                                                 December 31, 1996
                                         ---------------------------------------------------------------------
                                                                                                     % of
                                            Market      Amortized     Unrealized    Unrealized      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>
Approximately   one-fourth  of  TIG's  portfolio   consists  of  mortgage-backed
securities  ("MBS").  United States federal  government  and  government  agency
mortgages now represent approximately 82% of TIG's exposure to MBS, offering AAA
credit  quality.  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,  depending 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 futures  contracts  and/or  interest  rate swaps.  Alternatively,
derivative  financial  instruments  may also be utilized to enhance  prospective
returns.  TIG's interest rate swap arrangements generally provide that one party
pays  interest  at a floating  rate in relation to  movements  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 nonperformance by the other party, nonperformance
is not  anticipated due to the credit rating of the  counterparties.  No futures
contract  positions were open at December 31, 1997, or December 31, 1996.  There
were $14 million  notional  face amount of interest  rate swaps at December  31,
1997, unchanged from December 31, 1996. All TIG derivative financial instruments
were with financial  institutions  rated A or better by one or more of the major
credit rating  agencies.  Total  derivative  positions  were  approximately  $94
million par value, $78 million fair value, and represents  approximately 1.8% of
the total consolidated investment asset holdings at December 31, 1997.

                                       61
<PAGE>
                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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  short-term  investments  with a fair  value
exceeding the amount of its TBA purchase commitments.  At December 31, 1997, the
TBA purchase  commitments  amounted to $24 million,  and had a fair value of $26
million,  compared to TBA  commitments  of $46 million  with a fair value of $46
million at December 31, 1996.

TIG has no material  non-income  producing  investments and has no geographic or
other  concentrations of investment risk which has not been disclosed.  Invested
assets of TIG, carried at $620 million and $712 million at December 31, 1997 and
1996, 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.  Invested assets of
TIG's  participation in Lloyd's Syndicates totaling $8.2 million at December 31,
1997,  including  cash of $4.9  million,  are held in trust in  accordance  with
Lloyd's of London regulations (see Note M Commitments and Contingencies).

The estimated  market value and amortized cost of the portfolio,  by contractual
maturity,  at December 31, 1997 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 on year or less                                     $373          $368
Due after one year through five years                       275           273
Due after five years through ten years                      614           605
Due after ten years                                       1,671         1,546
Mortgage-backed securities                                  941           933
---------------------------------------------------- ------------- -------------
   Total fixed maturity investments                      $3,874        $3,725
==================================================== ============= =============

Components of Net Investment Income

                                                       Years Ended December 31,
                                                   -----------------------------
(In millions)                                         1997       1996      1995
================================================== ========== ========= ========
Fixed maturity investments                            $297      $298       $273
Short-term and other investments                         8         6          7
-------------------------------------------------- ---------- --------- --------
Total gross investment income                          305       304        280
Investment expenses, interest and other                (15)      (14)       (12)
-------------------------------------------------- ---------- --------- --------
Total net investment income                           $290      $290       $268
================================================== ========== ========= ========

Net Investment and Other Gain (Loss)

                                                       Years Ended December 31,
                                                    ----------------------------
(In millions)                                         1997      1996      1995
=================================================== ========= ======== =========
Fixed maturity investments
     Gross gains                                       $38       $37      $18
     Gross losses                                      (22)      (41)     (29)
Other losses                                           (15)        -        -
--------------------------------------------------- --------- --------- --------
Net investment and other gain (loss) before tax          1        (4)     (11)
Less related taxes                                       -         1        4
--------------------------------------------------- --------- --------- --------
Net investment and other gain (loss), net of taxes      $1       ($3)     ($7)
=================================================== ========= ========= ========

                                       62
<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)                                1997     1996      1995
========================================== ======== ========= =========
 Balance January 1, net of reinsurance
    recoverables                            $2,634   $2,752    $2,721
 Incurred related to:
    Current year                             1,076    1,122     1,200
    Prior year                                  75       16       (24)
------------------------------------------ -------- --------- --------- 
 Total losses and LAE incurred               1,151    1,138     1,176
------------------------------------------ -------- --------- ---------
 Loss and LAE payments related to:
    Current year                               417      374       367
    Prior year                                 837      882       778
------------------------------------------ -------- --------- ---------
 Total losses and LAE payments               1,254    1,256     1,145
------------------------------------------ -------- --------- ---------
 Balance December 31, net of reinsurance     
    recoverable                              2,531    2,634     2,752
 Reinsurance recoverable                     1,404    1,126     1,134
------------------------------------------ -------- --------- ---------
 Gross loss and LAE reserves                $3,935   $3,760    $3,886
========================================== ======== ========= =========

In 1997, TIG recognized  unfavorable prior year loss and LAE reserve development
of  $75  million,   of  which  unfavorable   development  of  $106  million  was
attributable to TIG Re reserve  strengthening  and favorable  development of $31
million was attributable to TIG Insurance.  The reserve  strengthening by TIG Re
in  December  1997 was  based on  actuarial  evaluations  of loss  data  through
September  30,  1997,  which  incorporated  enhancements  to TIG Re's  actuarial
process  and  previously  unavailable  data.  This  intensive  actuarial  review
indicated that reserving  issues were  concentrated in a limited number of large
proportional excess of loss programs, the majority of which were restructured or
non-renewed  effective January 1, 1997. TIG Re also increased 1997 accident year
reserves by $39 million as a result of the September 30, 1997  actuarial  study.
The total $145 million reserve increase  recorded by TIG Re in December 1997 was
net of corporate aggregate stop loss reinsurance coverage, including $40 million
under a 1995 intercompany agreement with TIG Insurance. The favorable prior year
loss  reserve  development  of $31  million  for  primary  lines  written by TIG
Insurance  was  principally   attributable  to  continuing   favorable  workers'
compensation  development.  The  majority  of  this  favorable  development  was
reallocated  to the 1997  accident  year for workers'  compensation  and various
other lines for statutory reporting purposes. The assumption by TIG Insurance in
Other  Lines of $40  million  in losses  under the  aforementioned  intercompany
reinsurance  agreement  was  principally  offset by a $27  million  cession to a
corporate aggregate stop loss reinsurance treaty.

The unfavorable loss and LAE reserve  development for prior years in 1996 of $16
million is 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 B.
Summary of Significant  Accounting  Policies.  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.


                                       63
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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,  1997,  the  Transamerica
affiliate had incurred no liability under this agreement.


                                       64
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
NOTE F.  REINSURANCE
--------------------------------------------------------------------------------


                                   Years Ended December 31,
                              -----------------------------------
(In millions)                    1997        1996        1995
============================  =========== =========== ===========
Written premium:
  Direct                        $1,221      $1,274      $1,387
  Assumed                          722         650         649
  Ceded                           (507)       (395)       (426)
----------------------------  ----------- ----------- ------------ 
  Net                           $1,436      $1,529      $1,610
----------------------------  ----------- ----------- ------------ 
Earned premium:
  Direct                        $1,232      $1,307      $1,377
  Assumed                          667         632         629
  Ceded                           (433)       (400)       (388)
----------------------------  ----------- ----------- ------------ 
  Net                           $1,466      $1,539      $1,618
----------------------------  ----------- ----------- ------------ 
Incurred losses and LAE:
  Gross                         $1,751      $1,417      $1,443
  Ceded                           (600)       (279)       (267)
----------------------------  ----------- ----------- ------------ 
  Net                           $1,151      $1,138      $1,176
============================  =========== =========== ============ 

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,
1997, TIG held collateral related to reinsurance  amounts in the form of letters
of credit  totaling $349 million,  trust funds totaling $236 million,  and funds
held totaling $319 million.


                                       65
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

TIG files a consolidated  federal  income tax return.  At December 31, 1997, TIG
had a net operating  loss  carryover of $199 million,  of which $34 million will
expire in 2008,  $96 million will expire in 2009, $5 million will expire in 2011
and $64 million will expire in 2012. Additionally, TIG has a $20 million capital
loss  carryover,  of which $16 million will expire in 2000,  and $4 million will
expire in 2001.  For the tax years ended  December 31, 1997,  1996 and 1995, TIG
made tax  payments of $52 million  (including  the $40 million  advance  payment
discussed below), $5 million and $1 million, respectively.

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

                                          Years Ended December 31,
                                     ----------------------------------
     (In millions)                       1997              1996
     ==================================================================
     Current asset (liability)            $57               ($9)
     Net deferred tax asset                83               111
     ------------------------------------------------ ----------------- 
     Total                               $140              $102
     ================================================================== 

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
TIG's  deferred tax assets and  liabilities as of December 31, 1997 and 1996 are
shown in the following table:

                                               Years Ended December 31,
                                              ----------------------------
(In millions)                                      1997          1996
==========================================================================
Deferred tax assets:
Discounting of reserves for losses
   and loss adjustment expenses                    $158          $167
Net operating loss carryforward                      70            35
Discounting of unearned premium reserves             38            42
Expense reserves                                     20             3
Restructuring charges                                 5            20
Postretirement benefits other than pensions           8             8
Capital loss carryforward                             7            17
Business in force                                     7            14
Policyholder dividends                                7             6
Other, net                                            8            12
--------------------------------------------- ----------------------------
     Total deferred tax assets                      328           324
--------------------------------------------- ---------------------------- 

Deferred tax liabilities:
Section 338 - marketable securities                 130           128
Deferred policy acquisition costs                    53            52
Unrealized gain - marketable securities              52            28
Section 338 - other                                  10             5
--------------------------------------------------------------------------
     Total deferred tax liabilities                 245           213
--------------------------------------------------------------------------
     Net deferred tax asset                         $83          $111
==========================================================================

                                       66
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 1997, 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  the
earnings  level  sustained  over the past  four  years 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 2002.

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

                                              Years Ended December 31,
                                          -----------------------------
      (In millions)                         1997       1996      1995
      =================================================================
      Current expense                        ($9)      ($9)      ($2)
      Deferred benefit (expense)              (1)       13       (35)
      ----------------------------------- --------- ---------- --------
      Total income tax benefit (expense)    ($10)       $4      ($37)
      =================================================================

The  exercise  of stock  options  which have been  granted  under the  Company's
various stock option plans gives rise to compensation which is includable in the
taxable  income of the  applicable  employees and  deductible by the company for
federal and state income tax purposes.  Such compensation results from increases
in the fair market value of the Company's common stock subsequent to the date of
grant of the applicable exercised stock options and, accordingly,  in accordance
with  Accounting  Principles  Board  Opinion  No. 25, such  compensation  is not
recognized as an expense for financial  accounting  purposes and the related tax
benefits are taken directly to Additional Paid-in Capital.  In 1997,  Additional
Paid-in  Capital  which is a  component  of  Common  Stock  in the  accompanying
financial  statements  was  increased $13 million as a result of the exercise of
such options.  Tax benefits from the exercise of stock options by employees were
not material in 1996 and 1995 (see Note K.
Incentive Compensation Plans).


                                       67
<PAGE>


                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

                                             Years Ended December 31,
                                            --------------------------
(In millions)                                 1997     1996     1995
======================================================================
Discounting of reserves for losses and
   loss adjustment expenses                   ($9)     ($5)      ($7)
Discounting of unearned premium reserves       (4)       1         -
Net operating loss carryforward                35      (11)        2
Expense reserves                               17        -         -
Restructuring charges                         (15)      16        (3)
Capital loss carryforward                     (10)       3         3
Business in force                              (7)      (6)       (7)
Policyholder dividends                          1       (4)       (5)
Tax liability adjustment                        5       20         -
Deferred investment income                     (2)      (4)      (15)
Deferred policy acquisition costs              (1)      (1)       (3)
Other                                         (11)       4         -
-------------------------------------------- -------- -------- --------
Total deferred income tax benefit (expense)   ($1)     $13      ($35)
=======================================================================

                                       68
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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)                                     1997     1996     1995
==========================================================================
Federal income tax expense at statutory rates     ($22)    ($26)    ($54)
Tax-exempt investment income                         9        9       17
Tax liability adjustment                             5       20        -
Other                                               (2)       1        -
----------------------------------------------- -------- -------- --------
Total income tax benefit (expense)                ($10)      $4     ($37)
==========================================================================

TIG's Federal income tax returns are routinely  audited by the Internal  Revenue
Service  (IRS)  and  provisions   are  made  in  the  financial   statements  in
anticipation of the results of these audits.  Following a routine federal income
tax audit by the IRS, in September  1997,  the IRS issued a Statutory  Notice of
Deficiency  for the tax year 1993 and a Revenue Agents Report for 1994 asserting
a tax liability of  approximately  $170 million  excluding  interest.  The IRS's
asserted tax adjustments principally relate to the acquisition made by TIG under
the Section 338(h)(10)  election of April 27, 1993 in conjunction with TIG's IPO
and primarily  generate  temporary  differences by creating  income in 1993 with
corresponding  deductions in 1993 and future tax years.  TIG strongly  disagrees
with the  IRS's  position  and,  on  December  11,  1997,  TIG filed a Tax Court
Petition  challenging it. In connection with the Statutory  Notice of Deficiency
issued  by the IRS for the 1993 tax year,  TIG made a $40  million  advance  tax
payment in December 1997, that has been reflected as a current tax asset.  While
the  timing of cash tax  payments  may be  impacted,  management  believes  that
revisions to TIG's recorded tax liability,  if any, arising from the IRS's audit
will not materially impact consolidated net income or financial condition.

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 tax years prior to TIG's initial public offering in
April 1993. A $20 million  deferred tax benefit was  recognized in first quarter
of 1996 as a result of the redetermination.



                                       69
<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 1997 and 1996 and $6
million in 1995. Interest paid was $8 million in 1997 and 1996 and $4 million in
1995.

Sale -  Leaseback.  In  December  1995,  TIG entered  into a $50 million  credit
facility,  of which approximately $24 million was outstanding as of December 31,
1997. 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 1997
ranged from 5.9% to 6.6%.  Interest  expensed and paid was $1.6 million and $1.4
million for 1997 and 1996,  respectively.  No interest  was  expensed or paid in
1995.

Line of  Credit.  In  December  1995 (as  amended  and  restated  in 1997),  TIG
established  an unsecured  revolving  line of credit with maximum  borrowings of
$250  million.  Included in the  restrictive  covenants are  limitations  on the
disposition  of  significant  subsidiaries  of TIG,  limitations  on  liens  and
limitations  on the  merger  of the  Company.  The full  amount of the five year
credit facility was available for general corporate  purposes as of December 31,
1997.

Capital  Securities.  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%  mandatory  redeemable  capital  securities.  TIG Holdings is the initial
holder of 100% of the common  securities of TIG Capital.  Holders of the capital
securities of the Trust 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).  Included in the restrictive
covenants are limitations on the merger of the Company.  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.  The net proceeds received
by TIG  Holdings  from the  issuance  of the  debentures  were used for  general
corporate  purposes  which includes  repurchases of the Company's  common stock.
Interest  expense was $9.9  million in 1997.  Interest  paid was $4.9 million in
1997.



                                       70
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In April 1993, in connection  with it's 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 1997 and 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.


--------------------------------------------------------------------------------
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, 1997.  The
Class A common stock was 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, 1997,  the number of
Class A common  shares  converted  to  common  stock was  143,409  (see Note K -
Incentive  Compensation  Plans).  As of December 31, 1997,  no shares of Class A
common stock are 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, 1997, $180 million of dividends are
currently available for payment to TIG Holdings from its insurance  subsidiaries
during  1998  without   restriction.   Cash  dividends  paid  by  the  insurance
subsidiaries  in 1997,  1996 and 1995 were $145  million,  $130  million and $55
million,  respectively.  In addition a $20 million dividend of subsidiary common
stock was paid in 1995.



                                       71
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of December 31, 1997, 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 - Summary  of
Significant Accounting Policies).

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 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.  As of December 31, 1997, 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
typically  have a term of ten years from the date of the grant and vest in equal
annual  installments over four years.  Restricted stock grants typically 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  restricted  share  units.  These  awards are not to exceed  200,000
shares.  As of December 31, 1997,  there were 33,873  restricted share units and
stock options  representing  the right to acquire 67,746 shares of common stock.
Each restricted share unit converts into one share of common stock based upon an
irrevocable election made by each non-employee  director.  The 1996 Program will
terminate on the close of business on the date of the Company's  annual  meeting
of stockholders in 1999.  Restricted share 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, 1997,  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.




                                       72
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, 1997 and changes  during the three years ended December 31, 1997
is presented below:

                                      Restricted     Class A
                                        Shares        Shares         Options
===============================================================================
Outstanding at January 1, 1995          56,014       76,259         9,996,197
Granted                                  4,600            -         1,391,100
Exercised/Earned                       (30,911)     (39,800)         (100,133)
Forfeited or canceled                     (843)        (666)         (275,982)
----------------------------------- ------------- -------------   -------------
Outstanding at December 31, 1995        28,860       35,793        11,011,182
----------------------------------- ------------- -------------   -------------
Granted                                110,170            -         1,476,736
Exercised/Earned                       (25,436)     (35,793)         (383,594)
Forfeited or canceled                  (14,380)           -          (472,089)
----------------------------------- ------------- -------------   -------------
Outstanding at December 31, 1996        99,214            -        11,632,235
----------------------------------- ------------- -------------   -------------
Granted                                 71,319            -         2,090,117
Exercised/Earned                       (33,972)           -        (2,994,788)
Forfeited or canceled                  (11,268)           -          (262,820)
----------------------------------- ------------- -------------   -------------
Outstanding at December 31, 1997       125,293            -        10,464,744
===============================================================================

The weighted  average option  exercise  price was $25.06,  $22.74 and $22.08 for
options  outstanding  at December  31,  1997,  1996 and 1995  respectively.  The
weighted  average option  exercise  price was $33.82 for options  granted during
1997,  $22.01 for options  exercised in 1997 and $27.25 for options forfeited in
1997.

The weighted  average fair value of options granted during 1997 was $10.45 while
the weighted  average fair value of restricted stock granted during the year was
$33.80.  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 1997, 1996 and 1995 respectively:  dividend yield
of 1.70  percent,  1.75 percent and 1.75 percent;  expected  volatility of .220,
 .201 and .201; risk free interest rate of 6 percent, 7 percent and 7 percent and
expected  life of 7 years for all 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.


                                       73
<PAGE>


                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

If the fair value of the stock compensation granted had been accounted for under
SFAS 123,  the  proforma  net income  for 1997 would have been $41.1  million or
$0.76 per basic share or $0.74 per diluted share. Net income for 1996 would have
been $74.5  million or $1.29 per basic  share or $1.26 per  diluted  share.  Net
income for 1995 would have been $115.7 million or $1.87 per basic share or $1.86
per diluted  share.  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 table summarizes  information about stock options  outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>

                                 Options Outstanding                           Options Excercisable
                    -----------------------------------------------       ---------------------------------
      Range of         Number      Weighted-Avg.    Weighted-Avg.              Number       Weighted-Avg.
     Exercise       Outstanding      Remaining        Exercise            Exercisable @       Exercise
      Prices        @ 12/31/97     Contractual         Price                 12/31/97          Price
                                       Life
------------------- ------------- ---------------- ----------------       ---------------- ----------------
  <S>               <C>                <C>             <C>                  <C>                 <C>               
  $14.00 to $19.00     107,060          4.1            $16.83                  99,685           $16.78
  $19.01 to $24.00   7,052,271          5.6            $22.26               6,479,315           $22.47
  $24.01 to $29.00     846,475          8.0            $26.15                 320,650           $26.07
  $29.01 to $34.00   1,947,159          8.3            $32.51                 528,431           $31.97
  $34.01 to $39.00     511,779          6.5            $35.18                 399,563           $34.80
------------------- ------------- ---------------- ----------------       ---------------- ----------------
  $14.00 to $39.00  10,464,744          6.3            $25.06               7,827,644           $23.81
===========================================================================================================
</TABLE>



                                       74
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

TIG  Holdings'  employee  benefit plans (the  "Plans")  include the  Diversified
Savings and Profit  Sharing  Plan and the Employee  Stock  Ownership  Plan.  TIG
Holdings  adopted  the ESOP and  Profit  Sharing  Restoration  Plans,  effective
January 1, 1994, and the Diversified Savings Restoration Plan, effective January
1, 1997.  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 TIG  Holdings'  Board of Directors.
The Board of Directors of TIG Holdings has fiduciary  responsibilities  relating
to the interpretation and operation of the Plans.

Diversified  Savings  and Profit  Sharing  Plan.  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 (the "DS&PSP").  The
DS&PSP is qualified  under Section 401 (a) of the Internal  Revenue Code ("IRC")
and the trust  established to hold the assets of the DS&PSP is tax-exempt  under
Section 501 (a) of the IRC.  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.  While the  assets  are  maintained  in a single  trust,  the
recordkeeping,  contributions and participant  qualifications remain as if under
two  separate  plans,  the  Diversified  Savings Plan (the "DSP") and the Profit
Sharing Plan (the "PSP").

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. Employer matching contributions were $3 million, $3
million, and $4 million for 1997, 1996 and 1995, respectively.

The PSP 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 died  prior to the plan year end.  Generally,
each  salaried  employee  is  eligible  to  participate  in the PSP. No employee
contributions  are  permitted  to  be  made  to  the  PSP.  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 1997, 1996 and
1995 plan years,  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 $2
million, $1 million and $2 million for 1997, 1996 and 1995, respectively.


                                       75
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Diversified  Savings and Profit Sharing  Restoration Plan.  Effective January 1,
1997,  TIG  Holdings  adopted  the  TIG  Holdings,   Inc.   Diversified  Savings
Restoration  Plan and combined it with the existing  Profit Sharing  Restoration
Plan. The TIG Holdings,  Inc. Diversified Savings and Profit Sharing Restoration
Plan (the  "DS&PS  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 DS&PSP 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.  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 DS&PSP 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 DS&PSP.  Liabilities due
to the participants were  approximately $2 million and $1 million as of December
31, 1997, and 1996, respectively.

Employee  Stock  Ownership  Plan.  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.  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 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 million was recognized in each
year of 1997, 1996 and 1995. At December 31, 1997, 266,243 shares are allocated,
59,728 shares are committed to be released,  and 429,688 shares are in suspense.
As of December 31, 1997, the market value of unallocated shares was $14 million.
Contributions  to the ESOP were $1 million  for 1997 and $2 million for 1996 and
1995. A participant's  ESOP account will be distributed in full shares of common
stock or cash after termination of service.



                                       76
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.  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 less than $1
million as of December 31, 1997, and 1996.

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.  Consideration
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 $6 million and $5 million at December 31, 1997 and 1996,
respectively.

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

                                                    Years Ended December 31,
                                                   -------------------------
(In millions)                                        1997     1996    1995
============================================================================
Service cost - benefits earned during the period      $ -      $0.3    $0.3
Interest cost on projected benefit obligation         1.7       1.4     1.4
Amortization of prior service cost                   (0.1)     (0.1)   (0.1)
Amortization of loss                                  0.2         -       -
-------------------------------------------------- -------- -------- -------
Net periodic other postretirement benefit cost       $1.8      $1.6    $1.6
============================================================================

                                       77
<PAGE>



                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

                                                                  December 31,
                                                              ------------------
(In millions)                                                   1997      1996
================================================================================
Actuarial present value of other postretirement obligations:
        Retirees                                               $24.3     $17.2
        Active participants                                      1.3       3.4
        Unrecognized net gain (loss)                            (5.2)        -
        Prior service cost                                       0.6       0.7
------------------------------------------------------------- --------- --------
Other postretirement benefit obligation                        $21.0     $21.3
================================================================================

The  weighted  average  annual  assumed rate of increase in the health care cost
trend rate is 10.0  percent for 1997 and 9.0 percent for 1998 and will  decrease
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,  1997,  1996,  and 1995 by $2 million,  and the  aggregate  of the
service and interest cost components of net periodic postretirement benefit cost
by $0.1 million for 1997,  1996,  and 1995. The weighted  average  discount rate
used in determining the  postretirement  benefit obligation was 7.0% at December
31, 1997 and 1996.


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

Leases.  Future  minimum  rental  commitments  as of  December  31, 1997 for all
noncancelable operating leases are as follows:

(In millions)
=========================================
   1998                     $19
   1999                      17
   2000                      15
   2001                      12
   2002                       9
   Thereafter                50
=========================================
                            122
   Sublease rental income    23
-----------------------------------------
   Net commitments          $99
=========================================

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 1997,  1996,
and 1995 was $18 million, $17 million and $30 million, respectively. As a result
of the  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 B - Summary of Significant Accounting Policies.



                                       78
<PAGE>


                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 at 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 matters  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 or financial condition.

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.  On March 28, 1997,  the  California  Court of Appeal reduced the trial
court's  punitive damage award to $15 million.  On July 23, 1997, the California
Supreme Court granted TIC's  petition to review the Court of Appeal's  decision.
Management  believes  that the ultimate  liability  arising from the Talbot Case
will not materially impact consolidated operating results.

On February 12, 1998, a purported class action complaint,  naming TIG and two of
its executive  officers as defendants,  was filed in the United States  District
Court for the Southern  District of New York on behalf of persons who  purchased
TIG common  stock  during the period from  October 21, 1997 to January 30, 1998,
when TIG announced its fourth quarter 1997 results.  The complaint  alleges that
TIG violated the federal securities laws by misrepresenting  the adequacy of its
underwriting and monitoring  standards and loss reserves,  and that three of its
officers and directors sold shares at prices that were artificially  inflated as
a result of the alleged misrepresentations. Plaintiffs seek unspecified monetary
damages,  including  punitive damages.  Management  believes that the lawsuit is
without merit and it will be vigorously defended.

See Note G - Income Taxes regarding Tax Court Petition filed in December 1997.

London Market  Activity.  Through  various  indirect  subsidiaries,  the Company
became 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 totaling $123 million and  collateralized by $105
million of the  Company's  investment  securities  were provided in favor of the
Society  and  Council of Lloyd's at  December  31,  1997.  The letters of credit
effectively   secure  the  syndicate's   1997  results  and  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.


                                       79
<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, 1997, 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 1998
and  implemented  in 1999 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. TIG does not expect such changes will have
a material impact on its reported statutory results.

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

                                                  Years Ended December 31,
                                          --------------------------------------
           (In millions)                     1997          1996          1995
           =====================================================================
           Statutory Net Income (Loss):
           Primary operations                $143           $88           $67
           Reinsurance operations             (22)           96            69
           ----------------------------------------- ------------- -------------
                  Total                      $121          $184          $136
           =====================================================================

                                                        December 31,
                                          --------------------------------------
           (In millions)                     1997          1996          1995
           =====================================================================
           Statutory Surplus:
           Primary operations                $505          $460          $512
           Reinsurance operations             508           515           440
           ----------------------------------------- ------------- -------------
                  Total                    $1,013          $975          $952
           =====================================================================

                                       80
<PAGE>

                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.  The  Company's  surplus and capital
exceeds the NAIC's "risk-based capital" requirements at the end of 1997.

--------------------------------------------------------------------------------
NOTE O. BUSINESS SEGMENTS
--------------------------------------------------------------------------------

TIG's operations are comprised of two business segments. Reinsurance operations,
conducted  principally through TIG Reinsurance and Primary Insurance operations,
conducted  principally through TIG Insurance.  Primary Insurance  operations are
further broken down into Commercial Specialty,  Retail, and Other Lines. Premium
produced through Aon Corporation and its subsidiaries ("Aon") accounted for 32%,
23%,  and 22% of  consolidated  net  premium  written  in 1997,  1996 and  1995,
respectively,  of which Aon produced 31%, 19% and 22% of net premium  written in
Reinsurance  operations  and 32%, 25% and 22% of net premium  written in Primary
Operations  for each year,  respectively.  In addition,  Reinsurance  operations
assumed  approximately  $58  million in 1997 and $50 million in premiums in 1996
and 1995 from primary  operations.  Reinsurance  operations ceded $43 million in
premium in 1995 to primary  operations.  No such  amounts  were ceded in 1997 or
1996.  Revenues,  pre-tax  operating  income  and  identifiable  assets for each
segment were as follows:
<TABLE>
<CAPTION>
                                                                       Segments - 1997
                                             ---------------------------------------------------------------------
(In millions)                                  Reinsurance         Primary           Parent        Consolidated
==================================================================================================================
<S>                                              <C>              <C>                 <C>            <C>    
Revenues:
Earned premium                                     $516             $950                $-           $1,466
Net investment income                               128              156                 6              290
Net investment and other gain (loss)                  5                8               (12)               1
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Total revenues                                     $649           $1,114               ($6)          $1,757
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Underwriting loss                                 ($163)             ($2)               $-            ($165)
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Income (loss) before income taxes                  ($29)            $163              ($72)             $62
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Identifiable assets                              $2,364           $4,370              $133           $6,867
==================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                       Segments - 1996
                                             ---------------------------------------------------------------------
(In millions)                                  Reinsurance         Primary           Parent        Consolidated
==================================================================================================================
<S>                                               <C>             <C>                 <C>            <C>    
Revenues:
Earned premium                                     $534           $1,005               $ -           $1,539
Net investment income                               120              163                 7              290
Net investment and other 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                              $2,157           $4,229               $90           $6,476
==================================================================================================================
</TABLE>

                                       81
<PAGE>
                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                       Segments - 1995
                                             ---------------------------------------------------------------------
(In millions)                                  Reinsurance         Primary           Parent        Consolidated
==================================================================================================================
<S>                                              <C>              <C>                 <C>            <C>    
Revenues:
Earned premium                                     $483           $1,135               $ -           $1,618
Net investment income                               100              158                10              268
Net investment and other 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                              $2,024           $4,503              $156           $6,683
==================================================================================================================

</TABLE>
                                    

The following table is a summary of TIG's Primary insurance  operations by major
division:

                                                     Years Ended December 31,
                                      ------------------------------------------
(In millions)                             1997          1996          1995
------------------------------------- ------------- ------------- --------------
Primary premium earned:
  Commercial Specialty                    $496          $416          $419
  Retail                                   418           350           323
  Other Lines                               36           239           393
------------------------------------- ------------- ------------- --------------
Total primary premium earned              $950        $1,005        $1,135
------------------------------------- ------------- ------------- --------------
Underwriting gain (loss):
  Commercial Specialty                      $1          ($5)           ($2)
  Retail                                    10           (5)            (7)
  Other Lines                              (13)         (41)           (33)
------------------------------------- ------------- ------------- --------------
Total underwriting loss                    ($2)        ($51)          ($42)
------------------------------------- ------------- ------------- --------------

                                       82
<PAGE>

                                     PART II
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
NOTE P.  INTERIM FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                            Quarter
                                                        ------------------------------------------------
(In millions)                                             First       Second      Third       Fourth       Total
====================================================================================================================
<S>                                            <C>          <C>         <C>         <C>          <C>       <C>
Summary of Quarterly Results:
Revenues                                       1997         $429        $435        $453         $440      $1,757
                                               1996          455         457         460          453       1,825
                                               1995          470         476         466          463       1,875

Pre-tax income (loss) from continuing
     operations                                1997           54          57          55        (104)          62
                                               1996          (82)         49          53           55          75
                                               1995           20          44          47           44         155

Net income (loss)                              1997           36          39          40         (63)          52
                                               1996          (31)         34          37           39          79
                                               1995           18          33          34           33         118
-------------------------------------------- ---------- ----------- ----------- ----------- ------------ -----------

Basic Earnings per Common Share:
     Net income (loss)                         1997        $0.67       $0.74       $0.77       ($1.24)      $0.97
                                               1996       ($0.53)      $0.58       $0.67        $0.70       $1.36
                                               1995        $0.28       $0.53       $0.56        $0.55       $1.91

Diluted Earnings per Common Share:
     Net income                                1997        $0.64       $0.72       $0.74          N/A       $0.94
                                               1996          N/A       $0.56       $0.65        $0.68       $1.32
                                               1995        $0.28       $0.53       $0.55        $0.54       $1.90
====================================================================================================================
</TABLE>

                                       
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 charge of $65 million was
taken for costs related to management's decision to restructure  operations (see
Note B. - Summary of Significant Accounting Policies).  In the fourth quarter of
1997 the Company recognized net unfavorable  current and prior year loss and LAE
reserve development of $145 million in its Reinsurance Operations (see Note E. -
Loss and Loss Adjustment  Expense Reserves) and sold the Independent Agents unit
of its Retail  Division (see Note C - Sale of Independent  Agents Business Unit)
as a result  of which  favorable  adjustments  of policy  acquisition  and other
underwriting expenses totalling $8 million were recorded.


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

Not applicable.


                                       83
<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 Reporting  Compliance" and "Certain  Information  Regarding
the Executive  Officers" in the  Company's  definitive  proxy  statement for its
annual meeting of  shareholders to be held April 30, 1998.  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
April  30,  1998.   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  Reporting
Compliance" from the Company's definitive proxy statement for its annual meeting
of shareholders to be held April 30, 1998.


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

Not applicable.


                                       84
<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, 1997 and 1996...................52

Consolidated Statements of Income for
each of the three years in the period ended December 31, 1997 ..............53

Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 1997 ..............54

Consolidated Statements of Changes in Shareholders' Equity for 
each of the three years in the period ended December 31, 1997 ..............55

Notes to Consolidated Financial Statements..................................56
(a) (2) Financial Statement Schedules

Schedule II. Financial Statements of TIG Holdings, Inc. 
(Parent Company Only).......................................................86

Schedule III. Supplementary Insurance Information ..........................89

Schedule IV. Reinsurance ...................................................90

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............................................................91

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 1997.



                                       85
<PAGE>

                                     PART IV

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

                         TIG HOLDINGS, INC. SCHEDULE II
                                 BALANCE SHEETS
                              (Parent Company Only)




<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                             ----------------------------------
    (In millions)                                                                  1997             1996
    ===========================================================================================================
    <S>                                                                           <C>              <C>    
    Assets
         Investments:
                   Fixed maturity investments, at market (cost: $15 in
                        1997 and $-0- in 1996)                                      $16              $ -
                   Short-term and other investments, (cost:  $25 in 1997
                        and $40 in 1996)                                             23               40                        
    ------------------------------------------------------------------------ ----------------- ----------------
                             Total investments                                       39               40
    ------------------------------------------------------------------------ ----------------- ----------------
           Investments in subsidiaries                                            1,392            1,318
           Accrued investment income                                                  1                -
           Income taxes                                                              80               32
           Other assets                                                              13               18
    ------------------------------------------------------------------------ ----------------- ----------------

                   Total assets                                                  $1,525           $1,408
    ------------------------------------------------------------------------ ----------------- ----------------

    Liabilities and Shareholders' Equity
           Notes payable                                                            $98              $98
           Junior Subordinated debentures                                           129                -
           Contribution payable to subsidiary                                        70                -
           Accounts payable and other liabilities                                    40               78
    ------------------------------------------------------------------------ ----------------- ----------------
                   Total liabilities                                                337              176
    ------------------------------------------------------------------------ ----------------- ----------------

    Mandatory redeemable preferred stock                                             25               25

    Shareholders' Equity
           Common stock - par value $0.01 per share (authorized:
                   180,000,000; shares issued and outstanding: 66,955,288
                   shares in 1997 and 64,610,109 shares in 1996)                  1,257            1,198
                   
           Class A convertible common stock - par value $0.01 per share
                    (authorized:  1,000,000 shares; issued and outstanding: none)     -                -
           Retained earnings                                                        253              234
           Net unrealized investment gain, net of taxes                              98               52
           Net unrealized loss on foreign exchange, net of taxes                     (2)              (1)
    ------------------------------------------------------------------------ ----------------- ----------------
                                                                                  1,606            1,483
           Treasury stock (15,597,021 shares in 1997 and 10,306,000 shares
                   in 1996)                                                        (443)            (276)
    ------------------------------------------------------------------------ ----------------- ----------------
                   Total shareholders' equity                                     1,163            1,207
    ------------------------------------------------------------------------ ----------------- ----------------

                   Total liabilities and shareholders' equity                    $1,525           $1,408
    ===========================================================================================================
<FN>

  These financial statements should be read in conjunction with the Consolidated
  Financial Statements and the accompanying notes thereto.
</FN>
</TABLE>


                                       86
<PAGE>

                                     PART IV

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

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



<TABLE>
<CAPTION>

                                                                              Years Ended December 31,
                                                                     -----------------------------------------
    (In millions)                                                        1997          1996          1995
    ==========================================================================================================
    <S>                                                                  <C>           <C>           <C>    
    Revenues
           Net investment income                                          $6             $7           $10
           Net investment and other loss                                 (12)             -           (17)
    ---------------------------------------------------------------- ------------- ------------- -------------
                   Total revenues                                        (6)              7            (7)
    ---------------------------------------------------------------- ------------- ------------- -------------
    Expenses
           Selling and administration expenses                            48             37            21
           Interest expense                                               18              8             6
           Restructuring charges                                          -             100             -
    ---------------------------------------------------------------- ------------- ------------- -------------
                   Total expenses                                         66            145            27
    ---------------------------------------------------------------- ------------- ------------- -------------
    Loss before income tax benefit                                       (72)          (138)          (34)
    Income tax benefit                                                    24             76            42
    ---------------------------------------------------------------- ------------- ------------- -------------
           Income (loss) before equity in earnings of subsidiaries       (48)           (62)            8
    Equity in earnings of subsidiaries                                   100            141           110
    ---------------------------------------------------------------- ------------- ------------- -------------
           Net income                                                    $52            $79          $118
    ==========================================================================================================
<FN>

  These financial statements should be read in conjunction with the Consolidated
  Financial Statements and the accompanying notes thereto.
</FN>
</TABLE>

                                       87
<PAGE>



                                     PART IV

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

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




<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                       ------------------------------------------
(In millions)                                                              1997          1996           1995
=================================================================================================================
<S>                                                                        <C>            <C>           <C>    
       Net income                                                           $52            $79          $118
       Adjustments to reconcile net income to net
             cash provided by operating activities:
             Changes in:
                     Income taxes                                           (48)           (58)          (25)
                     Accrued investment income                               (1)             1             -
                     Equity in earnings of subsidiaries                    (100)          (141)         (110)
                     Dividends received from subsidiaries                   145            130            75
                     Other                                                  (23)            54             6
---------------------------------------------------------------------- ------------- -------------- -------------
                        Net cash provided by operating activities            25             65            64

---------------------------------------------------------------------- ------------- -------------- -------------
Investing Activities
        Purchases of fixed maturity investments                            (123)           (67)         (118)
        Sales of fixed maturity investments                                  96            187            75
        Maturities and calls of fixed maturities investments                 11              5             9
        Purchases of common stock investments                                (3)            (2)           (8)
        Sales of common stock investments                                    11              -             -
        Net change in short-term investments                                  8              4           (27)
        Capital contributions to subsidiaries                                 -              -           (20)
        Other                                                                (5)             2             1
---------------------------------------------------------------------- ------------- -------------- -------------
                        Net cash provided by (used in) investing                 
                           activities                                        (5)           129           (88)
---------------------------------------------------------------------- ------------- -------------- -------------
Financing Activities
        Net proceeds from issuance of notes payable                           -              -            98
        Junior Subordinated debentures issued                               125              -             -
        Net proceeds from issuance of common stock                           42              8             2
        Income tax benefit from stock options exercised                      13              -             -
        Acquisition of treasury stock                                      (167)          (188)          (62)
        Common stock dividends                                              (31)           (12)          (12)
        Preferred stock dividends                                            (2)            (2)           (2)
---------------------------------------------------------------------- ------------- -------------- -------------
                        Net cash provided by (used in) financing                
                           activities                                        (20)         (194)           24
---------------------------------------------------------------------- ------------- -------------- -------------
        Increase (decrease) in cash                                           -              -             -
        Cash at beginning of period                                           -              -             -
---------------------------------------------------------------------- ------------- -------------- -------------
        Cash at end of period                                                $-            $ -           $ -
=================================================================================================================
<FN>
These financial  statements  should be read in conjunction with the Consolidated
Financial Statements and the accompanying notes thereto.
</FN>
</TABLE>


                                       88
<PAGE>


                                     PART IV

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

                         TIG HOLDINGS, INC.                     SCHEDULE III
                       SUPPLEMENTARY INSURANCE INFORMATION
                                    <TABLE>
<CAPTION>


                           Future
                           Policy               Other                             Benefits   Amortization
               Deferred   Benefits              Policy                             Claims     of Deferred
                Policy     Losses,              Claims &               Net        Losses &      Policy        Other          Net
             Acquisition  Claims &   Unearned   Benefits  Premium   Investment    Settlement  Acquisition   Operating      Premium
(In millions)    Costs    Loss Exps   Premium   Payable   Revenue    Income (1)    Expenses      Costs       Expense (2)   Written
====================================================================================================================================
<S>               <C>      <C>         <C>         <C>    <C>          <C>        <C>             <C>         <C>           <C>

Year Ended
12/31/97:
                                                                                                                             
Primary           $ 89     $2,351      $512        -        $950       $156       $  645          $252        $ 41          $  921
Reinsurance         66      1,584       226        -         516        128          506           139          34             515
Parent               -          -         -        -           -          6            -             -          44               -
------------------------------------------------------------------------------------------------------------------------------------
     Total        $155     $3,935      $738        -      $1,466       $290       $1,151          $391        $119          $1,436
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
12/31/96:
                                                                                                                             
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
------------------------------------------------------------------------------------------------------------------------------------
<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>

                                       89
<PAGE>


                                     PART IV

--------------------------------------------------------------------------------
                         TIG HOLDINGS, INC. SCHEDULE IV
                                   REINSURANCE


<TABLE>
<CAPTION>

                                                                          
                                                                          Assumed From
                                                                             Other                
                                                             Ceded to    Companies and                Percentage
                                                Gross         Other       Involuntary      Net         of Amount
(In millions)                                   Amount      Companies        Pools        Amount      Assumed to              Net
==================================================================================================================
<S>                                             <C>             <C>           <C>         <C>           <C>    
 
Year Ended December 31, 1997
       Property and Casualty premium            $1,232          $433          $667        $1,466        45.50%
-------------------------------------------- ------------- ------------- ------------- ------------- -------------

Year Ended December 31, 1996
       Property and Casualty 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%
===================================================================================================================
</TABLE>


                                       90
<PAGE>



                                     PART IV

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

Exhibit 3.l:  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).

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).

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 4.3: Junior Subordinated Indenture,  dated January 30, 1997, between TIG
Holdings and The Chase Manhattan Bank, as Trustee  (incorporated by reference to
Exhibit 4.3 to TIG Holdings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).

Exhibit  4.4:  Certificate  of Trust of TIG Capital  Trust I, dated  January 24,
1997,  between TIG Holdings,  and The Chase Manhattan Bank, Chase Manhattan Bank
of  Delaware,  as  Trustees  (incorporated  by  reference  to Exhibit 4.4 to TIG
Holdings' Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).

Exhibit 4.5: Capital  Securities  Guarantee  Agreement,  dated January 30, 1997,
between TIG Holdings and The Chase Manhattan Bank, as Trustee  (incorporated  by
reference to Exhibit 4.5 to TIG Holdings'  Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).

Exhibit 4.6: Trust Agreement,  dated January 24, 1997,  between TIG Holdings and
The  Chase   Manhattan  Bank,   Chase  Manhattan  Bank  Delaware,   as  Trustees
(incorporated  by reference to Exhibit 4.6 to TIG Holdings'  Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).

Exhibit  4.7:  Amended and  Restated  Trust  Agreement  dated  January 30, 1997,
between TIG Holdings the  Administrators  named therein and The Chase  Manhattan
Bank, Chase Manhattan Bank Delaware,  as Trustees  (incorporated by reference to
Exhibit 4.7 to TIG Holdings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).

Exhibit 4.8:  Form of Capital  Securities  Certificate  of TIG Capital  Trust I,
(included as Exhibit E to Exhibit 4.7).

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).

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).



                                       91
<PAGE>


                                     PART IV

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

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).

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).

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).

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).

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).

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. I to
TIG Holdings' Annual Report on Form 10-K for the year ended December 31, 1993).

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).

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. I to TIG Holdings' Annual Report on Form 10-K for the year ended
December 31, 1993).

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).

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).

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).


                                       92
<PAGE>

                                     PART IV

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

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).

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).

Exhibit 10.17:  Diversified Savings 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  10.18 to TIG
Holdings' Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).

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).

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).

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 10K for the year ended December 31, 1994).

Exhibit 10.21: Credit Agreement, dated as of December 14, 1995, by and among TIG
Holdings, 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).

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. I dated November 7, 1994 to each of TIG Holdings,
Inc.  Employee  Stock  Ownership  Plan,   Employees'  Profit  Sharing  Plan  and
Diversified  Savings Plan  (incorporated  by  reference to Exhibit  10.32 to TIG
Holdings' Annual Report on Form 10-K for the year ended December 31, 1994).

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 Form 10-K for the year ended December 31, 1994).

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).


                                       93
<PAGE>

                                     PART IV

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

Exhibit 10.26: TIG Holdings, 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).

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).

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).

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).

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).

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

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).

Exhibit  10.33:  TIG Holdings,  Inc. ESOP  Restoration  Plan  (incorporated  by 
reference to Exhibit 10.7 to TIG Holdings'  Annual Report on Form 10-K for the 
year ended December 31, 1996).

Exhibit 10.34: TIG Holdings, Inc. Profit Sharing Restoration Plan (incorporated
by reference to Exhibit 10.34 to TIG Holdings' Annual Report on Form 10-K for
the year ended December 31, 1996).

Exhibit 10.35:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Diversified  Savings Plan  (incorporated  by  reference to Exhibit  10.35 to TIG
Holdings' Annual Report on Form 10-K for the year ended December 31, 1996).

Exhibit 10.36:  Amendment  effective January 1, 1997 to the TIG Holdings,  Inc. 
ESOP Restoration Plan (incorporated by reference to Exhibit 10.36 to TIG 
Holdings' Annual Report on Form 10-K for the year ended December 31, 1996).

Exhibit 10.37:  Amendment  effective  January 1, 1997 to the TIG Holdings,  Inc.
Profit Sharing Plan (incorporated by reference to Exhibit 10.37 to TIG Holdings'
Annual Report on Form 10-K for the year ended December 31, 1996).

Exhibit 10.38:  Separation  Agreement (in  replacement of employment  agreement)
dated May 1, 1997,  between TIG  Holdings,  and Don D. Hutson  (incorporated  by
reference to Exhibit 10.1 to TIG Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).



                                       94
<PAGE>



                                     PART IV

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

Exhibit 10.39: TIG Holdings, Inc. 1996 Long-Term Incentive Plan Restricted Share
Award  Agreement  (incorporated  by reference  to Exhibit 10.1 to TIG  Holdings'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).

Exhibit 10.40: Tax Reimbursement  Agreement dated November 11, 1996, between TIG
Holdings and Mary R. Hennessy  (incorporated by reference to Exhibit 10.2 to TIG
Holdings'  Quarterly  Report on Form 10-Q for the quarter  ended  September  30,
1997).

Exhibit 10.41:  Purchase and Sale  Agreement  dated as of September 30, 1997, by
and between  TIG  Insurance  Company and  Nationwide  Mutual  Insurance  Company
(incorporated by reference to Exhibit 10.3 to TIG Holdings'  Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).

Exhibit 10.42:  Amended and Restated  Credit  Agreement dated as of December 17,
1997 among TIG Holdings, the lenders party thereto, the letter of credit issuing
lenders named therein, The Chase Manhattan Bank (successor to Chemical Bank), as
Administrative  Agent  and  Morgan  Guaranty  Trust  Company  of  New  York,  as
Documentation Agent.

Exhibit 10.43: TIG Holdings, Inc. 1996 Long-Term Incentive Plan Share Award 
Agreement.

Exhibit 10.44: TIG Holdings, Inc. 1996 Long-Term Incentive Plan Executive Stock 
Option Agreement.

Exhibit 10.45: Agreement dated as of January 16, 1998, by an among TIG 
Reinsurance Company, TIG Holdings and Michael G. Wacek.

Exhibit 12: Statement re: Computation of Ratio of Consolidated Earnings to Fixed
Charges and Preferred Stock Dividends.

Exhibit 21: Subsidiaries of TIG Holdings.

Exhibit 23.1: Consent of Ernst & Young LLP

Exhibit 24.1: Powers of Attorney.




                                       95
<PAGE>




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
























                                  EXHIBIT 10.42



<PAGE>



--------------------------------------------------------------------------------
                                                            CONFORMED COPY

                      AMENDED AND RESTATED CREDIT AGREEMENT

         AMENDED AND  RESTATED  CREDIT  AGREEMENT  dated as of December 17, 1997
among TIG  HOLDINGS,  INC.  (the  "Borrower"),  the LENDERS  party  thereto (the
"Lenders"),  the LETTER OF CREDIT  ISSUING  LENDERS  named therein (the "Issuing
Lenders")  THE  CHASE   MANHATTAN  BANK   (successor  to  Chemical   Bank),   as
Administrative  Agent (the  "Administrative  Agent") and MORGAN  GUARANTY  TRUST
COMPANY OF NEW YORK, as Documentation Agent (the "Documentation Agent").

                                      WITNESSETH:

         WHEREAS,  the parties  hereto  have  heretofore  entered  into a Credit
Agreement   dated  as  of  December  14,  1995  (as  heretofore   amended,   the
"Agreement"); and

         WHEREAS, no Loans are outstanding under the Agreement at the date 
hereof; and

         WHEREAS,  the parties  hereto desire to make the  amendments  specified
below and to restate the  Agreement  in its entirety to read as set forth in the
Agreement, with the amendments specified below;

         NOW, THEREFORE, the parties hereto agree as follows:

         Section 1. Definitions;  References.  (a) Unless otherwise specifically
defined  herein,  each term used herein which is defined in the Agreement  shall
have the  meaning  assigned to such term in the  Agreement.  Each  reference  to
"hereof",  "hereunder",  "herein" and "hereby" and each other similar  reference
contained  in the  Agreement  shall from and after the date hereof  refer to the
Agreement as amended and restated hereby.

         (b) Each  reference to "Chemical  Bank" and "Chemical" in the Agreement
is changed to "The Chase Manhattan Bank" and "Chase" respectively.

         Section 2.  Extension of Facility.  The definition of
"Termination Date" in Section 1.1 of the Agreement is amended to read in its 
entirety as follows:

         "Termination Date": December 17, 2002.

         Section 3.  Fees.  Section 3.11 is amended by the addition of the 
following clause (e):

         (e)  For  each  day on  which  the  sum of  the  aggregate  outstanding
principal  amount of the Loans (including  Competitive  Loans) and the aggregate
amount of Letter of Credit  Liabilities  exceeds 50% of the aggregate  amount of
the  Commitments,  the Borrower  shall pay to the  Administrative  Agent for the
account of the Lenders ratably a utilization fee (determined daily on accordance
with the Pricing  Schedule) on the aggregate  principal amount of Eurodollar and
CD Loans outstanding and the aggregate amount of Letter of Credit Liabilities on
such day.

          Section 4. Pricing Schedule. The existing Schedule 1 is hereby deleted
and replaced with the attached Schedule 1.

          Section 5. Litigation. The existing Schedule 4.4 is hereby deleted and
replaced with the attached Schedule 4.4.



<PAGE>



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

          Section 6.  Affirmative and Financial  Covenants;  Adjusted net Worth.
Section 7.10 is amended to read in its entirety as follows:

         As of any date of  determination,  have  Adjusted net Worth of not less
than $1,000,000,000.

         Section 7.  Leverage Ratio. (a) The definition of "Adjusted Net Worth" 
on Section 1.1 of the Agreement is amended to read in its entirety as follows:

         "Adjusted  Net  Worth":  at any date of  determination,  the sum of all
amounts which would be included  under  shareholders'  equity on a  Consolidated
balance sheet of the Borrower determined in accordance with GAAP (without giving
effect to FASB 115) plus the Equity Portion of Trust Preferred Securities.

         (b) The  definition  of  "Leverage  Ratio" in Section  1.1 of the
Agreement is amended to read in its entirety as follows:

         "Leverage  Ratio":  as of any  date,  the  ratio  of  (a)  Consolidated
Indebtedness  (excluding  the TIC Appeal Bond and  including the Debt Portion of
Trust  Preferred  Securities) of the Borrower on such date to (b) the sum of (i)
Consolidated  Indebtedness(excluding  the TIC Appeal Bond and including the Debt
Portion of Trust  Preferred  Securities)  of the Borrower on such date plus (ii)
Adjusted Net Worth on such date.

         (c) the  following  new  definitions  are added to  Section  1.1 of the
Agreement in their appropriate alphabetical positions:

          "Debt  Portion of Trust  Preferred  Securities":  mean at any time the
amount of Trust  Preferred  Securities  that is not the  Equity  Portion of
Trust Preferred Securities.

         "Equity Portion of Trust Preferred  Securities":  means at any time the
amount of Trust  Preferred  Securities  that does not exceed 15% of Consolidated
Total Capital at such time. For this purpose, "Consolidated Total Capital" means
the  sum,  without  duplication,  of  the  indebtedness,  preferred  and  common
stockholders' equity (including  redeemable preferred stock of the Borrower) and
the  Trust   Preferred   Securities   of  the  Borrower  and  its   Consolidated
Subsidiaries, determined on a consolidated basis.

          "TIC Appeal Bond":  the TIG Insurance  Company's appeal bond issued in
connection with the case of Talbot Partners v. Cates Construction,  Inc. As
of December 17, 1997, the amount of the bond is $53,193,885.

         "Trust Preferred  Securities":  preferred equity securities issued by a
Consolidated  Subsidiary  as to which the issuer of such  security  is a special
purpose  entity  substantially  all the  assets  of which  consist  directly  or
indirectly of debt claims on the Borrower,  which claims are subordinated to the
Borrower's obligations hereunder and under the Notes.

         Section 8.  Successors and Assigns. The proviso to Section 11.7 (c) is
amended by the addition of the following clause (iv):

         (iv) the  assigning  Lender shall retain a Commitment  of not less than
$10,000,000 (or such lesser amount to which the Borrower shall consent).


<PAGE>



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

         Section 9.  Financial Information. (a) Each reference to "December 31, 
1994" in Section 4.13 is changed to "December 31, 1996".

         (b) Each  reference  to  "September  30,  1995" in  Section  4.13(a) is
changed to "September 30, 1997".

         Section 10.  Change in  Commitment.  With effect from and including the
date this Amendment and Restatement becomes effective in accordance with Section
13 hereof,  (i) each Person listed on the signature  pages hereof which is not a
party to the  Agreement  (a "New  Lender")  shall  become a Lender  party to the
Agreement  and (ii) the  Commitment  of each  Lender  shall be amount  set forth
opposite the name of such Lender on the attached List of Commitments. Any Lender
whose Commitment is changed to zero shall upon such effectiveness  cease to be a
Lender party to the  Agreement,  and all accrued fees and other amounts  payable
under the  Agreement  for the account of such Lender shall be due and payable on
such  data;  provided  that the  provisions  of  Sections  11.5 and 11.10 of the
Agreement shall continue to inure to the benefit of such Lender.

         Section 11.  Representations and Warranties.  The Borrower hereby 
represents and warrants that as of the date hereof and after giving effect 
hereto:

         (a) no Default has occurred and is continuing; and

         (b) each  representation  and warranty of the Borrower set forth in the
Agreement  after giving  effect to this  Amendment and  Restatement  is true and
correct as though made on and as of such date.

         Section 12.  Governing Law.  This Amendment and Restatement shall be 
governed by and construed in accordance with the laws of the State of New York.

         Section 13. Counterparts; Effectiveness. This Amendment and Restatement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures  thereto and hereto were upon the same
instrument. This Amendment and Restatement shall become effective as of the date
hereof when the Documentation Agent shall have received;

              (i) duly executed  counterparts  hereof signed by the Borrower and
the Lenders  (or,  in the case of any party as to which an executed  counterpart
shall not have been  received,  the  Documentation  Agent  shall  have  received
telegraphic, telex or other written confirmation from such party of execution of
counterpart hereof by such party);

              (ii) a duly  executed  Note  for each of the New  Lenders  (a "New
Note"),  dated on or before the date of  effectiveness  hereof and  otherwise in
compliance with Section 2.2 of the Agreement;

              (iii) an opinion of the General Counsel of the Borrower, dated the
date if effectiveness  hereof,  to substantially  the effect of Exhibits D-1 and
D-2 to the Agreement with reference to this  Amendment and  Restatement  and the
Agreement as amended and restated hereby;

              (iv) evidence reasonably satisfactory to it that all approvals and
consents of all Persons required to be obtained connection with the consummation
of the  transactions  contemplated by these Amendment and Restatement  have been
obtained; and

              (v)  all  documents  it may  reasonably  request  relating  to the
existence of the Borrower,  the corporate  authority for and the validity of the
Agreement as amended and restated hereby, and any other matters relevant hereto,
all in form and substance satisfactory to the Documentation Agent.


<PAGE>



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

         IN WITNESS  WHEREOF,  the parties  hereto have cause this Amendment and
Restatement to be duly executed as of the dates first above written.

                                     TIG HOLDINGS, INC.
                                     BY /S/ Louis J. Paglia
                                     Title: Senior Vice President and Treasurer

                                     THE CHASE MANHATTAN BANK, in its
                                     capacity as a Lender and in its capacity
                                     as the Administrative Agent

                                     BY /s/ Heather Lindstrom
                                     Title: Vice President

                                     MORGAN    GUARANTY    TRUST
                                     COMPANY OF NEW YORK, in its
                                     capacity as a Lender and in
                                     its capacity as the Documentation Agent

                                     By /s/ Maria H. Dell' Aquila
                                     Title: Vice President


<PAGE>



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

                                     CITIBANK, N.A.

                                     By /s/ Kelly T  Herbert
                                     Title: Attorney-In-Fact Citibank, N.A.

                                     CORESTATES BANK, N.A.
                                     By /s/ Kevin O'Rourke
                                     Title: Assistant Vice President

                                     DEUTSCHE BANK, AG
                                     NEW YORK AND/OR CAYMAN
                                     ISLAND BRANCHES

                                     By /s/ Louise Caltavuturo
                                     Title: Vice President

                                     By /s/ John S. McGill
                                     Title: Vice President


                                     THE FIRST NATIONAL BANK OR CHICAGO

                                     By /s/ Samuel W. Bridges
                                     Title: First Vice President


<PAGE>



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

                                     MELLON BANK, N.A.

                                     By /s/ Susan M. Whitewood
                                     Title: Vice President


                                     ROYAL BANK OF CANADA

                                     By /s/ Y.J. Brenard
                                     Title: Manager

                                     NORWEST BANK MINNESOTA,
                                     NATIONAL ASSOCIATION

                                     By /s/ Larry M. Lange
                                     Title: Vice President


                                     CREDIT LYONNAIS NEW YORK BRANCH

                                     By /s/ Sebastain Rocco
                                     Title: First Vice President



<PAGE>



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

                                  TIG HOLDINGS
                               LIST OF COMMITMENTS

                                                                 COMMITMENT
             LENDER                                               AMOUNT
        ------------------------------------------------------------------------
        THE CHASE MANHATTAN BANK                                $35,000,000
        MORGAN GUARANTY TRUST  COMPANY OF NEW YORK              $35,000,000
        CITIBANK, N.A.                                          $27,500,000
        CORESTATES BANK, N.A.                                   $27,500,000
        DEUTSCHE BANK, AG
             NEW YORK AND/OR CAYMAN ISLAND BRANCHES             $27,500,000
        THE FIRST NATION BANK OF CHICAGO                        $27,500,000
        MELLON BANK, N.A.                                       $27,500,000
        ROYAL BANK OF CANADA                                    $27,500,000
        NORTHWEST BANK MINNESOTA, NATIONAL ASSOCIATION          $15,000,000
        ------------------------------------------------------------------------
        TOTAL                                                  $250,000,000
        ------------------------------------------------------------------------



<PAGE>
--------------------------------------------------------------------------------

                                    SCHEDULE
                                PRICING SCHEDULE

         Each of "Facility Fee Rate", "Eure-Dollar Margin", "CD Margin", and "LC
Fee Rate" means, for any date, the rate set forth below in the row opposite such
term and in the column corresponding to the "Pricing Level" that applies at such
date:
<TABLE>
<CAPTION>
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
                              LEVEL I       LEVEL II     LEVEL III      LEVEL IV      LEVEL V       LEVEL VI
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S>                             <C>           <C>           <C>           <C>           <C>           <C>
"Unused Cost" - Facility
Fee Rate                        0.080%        0.090%        0.110%        0.125%        0.150%        0.200%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Eurodollar Margin
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is < 50%            0.120%        0.135%        0.140%        0.175%        0.300%        0.300%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is > 50%            0.170%        0.185%        0.190%        0.225%        0.350%        0.350%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
CD Margin
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is < 50%            0.245%        0.260%        0.265%        0.300%        0.425%        0.425%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is > 50%            0.295%        0.310%        0.315%        0.350%        0.475%        0.475%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
"Used Cost"-
 Euro-Dollar Margin Plus
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is < 50%            0.200%        0.225%        0.250%        0.300%        0.450%        0.500%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is > 50%            0.250%        0.275%        0.300%        0.350%        0.500%        0.550%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
"Used Cost"-CD Margin Plus   
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is < 50%            0.325%        0.350%        0.375%        0.425%        0.575%        0.625%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is > 50%            0.375%        0.400%        0.425%        0.475%        0.625%        0.675%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
LC Fee Rate
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is < 50%            0.120%        0.135%        0.140%        0.175%        0.300%        0.300%
--------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Utilization is > 50%            0.170%        0.185%        0.190%          0.225%      0.350%        0.350%
===============================================================================================================
</TABLE>
         For  the  purpose  of this  Schedule,  the  following  terms  have  the
following meanings, subject to the concluding paragraphs of this schedule:

         "Level I Pricing"  applies at any date if, at such date, the Borrower's
long-term debt is rated A+ or higher by S&P or A1 of higher by Moody's.

         "Level II  Pricing"  applies at any date if, at such  date,  (i) the  
Borrower  long-term  debt is rated A or higher by S&P or A2 or higher by Moody's
and (ii)Level I Pricing does not apply.

         "Level III Pricing"  applies at any date if, as such date,  (i) the 
Borrower's  long-term debt is rated A- or higher by S&P or A3 or higher by 
Moody's and (ii)neither Level I Pricing nor Level II Pricing applies.

         "Level  IV  Pricing"  applies  at any date if,  as such  date,  (i) the
Borrower's  long-term  debt is rated  BBB+ or higher by S&P or Baa1 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing
applies.

         "Level  V  Pricing"  applies  at any  date if,  as such  date,  (i) the
Borrower's  long-term  debt is rated  BBB or  higher by S&P or Baa2 or higher by
Moody's and (ii) none of Level I Pricing,  Level II  Pricing,  Level III Pricing
and Level IV Pricing applies.

         "Level  VI  Pricing"  applies  at any date if, at such  date,  no other
Pricing Level applied.

<PAGE>



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

         "Moody's" means Moody's Investors Service, Inc.

         "Pricing Level" refers to the  determination of which of Level I, Level
II, Level III, Level IV, Level V or Level VI that applies at any date.

         `S&P" means Standard & Poor's Ratings Services.

The credit  ratings to be  utilized  for  purposes  of this  Schedule  are those
assigned to the senior  unsecured  long-term  debt  securities  of the  Borrower
without  third-party  credit  enhancement.  and any rating assigned to any other
debt security of the Borrower shall be disregarded.  The rating in effect at any
date is that in effect at the close of business on such date.

     Split ratings shall be treated as follows:

     (i) If the Borrower is split-rated and the ratings  differential is one 
level,  the higher of the two ratings will apply (e.g.,  A+/A2 results in Level
I status and A/A3 results in Level II status).

     (ii) If the Borrower is split-rated  and the ratings  differential  in more
than one level,  the  midpoint of the two ratings  (or, of there is no midpoint,
the higher of two  intermediate  ratings) shall be used (e.g.,  A+/A3 results in
Level II status and A+/Baa1 results in Level II status).



<PAGE>



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

                         TIG HOLDINGS, INC, SCHEDULE 4.4

                               LIST OF LITIGATION


1.       Talbot Partners v. Cates Construction, Inc. and TIG Insurance Company,
         Los Angeles County Superior Court

TIG Holdings' insurance  subsidiaries are routinely engaged in litigation in the
normal course of their business, As a liability insurer, they defend third-party
claims brought against their  insureds,  As an insurer,  they defend  themselves
against coverage claims,  On January 1,1994, a Los Angeles County Superior Court
jury returned a verdict of $28 million for punitive  damaged again 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.  On March 28,  1997,  the  California  Court of Appeal
reduced the trial court's  punitive  damages  award to $15 million.  On July 23,
1997, the California Supreme Court granted TIC's petition to review the Court of
Appeal's decision.  Management believed that the ultimate liability arising from
the Talbot Case will not materially impact consolidated operating results.

2.       1993 Tax Assessment

TIG's Federal income tax returns are routinely  audited by the Internal  Revenue
Service (IRS) and provision are made on the financial statements in anticipation
of the results of these audits.  Following a routine federal income tax audit be
the IRS, in September  1997 the IRS issued a Statutory  Notice of Deficiency for
the tax  year  1993 and a  Revenue  Agent's  Report  for  1994  asserting  a tax
liability of approximately $170 million excluding  interest,  The IRS's asserted
tax  adjustments  principally  relate to the  acquisition  made by TIG under the
Section 338(h)(10) election of April 27, 1993 in conjunction with TIG's IPO, and
primarily  generate  temporary  differences  by  creating  income  in 1993  with
corresponding  deductions in 1993 and future years. TIG strongly  disagrees with
the IRS's  position  and, on December 11, 1997,  TIG filed a Tax Court  Petition
challenging  it.  While  the  timing  of  cash  tax  payments  may be  impacted,
management  believes that  revisions of TIG's  recorded tax  liability,  if any,
arising from the IRS's audit will not materially impact  consolidated net income
or the financial condition of TIG.



<PAGE>



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























                                  EXHIBIT 10.43


<PAGE>



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

                               TIG HOLDINGS, INC.
                               65 EAST 55TH STREET
                                   28TH FLOOR
                            NEW YORK, NEW YORK 10022

                TIG HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN

                       Share Award Agreement ("Agreement")

                      With ________________________________
                     Residing at ___________________________

                    Agreement dated as of ___________________

     1. Incorporation By Reference;  Document Receipt. This Agreement is subject
in all  respects to the terms and  provisions  of the TIG  Holdings,  Inc.  1996
Long-Term  Incentive  Plan (the  "Plan"),  including,  without  limitation,  any
amendments  thereto  adopted  at any time and from  time to time and  which  are
intended  to apply to the  grant of  shares of  Common  Stock  ("Shares")  under
Section 9 of the Plan,  all of which terms and provisions are made a part of and
incorporated  in this Agreement as if they were expressly set forth herein.  Any
capitalized term not defined in this Agreement shall have the same meaning as is
ascribed thereto under the Plan. You hereby  acknowledge  receipt of a true copy
of the Plan and that you have read the Plan  carefully and fully  understand its
contents. In the event of a conflict between the terms of this Agreement and the
terms of the Plan, the terms of the Plan shall control.

     2. Grant and Vesting of Shares.  You have been  selected to receive a grant
of the number of Shares set forth below as an Award under Section 9 of the Plan.

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

         Number of Shares ..........................., xxxx shares

     The Shares shall be  uncertificated  and, except as provided in paragraph 4
of this  Agreement,  shall vest as  follows,  provided  you are  employed by the
Company or one of its Related Companies on the applicable vesting date:

                  o   xxxx shares...........................on xxxxxxxxxxxxxx
                  o   xxxx shares...........................on xxxxxxxxxxxxxx
                  o   xxxx shares...........................on xxxxxxxxxxxxxx

     3. Delivery of Certificate.  After the vesting of your Shares, you shall be
entitled,  in accordance  with the terms and provisions of the Plan, to receive,
upon  your  request,  a stock  certificate  (registered  in your  name)  for and
representing  the number of shares of Common Stock underlying the vested Shares.
No fractional shares shall be issued under this Agreement. Any fractional shares
to which you would otherwise be entitled shall be repurchased by the Company for
cash.
--------------------------------------------------------------------------------


<PAGE>



         4.  Termination of Employment.  If your employment with the Company and
the Related Companies is terminated due to death, Disability,  or Retirement, or
due to your  unilateral  termination  by the Company  and the Related  Companies
without cause,  or due to your unilateral  resignation  from the Company and the
Related  Companies for cause, all then unvested Shares covered by this Agreement
as of the date of any such termination shall become 100% vested as of such date.
If your employment  with the Company and the Related  Companies is terminated on
account of a  professional  disagreement  and without  cause and with the mutual
agreement of you and the Company and the Related  Companies,  all such  unvested
Shares that are  scheduled  under  paragraph 2 to become  vested  within  twelve
months of such  termination,  shall  become 100% vested on the date set forth in
paragraph 2 notwithstanding that you are not then employed by the Company or one
of the Related  Companies on such date.  Upon the occurrence of both a Change in
Control  and  whether  or not an Adverse  Employment  Action  occurs  before the
expiration  of one year after the Change in Control,  all then  unvested  Shares
shall become 100% vested in accordance  with the provisions of Section 17 of the
Plan.  Except as otherwise  provided herein, if your employment with the Company
and the  Related  Companies  is  terminated  for any reason  other  than  death,
Disability, or Retirement at any time, any Shares that have not yet vested as of
the  date of any such  termination  shall be  immediately  forfeited  by you and
canceled.

         5. Rights of  Stockholder.  Subject to the  provisions  of the Plan and
this Agreement, you shall have all of the powers,  preferences,  and rights of a
holder of Common  Stock with  respect to the shares of Common  Stock  comprising
this Share  grant.  You agree and  understand  that  nothing  contained  in this
Agreement  provides,  or is  intended  to provide,  you any  protection  against
potential  future dilution of your  stockholder  interest in the Company for any
reason,  except as stated in Section 16.2 of the Plan. Any stock  dividends paid
in respect of unvested Shares shall be treated as additional Shares and shall be
subject to the same  restrictions  and other terms and conditions  that apply to
the unvested Shares with respect to which such stock dividends are paid.

         6.  Non-transferability.   Unvested  Shares  (i)  shall  not  be  sold,
exchanged,  assigned,  transferred,  or otherwise  disposed of in any way at any
time by you (or your beneficiary(ies)),  other than by testamentary  disposition
by you or the laws of descent  and  distribution  and (ii) shall not be pledged,
encumbered,  or  otherwise  hypothecated  in any way at any time by you (or your
beneficiary(ies)) and shall not be subject to execution,  attachment, or similar
legal process. Any attempt to sell, transfer, pledge, encumber,  hypothecate, or
otherwise  dispose of any unvested Shares,  contrary to the terms and provisions
of this  Agreement  and/or the Plan,  shall be null and void and  without  legal
force or effect.

         7.  Withholding.  The  Company  shall have the right to deduct from any
shares or amount due you under this Agreement or otherwise,  any federal, state,
local,  or other  taxes of any kind that the  Company,  in its sole  discretion,
deems necessary to be withheld to comply with the Internal Revenue Code of 1986,
as amended (the "Code"),  and/or any other  applicable law, rule, or regulation.
When the Shares become vested (or if you make an election under Section 83(b) of
the Code at the time of such election),  you shall, if requested by the Company,
promptly pay to the Company in cash or Shares an amount equal to the  applicable
withholding  taxes determined by the Company as being required to be withheld or
collected  under  applicable  federal,  state,  or  local  laws or  regulations.
Furthermore,  the Company  shall have the right to deduct and  withhold any such
applicable  taxes from, or in respect of, any  dividends or other  distributions
paid on or in respect of the  Common  Stock  comprising  this Share  grant.  All
taxes,  if any,  in respect of the grant of the  Shares or any  payments  to you
hereunder shall be solely your responsibility and shall be paid by you. You may,
at your  discretion,  direct the Company to withhold  and pay to the  applicable
taxing  authority  with respect to the vesting of Shares an amount not to exceed
the excess, if any, of (i) the amount of tax that would result from such vesting
assuming that the tax is calculated at the maximum marginal rate imposed by such
taxing authority and (ii) the withholding  taxes that the Company is required by
law  to  withhold  or  collect;   provided  that  you  deliver  to  the  Company
simultaneously with such discretion Shares having a value equal to the amount so
withheld.  You will  notify the  Company of your  intention  to make an election
under  Section  83(b) of the Code at least five (5) business  days before making
such election.


<PAGE>



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

         8.  Compliance  with Laws.  The  resale of the  shares of Common  Stock
issued  pursuant to this  Agreement  shall be subject to, and shall comply with,
any applicable  requirements of federal and state  securities  laws,  rules, and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective  rules and regulations  promulgated
thereunder) and any other law, rule, or regulation  applicable  thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to permit the resale of any shares of Common Stock  pursuant to
this Agreement if such resale would violate any such requirements.

         9.  Notices.  Any notice  hereunder  shall be in  writing  and shall be
delivered in person, or via facsimile  transmission,  overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company,  as the case may be, at the applicable  address specified
in the heading on the first page of this Agreement,  or at such other address as
you or the  Company,  as the case may be, may  designate to the other party from
time to time in a notice that satisfies the conditions of this paragraph.

         10. Governing Law; Entire  Agreement.  This Agreement shall be governed
by and shall be construed in accordance  with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.  This Agreement
contains  the entire  agreement  between you and the Company with respect to the
subject matter  contained  herein,  and supersedes all prior agreements or prior
understandings,  whether oral or written,  between such parties relating to such
subject matter.

         11.  Severability.  The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction  shall not affect the validity,  legality,
or enforceability of the remainder of this Agreement in such jurisdiction or the
validity,  legality, or enforceability of any provision of this Agreement in any
other  jurisdiction,  it being  intended that all rights and  obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in one or more counterparts,  each of which shall be deemed to be the 
original,  as of the date first set forth above.


TIG HOLDINGS, INC.                         Agreed to and accepted by:



By:__________________________              ______________________      _________
         Lon P. McClimon                      Recipient Signature         Date



<PAGE>



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


























                                  EXHIBIT 10.44



<PAGE>



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

                               TIG HOLDINGS, INC.
                               65 EAST 55TH STREET
                                   28TH FLOOR
                            NEW YORK, NEW YORK 10022

                TIG HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN

      Stock Option Agreement dated as of ____________________ ("Agreement")

                          With ________________________
                       Residing at________________________

         1. Grant of Stock Options.  Pursuant to the terms and provisions of the
TIG Holdings,  Inc. 1996 Long-Term  Incentive Plan, as amended from time to time
(the  "Plan"),  all of  which  terms  and  provisions  are  made  a part  of and
incorporated  in this Agreement as if they were expressly set forth herein,  you
have been  selected to receive the  following  Non-Qualified  Stock Option grant
(the "Stock Options") as an Award under Section 6 of the Plan. Terms of the Plan
are set forth in the Plan document  effective as of May 2, 1996, a copy of which
has been provided to you with this Agreement and you hereby acknowledge  receipt
of the Plan document.
Capitalized  terms in this  Agreement  have the  meanings  set forth in the Plan
unless defined herein.

This grant  entitles you to purchase  Common Stock of TIG  Holdings,  Inc.  (the
"Company") in accordance  with the terms of the Plan and the following terms and
conditions:

                  Date of Grant ..............................

                  Per Share Option Price......................  $

                  Non-Qualified Stock Option Grant for .......  xxx Shares

         2.  Exercisability of Stock Options.  Except as provided in paragraph 3
of this  Agreement,  this Stock Option grant shall  become  exercisable  in four
installments  in  respect  of the  aggregate  number of shares of the  Company's
Common Stock  underlying  this Stock  Option grant as follows,  provided you are
then employed by the Company or one of the Related Companies:

                  o   xxxx shares ......................... on xxxxx
                  o   xxxx shares ......................... on xxxxx
                  o   xxxx shares ......................... on xxxxx
                  o   xxxx shares ......................... on xxxxx



<PAGE>



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

         3.  Termination of Employment.  If your employment with the Company and
the Related Companies is terminated due to death, Disability,  or Retirement, or
due to your  unilateral  termination  by the Company  and the Related  Companies
without cause,  or due to your unilateral  resignation  from the Company and the
Related  Companies for cause,  all then  outstanding  installments of this Stock
Option grant shall become fully exercisable. If your employment with the Company
and  the  Related   Companies  is  terminated  on  account  of  a   professional
disagreement  and  without  cause and with the mutual  agreement  of you and the
Company and the Related  Companies,  all then  outstanding  installments of this
Stock Option  scheduled  under paragraph 2 to become  exercisable  within twelve
months of such  termination,  shall become  exercisable on the date set forth in
paragraph 2  notwithstanding  that you are not employed by the Company or one of
the Related  Companies on such date.  Upon the occurrence of a Change in Control
and whether or not an Adverse  Employment Action occurs before the expiration of
one year after the Change in Control, all then outstanding  installments of this
Stock Option grant shall become fully  exercisable in accordance  with the terms
of Section 17 of the Plan.  Except as otherwise  provided herein,  Stock Options
that are  unexercisable  at the time of the  termination of your employment with
the Company and the Related Companies shall be immediately  forfeited by you and
canceled.  All Stock Options covered by this Agreement shall remain  outstanding
until  expiration  or  cancellation  as provided in this  Agreement or under the
Plan.

         4.  Expiration  of Stock  Options.  The Stock  Options  covered by this
Agreement shall expire ten years from the date of the grant,  subject to earlier
termination  under  Section 14 of the Plan and  paragraph  3 of this  Agreement.
Pursuant to Section 14.1.1 of the Plan, all exercisable Stock Options covered by
this Agreement shall remain exercisable for four years following the termination
of your  employment  with the Company and the  Related  Companies  due to death,
Retirement, or Disability, and for ninety days following the termination of your
employment  with the  Company and the Related  Companies  for any other  reason,
provided  that  in  the  event  an  installment  of  the  Stock  Option  becomes
exercisable  under  paragraph 3 following your  termination of employment,  such
Stock Option  shall remain  exercisable  for ninety days  following  the date it
first became  exercisable.  Notwithstanding  the  foregoing,  in no event will a
Stock Option remain exercisable beyond its original term.

         5. No Stockholder  Rights.  Prior to the exercise of the Stock Options,
you shall not, by virtue of this Award,  have any of the rights  (including  the
voting rights) of an owner of a share of Common Stock.  You agree and understand
that nothing  contained in this Agreement  provides,  or is intended to provide,
you any protection  against potential future dilution of the value of the shares
of Common  Stock that may be purchased  under the Stock  Options for any reason,
except as stated in Section 16.2 of the Plan.

         6. Non-transferability. The Stock Options shall not be sold, exchanged,
assigned,  transferred,  or otherwise  disposed of in any way at any time by you
(or your beneficiary(ies)), other than by testamentary disposition by you or the
laws of descent and distribution.  The Stock Options issued under this Agreement
and the Plan shall not be pledged,  encumbered, or otherwise hypothecated in any
way at any time by you (or your  beneficiary(ies))  and shall not be  subject to
execution,  attachment, or similar legal process. Any attempt to sell, transfer,
pledge, encumber, hypothecate, or otherwise dispose of any of the Stock Options,
contrary to the terms and provisions of this Agreement  and/or the Plan shall be
null and void and without legal force or effect.


<PAGE>



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

         7.  Withholding.  The  Company  shall have the right to deduct from any
shares otherwise due to you under this Agreement, including, without limitation,
any shares due upon exercise of the Stock Options, any federal, state, local, or
other  taxes  of any kind  that  the  Company,  in its  sole  discretion,  deems
necessary  to be withheld to comply with the Internal  Revenue Code of 1986,  as
amended (the "Code"), and/or any other applicable law, rule, or regulation. When
you exercise the Stock Options, you shall, if requested by the Company, promptly
pay to the Company in cash an amount  equal to the  required  withholding  taxes
under applicable federal, state, or local laws or regulations.  Furthermore, the
Company  shall have the right to deduct and withhold any such  applicable  taxes
from, or in respect of, any shares purchased under the Stock Options. All taxes,
if any, in respect of the grant or exercise of the Stock Options hereunder shall
be solely your responsibility and shall be paid by you.

         8.  Ownership  Maintenance  Stock  Option.  Subject to the  limitations
contained  in  Section  4.2 of the  Plan  and any  other  applicable  limitation
contained in any successor  plan, a  Non-Qualified  Stock Option (an  "Ownership
Maintenance  Stock  Option")  shall be  granted  to you in  accordance  with the
policies and  procedures of the Committee then in effect if upon exercise of the
Stock  Options  covered by this  Agreement,  you (i) actually or  constructively
deliver to the Company,  in full or partial payment of the exercise price of the
Stock Options  covered by this  Agreement,  shares of Common Stock that you have
held for at least six (6) months or (ii) in addition to such  delivery of shares
to pay such  exercise  price,  deliver  shares of Common Stock to the Company or
have the Company withhold shares of Common Stock  deliverable to you, in full or
partial payment of any required  withholding tax liability  associated with such
exercise;  provided,  however,  that the Committee may, in its sole  discretion,
disapprove  of the  delivery or  withholding  of shares to pay such  taxes.  The
number of shares of Common  Stock  subject to the  Ownership  Maintenance  Stock
Option shall be equal to the number of shares of Common  Stock so delivered  and
withheld,  with an  exercise  price for each share of Common  Stock equal to the
Fair  Market  Value  of a share  of  Common  Stock  on the  date of grant of the
Ownership Maintenance Stock Option, provided that the Committee may, in its sole
discretion,  refuse to authorize the grant of such Ownership  Maintenance  Stock
Option if the Committee  determines  that such grant would result in any adverse
accounting treatment to the Company. Notwithstanding the foregoing, an Ownership
Maintenance  Stock  Option  shall  be  granted  only  if (a) on the  date  it is
exercised,  the Stock Options covered by this Agreement are exercisable for more
than six (6) months  beyond the  exercise  date,  (b) you have not  received  an
Ownership Maintenance Stock Option within the three (3) month period immediately
preceding the exercise of the Stock Options covered by this Agreement and (c) on
the date the Stock  Options  are  exercised,  you are an active  employee of the
Company and/or a Related Company.  The Ownership  Maintenance Stock Option shall
not be  exercisable  during the six (6) month period  immediately  following the
date on which the Ownership  Maintenance  Stock Option is granted,  but shall be
fully  exercisable  thereafter  until the  Ownership  Maintenance  Stock  Option
expires.  The Ownership  Maintenance Stock Option shall expire on the expiration
date of the Stock Options covered by this Agreement.

         9.  Compliance  with  Laws.  The  issuance  of shares  of Common  Stock
pursuant to this  Agreement  shall be subject  to, and shall  comply  with,  any
applicable  requirements  of  federal  and state  securities  laws,  rules,  and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective  rules and regulations  promulgated
thereunder) and any other law, rule, or regulation  applicable  thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to issue any shares of Common Stock  pursuant to this Agreement
if such issuance would violate any such requirements.


<PAGE>



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

         10. Cancellation and Rescission of Awards.  Notwithstanding anything in
this Agreement to the contrary, any unexpired,  unpaid, or deferred Awards shall
be canceled  (and an Award that has already been  exercised,  paid, or delivered
may be rescinded) in accordance with this paragraph 10 if you violate any of the
applicable provisions of the Plan and this Agreement, including the following:

                  (a) Unless the Company expressly  consents in writing to waive
this  provision,  you shall not render  services for any  organization or engage
directly or indirectly in any business  which, in the judgment of the Committee,
is or  becomes  competitive  with the  Company  or a Related  Company,  or which
organization or business,  or the rendering of services to such  organization or
business,  is or  becomes  otherwise  prejudicial  to or in  conflict  with  the
interests  of  the  Company  or  a  Related  Company.  If  your  employment  has
terminated,  the judgment of the  Committee  shall be based on your position and
responsibilities  while  employed  by the  Company  or a Related  Company,  your
post-employment  responsibilities  and position with the other  organization  or
business,  the extent of past,  current and  potential  competition  or conflict
between the Company or a Related Company and the other organization or business,
the effect of your assumption of the post-employment  position on the customers,
suppliers,  producers, and competitors of the Company and the Related Companies,
the guidelines and policies established by the Company and the Related Companies
relating to business conduct ethics, and such other considerations as are deemed
relevant given the applicable facts and circumstances.

                  (b) You shall not,  without prior written  authorization  from
the Company,  disclose to anyone outside the Company and the Related  Companies,
or use in other than the business of the Company and the Related Companies,  any
confidential  information  or material,  relating to the business of the Company
and the Related  Companies,  acquired by you either  during or after  employment
with the Company or a Related Company.

                  (c) Upon exercise,  payment, or delivery pursuant to an Award,
you shall certify on a form acceptable to the Company that you are in compliance
with the terms and conditions of the Plan and this Agreement.  Failure to comply
with any of the applicable provisions of the Plan and this Agreement,  including
without   limitation  the   non-compete   and   confidentiality   provisions  of
subparagraphs  (a) and (b) above prior to, or during the six months  after,  any
exercise,  payment,  or delivery  (including  delivery of stock  certificates by
book-entry)  pursuant  to an Award,  shall  cause  such  exercise,  payment,  or
delivery to be  rescinded.  The Company  shall notify you in writing of any such
rescission within two years after such exercise,  payment,  or delivery.  Within
ten days after  receiving  such a notice from the Company,  you shall pay to the
Company the amount of any gain  realized or payment  received as a result of the
rescinded  exercise,  payment,  or delivery  pursuant to an Award.  Such payment
shall be made either in cash or by returning to the Company the number of shares
of Common Stock that you received in  connection  with the  rescinded  exercise,
payment, or delivery.

         11.  Notices.  Any notice  hereunder  shall be in writing  and shall be
delivered in person, or via facsimile  transmission,  overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company,  as the case may be, at the applicable  address specified
on the first  page of this  Agreement,  or at such  other  address as you or the
Company,  as the case may be, may designate to the other party from time to time
in a notice that satisfies the conditions of this paragraph 11.

         12. Governing Law; Entire  Agreement.  This Agreement shall be governed
by and shall be construed in accordance  with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof. In the event of
a conflict  between the terms of this  Agreement and the terms of the Plan,  the
terms of the Plan shall govern.  This  Agreement  contains the entire  agreement
between you and the Company with respect to the subject matter contained herein,
and supersedes  all prior  agreements or prior  understandings,  whether oral or
written, between such parties relating to such subject matter.


<PAGE>



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

         13.  Severability.  The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction  shall not affect the validity,  legality,
or enforceability of the remainder of this Agreement in such jurisdiction or the
validity,  legality, or enforceability of any provision of this Agreement in any
other  jurisdiction,  it being  intended that all rights and  obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in one or more counterparts,  each of which shall be deemed to be the 
original, as of the date first set forth above.


TIG HOLDINGS, INC.                          Agreed to and accepted by:



By:____________________________             _______________________________
      Lon P. McClimon                            Optionee Signature



Date:  _______________



<PAGE>



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



















                                  EXHIBIT 10.45



<PAGE>



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

                                    AGREEMENT


This is an Agreement  dated as of January 16, 1998, by and among TIG Reinsurance
Company (the "Company"),  a Connecticut  corporation with its principal place of
business at 300 First Stamford Place,  Stamford,  CT 06902;  TIG Holdings,  Inc.
("Holdings"),  a Delaware Corporation with its principal place of business at 65
East 55th Street, New York, NY 10022; and Michael G. Wacek (the "Executive"),  7
Berwyn Road, Richmond, Surrey, TW10 5BP, United Kingdom.

For good and valuable consideration the parties agree as follows:

1.    The Company will employ the Executive commencing on January 17, 1998, and,
      effective  February 3, 1998, the  Executive's  position shall be President
      and Chief Executive Officer of the Company.

2. Executive's  employment with the Company will be on an "at will" basis for an
indefinite term.

3.    The Executive will be paid an initial base salary at the annual rate of 
      $450,000,  payable in accordance with the Company's  payroll  practices
      in effect from time to time.

4.    The Executive  shall be entitled to employment  benefits in accordance  
      with the TIG Executive  Benefit Plan as amended from time to time,
      including five weeks of paid vacation.

5.    Holdings  will  recommend  to the  Compensation  Committee of the Holdings
      Board of Directors (the  "Committee") that Executive be awarded an initial
      grant of 200,000 Holdings  non-qualified  stock options,  such grant to be
      under and  subject  to the  terms  and  conditions  of the  Holdings  1996
      Long-Term  Incentive Plan (the "LTIP"),  as amended from time to time, and
      the applicable executive award agreement thereunder, modified as set forth
      on Exhibit 1 hereto.

6.    In order to further  induce the  Executive  to accept a position  with the
      Company and in recognition  that by accepting  such position  Executive is
      foregoing  certain  benefits that  Executive  would be entitled to receive
      from his former employer were he to remain so employed,  the parties agree
      as follows:

      (a)  The  Company   will  pay   Executive,   within  two  weeks  from  his
           commencement  of employment  and  subsequent to the execution of this
           Agreement, a signing bonus in the amount of $565,000,  such amount to
           be reduced by the Company (or  reimbursed  to the Company as the case
           may be) by the amount equal to the bonus payment or the like, if any,
           received by Executive in 1998 from his former  employer on account of
           his  and/or  its  performance  for 1997 or prior  years  (other  than
           bonuses  paid to  Executive  for years prior to 1997 but  deferred by
           Executive into 1998); and


<PAGE>



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

Agreement
Michael G. Wacek
Page 2


      (b)  Holdings will  recommend to the Committee  that  Executive be granted
           shares of Holdings'  common stock vesting over three years ("Shares")
           under and subject to the terms and  conditions  of the Holdings  LTIP
           and the applicable award agreement  thereunder  modified as set forth
           in  Exhibit 2 hereto.  The  number  of  Shares  so  granted  shall be
           computed by dividing  $2,000,000 by the fair market value (i.e.,  the
           average of the high and low prices of  Holdings  common  stock on the
           New York Stock Exchange) on the date of grant.

7.    In the event  that (a) the  parties  should  agree that  Executive  should
      terminate his  employment  with the Company and its affiliates as a result
      of a  professional  disagreement  and without  cause,  or (b)  Executive's
      employment is terminated by the Company and the Related  Companies without
      cause,  or (c) Executive  resigns from the Company and its  affiliates for
      cause,  the  Executive  shall be entitled to receive  severance  pay in an
      amount  equal to eighteen  months  base  salary,  such  payment to be made
      following  execution by the  Executive of a general  release  agreement in
      accordance  with the  Company's or Holding's  customary  practice.  In the
      event the Executive  wishes to resign from the Company and its  affiliates
      without cause, the Executive shall provide  six-months  advance notice. In
      such case, the Company may terminate the Executive's  employment  prior to
      the end of the  six-month  notice  period,  provided that the Company pays
      Executive his base salary through such notice period.  Such termination by
      the Company shall not be considered a  termination  "without  cause" under
      clause (b) above in this paragraph 7.

8.   Executive's  position will  participate  in an incentive  bonus program for
     performance  year 1998. The target bonus for Executive's  participation  in
     1998 will be set at 100% of  Executive's  base salary -- actual  awards may
     either  exceed,  match or be less than the  target as  contribution  and/or
     results  warrant as determined  by the  Committee.  Any bonus  payments for
     subsequent  years will be  considered  under the  Company's  then  existing
     incentive  plan  and  take  into  account  individual,  business  unit  and
     Holdings-wide  performance  (or  such  other  performance  criteria  as the
     Committee may decide).

9.   During the period that Executive's  family remains in the United Kingdom up
     through the end of the current  school year,  Executive will be entitled to
     reimbursement  of travel  and  living  expenses  as set forth on  Exhibit 3
     hereto.  Executive  will also be entitled to relocation  benefits under the
     Company's  Executive  Relocation  Program,  including  those  set  forth on
     Exhibit 3 hereto.

10.  The Company shall have the right to deduct from any payments due  hereunder
     any tax that the Company deems necessary to be withheld.

11.  This  Agreement  shall be governed by and shall be construed in  accordance
     with the laws of the State of New York, without reference to the principles
     of conflict of laws  thereof.  If any  provision of this  Agreement is held
     invalid or unenforceable for any reason, the remaining provisions shall not
     be  affected   thereby  and  shall  be  construed  as  if  the  invalid  or
     unenforceable  provision had not been included. This Agreement contains the
     entire  agreement  between  Executive  and the Company or  affiliates  with
     respect to the subject matter  contained  herein,  and supersedes all prior
     agreements or prior  understandings  whether oral or written,  between such
     parties  relating  to such  subject  matter.  This  Agreement  may  only be
     modified by a writing executed by the parties.



<PAGE>



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

Agreement
Michael G. Wacek
Page 3

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in one or 
more counterparts,  each of which shall be deemed to be the original,  as of the
date first set forth above.



/s/ Michael G. Wacek                            TIG Reinsurance Company
EXECUTIVE

                                                By:  /s/ Jon W. Rotenstreich
                                                ----------------------------

                       
                                                TIG Holdings, Inc.


                                                By:  /s/ Jon W. Rotenstreich
                                                ----------------------------



<PAGE>



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

          [Executive Non-Qualified Stock Option Agreement - Exhibit 1]

                               TIG HOLDINGS, INC.
                               65 EAST 55TH STREET
                                   28TH FLOOR
                            NEW YORK, NEW YORK 10022

                TIG HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN

      Stock Option Agreement dated as of ___________________ ("Agreement")

                     With _________________________________
                     Residing at____________________________

         1. Grant of Stock Options.  Pursuant to the terms and provisions of the
TIG Holdings,  Inc. 1996 Long-Term  Incentive Plan, as amended from time to time
(the  "Plan"),  all of  which  terms  and  provisions  are  made  a part  of and
incorporated  in this Agreement as if they were expressly set forth herein,  you
have been  selected to receive the  following  Non-Qualified  Stock Option grant
(the "Stock Options") as an Award under Section 6 of the Plan. Terms of the Plan
are set forth in the Plan document  effective as of May 2, 1996, a copy of which
has been provided to you with this Agreement and you hereby acknowledge  receipt
of the Plan document.
Capitalized  terms in this  Agreement  have the  meanings  set forth in the Plan
unless defined herein.

This grant  entitles you to purchase  Common Stock of TIG  Holdings,  Inc.  (the
"Company") in accordance  with the terms of the Plan and the following terms and
conditions:

      Date of Grant     .......................................

      Per Share Option Price...................................  $

         Non-Qualified Stock Option Grant for .................  xxx Shares

         2.  Exercisability of Stock Options.  Except as provided in paragraph 3
of this  Agreement,  this Stock Option grant shall  become  exercisable  in four
installments  in  respect  of the  aggregate  number of shares of the  Company's
Common Stock  underlying  this Stock  Option grant as follows,  provided you are
then employed by the Company or one of the Related Companies:

                  o   xxxx shares ..........................on xxxxx
                  o   xxxx shares ..........................on xxxxx
                  o   xxxx shares ..........................on xxxxx
                  o   xxxx shares ..........................on xxxxx


<PAGE>



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

         3.  Termination of Employment.  If your employment with the Company and
the Related Companies is terminated due to death, Disability,  or Retirement, or
due to your  unilateral  termination  by the Company  and the Related  Companies
without cause,  or due to your unilateral  resignation  from the Company and the
Related  Companies for cause,  all then  outstanding  installments of this Stock
Option grant shall become fully exercisable. If your employment with the Company
and  the  Related   Companies  is  terminated  on  account  of  a   professional
disagreement  and  without  cause and with the mutual  agreement  of you and the
Company and the Related  Companies,  all then  outstanding  installments of this
Stock Option  scheduled  under paragraph 2 to become  exercisable  within twelve
months of such  termination,  shall become  exercisable on the date set forth in
paragraph 2  notwithstanding  that you are not employed by the Company or one of
the Related  Companies on such date.  Upon the occurrence of a Change in Control
and whether or not an Adverse  Employment Action occurs before the expiration of
one year after the Change in Control, all then outstanding  installments of this
Stock Option grant shall become fully  exercisable in accordance  with the terms
of Section 17 of the Plan.  Except as otherwise  provided herein,  Stock Options
that are  unexercisable  at the time of the  termination of your employment with
the Company and the Related Companies shall be immediately  forfeited by you and
canceled.  All Stock Options covered by this Agreement shall remain  outstanding
until  expiration  or  cancellation  as provided in this  Agreement or under the
Plan.

         4.  Expiration  of Stock  Options.  The Stock  Options  covered by this
Agreement shall expire ten years from the date of the grant,  subject to earlier
termination  under  Section 14 of the Plan and  paragraph  3 of this  Agreement.
Pursuant to Section 14.1.1 of the Plan, all exercisable Stock Options covered by
this Agreement shall remain exercisable for four years following the termination
of your  employment  with the Company and the  Related  Companies  due to death,
Retirement, or Disability, and for ninety days following the termination of your
employment  with the  Company and the Related  Companies  for any other  reason,
provided  that  in  the  event  an  installment  of  the  Stock  Option  becomes
exercisable  under  paragraph 3 following your  termination of employment,  such
Stock Option  shall remain  exercisable  for ninety days  following  the date it
first became  exercisable.  Notwithstanding  the  foregoing,  in no event will a
Stock Option remain exercisable beyond its original term.

         5. No Stockholder  Rights.  Prior to the exercise of the Stock Options,
you shall not, by virtue of this Award,  have any of the rights  (including  the
voting rights) of an owner of a share of Common Stock.  You agree and understand
that nothing  contained in this Agreement  provides,  or is intended to provide,
you any protection  against potential future dilution of the value of the shares
of Common  Stock that may be purchased  under the Stock  Options for any reason,
except as stated in Section 16.2 of the Plan.

         6. Non-transferability. The Stock Options shall not be sold, exchanged,
assigned,  transferred,  or otherwise  disposed of in any way at any time by you
(or your beneficiary(ies)), other than by testamentary disposition by you or the
laws of descent and distribution.  The Stock Options issued under this Agreement
and the Plan shall not be pledged,  encumbered, or otherwise hypothecated in any
way at any time by you (or your  beneficiary(ies))  and shall not be  subject to
execution,  attachment, or similar legal process. Any attempt to sell, transfer,
pledge, encumber, hypothecate, or otherwise dispose of any of the Stock Options,
contrary to the terms and provisions of this Agreement  and/or the Plan shall be
null and void and without legal force or effect.


<PAGE>



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

         7.  Withholding.  The  Company  shall have the right to deduct from any
shares otherwise due to you under this Agreement, including, without limitation,
any shares due upon exercise of the Stock Options, any federal, state, local, or
other  taxes  of any kind  that  the  Company,  in its  sole  discretion,  deems
necessary  to be withheld to comply with the Internal  Revenue Code of 1986,  as
amended (the "Code"), and/or any other applicable law, rule, or regulation. When
you exercise the Stock Options, you shall, if requested by the Company, promptly
pay to the Company in cash an amount  equal to the  required  withholding  taxes
under applicable federal, state, or local laws or regulations.  Furthermore, the
Company  shall have the right to deduct and withhold any such  applicable  taxes
from, or in respect of, any shares purchased under the Stock Options. All taxes,
if any, in respect of the grant or exercise of the Stock Options hereunder shall
be solely your responsibility and shall be paid by you.

         8.  Ownership  Maintenance  Stock  Option.  Subject to the  limitations
contained  in  Section  4.2 of the  Plan  and any  other  applicable  limitation
contained in any successor  plan, a  Non-Qualified  Stock Option (an  "Ownership
Maintenance  Stock  Option")  shall be  granted  to you in  accordance  with the
policies and  procedures of the Committee then in effect if upon exercise of the
Stock  Options  covered by this  Agreement,  you (i) actually or  constructively
deliver to the Company,  in full or partial payment of the exercise price of the
Stock Options  covered by this  Agreement,  shares of Common Stock that you have
held for at least six (6) months or (ii) in addition to such  delivery of shares
to pay such  exercise  price,  deliver  shares of Common Stock to the Company or
have the Company withhold shares of Common Stock  deliverable to you, in full or
partial payment of any required  withholding tax liability  associated with such
exercise;  provided,  however,  that the Committee may, in its sole  discretion,
disapprove  of the  delivery or  withholding  of shares to pay such  taxes.  The
number of shares of Common  Stock  subject to the  Ownership  Maintenance  Stock
Option shall be equal to the number Of shares of Common  Stock so delivered  and
withheld,  with an  exercise  price for each share of Common  Stock equal to the
Fair  Market  Value  of a share  of  Common  Stock  on the  date of grant of the
Ownership Maintenance Stock Option, provided that the Committee may, in its sole
discretion,  refuse to authorize the grant of such Ownership  Maintenance  Stock
Option if the Committee  determines  that such grant would result in any adverse
accounting treatment to the Company. Notwithstanding the foregoing, an Ownership
Maintenance  Stock  Option  shall  be  granted  only  if (a) on the  date  it is
exercised,  the Stock Options covered by this Agreement are exercisable for more
than six (6) months  beyond the  exercise  date,  (b) you have not  received  an
Ownership Maintenance Stock Option within the three (3) month period immediately
preceding the exercise of the Stock Options covered by this Agreement and (c) on
the date the Stock  Options  are  exercised,  you are an active  employee of the
Company and/or a Related Company.  The Ownership  Maintenance Stock Option shall
not be  exercisable  during the six (6) month period  immediately  following the
date on which the Ownership  Maintenance  Stock Option is granted,  but shall be
fully  exercisable  thereafter  until the  Ownership  Maintenance  Stock  Option
expires.  The Ownership  Maintenance Stock Option shall expire on the expiration
date of the Stock Options covered by this Agreement.

         9.  Compliance  with  Laws.  The  issuance  of shares  of Common  Stock
pursuant to this  Agreement  shall be subject  to, and shall  comply  with,  any
applicable  requirements  of  federal  and state  securities  laws,  rules,  and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective  rules and regulations  promulgated
thereunder) and any other law, rule, or regulation  applicable  thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to issue any shares of Common Stock  pursuant to this Agreement
if such issuance would violate any such requirements.


<PAGE>



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

         10. Cancellation and Rescission of Awards.  Notwithstanding anything in
this Agreement to the contrary, any unexpired,  unpaid, or deferred Awards shall
be canceled  (and an Award that has already been  exercised,  paid, or delivered
may be rescinded) in accordance with this paragraph 10 if you violate any of the
applicable provisions of the Plan and this Agreement, including the following:

                  (a) Unless the Company expressly  consents in writing to waive
this  provision,  you shall not render  services for any  organization or engage
directly or indirectly in any business  which, in the judgment of the Committee,
is or  becomes  competitive  with the  Company  or a Related  Company,  or which
organization or business,  or the rendering of services to such  organization or
business,  is or  becomes  otherwise  prejudicial  to or in  conflict  with  the
interests  of  the  Company  or  a  Related  Company.  If  your  employment  has
terminated,  the judgment of the  Committee  shall be based on your position and
responsibilities  while  employed  by the  Company  or a Related  Company,  your
post-employment  responsibilities  and position with the other  organization  or
business,  the extent of past,  current and  potential  competition  or conflict
between the Company or a Related Company and the other organization or business,
the effect of your assumption of the post-employment  position on the customers,
suppliers,  producers, and competitors of the Company and the Related Companies,
the guidelines and policies established by the Company and the Related Companies
relating to business conduct ethics, and such other considerations as are deemed
relevant given the applicable facts and circumstances.

                  (b) You shall not,  without prior written  authorization  from
the Company,  disclose to anyone outside the Company and the Related  Companies,
or use in other than the business of the Company and the Related Companies,  any
confidential  information  or material,  relating to the business of the Company
and the Related  Companies,  acquired by you either  during or after  employment
with the Company or a Related Company.

                  (c) Upon exercise,  payment, or delivery pursuant to an Award,
you shall certify on a form acceptable to the Company that you are in compliance
with the terms and conditions of the Plan and this Agreement.  Failure to comply
with any of the applicable provisions of the Plan and this Agreement,  including
without   limitation  the   non-compete   and   confidentiality   provisions  of
subparagraphs  (a) and (b) above prior to, or during the six months  after,  any
exercise,  payment,  or delivery  (including  delivery of stock  certificates by
book-entry)  pursuant  to an Award,  shall  cause  such  exercise,  payment,  or
delivery to be  rescinded.  The Company  shall notify you in writing of any such
rescission within two years after such exercise,  payment,  or delivery.  Within
ten days after  receiving  such a notice from the Company,  you shall pay to the
Company the amount of any gain  realized or payment  received as a result of the
rescinded  exercise,  payment,  or delivery  pursuant to an Award.  Such payment
shall be made either in cash or by returning to the Company the number of shares
of Common Stock that you received in  connection  with the  rescinded  exercise,
payment, or delivery.

         11.  Notices.  Any notice  hereunder  shall be in writing  and shall be
delivered in person, or via facsimile  transmission,  overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company,  as the case may be, at the applicable  address specified
on the first  page of this  Agreement,  or at such  other  address as you or the
Company,  as the case may be, may designate to the other party from time to time
in a notice that satisfies the conditions of this paragraph 11.

<PAGE>

         12. Governing Law; Entire  Agreement.  This Agreement shall be governed
by and shall be construed in accordance  with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof. In the event of
a conflict  between the terms of this  Agreement and the terms of the Plan,  the
terms of the Plan shall govern.  This  Agreement  contains the entire  agreement
between you and the Company with respect to the subject matter contained herein,
and supersedes  all prior  agreements or prior  understandings,  whether oral or
written, between such parties relating to such subject matter.

13.  Severability.  The invalidity or  unenforceability of any provision of this
Agreement  in any  jurisdiction  shall not affect  the  validity,  legality,  or
enforceability  of the remainder of this Agreement in such  jurisdiction  or the
validity,  legality, or enforceability of any provision of this Agreement in any
other  jurisdiction,  it being  intended that all rights and  obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.


         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement in
one or more  counterparts,  each of which shall be deemed to be the original,  
as of the date first set forth above.


TIG HOLDINGS, INC.                          Agreed to and accepted by:



By:  /s/LON P. MCCLIMON                     _______________________
------------------------                       Optionee Signature
                                               
Date: __________________


<PAGE>



--------------------------------------------------------------------------------
                 [Executive Share Award Agreement - Exhibit 2]


                               TIG HOLDINGS, INC.
                               65 EAST 55TH STREET
                                   28TH FLOOR
                            NEW YORK, NEW YORK 10022

                TIG HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN

                       Share Award Agreement ("Agreement")

                           With _____________________

                      Residing at _________________________


                    Agreement dated as of __________________

         1.  Incorporation  By Reference;  Document  Receipt.  This Agreement is
subject in all respects to the terms and  provisions of the TIG  Holdings,  Inc.
1996 Long-Term Incentive Plan (the "Plan"),  including,  without limitation, any
amendments  thereto  adopted  at any time and from  time to time and  which  are
intended  to apply to the  grant of  shares of  Common  Stock  ("Shares")  under
Section 9 of the Plan,  all of which terms and provisions are made a part of and
incorporated  in this Agreement as if they were expressly set forth herein.  Any
capitalized term not defined in this Agreement shall have the same meaning as is
ascribed thereto under the Plan. You hereby  acknowledge  receipt of a true copy
of the Plan and that you have read the Plan  carefully and fully  understand its
contents. In the event of a conflict between the terms of this Agreement and the
terms of the Plan, the terms of the Plan shall control.

         2.   Grant and Vesting of Shares. You have been selected to receive a 
grant of the number of Shares set forth below as an Award under Section 9 of 
the Plan.
                           ---------------------------

         Number of Shares ............................, xxx shares

The Shares shall be uncertificated  and, except as provided in paragraph 4 of 
this Agreement,  shall vest as follows,  provided you are employed by the 
Company or one of its Related Companies on the applicable vesting date:

                  o   xxxx shares...................on xxxxxxxxxxxxxx
                  o   xxxx shares...................on xxxxxxxxxxxxxx
                  o   xxxx shares...................on xxxxxxxxxxxxxx

         3. Delivery of Certificate. After the vesting of your Shares, you shall
be  entitled,  in  accordance  with the terms  and  provisions  of the Plan,  to
receive,  upon your request,  a stock certificate  (registered in your name) for
and  representing  the number of shares of Common  Stock  underlying  the vested
Shares.  No  fractional  shares  shall  be  issued  under  this  Agreement.  Any
fractional  shares to which you would otherwise be entitled shall be repurchased
by the Company for cash.

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


<PAGE>



         4.  Termination of Employment.  If your employment with the Company and
the Related Companies is terminated due to death, Disability,  or Retirement, or
due to your  unilateral  termination  by the Company  and the Related  Companies
without cause,  or due to your unilateral  resignation  from the Company and the
Related  Companies for cause, all then unvested Shares covered by this Agreement
as of the date of any such termination shall become 100% vested as of such date.
If your employment  with the Company and the Related  Companies is terminated on
account of a  professional  disagreement  and without  cause and with the mutual
agreement of you and the Company and the Related  Companies,  all such  unvested
Shares that are  scheduled  under  paragraph 2 to become  vested  within  twelve
months of such  termination,  shall  become 100% vested on the date set forth in
paragraph 2 notwithstanding that you are not then employed by the Company or one
of the Related  Companies on such date.  Upon the occurrence of both a Change in
Control  and  whether  or not an Adverse  Employment  Action  occurs  before the
expiration  of one year after the Change in Control,  all then  unvested  Shares
shall become 100% vested in accordance  with the provisions of Section 17 of the
Plan.  Except as otherwise  provided herein, if your employment with the Company
and the  Related  Companies  is  terminated  for any reason  other  than  death,
Disability, or Retirement at any time, any Shares that have not yet vested as of
the  date of any such  termination  shall be  immediately  forfeited  by you and
canceled.

         5. Rights of  Stockholder.  Subject to the  provisions  of the Plan and
this Agreement, you shall have all of the powers,  preferences,  and rights of a
holder of Common  Stock with  respect to the shares of Common  Stock  comprising
this Share  grant.  You agree and  understand  that  nothing  contained  in this
Agreement  provides,  or is  intended  to provide,  you any  protection  against
potential  future dilution of your  stockholder  interest in the Company for any
reason,  except as stated in Section 16.2 of the Plan. Any stock  dividends paid
in respect of unvested Shares shall be treated as additional Shares and shall be
subject to the same  restrictions  and other terms and conditions  that apply to
the unvested Shares with respect to which such stock dividends are paid.

         6.  Non-transferability.   Unvested  Shares  (i)  shall  not  be  sold,
exchanged,  assigned,  transferred,  or otherwise  disposed of in any way at any
time by you (or your beneficiary(ies)),  other than by testamentary  disposition
by you or the laws of descent  and  distribution  and (ii) shall not be pledged,
encumbered,  or  otherwise  hypothecated  in any way at any time by you (or your
beneficiary(ies)) and shall not be subject to execution,  attachment, or similar
legal process. Any attempt to sell, transfer, pledge, encumber,  hypothecate, or
otherwise  dispose of any unvested Shares,  contrary to the terms and provisions
of this  Agreement  and/or the Plan,  shall be null and void and  without  legal
force or effect.

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


<PAGE>



         7.  Withholding.  The  Company  shall have the right to deduct from any
shares or amount due you under this Agreement or otherwise,  any federal, state,
local,  or other  taxes of any kind that the  Company,  in its sole  discretion,
deems necessary to be withheld to comply with the Internal Revenue Code of 1986,
as amended (the "Code"),  and/or any other  applicable law, rule, or regulation.
When the Shares become vested (or if you make an election under Section 83(b) of
the Code at the time of such election),  you shall, if requested by the Company,
promptly pay to the Company in cash or Shares an amount equal to the  applicable
withholding  taxes determined by the Company as being required to be withheld or
collected  under  applicable  federal,  state,  or  local  laws or  regulations.
Furthermore,  the Company  shall have the right to deduct and  withhold any such
applicable  taxes from, or in respect of, any  dividends or other  distributions
paid on or in respect of the  Common  Stock  comprising  this Share  grant.  All
taxes,  if any,  in respect of the grant of the  Shares or any  payments  to you
hereunder shall be solely your responsibility and shall be paid by you. You may,
at your  discretion,  direct the Company to withhold  and pay to the  applicable
taxing  authority  with respect to the vesting of Shares an amount not to exceed
the excess, if any, of (i) the amount of tax that would result from such vesting
assuming that the tax is calculated at the maximum marginal rate imposed by such
taxing authority and (ii) the withholding  taxes that the Company is required by
law  to  withhold  or  collect;   provided  that  you  deliver  to  the  Company
simultaneously with such discretion Shares having a value equal to the amount so
withheld.  You will  notify the  Company of your  intention  to make an election
under  Section  83(b) of the Code at least five (5) business  days before making
such election.

         8.  Compliance  with Laws.  The  resale of the  shares of Common  Stock
issued  pursuant to this  Agreement  shall be subject to, and shall comply with,
any applicable  requirements of federal and state  securities  laws,  rules, and
regulations (including, without limitation, the provisions of the Securities Act
of 1933, the Exchange Act and the respective  rules and regulations  promulgated
thereunder) and any other law, rule, or regulation  applicable  thereto, as such
laws, rules, and regulations may be amended from time to time. The Company shall
not be obligated to permit the resale of any shares of Common Stock  pursuant to
this Agreement if such resale would violate any such requirements.

         9.  Notices.  Any notice  hereunder  shall be in  writing  and shall be
delivered in person, or via facsimile  transmission,  overnight courier service,
or certified mail, return receipt requested, postage prepaid, properly addressed
to you or the Company,  as the case may be, at the applicable  address specified
in the heading on the first page of this Agreement,  or at such other address as
you or the  Company,  as the case may be, may  designate to the other party from
time to time in a notice that satisfies the conditions of this paragraph.

         10. Governing Law; Entire  Agreement.  This Agreement shall be governed
by and shall be construed in accordance  with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof.  This Agreement
contains  the entire  agreement  between you and the Company with respect to the
subject matter  contained  herein,  and supersedes all prior agreements or prior
understandings,  whether oral or written,  between such parties relating to such
subject matter.

         11.  Severability.  The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction  shall not affect the validity,  legality,
or enforceability of the remainder of this Agreement in such jurisdiction or the
validity,  legality, or enforceability of any provision of this Agreement in any
other  jurisdiction,  it being  intended that all rights and  obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.



<PAGE>



         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement in
one or more  counterparts,  each of which shall be deemed to be the original,  
as of the date first set forth above.


TIG HOLDINGS, INC.                     Agreed to and accepted by:



By:__________________________          _________________________    
         Lon P. McClimon                 Recipient Signature       


Date:__________________




<PAGE>



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

                                                                  Exhibit 3

RELOCATION

The  Company  will  provide  relocation  benefits  in  accordance  with  the TIG
Executive  Relocation  Program.  In  consideration  of the  unique  aspects of a
relocation from the United Kingdom (UK) to the United States (US), the following
enhanced provisions will apply:

     Reimbursement  for all reasonable  operating and auto  insurance  expenses
     connected with the Executive's  existing family  automobile in the UK until
     the  Executive's  family has  relocated to the US at the end of the current
     school year.

     Any required  household  goods storage in the UK and Minnesota  through 
     the completion of the  Executive's  family  relocation to the US at the
     end of the current school year.

     Relocation  of all  household  goods from both the UK and Minnesota to the
     Executive's permanent residence in the US.

     Any reasonable  commuting  and/or  temporary  living expenses  outside the
     Executive  Relocation  Program  for both the  Executive  and his spouse and
     children  necessary to allow for an  effective  transition  and  relocation
     between the UK and Stamford, CT or its vicinity.

     The Executive will coordinate all travel and relocation support through the
Company's selected vendors and Corporate Human Resources  administrative support
staff.

SPECIAL BENEFITS

      The Company will provide UK private medical coverage for the Executive and
his dependents until the relocation from the UK to the US has been completed.

     The Company will provide an income tax  equalization  benefit  designed to
     neutralize  any  differential  between the effective US and UK income taxes
     levied  against  TIG  provided   compensation  provided  to  the  Executive
     beginning  with the  employment on January 17, 1998.  Additionally,  in the
     event that, after the Executive's best efforts to collect,  the Executive's
     prior employer does not fulfill its commitments to provide any required tax
     equalization  benefits to the  Executive  for the 1997/98 UK tax year,  the
     Company  will  provide  the  denied  tax  benefits  for the UK tax years in
     dispute.

     The tax preparation  services associated with the tax equalization will be
     provided by the Company in conjunction with the senior Executive  financial
     planning program.



<PAGE>





















                                   EXHIBIT 12


<PAGE>




                                    PART IV

--------------------------------------------------------------------------------
                                                             EXHIBIT 12

                               TIG HOLDINGS, INC.   
                  COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                 TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                   --------------------------------------
         (In millions)                                                1997         1996         1995
         ================================================================================================
         <S>                                                          <C>          <C>          <C>
         Earnings
                Pretax income from continuing operations               $62          $75         $155
                Fixed charges, excluding preferred
                    stock dividends                                     25           16           15
         --------------------------------------------------------- ------------ ------------ ------------
                        Earnings                                       $87          $91         $170
         --------------------------------------------------------- ------------ ------------ ------------

         Fixed charges:
                Interest expense                                       $20           $9           $6
                Interest portion of operating leases,
                     net of subleasing income                            5            7            9
                Preferred stock dividends requirements                   2            2            2
         --------------------------------------------------------- ------------ ------------ ------------
                        Fixed charges                                  $27          $18          $17
         --------------------------------------------------------- ------------ ------------ ------------

         Ratio of earnings to fixed charges                            3.2          5.1         10.0
         ================================================================================================
</TABLE>

                                       96
<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
                  Countrywide Corporation                          Texas
                         Industrial County Mutual                  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 Plan, 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 30,  1998,  except for Note M, as to which the date is
February 12, 1998,  with respect to the  consolidated  financial  statements and
schedules of TIG Holdings,  Inc. and subsidiaries  included in the Annual Report
(Form 10-K) for the year ended December 31, 1997.


 
                                            /s/ERNST & YOUNG LLP



Dallas, Texas
March 27, 1998





<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 and Edwin G.
Pickett (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  1997 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:  February 26, 1998


NAME:  /s/JON W. ROTENSTREICH             NAME:  /s/MARY R. HENNESSY
-----------------------------             ---------------------------
TITLE: Director, Chairman of the Board    TITLE: President and Chief Operating
       and Chief Executive Officer               Officer
       (Principal Executive Officer)

NAME:  /s/EDWIN G. PICKETT                NAME:  /s/CYNTHIA B. KOENIG
--------------------------                ----------------------------
TITLE: Executive Vice President and       TITLE: Vice President and Controller
       Chief Financial Officer                   TIG Insurance Company
       (Principal Financial Officer)             (Principal Accounting Officer)

NAME:  /s/GEORGE B. BEITZEL               NAME:  JOEL S. EHRENKRANZ
---------------------------               --------------------------
TITLE: Director                           TITLE: Director

NAME:  /s/GEORGE D. GOULD                 NAME:  /s/THE RT. HON. LORD MOORE
-------------------------                 ----------------------------------
TITLE: Director                           TITLE: Director

NAME:  WILLIAM W. PRIEST, JR.             NAME:  /s/ANN W. RICHARDS
-----------------------------             -------------------------
TITLE: Director                           TITLE: Director

NAME:  /s/HAROLD TANNER
-----------------------
TITLE: Director

 <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/CYNTHIA B. KOENIG
                                    -------------------------
                                    Name:  Cynthia B. Koenig
                                    Title: Vice President and Controller of
                                    TIG Insurance Company
                                    (Principal Accounting Officer)

Date: March 27, 1998

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/JOEL S. EHRENKRANZ*
                                                --------------------------
                                                Joel S. Ehrenkranz
                                                Director
By  /s/MARY R. HENNESSY*
------------------------
Mary R. Hennessy                                By  /s/GEORGE D. GOULD*
President and Chief Operating Officer           ------------------------
                                                George D. Gould
                                                Director
By /s/EDWIN G. PICKETT*                        By  /s/THE RT. HON. LORD MOORE*
------------------------                        -------------------------------
Edwin G. Pickett                                The Rt. Hon. Lord Moore
Executive Vice President and                    Director
Chief Financial Officer                         
(Principal Financial Officer)
                                                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 27, 1998

*By  /s/LOUIS J. PAGLIA
------------------------
Louis J. Paglia
Attorney-in-Fact