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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    -------

                                   FORM 10-K
            FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13
                OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
      [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                      FOR THE TRANSITION PERIOD FROM           TO

                            COMMISSION FILE NUMBER 000-23005

                           INSPIRE INSURANCE SOLUTIONS, INC.
                 (Exact Name of Registrant as Specified in Its Charter)

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                    TEXAS                                       75-2595937
       (State or Other Jurisdiction of                       (I.R.S. Employer
       Incorporation or Organization)                       Identification No.)

             300 BURNETT STREET                                    76102
              FORT WORTH, TEXAS                                 (Zip Code)
  (Address of Principal Executive Offices)
</TABLE>

       Registrant's telephone number, including area code: (817) 348-3900

             Securities registered pursuant to Section 12(b) of the Act:

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               TITLE OF CLASS                      NAME OF EXCHANGE ON WHICH REGISTERED
               --------------                      ------------------------------------
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                    None                                            N/A
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             Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (Title of Class)
                SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS
                                (Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  [X]  No  [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

    As of March 1, 2000, the aggregate market value of voting stock held by
                        non-affiliates was $54,641,763.

 As of March 1, 2000, there were 18,998,270 shares of Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The Proxy Statement for the 2000 Annual Meeting is incorporated into Part
III of this Form 10-K by reference.
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                      INDEX TO ANNUAL REPORT ON FORM 10-K

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                                                                           PAGE
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FORWARD-LOOKING STATEMENTS...............................................    1

PART I...................................................................    1
  ITEM 1.    BUSINESS....................................................    1
  ITEM 2.    PROPERTIES..................................................   14
  ITEM 3.    LEGAL PROCEEDINGS...........................................   14
  ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   15

PART II..................................................................   16
  ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS.........................................   16
  ITEM 6.    SELECTED FINANCIAL DATA.....................................   16
  ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS...................................   18
  ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
             RISK........................................................   25
  ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   26
  ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE....................................   27

PART III.................................................................   28
  ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   28
  ITEM 11.   EXECUTIVE COMPENSATION......................................   28
  ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT..................................................   28
  ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   28

PART IV..................................................................   29
  ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
             8-K.........................................................   29

SIGNATURES...............................................................   30
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                           FORWARD-LOOKING STATEMENTS

     This Form 10-K (including the annual report to shareholders (the "Annual
Report") accompanying this Form 10-K) contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended. When used in this Report (including the Annual Report
accompanying this Form 10-K), words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to INSpire Insurance
Solutions, Inc. ("INSpire" or the "Company") or its management, identify
forward-looking statements. These forward-looking statements are based on
information currently available to INSpire's management. Actual results could
differ materially from those contemplated by the forward-looking statements as a
result of certain factors, including but not limited to difficulties associated
with growth, INSpire's dependence on major customers and limited operating
history, technological change, competitive factors and pricing pressures,
product development risks, changes in legal and regulatory requirements, general
economic conditions and other factors described in "Item 1 -- Business" and
"Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations." Such statements reflect the current views of INSpire's
management with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to the operations, results of
operations, growth strategy and liquidity of INSpire. All subsequent written and
oral forward-looking statements attributable to INSpire or persons acting on its
behalf are expressly qualified in their entirety by this paragraph.

                                     PART I

ITEM 1. BUSINESS.

INTRODUCTION

     INSpire is a leading provider of policy and claims administration
outsourcing solutions to the property and casualty ("P&C") insurance industry.
INSpire's outsourcing services, which generally are provided on a percentage of
premiums written or claims paid basis, include application of underwriting and
rating criteria defined by the insurer, policy issuance, policyholder mailings,
customer service, billing and collections, claims adjusting and processing, and
information technology ("IT") services. INSpire also provides software and
software services to the P&C insurance industry. These products include policy
and claims administration systems, as well as systems that increase the
productivity of insurers by automating certain functions, such as workflow
management, underwriting rules and guidelines, document production and rating
algorithms. The Company recently decided to discontinue efforts directed toward
increasing licensed software packages in order to focus on its outsourcing
business. The Company will continue to utilize these systems, which run on a
variety of platforms including IBM AS/400, IBM RS/6000, Windows 3.1, Windows 95
and Windows NT, to provide its outsourcing solutions and will continue to
support existing software customers as needed.

OVERVIEW OF THE PROPERTY AND CASUALTY INSURANCE INDUSTRY

     The P&C insurance industry provides financial protection for individuals,
businesses and others against losses of property or losses by third parties for
which the insured is liable. P&C insurers underwrite policies that cover various
types of risk, which can generally be divided into (i) personal lines of
insurance covering individuals and (ii) commercial lines of insurance covering
businesses. Personal lines generally include automobile insurance (physical
damage and liability insurance) and homeowners' insurance. Commercial lines
generally include workers' compensation, business, directors and officers
liability, theft and medical malpractice insurance as well as insurance covering
other commercial risks.

     The P&C insurance industry is highly competitive. Insurance companies
compete primarily on the basis of price, consumer satisfaction and claims paying
ability. According to A.M. Best Company ("A.M. Best"), as of December 31, 1998,
there were approximately 3,000 P&C insurance companies in the United States
generating approximately $280 billion in annual premium revenues, of which
approximately 59% were written by the top 20 insurers. Based on statistics
released by A.M. Best, premium revenues for the P&C insurance industry over the
past several years have been increasing approximately 3% annually.

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     According to a study published by A.M. Best, the 10 largest insured
catastrophes have occurred since 1989, including Hurricane Andrew in 1992, the
Northridge, California earthquake in 1994 and Hurricane Hugo in 1989. INSpire
believes that these catastrophes have caused insurers to decrease their exposure
in areas prone to natural disasters. Much of the excess demand created by
insurers leaving markets is being met by reinsurers and new market entrants that
have not made significant infrastructure investments and do not desire to do so.
INSpire believes that its ability to deliver services priced as a percentage of
premiums written or claims paid should be attractive to these new entrants
because it will enable them to enter new markets without incurring substantial
fixed infrastructure costs.

NEED FOR INFORMATION MANAGEMENT AND WORK PROCESS AUTOMATION

     Technology is a critical element in an insurance company's ability to
compete. Insurance companies use technology and information systems as
management tools to compete more effectively by improving efficiency, managing
costs and increasing customer satisfaction. A highly technical industry has
evolved to meet the unique needs of P&C insurers to manage and process large
amounts of policyholder data. Insurers are shifting their focus away from
finding more efficient means of storing information toward more efficient ways
of processing information.

     INSpire provides both policy and claims administration outsourcing services
to enable customers to operate as "virtual insurance companies" allowing these
customers to eliminate infrastructures necessary for such purposes. The Company
believes there are significant opportunities to market its services for the
following reasons:

     - Economies of Technology. The investment in information systems necessary
       for P&C insurers to remain competitive is often cost prohibitive,
       particularly for smaller companies, because of the specialized technical
       knowledge required to develop, install, operate and maintain
       sophisticated systems. INSpire's services allow insurance companies to
       take advantage of economies of technology by leveraging INSpire's
       investment in software systems and productivity tools.

     - Trend Toward Direct Sales. Many insurers of personal lines are able to
       reduce costs and premiums by selling policies directly to policyholders
       rather than through independent agents. This trend has created
       opportunities for INSpire to market its services to both insurers that
       sell directly to policyholders and those that continue to sell through
       independent agents. Outsourcing of the policy and claims administration
       functions allows insurers selling directly to customers to efficiently
       provide services that were traditionally performed by agents. Outsourcing
       also enables insurers that sell through agents to reduce administration
       costs to compete more effectively with insurers that sell directly to
       policyholders.

     - Year 2000 Issue. The Year 2000 issue manifests itself in the policy and
       claims administration area. The Year 2000 issue arose because, until
       recently, most software systems were not programmed to correctly
       recognize dates beyond December 31, 1999. INSpire believes that many
       insurance companies deferred decisions to invest in technology or
       consider outsourcing solutions due to concerns over the Year 2000 issue
       and may accelerate decisions in 2000 to outsource their policy and claims
       needs rather than incurring the cost of updating their old systems.

     - Customer Service. As policyholders demand faster, broader and better
       service, P&C insurers that provide superior customer service enjoy a
       competitive advantage. Policyholders frequently cite dissatisfaction with
       policy or claims handling processes as a cause of policy nonrenewal. By
       providing good customer service, insurance companies can retain existing
       policyholders, which is more cost effective than attracting new
       policyholders away from a competitor. Outsourcing can allow insurance
       companies to improve customer service while lowering fixed costs.

TREND TOWARD OUTSOURCING

     Since the late 1980s, many P&C insurers have sought to use third parties to
provide certain functions or services that the insurers historically performed
in-house. These companies seek to focus on their core competencies, reduce costs
and avoid the significant investment associated with developing, installing,

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operating and maintaining information management and automation systems. INSpire
believes that insurance companies increasingly will conclude that policy and
claims administration and regulatory compliance are too complicated, costly and
administratively burdensome to be performed in-house. Other factors contributing
to the outsourcing trend include the following:

     - Need for Flexibility. Many P&C insurers lack the ability to respond
       rapidly to changing market conditions. Outsourcing enables insurance
       companies to enter new markets quickly and cost-effectively to take
       advantage of favorable market conditions without incurring substantial
       fixed infrastructure costs.

     - Need to Diversify Risk. Many P&C insurers are overexposed to risks from
       natural catastrophes in certain markets. Because many states restrict the
       ability of insurers to cancel policies or exit particular lines of
       business, these insurers often cease writing new policies and outsource
       the administration of their remaining policies and claims ("stranded
       policies"). Alternatively, insurers may reduce their risk by reinsuring
       policies with other insurers that do not have a similar geographic
       concentration or by allowing other insurers to renew the stranded
       policies. As insurers leave markets, they create demand for outsourcing
       the policy and claims administration of the stranded policies.

     - Desire to Maximize Statutory Surplus. As most state regulations require
       insurance companies to maintain certain ratios of surplus to premiums,
       insurance companies that maximize surplus are able to write greater total
       premiums. Insurance companies cannot capitalize, for statutory-basis
       financial statement reporting purposes, most of the hardware and software
       they purchase or develop for policy and claims administration. As a
       result, an insurance company with a large investment in its policy and
       claims administration infrastructure generally will experience a lower
       statutory surplus than it would if it were to outsource its policy and
       claims administration.

     - Virtual Insurance Companies. Regulatory changes have permitted new
       companies that are not traditional insurance companies to enter the P&C
       insurance industry. Banks, credit unions and other financial services
       companies are beginning to underwrite P&C insurance. These new entrants
       often do not have policy and claims administration infrastructure or
       expertise in place and are natural candidates for outsourcing. INSpire
       facilitates the creation of these "virtual insurance companies" by
       providing policy and claims administration and related back office
       administration to new entrants that desire to focus their resources on
       core marketing, underwriting and financial aspects of the P&C insurance
       business.

THE INSPIRE STRATEGY

     INSpire's objective is to become the leading provider of policy and claims
administration outsourcing solutions to the P&C insurance industry. INSpire's
strategy to achieve this objective involves the following elements:

     - Focused Sales Efforts. INSpire's outsourcing marketing group concentrates
       on marketing INSpire's claims administration, policy administration and
       IT services to established P&C insurance companies as well as new
       entrants in the P&C industry, such as banks, credit unions and other
       financial services companies.

     - Generate Recurring Revenues. INSpire's services generate revenues based
       on events that occur in the normal course of a customer's business.
       Policy administration services generate recurring revenues because
       INSpire earns a percentage of each premium written by the insurance
       company. Claims administration services generate recurring revenues
       because INSpire earns a percentage of either each claim paid or each
       premium earned by the insurance company.

     - Displacement Sales. INSpire intends to continue seeking opportunities to
       acquire existing policy and claims administration facilities and to enter
       into long term contracts to provide outsourcing services to the seller of
       such facilities or affiliates thereof. By converting these facilities
       onto its systems, INSpire can more efficiently administer policies and
       claims for such customer, thereby increasing its capacity for new
       business growth. INSpire utilized this strategy in 1999 when it purchased
       the back office assets
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       of The Robert Plan Corporation ("The Robert Plan") and Island Insurance
       Company, Ltd. ("Island Group").

     - Enhance Service Capabilities. Maintaining technological leadership is
       critical to remaining competitive in INSpire's industry. INSpire plans to
       continuously enhance its systems and to develop new outsourcing services
       to respond to constantly changing customer requirements. In addition to
       developing and enhancing proprietary technologies, INSpire may enter into
       strategic alliances with other firms to utilize systems that complement
       INSpire's business. INSpire pursued this strategy in December 1999 when
       it entered into a strategic alliance with RTW, Inc. and Tropics Software
       Technologies, Inc. to provide an integrated outsourcing solution,
       including policy administration and case and claims management, for the
       workers' compensation market.

     - Pursue Strategic Acquisitions. INSpire intends to consider potential
       acquisition candidates that offer opportunities to increase market share
       and expand INSpire's line of outsourcing services.

OUTSOURCING SERVICES

     INSpire offers a range of services that are capable of providing a complete
turnkey outsourcing solution to all of a P&C insurer's policy and claims
administration needs. INSpire's outsourcing services include application of
underwriting and rating criteria defined by the insurer, policy issuance,
policyholder mailings, customer service, billing and collections, claims
adjusting and processing, and IT services. The customer determines the extent to
which it uses INSpire's services. A team of INSpire and customer personnel works
closely together to ensure the seamless integration of the customer's outsourced
and in-house activities. INSpire's outsourcing services include the following:

     - Policy Administration. INSpire offers a suite of services to customers
       that are considering outsourcing their policy administration. The
       customer retains all of the financial risk and works with INSpire to
       provide underwriting and rating guidelines. The customer typically pays
       INSpire a percentage of premiums written for policy administration
       services, which include the following:

       - Direct, agency and internet marketing support

       - Policy issuance and acceptance

       - Application of underwriting and rating criteria defined by the insurer

       - Customer service phone center for policyholders and agents

       - Accounting, billing and collections

       - Commission calculation and disbursement

       - Statutory reporting and regulatory compliance

       - Comprehensive management and service bureau reporting

     - Claims Administration. Claims administration describes the management of
       appraising, qualifying and settling P&C insurance claims. INSpire
       maintains a staff of claims adjusters and examiners and also uses
       independent claims adjusters. INSpire reviews insurance coverage,
       performs a claim analysis and prepares a check for payment of the claim,
       if warranted. The customer typically pays INSpire on either a percentage
       of premiums earned or claims paid basis.

     - IT Outsourcing. INSpire offers services to assist customers in operating,
       maintaining and enhancing information systems. INSpire migrates the
       customer's current system platform to INSpire's processing platform,
       including the installation of all necessary hardware components,
       depending on the customer's needs. After such migration, the customer
       administers its policies and claims internally by utilizing INSpire's
       systems and other software productivity tools. The customer typically
       pays INSpire on a percentage of premiums written basis, subject to a
       minimum fee.

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INFORMATION PROCESSING SYSTEMS AND PRODUCTIVITY TOOLS

     INSpire utilizes proprietary information processing systems and software
productivity tools that automate policy and claims administration. The
information processing systems are designed to run on a variety of platforms,
including IBM AS/400, IBM RS/6000, Windows 3.1, Windows 95 and Windows NT.
INSpire's software productivity tools add functionality and flexibility to base
systems.

     - Information Processing Systems

      - Policy and Claims Administration System. The Policy and Claims
        Administration System ("PCA") is an integrated system that offers policy
        and claims administration, billing and collections, financial
        administration, and management and statistical bureau reporting. PCA
        runs on the IBM AS/400 and IBM RS/6000 platforms.

      - Windows into Property and Casualty System. Functionally comparable to
        PCA, Windows into Property and Casualty System ("WPC") is an integrated
        system that performs functions from submission tracking to policy and
        claims administration to management and bureau reporting. WPC runs on a
        PC platform in a client/server environment and on most major PC network
        operating systems, including Novell Netware and Microsoft Windows NT.

     - Software Productivity Tools

      - EmPower. EmPower is an automated workflow management system designed for
        the personal lines policy administration needs of P&C insurers. EmPower
        interfaces with PCA to provide imaging and workflow management
        technology. EmPower automatically processes the flow of information in a
        paperless environment, substantially reducing manual activities through
        the integration of voice, data, image and text into one system. EmPower
        operates in a client/server environment using Microsoft Windows.

      - Underwriting Expert System. The Underwriting Expert System ("UES")
        automates underwriting rules and guidelines to mirror a client's
        underwriting process. UES enhances consistency of review and streamlines
        customer service and operations departments by reducing the need for
        manual underwriting review. UES uses a relational database to store and
        report statistics concerning underwriting efficiency and results of the
        review process. UES operates in a client/server environment and
        interfaces with PCA and WPC.

      - Policy Set Production. Policy Set Production ("PSP") allows for laser
        quality printing of policy declarations, booklets, forms, endorsements,
        billing notices and letters. PSP manages the logistics of producing the
        appropriate documents necessary for each policyholder. PSP operates in a
        client/server environment and interfaces with PCA and WPC.

      - Visual Rater. Visual Rater is a productivity tool using object-oriented
        programming technology that allows nontechnical users to create, build,
        test and maintain the rating components of insurance processing. With
        Visual Rater's "point and click" rating construction and maintenance
        interface, reusable rating components become simple icons that are used
        as building blocks to create rating algorithms.

      - Transfluent(R).  Transfluent(R) is a data translation software product
        that enables insurance companies to map data from external agencies to
        internal systems. INSpire uses it to automatically translate data from
        the dissimilar systems or diverse platforms of customer insurance
        companies into a format readable by INSpire's information processing
        systems.

SOFTWARE SERVICES

     Until recently, INSpire also licensed its information processing systems
and productivity tools to P&C insurers. In December 1999, the Company decided to
discontinue efforts directed toward increasing licensed software packages in
order to focus on its outsourcing business. INSpire will continue to provide
customization and maintenance services to existing software customers on a
time-and-materials basis.

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PRODUCT DEVELOPMENT

     The market for INSpire's services is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. INSpire's future success depends in part on its
ability to enhance its existing services and develop new services to meet
changing customer requirements. INSpire's development efforts focus on
enhancement of information processing systems, expansion of operating system
compatibility and development of new services for emerging insurance markets. In
addition, INSpire has acquired new services and products through the acquisition
of complementary businesses and may continue to do so in the future. Currently,
major areas of development emphasis are (i) the expansion of EmPower to include
claims administration and commercial lines policy administration, (ii)
interfacing EmPower with WPC client/server based policy and claims
administration systems, (iii) adding extensive internet functionality and (iv)
the expansion of information processing systems to address additional P&C
insurance markets.

     INSpire has made substantial investments in the enhancement and development
of its outsourcing services and proprietary software utilized to provide those
services. The Company incurred research and development costs of approximately
$6.8 million in 1999, $5.0 million in 1998 and $2.0 million in 1997. INSpire
currently has approximately 26 employees that perform product development and
quality assurance. The Company cannot assure that it will be successful in
developing and marketing new or enhanced services.

CUSTOMER SUPPORT AND OPERATIONS

     INSpire provides both policy and claims administration outsourcing and
technology services at its service centers in Fort Worth, Texas; San Diego,
California; Edison, New Jersey; and Honolulu, Hawaii. The Company maintains a
customer service phone center for policyholders and agents five days a week.
INSpire employs approximately 689 people in these service centers. INSpire also
utilizes approximately 440 additional people in these service centers under the
terms of various employee lease agreements. These leased personnel are expected
to become INSpire employees at various times during 2000.

     INSpire provides claims administration outsourcing services at its service
centers in Sacramento, California; Portland, Oregon; Phoenix, Arizona; Troy,
Michigan and Tampa, Florida. INSpire employs approximately 157 people in these
service centers.

     INSpire provides software services and outsourcing operations technical
support at its facilities in Sheboygan, Wisconsin; Columbia, South Carolina; and
Roswell, Georgia. INSpire employs approximately 268 people who provide software
services and outsourcing operations technical support.

SALES AND MARKETING

     INSpire has built a seven person sales team dedicated solely to outsourcing
sales. This sales team conducts strategic marketing to a target base of
customers identified on the basis of detailed customer criteria developed by
INSpire's marketing personnel. INSpire believes that this targeted marketing
approach should increase its customer success rate and generate additional
outsourcing services revenues. INSpire conducts marketing programs that include
direct mail, trade shows, public relations, advertising and ongoing customer
communication programs. INSpire also markets its outsourcing services through
insurance brokers, industry consultants, managing general agents and reinsurers.

     When an opportunity is identified and a request for proposal is received,
INSpire prepares and submits a comprehensive proposal directly to the
prospective customer. The prospective customer is then invited to Fort Worth to
tour INSpire's service center and discuss the customer's requirements in detail.
In early 1999, the Company developed an on-site customer training room at its
service center in Fort Worth that enables INSpire personnel to work with and
train both prospective and current customers on INSpire's services and products.
If INSpire is selected to be the outsourcing service provider, a multi-year
contract is negotiated and executed. While the outsourcing sales cycle varies
from customer to customer, it typically ranges from three to twelve months.

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COMPETITION

     The markets for policy and claims administration and IT services are highly
competitive. The policy administration and IT services outsourcing markets are
dominated by a few large companies, including Policy Management Systems
Corporation ("PMSC"). INSpire competes for these outsourcing customers on the
basis of customer service, performance, product features and price. The claims
administration outsourcing market is highly fragmented, with competition from a
large number of claims administration companies of varying size as well as
independent contractors. Competition in the claims administration market is
principally price driven. Two of the larger competitors in this market are
Lindsey Morden Claim Services Inc. and Crawford & Company, Inc.

     INSpire believes, however, that its most significant competition for
outsourcing services comes from policy and claims administration and information
systems development performed in-house by insurance companies. Insurers that
fulfill some or all of their policy and claims administration needs in-house
typically have made a significant investment in their information processing
systems and may be less likely to utilize INSpire's services. In addition,
insurance company personnel have a vested interest in maintaining these
responsibilities in-house.

     Many of INSpire's competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
INSpire, including name recognition with current and potential customers. As a
result, these competitors may devote more resources to the development,
promotion and sale of their services or products than INSpire and respond more
quickly to emerging technologies and changes in customer requirements. In
addition, current and potential competitors may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services and products to address customer needs. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. INSpire cannot assure that it will be able to compete
successfully against current and future competitors, or that competitive
pressure faced by the Company will not have a material adverse effect on its
business, financial condition, cash flows or results of operations.

CUSTOMERS

     INSpire currently provides outsourcing services to insurance companies,
reinsurers and managing general agents, including The Millers Insurance Company
("Millers Insurance") (formerly The Millers Mutual Fire Insurance Company), an
indirect wholly-owned subsidiary of Millers American Group, Inc. ("Millers
American") that owned approximately 24% of the outstanding common stock, par
value $0.01 per share (the "Common Stock"), of INSpire as of December 31, 1999,
and other subsidiaries of Millers American (collectively, the "Millers Group")
under the terms of various agreements. Effective December 1, 1998, INSpire
entered into a ten-year agreement to provide policy administration services, and
INSpire Claims Management, Inc., a wholly-owned subsidiary of INSpire ("ICM"),
entered into a ten-year agreement to provide claims administration services, to
Arrowhead General Insurance Agency, Inc. ("Arrowhead"), a managing general
agent. INSpire also performs outsourcing services under a ten-year policy and
claims administration agreement with The Robert Plan entered into effective
April 1, 1999 and a ten-year policy and claims administration agreement with
Island Group entered into effective June 1, 1999. INSpire believes it can
continue to successfully obtain new customers with existing books of business
under long term contracts by purchasing such customers' processing facilities
and employees. INSpire also provides outsourcing services to Clarendon National
Insurance Company ("Clarendon") through contracts with various subsidiaries of
E.W. Blanch Holdings Company, Inc. ("Blanch"), and approximately 12 other
customers.

     INSpire currently has approximately 50 software and software services
customers. The Company intends to continue to provide services to these
customers as needed but has discontinued efforts to license systems to new
customers.

     The Millers Group and Clarendon accounted for approximately 20% and 7%,
respectively, of INSpire's total revenues in 1999 and approximately 30% and 13%,
respectively, of INSpire's total revenues in 1998. Arrowhead accounted for
approximately 22% and 3% of INSpire's total revenues in 1999 and 1998,
respectively. The Robert Plan and Island Group accounted for approximately 14%
and 6%, respectively, of
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INSpire's total revenues in 1999, despite the fact that the Company provided
outsourcing services to The Robert Plan and Island Group for less than a full
year in 1999. Any loss of or material decrease in the business from any of these
customers could have a material adverse effect on INSpire's business, financial
condition, cash flows and results of operations.

EMPLOYEES

     As of January 1, 2000, INSpire had 1,215 full-time employees, of whom seven
were employed in sales and marketing functions, 68 in finance and
administration, 26 in research and development, 1,058 in outsourcing operations
and 56 in software services functions. INSpire also utilizes approximately 440
additional people in outsourcing operations under the terms of various employee
lease agreements. These leased personnel are expected to become INSpire
employees at various times during 2000. The Company's employees are not
represented by any collective bargaining organization and none of its employees
are covered by a collective bargaining agreement. INSpire believes that it has a
good relationship with its employees.

INTELLECTUAL PROPERTY

     INSpire relies on contract rights and copyright and other intellectual
property laws to protect its products, including software source code, as trade
secrets and confidential proprietary information. INSpire's agreements with its
current and prospective customers prohibit disclosure of INSpire's trade secrets
and proprietary information to third parties without the consent of the Company
and generally restrict the use of INSpire's products to the customers'
operations. INSpire also informs its employees of the proprietary nature of its
products and typically obtains from them agreements not to disclose trade
secrets and proprietary information. Notwithstanding these restrictions, INSpire
cannot assure that its competitors could not obtain unauthorized access to
INSpire's software source code and other trade secrets and proprietary
information. INSpire owns and uses common law trademarks, copyrights and service
marks in connection with its business, most of which are not registered.

     INSpire is not engaged in any material disputes with other parties with
respect to the ownership or use of INSpire's proprietary technology. The Company
cannot assure however, that third parties will not assert technology
infringement claims against INSpire in the future. The litigation of such claims
may involve significant expense and management time. In addition, if any such
claim were successful, INSpire could be required to pay monetary damages,
refrain from distributing or using the alleged infringing product, or obtain a
license from the party asserting the claim, which could be unavailable on
commercially reasonable terms. The absence of federal or state registrations for
its intellectual property could be detrimental to INSpire in any infringement
litigation or other disputes regarding intellectual property.

RECENT DEVELOPMENTS

     Acquisition of Certain Assets of Freedom General Agency, Inc., Material
Damage Adjustment Corporation of California, Material Damage Adjustment
Corporation of Florida, The Robert Plan of California Corporation, The Robert
Plan of Florida Corporation, The Robert Plan of New Jersey Corporation, Jersey
Central Insurance Agency, Inc., and The Robert Plan of New York
Corporation -- INSpire entered into an asset purchase agreement (the "Robert
Plan Acquisition") effective April 1, 1999, with The Robert Plan, pursuant to
which INSpire agreed to acquire from The Robert Plan certain assets and
employees used in the conduct of its policy and claims administration. Upon the
consummation of the Robert Plan Acquisition, INSpire entered into a policy and
claims administration agreement with The Robert Plan to provide certain policy
and claims administration services for the so-called "voluntary" lines of
automobile, homeowners and commercial automobile insurance for a period of ten
years beginning April 1, 1999.

     Pending Acquisition of Certain Assets of Island Insurance Company,
Ltd. -- INSpire entered into an asset and employee transfer agreement (the
"Island Acquisition") expected to close December 31, 2000, with Island Group,
pursuant to which INSpire agreed to acquire from Island Group certain assets and
employees used in the conduct of its policy and claims administration. In
conjunction with this transaction, INSpire also entered into a transitional
services and contingent transfer agreement with Island Group effective June 1,
1999

                                        8
<PAGE>   11

through December 31, 2000, and a policy and claims administration agreement to
provide certain policy and claims administration services to Island Group for a
period of ten years beginning June 1, 1999.

     Repositioning of INSpire's Core Business -- In December 1999, INSpire
decided to discontinue efforts directed toward increasing licensed software
packages in order to focus on its outsourcing business. Based on expected
business needs resulting from this repositioning, the Company implemented
management changes and reduced its workforce by approximately 100 employees
effective December 31, 1999.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

     INSpire's business, financial condition, cash flows and results of
operations may be impacted by a number of factors, including, but not limited
to, the following, any of which could cause actual results to vary materially
from current and historical results or INSpire's anticipated future results.

     Limited operating history and net losses. INSpire commenced operations in
1995 and has a limited operating history in the P&C insurance outsourcing
business. The Company cannot assure that it will be successful in implementing
its long-term operating strategy. The Company's operations generated net losses
for three of the past five years. Net losses were approximately $19.7 million
for the year ended December 31, 1999, $515,000 for the year ended December 31,
1996, and $1.3 million for the period from inception through December 31, 1995.
INSpire cannot assure that it will be able to maintain revenue growth or that
the Company will not sustain net losses in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     Pending Legal Proceedings. From time to time INSpire receives various
claims alleging breach of warranty, breach of contract, deceptive trade
practices and similar claims under license agreements and other agreements with
customers of the Company. Such claims include lawsuits filed in June 1999 by
Medical Mutual Insurance Company of North Carolina and November 1999 by Zurich
American Insurance Company, both former customers of INSpire. In August 1999,
Sul America Cia Nacional de Seguros, a former customer of the Company, demanded
payment under a performance bond due to INSpire's alleged contract default, for
which INSpire is potentially liable pursuant to an indemnification agreement
with the surety. Since late 1999, multiple shareholder class action lawsuits
have been filed against the Company, certain officers and directors of the
Company, and Millers Insurance, alleging violations under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by making false and misleading statements and failing to disclose
material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. An adverse
determination in any of these or any future legal proceedings could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. See "Legal Proceedings."

     Fluctuations in quarterly operating results; volatility of trading
price. INSpire has experienced in the past and will experience in the future
quarterly variations in net revenues and net income. Thus, operating results for
any particular quarter are not necessarily indicative of results for any future
period. Factors that have affected quarterly operating results include: (i) the
introduction of new or enhanced services and products by INSpire or its
competitors, (ii) customer acceptance or rejection of new services and products,
(iii) product development expenses, (iv) the timing of new contract signings,
(v) the timing of large scale catastrophes, (vi) the volume of usage of
INSpire's services, (vii) acquisitions, (viii) competitive conditions in its
industry, (ix) general economic conditions and (x) the level of selling and
administrative expenses. Many of these factors are beyond INSpire's control.

     The sales cycles for INSpire's services are generally between three and
twelve months and subject to a number of factors beyond the Company's control.
Customer decisions to enter into outsourcing services agreements may be
significantly affected by their decisions to replace current systems. In
addition, demand for INSpire's claims administration services fluctuates greatly
depending on the concentration of large scale catastrophes, such as hurricanes.
For these and other reasons, the revenues of the Company are difficult to
forecast, and INSpire believes that period-to-period comparisons of results of
operations are not necessarily meaningful or indicative of the results that
INSpire may achieve for any subsequent quarter or fiscal year. Therefore, past
operating results should not be considered a reliable indicator of future
performance.
                                        9
<PAGE>   12

     The trading price of the Common Stock has fluctuated widely in response to
variations in INSpire's quarterly operating results, changes in earnings
estimates by securities analysts, changes in the Company's business and changes
in general market and economic conditions. In addition, in recent years the
stock market has experienced extreme price and volume fluctuations. These
fluctuations have significantly affected the trading prices of the securities of
many emerging growth companies without regard to their specific operating
performance. Such market fluctuations could have a material adverse effect on
the trading price of the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

     Dependence on major customers. INSpire derives a substantial portion of its
revenues from outsourcing services provided to a few large customers, including
Millers Group, Arrowhead, The Robert Plan, Island Group and Clarendon. In the
aggregate these customers accounted for approximately 70% of the Company's total
revenues in 1999 and 45% of the Company's total revenues in 1998. The Millers
Group and Clarendon accounted for approximately 20% and 7%, respectively, of
INSpire's total revenues in 1999 and approximately 30% and 13%, respectively, of
INSpire's total revenues in 1998. Arrowhead accounted for approximately 22% and
3% of INSpire's total revenues in 1999 and 1998, respectively. The Robert Plan
and Island Group accounted for approximately 14% and 6%, respectively, of
INSpire's total revenues in 1999, despite the fact that the Company provided
outsourcing services to The Robert Plan and Island Group for less than a full
year in 1999. Any loss of or material decrease in the business from any of these
customers could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. See
"Business -- Customers."

     Ability to grow and expand services. INSpire has grown rapidly since its
formation. The Company's growth strategy depends on its ability to increase its
share of the policy and claims administration market through the enhancement of
existing services, development of new services and the marketing of its
services. There can be no assurance that INSpire will have the financial,
managerial, administrative, marketing or other resources necessary to achieve
these objectives. The success of INSpire depends in large part on its ability to
attract and retain highly skilled managerial, sales and marketing personnel. In
addition, INSpire believes it may need to hire additional technical personnel to
enhance and develop its services. Competition for such personnel is intense, and
should INSpire be unable to hire the necessary personnel, the development and
sale of new or enhanced services would likely be delayed or prevented. INSpire
cannot assure that it will be able to attract, integrate and retain skilled
personnel, manage its infrastructure or overcome other difficulties associated
with growth. If INSpire were to encounter difficulties in implementing the
expansion or development of its services, or in attracting, integrating and
retaining its personnel, such difficulties could have a material adverse effect
on the Company's business, financial condition, cash flows and results of
operations. See "Business -- The INSpire Strategy."

     Technological change and new product development risks. The market for
INSpire's services is characterized by rapidly changing technology, evolving
industry standards and frequent introductions of new products and enhancements.
INSpire's future success depends in part on its ability to enhance its existing
services and develop new services to meet changing customer requirements. The
introduction of competing services or products incorporating new technologies
could render some or all of INSpire's services obsolete or unmarketable. As a
result, INSpire has expended substantial resources for the enhancement of its
services and for product development and intends to continue to do so. The
development of new or enhanced services or products results in expenditures and
capital costs that may not be recovered if the service or product is
unsuccessful. Development projects can be lengthy and subject to changing market
requirements and unforeseen costs and delays. The failure of INSpire to develop
and introduce new or enhanced services or products in a timely and
cost-effective manner could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations. See
"Business -- Product Development."

     Competition. The markets for policy and claims administration and IT
services are highly competitive. Many of INSpire's competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than INSpire, including name recognition with current and
potential customers. As a result, these competitors may devote more resources to
the development, promotion and sale of their services or products than INSpire
and respond more quickly to emerging technologies and changes in
                                       10
<PAGE>   13

customer requirements. In addition, current and potential competitors may
establish cooperative relationships among themselves or with third parties to
increase the ability of their services and products to address customer needs.
Accordingly, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. INSpire cannot assure that it will be
able to compete successfully against current and future competitors. Any
competitive pressure faced by the Company could have a material adverse effect
on its business, financial condition, cash flows and results of operations. See
"Business -- Competition."

     Control by existing shareholder; conflicts of interest. Millers Insurance
owns approximately 24% of the outstanding shares of Common Stock of the Company.
As INSpire's largest shareholder, Millers Insurance is likely to be able to
maintain effective control of the Company, including the ability to elect a
majority of the Board of Directors. The ownership by Millers Insurance of shares
of Common Stock may discourage or prevent unsolicited mergers, acquisitions,
tender offers, proxy contests or changes of incumbent management, even when
shareholders other than Millers Insurance consider such a transaction or event
to be in their best interest. Accordingly, holders of Common Stock may be
deprived of an opportunity to sell their shares at a premium over the trading
price of the shares.

     Until recently, F. George Dunham, III, INSpire's Chief Executive Officer
and Chairman of the Board, also served as Chairman of the Board and Chief
Executive Officer of each of Millers Insurance and Millers Casualty. In January
2000, Mr. Dunham resigned from those positions with Millers Insurance and
Millers Casualty. However, INSpire will continue to have a variety of
contractual relationships with Millers Insurance and Millers Casualty. See the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders (the "2000
Proxy Statement") under the caption "Certain Transactions."

     Dependence on key personnel. INSpire's future success will depend largely
on the efforts and abilities of its executive officers, including F. George
Dunham, III, INSpire's Chief Executive Officer, Jeffrey W. Robinson, INSpire's
President and Chief Operating Officer, and certain key technical, managerial and
sales employees. The loss of Messrs. Dunham's or Robinson's services, or the
services of any of INSpire's other key employees, could have a material adverse
effect on the Company's business, financial condition, cash flows and results of
operations. INSpire has employment agreements with Messrs. Dunham and Robinson
that terminate in 2000. INSpire cannot assure that it will be successful in
retaining its key personnel. See the 2000 Proxy Statement under the caption
"Management."

     Risks of software defects. The sale and support of software by INSpire
entails the risks of product liability and warranty claims, which could be
substantial. Software products may contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Any such
defects in INSpire's software products could result in product liability or
warranty claims, which could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations. INSpire's
license agreements with its customers typically contain provisions designed to
limit INSpire's exposure to product liability or warranty claims. These
limitation of liability provisions, however, may be ineffective because of
existing or future federal, state or local laws or unfavorable judicial
decisions. From time to time INSpire receives various claims alleging breach of
warranty, breach of contract, deceptive trade practices and similar claims under
license agreements and other agreements with customers of the Company, and
several such claims are currently pending. See "Legal Proceedings."

     Acquisition risks. INSpire intends to consider acquisition candidates that
offer opportunities to increase market share and expand INSpire's line of
outsourcing services. There can be no assurance, however, that INSpire will be
able to consummate or successfully integrate future acquisitions. Acquisitions
involve significant risks, including: (i) the diversion of management's time and
attention to the negotiation of the acquisition and to the assimilation of the
businesses acquired, (ii) the need to modify financial and other systems and add
management resources, (iii) the potential liabilities of the acquired business,
(iv) unforeseen difficulties in the acquired operations, (v) the possible
adverse short-term effects on INSpire's results of operations and (vi) the
financial reporting effects of the amortization of goodwill and other intangible
assets. Furthermore, INSpire cannot assure that any business acquired will
achieve acceptable levels of revenue and profitability or otherwise perform as
expected. Currently, INSpire has no arrangements or understandings with

                                       11
<PAGE>   14

any party with respect to any future acquisition. The Company, however,
continues to monitor potential acquisition opportunities. See "Business -- The
INSpire Strategy."

     Reliance on information processing systems. INSpire's outsourcing services
depend on its ability to store, retrieve, process and manage significant
databases, and expand and upgrade periodically its information processing
capabilities. INSpire's principal computer equipment and software systems are
maintained at INSpire's facilities in Fort Worth, Texas; San Diego, California;
Edison, New Jersey; and Honolulu, Hawaii. Interruption or loss of INSpire's
information processing capabilities through loss of stored data, breakdown or
malfunctioning of computer equipment and software systems, telecommunications
failure or damage caused by fire, tornadoes, lightning, electrical power outage
or other disruption could have a material adverse effect on INSpire's business,
financial condition, cash flows and results of operations. Although INSpire
maintains business interruption insurance with an aggregate limit of $12.5
million per occurrence, and has entered into an agreement with International
Business Machines, Inc. to provide disaster recovery services, if needed,
INSpire cannot assure that such insurance or services will continue to be
available at reasonable prices, cover all such losses or compensate the Company
for the possible loss of customers occurring during any period that INSpire is
unable to provide services. See "Business -- Customer Support and Operations."

     Dependence on proprietary rights and risks of infringement. INSpire relies
on contract rights and copyright and other intellectual property laws to protect
its products, including software source code, as trade secrets and confidential
proprietary information. The Company's agreements with its current and
prospective customers prohibit disclosure of INSpire's trade secrets and
proprietary information to third parties without the consent of the Company and
generally restrict the use of INSpire's products to the customers' operations.
INSpire also informs its employees of the proprietary nature of its products and
typically obtains from them agreements not to disclose trade secrets and
proprietary information. Notwithstanding these restrictions, INSpire cannot
assure that its competitors could not obtain unauthorized access to INSpire's
software source code and other trade secrets and proprietary information.
INSpire owns and uses common law trademarks, copyrights and service marks in
connection with its business, most of which are not registered.

     INSpire is not engaged in any material disputes with other parties with
respect to the ownership or use of INSpire's proprietary technology. The Company
cannot assure however, that third parties will not assert technology
infringement claims against the Company in the future. The litigation of such
claims may involve significant expense and management time. In addition, if any
such claim were successful, INSpire could be required to pay monetary damages,
refrain from distributing or using the alleged infringing product, or obtain a
license from the party asserting the claim, which could be unavailable on
commercially reasonable terms. The absence of federal or state registrations for
its intellectual property could be detrimental to INSpire in any infringement
litigation or other disputes regarding intellectual property. See
"Business -- Intellectual Property."

     Government regulation. The P&C insurance industry is subject to extensive
regulation by state governments. Certain aspects of INSpire's business are
affected by such regulations, requiring the Company to periodically update its
software to reflect changes in regulations. In addition, changes in regulations
that adversely affect INSpire's existing and potential customers could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. Although INSpire's services and products are
not directly subject to insurance regulations in the states where INSpire
currently provides them, the Company's outsourcing services may be subject to
insurance regulations in states where INSpire may do business in the future.
Such regulations could require INSpire to obtain a license as a managing general
agent or third party administrator. INSpire cannot give any assurance with
respect to the extent to which it may become subject to regulation in the
future, the ability of the Company to comply with any such regulation or the
cost of compliance. See "Business."

     Shares eligible for future sale. Sales of a substantial number of shares of
Common Stock in the open market could adversely affect the trading price of the
Common Stock. Millers Insurance currently holds 4,606,875 shares, representing
approximately 24% of the outstanding shares of Common Stock. A decision by
Millers Insurance to sell shares of Common Stock could adversely affect the
trading price of the Common Stock. INSpire has an aggregate of 26,485,186 shares
of Common Stock authorized but unissued and not

                                       12
<PAGE>   15

reserved for specific purposes. All of such shares may be issued without any
action or approval by INSpire's shareholders. Any shares issued would dilute the
percentage ownership of the Company held by the current investors. INSpire has
18,998,270 shares of Common Stock outstanding, all of which are freely
transferable. In addition, (i) 3,488,585 shares of Common Stock are reserved for
issuance under the Stock Option Plan, 3,138,280 of which will be issuable upon
exercise of outstanding options, including currently exercisable options to
purchase 1,668,248 shares, and (ii) 75,000 shares of Common Stock are reserved
for issuance under the Director Plan, 27,500 of which will be issuable upon
exercise of options that are currently outstanding. A total of 404,466 shares
are issuable upon exercise of options granted in conjunction with the Arrowhead
Acquisition and the Island Acquisition. An additional 548,493 shares are
reserved for issuance to employees of the Company upon their purchase pursuant
to the Stock Purchase Plan. INSpire has registered on Form S-8 under the
Securities Act the offering and sale of Common Stock issuable under the Stock
Option Plan, the Director Plan and the Stock Purchase Plan. See the 2000 Proxy
Statement under the captions "Management -- Stock Option Plan," "-- Director
Stock Option Plan," and "-- Employee Stock Purchase Plan."

     Anti-takeover considerations. Certain provisions of INSpire's Restated
Articles of Incorporation (the "Restated Articles"), INSpire's Bylaws (the
"Bylaws") and the Texas Business Corporation Act ("TBCA") may have the effect of
discouraging unsolicited proposals for acquisition of the Company. The Restated
Articles and the Bylaws divide the Board of Directors into three classes serving
staggered three-year terms. Pursuant to the Restated Articles, shares of
preferred stock may be issued by INSpire in the future without shareholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
any such preferred stock. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions, financings and
other corporate transactions, could have the effect of discouraging a third
party's acquisition of a majority of the Common Stock. INSpire has no present
plans to issue any shares of preferred stock. In addition, INSpire has adopted a
shareholder rights plan that could further discourage attempts to acquire
control of the Company. Finally, the TBCA restricts certain business
combinations with any "affiliated shareholder," as defined therein and provides
that directors serving on staggered boards of directors may be removed only for
cause unless the articles of incorporation otherwise provide. INSpire's Restated
Articles do not otherwise so provide.

     Limitations on personal liability of directors. The Restated Articles and
Bylaws contain provisions that reduce the potential personal liability of
directors for certain monetary damages and provide for indemnity of directors
and other persons. INSpire also maintains officers and directors liability
insurance and has entered into indemnification agreements with certain of its
officers and directors. The indemnification agreements provide for reimbursement
for all direct and indirect costs of any type or nature whatsoever (including
attorneys' fees and related disbursements) reasonably incurred in connection
with either the investigation, defense or appeal of a covered legal proceeding,
including amounts paid in settlement by or on behalf of an indemnitee
thereunder. Certain directors and officers of the Company, as well as INSpire
and Millers Insurance, are named defendants in several currently pending
shareholder class action lawsuits. See "Legal Proceedings."

     No dividends. INSpire has never paid cash dividends on its stock and has no
plans to do so in the foreseeable future. INSpire intends to retain earnings, if
any, to fund growth. See "Market for Registrant's Common Equity and Related
Stockholder Matters -- Dividend Policy."

AVAILABLE INFORMATION

     INSpire files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document INSpire files at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. INSpire's
SEC filings are also available to the public at INSpire's web site at
http://www.nspr.com or at the SEC's web site at http://www.sec.gov.

                                       13
<PAGE>   16

ITEM 2. PROPERTIES.

     The following table sets forth certain information with respect to the
principal facilities used in INSpire's operations:

<TABLE>
<CAPTION>
                                                      CURRENT   APPROXIMATE
                                                      MONTHLY     SQUARE            LEASE
LOCATION                           FUNCTION            RENT       FOOTAGE      EXPIRATION DATE
--------                           --------           -------   -----------    ---------------
<S>                        <C>                        <C>       <C>           <C>
Fort Worth, Texas........  Corporate headquarters
                           and outsourcing services   $86,300     129,400     November 2008

San Diego, California....  Outsourcing services        92,300      93,000     March 2007

Edison, New Jersey.......  Outsourcing services        43,500      30,500     Not applicable(1)

Honolulu, Hawaii.........  Outsourcing services        65,000      34,400     Not applicable(2)

Columbia, South            Product development,
  Carolina...............  software services and
                           technical support           40,200      29,400     August 2002

Sheboygan, Wisconsin.....  Product development,
                           software services and
                           technical support           20,700      28,100     February 2007
</TABLE>

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

(1) In conjunction with the Robert Plan Acquisition, The Robert Plan agreed to
    allocate approximately 30,500 square feet in its Edison office to INSpire
    through April 1, 2001, at which time INSpire intends to relocate to another
    facility. INSpire reimburses The Robert Plan rental expense for this
    allocated office space, as well as for space allocated to INSpire in The
    Robert Plan's satellite facilities, on a monthly basis.

(2) In conjunction with the Island Acquisition, Island Group agreed to allocate
    approximately 34,400 square feet in its Honolulu office to INSpire through
    December 31, 2000. INSpire reimburses Island Group rental expense for this
    allocated space on a monthly basis. Effective January 1, 2001, INSpire
    intends to sublease approximately 25,800 square feet from Island Group in
    the Honolulu office for monthly rental expense of approximately $48,800.

     The aggregate monthly rental expense for the properties listed above is
$348,000. INSpire also leases satellite facilities with an aggregate monthly
lease rate of $102,000.

     INSpire believes that its existing facilities are adequate to meet its
requirements for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

     From time to time INSpire receives various claims incidental to its
business, including claims alleging breach of warranty, breach of contract,
deceptive trade practices and similar claims under license agreements and other
agreements with customers of the Company. Such claims include a lawsuit filed on
June 23, 1999 in the United States District Court for the Eastern District of
North Carolina by Medical Mutual Insurance Company of North Carolina ("Medical
Mutual"), a former customer of the Company (Medical Mutual Insurance Company of
North Carolina vs. INSpire Insurance Solutions, Inc. (5-99CV-416-F3)). Medical
Mutual seeks recovery for an amount of at least approximately $696,000
previously paid to the Company, damages in excess of $1.0 million, a declaratory
judgment that approximately $1.1 million invoiced to such customer is not owed
and treble damages and attorney fees. INSpire intends to vigorously defend this
lawsuit, and has filed a counterclaim seeking recovery of approximately $1.1
million invoiced to such customer and attorney fees. Management does not believe
the outcome of this lawsuit will have a material adverse effect on the Company's
business, financial condition, cash flows or results of operations.

                                       14
<PAGE>   17

     Such claims also include a lawsuit filed on November 9, 1999 in the United
States District Court for the Northern District of Illinois by Zurich American
Insurance Company ("Zurich"), a former customer of the Company (Zurich American
Insurance Company vs. INSpire Insurance Solutions, Inc. (99C-7288)). Zurich
seeks recovery for an amount of at least approximately $4.3 million previously
paid to the Company, a declaratory judgment that approximately $2.0 million
invoiced to such customer is not owed and damages to compensate Zurich for
INSpire's alleged breaches of contract. INSpire intends to vigorously defend
this lawsuit, and has filed a counterclaim seeking recovery of approximately
$2.0 million invoiced to such customer and attorney fees. Management does not
believe the outcome of this lawsuit will have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.

     In December 1997, INSpire entered into a contract with Sul America Cia
Nacional de Seguros ("Sul America") to provide a license for WPC and other
software products, and software services for the implementation of such
products. In conjunction with this contract, INSpire was required to arrange a
surety to provide Sul America with a performance bond in the amount of $3.7
million, the proceeds of which could be used in the event that INSpire did not
fulfill its obligations under the contract. The contract was segregated into
three phases of deliverables, two of which have been accepted and paid for in
the amount of $2.5 million by Sul America. In August 1999, Sul America
terminated its contract with the Company, and demanded payment under the
performance bond. Under its agreement to indemnify the surety against losses
under the performance bond allegedly caused by INSpire's default, the Company
arranged an irrevocable standby letter of credit in October 1999 with Bank of
America, N.A. in the amount of $3.7 million. On December 21, 1999, INSpire filed
a lawsuit in the 8th Civil Court of Rio de Janeiro (INSpire Insurance Solutions,
Inc. vs. Sul America Seguros S.A. and INA Seguradora S.A. (99.001.175.210-6))
requesting a preliminary injunction, which was granted in January 2000,
restricting the surety from paying $3.7 million to Sul America until a final
decision is rendered in the ordinary lawsuit to be filed. INSpire intends to
pursue collection of its outstanding receivable balance of $1.2 million from Sul
America and defend itself against Sul America's claims that the Company failed
to comply with the terms of the contract. The ultimate outcome of this matter
cannot presently be determined.

     On December 3, 1999, a shareholder class action lawsuit was filed in the
United States District Court for the Northern District of Texas on behalf of all
purchasers of the Company's Common Stock during the period between January 28,
1998 and October 14, 1999 (Southland Securities Corporation et. al. vs. Inspire
Insurance Solutions, Inc. et. al. (7-99CV-243-R)). The named defendants include
the Company, certain officers and directors of the Company, and Millers
Insurance. The complaint alleges violations under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by
making false and misleading statements and failing to disclose material facts
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading. The plaintiff seeks monetary damages
and interest. Two additional shareholder class action lawsuits, nearly identical
to the one described above, have been filed against the Company in the United
States District Court for the Northern District of Texas: Larry Altobell and
Lawrence J. Miller et. al. vs. Inspire Insurance Solutions, Inc. et.
al.(7-99CV-248-R) filed on December 16, 1999, and Stacy B. and Rhonda K. Lofton
et. al. vs. Inspire Insurance Solutions, Inc. et. al. (7-00CV-001-R) filed on
January 3, 2000. INSpire intends to defend these suits vigorously in all
aspects. However, the ultimate outcome of this matter cannot presently be
determined.

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

     Not applicable.

                                       15
<PAGE>   18

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     On July 21, 1998, the Board of Directors approved a three-for-two stock
split. The stock split was effected in the form of a stock dividend (the "Stock
Dividend"), which was paid on August 17, 1998 to shareholders of record as of
the close of business on July 31, 1998. Amounts and prices related to shares of
Common Stock in this Part II have been adjusted to give effect to the Stock
Dividend.

PRICE RANGE OF COMMON STOCK

     The Common Stock is traded on the Nasdaq National Market under the trading
symbol NSPR. The following table sets forth the high and low closing sales
prices as reported by the Nasdaq National Market for the Common Stock for the
periods indicated.

<TABLE>
<CAPTION>
1998                                                           HIGH     LOW
----                                                          ------   ------
<S>                                                           <C>      <C>
  First Quarter.............................................  $22.83   $13.17
  Second Quarter............................................  $23.83   $18.92
  Third Quarter.............................................  $27.75   $18.38
  Fourth Quarter............................................  $35.25   $15.50
</TABLE>

<TABLE>
<CAPTION>
1999                                                           HIGH     LOW
----                                                          ------   ------
<S>                                                           <C>      <C>
  First Quarter.............................................  $19.00   $13.13
  Second Quarter............................................  $21.88   $11.69
  Third Quarter.............................................  $13.50   $ 6.88
  Fourth Quarter............................................  $ 7.25   $ 3.66
</TABLE>

     As of February 24, 2000, there were approximately 44 record holders and
3,750 beneficial holders of the Common Stock.

DIVIDEND POLICY

     INSpire has never declared or paid any cash dividends on the Common Stock.
INSpire intends to retain any future earnings to fund growth and does not
anticipate paying any cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     Since January 1, 1999, INSpire issued and sold the following unregistered
securities:

          (1) On June 1, 1999, in connection with the Island Acquisition,
     INSpire issued to Island Group an option to purchase 105,000 shares of
     Common Stock. The exercise price of this option is $11.69 per share of
     Common Stock. This option vests according to the terms of an option
     agreement dated June 17, 1999, between INSpire and Island Group. This
     issuance was exempt from registration under Section 4(2) of the Securities
     Act of 1933.

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data of INSpire presented below as of December 31,
1999, 1998, 1997, 1996 and 1995, and for the years ended December 31, 1999,
1998, 1997 and 1996 and the period April 28, 1995 through December 31, 1995 have
been derived from the audited financial statements of INSpire. The selected
financial data should be read in conjunction with "Item 7 -- Management's
Discussion and Analysis of

                                       16
<PAGE>   19

Financial Condition and Results of Operations" and INSpire's Financial
Statements. The results of operations presented below are not necessarily
indicative of the results of operations that may be achieved in the future.

<TABLE>
<CAPTION>
                                                                                           PERIOD
                                                                                       APRIL 28, 1998
                                              YEAR ENDED DECEMBER 31,                     THROUGH
                               -----------------------------------------------------    DECEMBER 31,
                                 1999(1)       1998(2)       1997(3)        1996          1995(4)
                               -----------   -----------   -----------   -----------   --------------
                                                 (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                            <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Outsourcing services.......  $   111,700   $    50,901   $    32,458   $    13,653     $     3,907
  Software and software
     services................       26,940        33,988        21,101            --              --
  Other......................        1,918         2,290         3,010            --              --
                               -----------   -----------   -----------   -----------     -----------
          Total revenues.....      140,558        87,179        56,569        13,653           3,907
                               -----------   -----------   -----------   -----------     -----------
Expenses:
  Cost of outsourcing
     services................       81,458        26,303        20,798        10,543           4,885
  Cost of software and
     software services.......       19,184        19,120        10,681            --              --
  Cost of other revenues.....        1,154         1,606         2,413            --              --
  Selling, general and
     administrative..........       18,308        14,581         8,643            --              --
  Research and development,
     net.....................        5,195         2,983         1,190            --              --
  Depreciation and
     amortization............        9,186         6,210         4,001           787              33
  Purchased research and
     development.............           --           500         3,000            --              --
  Deferred compensation......           --            --         3,949            --              --
  Provision for severance
     costs...................        1,721            --            --            --              --
  Provision for bad debts....       10,991           275            71            --              --
  Litigation.................        1,229            --            --            --              --
  Intangible assets
     impairment..............       16,757            --            --            --              --
  Management fees to
     shareholder.............           --            --         1,290         3,100             600
  Gain on sale of
     subsidiary..............           --            --        (1,634)           --              --
  Other......................          804            --            --            --              --
                               -----------   -----------   -----------   -----------     -----------
          Total expenses.....      165,987        71,578        54,402        14,430           5,518
                               -----------   -----------   -----------   -----------     -----------
Operating income (loss)......      (25,429)       15,601         2,167          (777)         (1,611)
Other income (expense).......        1,396         2,675           350            (2)             --
                               -----------   -----------   -----------   -----------     -----------
Income (loss) before income
  tax........................      (24,033)       18,276         2,517          (779)         (1,611)
Income tax benefit
  (expense)..................        4,343        (6,706)         (801)          264             349
                               -----------   -----------   -----------   -----------     -----------
Net income (loss)............  $   (19,690)  $    11,570   $     1,716   $      (515)    $    (1,262)
                               ===========   ===========   ===========   ===========     ===========
Net income (loss) per share
  (basic)....................  $     (1.04)  $      0.65   $      0.14   $     (0.05)    $     (0.12)
                               ===========   ===========   ===========   ===========     ===========
Net income (loss) per share
  (diluted)..................  $     (1.04)  $      0.58   $      0.13   $     (0.05)    $     (0.12)
                               ===========   ===========   ===========   ===========     ===========
Weighted average shares
  (basic)....................   18,930,371    17,854,390    12,206,055    10,500,000      10,500,000
Weighted average shares
  (diluted)..................   18,930,371    19,838,583    13,173,746    10,500,000      10,500,000
</TABLE>

                                       17
<PAGE>   20

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                             -------------------------------------------------
                                               1999       1998      1997      1996      1995
                                             --------   --------   -------   -------   -------
                                                              (IN THOUSANDS)
<S>                                          <C>        <C>        <C>       <C>       <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments.....  $ 17,674   $ 48,094   $28,039   $   363   $    22
Working capital............................    36,407     68,387    30,375    (2,550)   (1,072)
Total assets...............................   132,028    132,808    67,897     5,232     2,817
Current portion of long-term debt..........        --        383       610     2,500        --
Due to shareholder.........................        --         --        --       996     1,569
Long-term debt, excluding current
  portion..................................        --         --       373        --        --
Shareholders' equity.......................   104,471    120,345    48,766       606     1,121
</TABLE>

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

(1) Includes $31.5 million in charges primarily relating to the Company's
    assessment of the recoverability of assets associated with its software
    business, including $11.0 million to increase the allowance for bad debts,
    $1.2 million of litigation expenses, $16.8 million for the impairment of
    intangible assets, $1.7 million for severance costs and approximately
    $800,000 of other charges. Excluding the effect of such charges, and the tax
    effects thereof, operating expenses, operating income and net income would
    have been $134.5 million, $6.1 million and $4.0 million, respectively, and
    net income per share (basic) would have been $0.21 and net income per share
    (diluted) would have been $0.20.

(2) Includes $500,000 of purchased research and development expenses relating to
    the acquisition of Paragon Interface, Inc. on April 20, 1998 (the "Paragon
    Acquisition"). Excluding the effect of this charge, operating expenses,
    operating income and net income would have been $71.1 million, $16.1 million
    and $12.1 million, respectively, and net income per share (basic) would have
    been $0.68 and net income per share (diluted) would have been $0.61.

(3) Includes $3.0 million of purchased research and development expenses
    relating to the acquisition of Strategic Data Systems, Inc. on March 17,
    1997 (the "SDS Acquisition"), $3.9 million of deferred compensation expense
    relating to the grant of stock options to executive officers and a $1.6
    million gain on the sale of Applied Quoting Systems, Inc. ("AQS"), a
    wholly-owned subsidiary of INSpire that was sold by INSpire on September 15,
    1997. Excluding the effect of such items, operating expenses, operating
    income and net income would have been $49.1 million, $7.5 million and $5.1
    million, respectively, and net income per share (basic) would have been
    $0.42 and net income per share (diluted) would have been $0.39.

(4) INSpire was incorporated April 28, 1995 and commenced operations July 1,
    1995.

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

OVERVIEW

     INSpire's revenues historically are derived principally from (i)
outsourcing services and (ii) software and software services. Revenues from
outsourcing services are derived from policy administration services, claims
administration services and IT services. Revenues from software and software
services are derived from contracts that grant customers a license to use
INSpire's software products and contracts that provide for installation,
customization, enhancement, conversion and maintenance services. Other revenues
principally represent hardware sold in connection with software installations.
In December 1999, INSpire decided to discontinue efforts toward licensing
software systems and to focus its efforts on providing outsourcing services. The
Company will continue, however, to satisfy all contractual obligations to
existing software installations as well as provide technical support to existing
software customers as needed on a time-and-materials basis.

     Revenues from outsourcing services are recognized as services are rendered.
INSpire is typically paid a percentage of premiums written for policy
administration services, a percentage of premiums earned or claims paid for
claims administration services and a percentage of premiums written subject to a
minimum fee for IT services. Outsourcing services contracts generally are for
terms of two to ten years. Due to the ongoing nature of these outsourcing
services and the length of the terms of the service contracts, outsourcing
services generate recurring revenues. Initial installations of software systems
generally include a one-time license fee and a

                                       18
<PAGE>   21

contract for the installation and customization of the system to meet the
customer's specifications, which INSpire bills at an hourly rate. Amounts
charged for the initial license and the installation and customization of
systems are recognized as revenue during the installation period in proportion
to the hours expended for installation compared to the total hours projected for
installation. In other instances, revenues are recognized based on performance
milestones specified in the contract. INSpire recognizes the annual fee charged
for maintenance of the customer's system over the maintenance contract period.
Revenues from computer hardware and equipment sales, included in other revenues,
are recognized when INSpire receives notification that the equipment has been
shipped by the manufacturer and title has passed to the customer. Changes in
estimates of percentage of completion or losses, if any, associated with
outsourcing or software services are recognized in the period in which they are
determined. Unearned revenues consist of billings to customers in advance of
revenues recognized on such services. Unbilled receivables consist of revenues
recognized in advance of billings due to timing differences related to billing
schedules specified in contracts.

     INSpire incurs research and development costs that relate primarily to the
development of new services and products and major enhancements to existing
services and products. Research and development costs are comprised primarily of
salaries. INSpire expenses or capitalizes, as appropriate, these research and
development costs in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." All research and development costs incurred
prior to the time management believes a project has reached "technological
feasibility" are expensed. Software production costs incurred subsequent to
reaching technological feasibility are capitalized, if material, and reported at
the lower of unamortized cost or net realizable value. Capitalized costs are
amortized over the expected service life of the related software, generally
three to seven years, using the straight-line method. The cost and related
accumulated amortization of projects are written off as they become fully
amortized.

     INSpire also capitalizes certain incremental fees and direct costs
associated with long-term outsourcing service agreements, including contract
acquisition and system implementation costs. These deferred costs are amortized
over the related contract period of up to ten years using the straight-line
method.

     The Company periodically assesses the recoverability of capitalized
software production costs and deferred contract costs by determining whether the
carrying amount of these long lived assets can be recovered through undiscounted
future operating cash flows and, if warranted, an impairment is recognized. The
impairment, if any, is measured by the difference between net book value and
estimated discounted future cash flows, and is charged to expense in the period
identified.

                                       19
<PAGE>   22

RESULTS OF OPERATIONS

     The following table sets forth, with respect to INSpire and for the periods
indicated, the percentage of total revenues represented by certain revenue,
expense and income items:

<TABLE>
<CAPTION>
                                                                                        PERIOD
                                                                                      APRIL 28,
                                                                                         1995
                                                     YEAR ENDED DECEMBER 31,           THROUGH
                                                 --------------------------------    DECEMBER 31,
                                                 1999     1998     1997     1996         1995
                                                 -----    -----    -----    -----    ------------
<S>                                              <C>      <C>      <C>      <C>      <C>
Revenues:
  Outsourcing services.........................   79.5%    58.4%    57.4%   100.0%      100.0%
  Software and software services...............   19.2     39.0     37.3      0.0         0.0
  Other........................................    1.3      2.6      5.3      0.0         0.0
                                                 -----    -----    -----    -----       -----
          Total revenues.......................  100.0    100.0    100.0    100.0       100.0
                                                 -----    -----    -----    -----       -----
Expenses:
  Cost of outsourcing services.................   58.0     30.2     36.8     77.2       125.0
  Cost of software and software services.......   13.7     21.9     18.9      0.0         0.0
  Cost of other revenues.......................    0.8      1.8      4.3      0.0         0.0
  Selling, general and administrative..........   13.0     16.8     15.3      0.0         0.0
  Research and development, net................    3.7      3.4      2.1      0.0         0.0
  Depreciation and amortization................    6.5      7.1      7.0      5.8         0.8
  Purchased research and development...........    0.0      0.6      5.3      0.0         0.0
  Deferred compensation........................    0.0      0.0      7.0      0.0         0.0
  Provision for severance costs................    1.2      0.0      0.0      0.0         0.0
  Provision for bad debts......................    7.8      0.3      0.1      0.0         0.0
  Litigation...................................    0.9      0.0      0.0      0.0         0.0
  Intangible assets impairment.................   11.9      0.0      0.0      0.0         0.0
  Management fees to shareholder...............    0.0      0.0      2.3     22.7        15.4
  Gain on sale of subsidiary...................    0.0      0.0     (2.9)     0.0         0.0
  Other........................................    0.6      0.0      0.0      0.0         0.0
                                                 -----    -----    -----    -----       -----
          Total expenses.......................  118.1     82.1     96.2    105.7       141.2
                                                 -----    -----    -----    -----       -----
Operating income (loss)........................  (17.9)    17.9      3.8     (5.7)      (41.2)
Other income (expense).........................    1.0      3.1      0.6      0.0         0.0
                                                 -----    -----    -----    -----       -----
Income (loss) before income tax................  (17.1)    21.0      4.4     (5.7)      (41.2)
Income tax benefit (expense)...................    3.1     (7.7)    (1.4)     1.9         8.9
                                                 -----    -----    -----    -----       -----
Net income (loss)..............................  (14.0)%   13.3%     3.0%    (3.8)%     (32.3)%
                                                 =====    =====    =====    =====       =====
</TABLE>

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

     Revenues. Total revenues were $140.6 million for the year ended December
31, 1999 compared to $87.2 million for the year ended December 31, 1998, an
increase of $53.4 million or 61%. Outsourcing services revenues were $111.7
million for the year ended December 31, 1999 compared to $50.9 million for the
year ended December 31, 1998, an increase of $60.8 million or 119%. The growth
in outsourcing services revenues is due primarily to: (i) the Company performing
outsourcing services under a policy administration agreement with Arrowhead
entered into effective December 1, 1998 and the Company's subsidiary performing
outsourcing services under a claims administration agreement with Arrowhead
entered into effective December 1, 1998, (ii) the Company performing outsourcing
services under a policy and claims administration agreement with The Robert Plan
entered into effective April 1, 1999, (iii) the Company performing outsourcing
services under a policy and claims administration agreement with Island Group
entered into effective June 1, 1999, and (iv) the Company performing outsourcing
services under five additional outsourcing contracts entered into during 1999.
Software and software services revenues were $26.9 million for the year ended
December 31, 1999 compared to $34.0 million for the year ended December 31,
1998, a

                                       20
<PAGE>   23

decrease of $7.1 million or 21%. The decrease in software and software services
revenues is primarily attributable to fewer in-process installations of WPC and
other software productivity tools, resulting in lower license fees and software
services revenues.

     Cost of revenues. Cost of revenues, which is comprised mainly of personnel
costs, was $101.8 million for the year ended December 31, 1999 compared to $47.0
million for the year ended December 31, 1998, an increase of $54.8 million or
117%. Cost of outsourcing services was $81.5 million for the year ended December
31, 1999 compared to $26.3 million for the year ended December 31, 1998, an
increase of $55.2 million or 210%. This increase is primarily attributable to
costs associated with the performance of outsourcing services under the
contracts described above. Cost of outsourcing services as a percentage of
outsourcing services revenues increased to 73% for the year ended December 31,
1999 from 52% for the year ended December 31, 1998. This increase is a result of
additional staffing and equipment to support the growth of the outsourcing
division, and lower operating margins during the initial phases of the new
outsourcing contracts described above. Cost of software and software services
remained relatively constant at $19.2 million for the year ended December 31,
1999 compared to $19.1 million for the year ended December 31, 1998. Cost of
software and software services as a percentage of software and software services
revenues increased to 71% for the year ended December 31, 1999 from 56% for the
year ended December 31, 1998, primarily as a result of the costs associated with
providing consulting services, which comprised a larger proportion of total
software revenues during the year ended December 31, 1999 compared to the year
ended December 31, 1998, as well as a decrease in the productivity of software
personnel.

     Selling, general and administrative expenses. Selling, general and
administrative expenses were $18.3 million for the year ended December 31, 1999
compared to $14.6 million for the year ended December 31, 1998, an increase of
$3.7 million or 25%. This increase is primarily due to additional executive
management, staffing, office space and computer equipment and software required
to expand the infrastructure to support the Company's growth. Selling, general
and administrative expenses as a percentage of total revenues decreased to 13%
for the year ended December 31, 1999 from 17% for the year ended December 31,
1998. This decrease is due to the increased revenue base over which to spread
these costs.

     Research and development. Research and development expense was $5.2 million
for the year ended December 31, 1999 compared to $3.0 million for the year ended
December 31, 1998, an increase of $2.2 million or 73%. This increase is
primarily due to increased efforts to expand the functionality of current
software products and the development of new software products to be utilized in
INSpire's outsourcing operations. This expense is comprised primarily of
personnel, equipment and occupancy costs related to software development.
Research and development expense for the year ended December 31, 1999 and 1998
is net of capitalized software production costs of approximately $1.6 million
and $2.0 million, respectively.

     Depreciation and amortization. Depreciation and amortization expense was
$9.2 million for the year ended December 31, 1999 compared to $6.2 million for
the year ended December 31, 1998, an increase of approximately $3.0 million or
48%. This increase is primarily attributable to amortization of goodwill and
depreciation on fixed assets recorded in connection with the Arrowhead
Acquisition, the Robert Plan Acquisition and the Island Acquisition, and the
acquisition of additional property and equipment to expand the infrastructure to
support the Company's growth.

     Unusual operating expenses. Unusual operating expenses totaled $31.5
million for the year ended December 31, 1999 compared to $500,000 for the year
ended December 31, 1998.

     During 1999, the Company recognized $31.5 million in charges primarily
relating to the Company's assessment of the recoverability of assets associated
with its software business. These charges consist of: (i) $11.0 million to
increase the allowance for bad debts, (ii) $1.2 million of litigation expenses,
(iii) $16.8 million for the impairment of intangible assets, (iv) $1.7 million
for severance costs and (v) approximately $800,000 in other charges.

     In the normal course of business, INSpire provides software, software
services and outsourcing services in advance of receiving payment for such
products and services. Customers are invoiced in accordance with the terms of
their contracts with the Company. During the quarter ended September 30, 1999,
management took

                                       21
<PAGE>   24

action relative to specific software installation contracts that had significant
past due balances and ceased further work, pending resolution of the balances
due under the terms of the contracts. The Company recognized $11.0 million of
bad debts expense during 1999. INSpire is vigorously pursuing collection of
these accounts.

     Litigation expenses of $1.2 million include expenses associated with the
collection of accounts receivable, as well as penalties or settlements to be
paid in connection with various pending matters.

     The Company recognized an impairment charge of $16.8 million for certain
intangible assets, including a substantial portion of the goodwill and software
purchased in the SDS Acquisition and the Paragon Acquisition, the software
license associated with the Company's agreement with Cover-All Systems, Inc.
entered into in October 1997, and internally capitalized software production
costs. The Company periodically evaluates the carrying value of long lived
assets to determine if impairment exists based upon estimated undiscounted
future cash flows. The impairment, if any, is measured by the difference between
net book value and estimated discounted future cash flows, and is charged to
expense in the period identified. The impairment charge was necessitated by the
Company's determination, based on recent operating results, that the future
expected sales and cash flows from the Company's software operations would be
significantly lower than previously expected.

     Severance costs of $1.7 million incurred during 1999 represent expenses
associated with staff reductions and executive resignations, primarily as a
result of the Company's decision in December 1999 to discontinue efforts toward
licensing new software systems.

     Other operating expenses of approximately $800,000 represent the accrual of
future payment obligations under operating leases for fixed assets no longer in
use by the Company.

     In April 1998, $500,000 was assigned to in-process research and development
in the purchase price allocation of the acquisition of the Paragon Acquisition.
This amount was charged to operations.

     Other income. Other income, consisting principally of investment income,
decreased to $1.4 million for the year ended December 31, 1999 from $2.7 million
for the year ended December 31, 1998. The decrease of $1.3 million, or 48%, is
due to a decrease in cash equivalents and investments primarily as a result of
cash used in the Arrowhead Acquisition, the Robert Plan Acquisition and the
Island Acquisition.

     Net income (loss). Net loss was $19.7 million, or $1.04 per diluted share
($1.04 per basic share), for the year ended December 31, 1999 compared to net
income of $11.6 million, or $.58 per diluted share ($.65 per basic share), for
the year ended December 31, 1998. Excluding the impact on net income resulting
from the $31.5 million nonrecurring operating expenses discussed above, and the
tax effects thereof, net income for the year ended December 31, 1999 would have
been $4.0 million or $.20 per diluted share ($.21 per basic share). Excluding
the impact on net income resulting from the $500,000 write-off of purchased
research and development associated with the Paragon Acquisition, net income for
the year ended December 31, 1998 would have been $12.1 million, or $.61 per
diluted share ($.68 per basic share).

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

     Revenues. INSpire's total revenues were $87.2 million for the year ended
December 31, 1998 compared to $56.6 million for the year ended December 31,
1997, an increase of $30.6 million or 54%. Outsourcing revenues were $50.9
million for 1998 compared to $32.5 million for 1997, an increase of $18.4
million or 57%. This increase is attributable primarily to revenues from 13 new
outsourcing contracts entered into during 1998, including the agreement with
Arrowhead effective as of December 1, 1998. Software and software services
revenues were $34.0 million for 1998 compared to $21.1 million for 1997, an
increase of $12.9 million or 61%. This increase is attributable primarily to
increased license fees from software systems and increased installations,
customization and other software services performed for customers.

     Cost of revenues. Total cost of revenues was $47.0 million for the year
ended December 31, 1998 compared to $33.9 million for the year ended December
31, 1997, an increase of $13.1 million or 39%. Cost of outsourcing services was
$26.3 million for the year ended December 31, 1998 compared to $20.8 million for

                                       22
<PAGE>   25

the year ended December 31, 1997, an increase of $5.5 million or 26%. This
increase primarily was a result of the costs associated with the performance of
services under the outsourcing contracts described above. Cost of outsourcing
services as a percentage of outsourcing services revenues decreased to 52% in
1998 from 64% in 1997. This decrease was primarily a result of economies of
scale associated with spreading certain fixed costs over a larger revenue base.
Cost of software and software services was $19.1 million for the year ended
December 31, 1998 compared to $10.7 million for the year ended December 31,
1997, an increase of $8.4 million or 79%. This increase primarily was a result
of increased personnel costs of the software division to support increased
implementation and consulting services. Cost of software and software services
as a percentage of software and software services revenues increased to 56% in
1998 from 51% in 1997. This increase resulted primarily from increased personnel
costs and a lower utilization rate for such personnel during 1998.

     Selling, general and administrative expenses. Selling, general and
administrative expenses, including management fees paid to shareholder, were
$14.6 million for the year ended December 31, 1998 compared to $9.9 million for
the year ended December 31, 1997, an increase of $4.7 million or 47%. This
increase was primarily due to additional executive management, staffing, office
space and computer equipment and software required to expand the infrastructure
to support INSpire's growth.

     Research and development. Research and development expense was $3.0
million, net of capitalized software production costs of $2.0 million, for the
year ended December 31, 1998, compared to $1.2 million, net of capitalized
software production costs of $800,000, for the year ended December 31, 1997, an
increase of 150%. This expense was comprised primarily of personnel, equipment
and occupancy costs related to software development. The increase in this
expense was due to the further development of such existing products as WPC and
EmPower into new platforms and integration within product lines.

     Depreciation and amortization. Depreciation and amortization expense was
$6.2 million for the year ended December 31, 1998 compared to $4.0 million for
the year ended December 31, 1997, an increase of $2.2 million or 55%. This
increase was primarily attributable to (i) amortization of goodwill and
capitalized software recorded in connection with the Paragon Acquisition, (ii)
amortization of goodwill recorded in connection with the Arrowhead Acquisition,
and (iii) acquisitions of property and equipment as a result of the expansion in
infrastructure to support INSpire's growth.

     Unusual operating expenses. In connection with the Paragon Acquisition,
$500,000 was assigned to in-process research and development and was charged to
operations in April 1998. In the purchase price allocation of the SDS
Acquisition, $3.0 million was assigned to in-process research and development.
This amount was charged to operations in March 1997. In addition, $3.9 million
was charged to operations as deferred compensation associated with stock options
granted to executive officers during 1997.

     Other income. Other income for the year ended December 31, 1998 increased
to $2.7 million from $350,000 for the year ended December 31, 1997, an increase
of $1.8 million or 619%. Other income for the year ended December 31, 1998 is
primarily attributable to interest income on funds received as a result of the
Company's initial public offering ("IPO") in August 1997 and follow-on public
offering in March 1998.

     Net income (loss). Net income was $11.6 million, or $.58 per diluted share
($.65 per basic share), for the year ended December 31, 1998 compared to a net
income of $1.7 million, or $.13 per diluted share ($.14 per basic share), for
the year ended December 31, 1997. Excluding the impact on net income resulting
from the $500,000 write-off of purchased research and development associated
with the Paragon Acquisition, net income would have been $12.1 million, or $.61
per diluted share ($.68 per basic share), for the year ended December 31, 1998.
In 1997, excluding the impact on net income resulting from the charge to
operations of $3.9 million of deferred compensation associated with stock
options granted to executive officers, the write-off of purchased research and
development of $3.0 million recorded in connection with the SDS Acquisition, and
the gain on the sale of AQS of $1.6 million, and the tax effects thereof, net
income would have been $5.1 million, or $.39 per diluted share ($.42 per basic
share).

                                       23
<PAGE>   26

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents and investments were $17.7 million as of December
31, 1999 compared to $48.1 million as of December 31, 1998, a decrease of $30.4
million. Net cash provided by operating activities was $114,000 for the year
ended December 31, 1999. The net loss of $19.7 million for the year ended
December 31, 1999 included noncash charges of $9.2 million for depreciation and
amortization, $11.0 million for bad debts and $16.8 million for intangible
assets impairment, offset by a deferred tax benefit of $6.2 million. Increases
in accounts receivable of $17.0 million and income taxes receivable of $3.6
million were partially offset by an increase in accrued expenses of $7.5
million. Net cash used in investing activities was $27.3 million for the year
ended December 31, 1999, which is primarily attributable to costs associated
with the Robert Plan Acquisition and the Island Acquisition, capitalized
contract implementation costs associated with the outsourcing services
agreements with Arrowhead, The Robert Plan and Island Group, and purchases of
property and equipment necessary to expand the infrastructure to support
INSpire's growth. Net cash provided by financing activities was $449,000 for the
year ended December 31, 1999, primarily attributable to proceeds from exercises
under stock plans.

     In December 1997, INSpire entered into a contract with Sul America to
provide a license for WPC and other software products, and software services for
the implementation of such products. In conjunction with this contract, INSpire
was required to arrange a surety to provide Sul America with a performance bond
in the amount of $3.7 million, the proceeds of which could be used in the event
that the Company did not fulfill its obligations under the contract. The
contract was segregated into three phases of deliverables, two of which have
been accepted and paid for in the amount of $2.5 million by Sul America. In
August 1999, Sul America terminated its contract with the Company, and demanded
payment under the performance bond. Under its agreement to indemnify the surety
against losses under the performance bond allegedly caused by INSpire's default,
the Company arranged an irrevocable standby letter of credit in October 1999
with Bank of America, N.A. in the amount of $3.7 million. On December 21, 1999,
INSpire filed a lawsuit in the 8th Civil Court of Rio de Janeiro (INSpire
Insurance Solutions, Inc. vs. Sul America Seguros S.A. and INA Seguradora S.A.
(99.001.175.210-6)) requesting a preliminary injunction, which was granted in
January 2000, restricting the surety from paying $3.7 million to Sul America
until a final decision is rendered in the ordinary lawsuit to be filed. INSpire
intends to pursue collection of its outstanding receivable balance of $1.2
million from Sul America, and defend itself against Sul America's claims that
the Company failed to comply with the terms of the contract. The ultimate
outcome of this matter cannot presently be determined.

     Prior to its IPO in August 1997 and its follow-on public offering in March
1998, INSpire funded its operations through cash generated from operations, as
well as borrowings and capital contributions from Millers Insurance.

     INSpire believes that cash generated from operations will satisfy the
Company's anticipated working capital requirements for at least one year. The
Company, however, may require substantial additional funds for potential
acquisitions and expansion. In the normal course of business, INSpire evaluates
acquisitions of businesses, products and technologies that complement the
Company's business. INSpire has no present commitments or understandings with
respect to the acquisition of any business, although the Company continues to
monitor potential acquisition opportunities.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for transactions
entered into in fiscal years beginning after December 31, 1998. The adoption of
SOP 98-1 did not have a material effect on the Company's consolidated financial
position or results of operations.

     In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 is effective for the Company's
fiscal year ending December 31, 1999. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The adoption of
SOP 98-5 did not have a material effect on the Company's consolidated financial
statements.
                                       24
<PAGE>   27

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000. SFAS 133 requires all derivative
instruments to be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company does not expect that the adoption of SFAS 133 will have a material
impact on its financial statements because the Company does not currently hold
any derivative instruments.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     INSpire maintains a short-term investment portfolio consisting mainly of
government and corporate bonds purchased with an average maturity of less than
one year. These available-for-sale securities include both fixed and floating
rate securities. The fixed rate securities are subject to interest rate risk and
will fall in value if market interest rates increase. If market interest rates
were to increase immediately and uniformly by 100 basis points from levels at
December 31, 1999, the fair value of the portfolio would decrease by an
immaterial amount. INSpire generally has the ability to hold its fixed income
investments until maturity. The floating rate securities carry a degree of
interest rate risk and may produce less interest income than expected if
interest rates decrease. INSpire does not expect its financial position, results
of operations or cash flows to be materially affected by the effect of a sudden
change in market interest rates on the portfolio.

     Other than these short-term investments, INSpire does not engage in trading
market risk sensitive instruments and does not purchase as investments, as
hedges, or for purposes "other than trading" instruments that are likely to
expose INSpire to market risk, whether it be from interest rate, foreign
currency exchange, commodity price or equity price risk. INSpire has issued no
debt instruments, entered into no forward or futures contracts, purchased no
options and entered into no swaps.

                                       25
<PAGE>   28

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Financial Statements of INSpire appear at pages F-1 to F-21.

QUARTERLY RESULTS OF OPERATIONS ON A HISTORICAL BASIS

     The following table sets forth certain unaudited historical quarterly
financial data for each of the eight consecutive quarters in fiscal 1999 and
1998. This information is derived from unaudited financial statements that
include, in the opinion of INSpire, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation when read in
conjunction with the financial statements of INSpire and notes thereto included
elsewhere in this Form 10-K. The amounts related to shares of Common Stock have
been adjusted to give effect to the Stock Dividend.

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                   -------------------------------------------------------------------------------------
                                   DEC. 31,   SEP. 30,   JUN. 30,   MAR. 31,   DEC. 31,   SEP. 30,   JUN. 30,   MAR. 31,
                                     1999       1999       1999       1999       1998       1998       1998       1998
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                                             (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenues:
  Outsourcing services...........  $32,367    $ 31,453   $27,251    $20,629    $16,055    $13,314    $11,400    $10,132
  Software and software
    services.....................    2,864       5,557     8,349     10,170      9,124      8,347      8,892      7,625
  Other..........................      342         342       655        579        599        423        669        599
                                   -------    --------   -------    -------    -------    -------    -------    -------
         Total revenues..........   35,573      37,352    36,255     31,378     25,778     22,084     20,961     18,356
                                   -------    --------   -------    -------    -------    -------    -------    -------
Expenses:
  Cost of outsourcing services...   24,961      24,653    18,749     13,095      9,096      5,704      5,868      5,635
  Cost of software and software
    services.....................    3,639       5,145     5,499      4,901      4,740      5,458      4,845      4,077
  Cost of other revenues.........      217         200       343        394        456        284        441        425
  Selling, general and
    administrative...............    4,295       5,560     4,051      4,402      3,637      4,014      3,777      3,153
  Research and development,
    net..........................    2,427       1,109       680        979      1,088        797        676        422
  Depreciation and
    amortization.................    2,150       2,399     2,459      2,178      1,939      1,635      1,423      1,213
  Purchased research and
    development..................       --          --        --         --         --         --        500         --
  Provision for severance
    costs........................    1,457          36        76        152         --         --         --         --
  Provision for bad debts........       58      10,848        30         55        125         30         30         90
  Litigation.....................       --       1,229        --         --         --         --         --         --
  Intangible assets impairment...       --      16,757        --         --         --         --         --         --
  Other..........................       --         804        --         --         --         --         --         --
                                   -------    --------   -------    -------    -------    -------    -------    -------
         Total expenses..........   39,204      68,740    31,887     26,156     21,081     17,922     17,560     15,015
                                   -------    --------   -------    -------    -------    -------    -------    -------
Operating income (loss)..........   (3,631)    (31,388)    4,368      5,222      4,697      4,162      3,401      3,341
Other income (expense)...........      238         298       413        447        596        820        859        400
                                   -------    --------   -------    -------    -------    -------    -------    -------
Income (loss) before income
  tax............................   (3,393)    (31,090)    4,781      5,669      5,293      4,982      4,260      3,741
Income tax benefit (expense).....   (2,213)     10,736    (1,912)    (2,268)    (1,851)    (1,744)    (1,689)    (1,422)
                                   -------    --------   -------    -------    -------    -------    -------    -------
Net income (loss)................  $(5,606)   $(20,354)  $ 2,869    $ 3,401    $ 3,442    $ 3,238    $ 2,571    $ 2,319
                                   =======    ========   =======    =======    =======    =======    =======    =======
Net income (loss) per share
  (basic)........................  $ (0.30)   $  (1.07)  $  0.15    $  0.18    $  0.19    $  0.18    $  0.14    $  0.15
                                   =======    ========   =======    =======    =======    =======    =======    =======
Net income (loss) per share
  (diluted)......................  $ (0.30)   $  (1.07)  $  0.14    $  0.17    $  0.17    $  0.16    $  0.13    $  0.13
                                   =======    ========   =======    =======    =======    =======    =======    =======
</TABLE>

                                       26
<PAGE>   29

     The following table sets forth, with respect to INSpire and for the periods
indicated, the percentage of total revenues represented by certain revenue,
expense and income items:

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                   -------------------------------------------------------------------------------------
                                   DEC. 31,   SEP. 30,   JUN. 30,   MAR. 31,   DEC. 31,   SEP. 30,   JUN. 30,   MAR. 31,
                                     1999       1999       1999       1999       1998       1998       1998       1998
                                   --------   --------   --------   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenues:
  Outsourcing services...........    91.0%      84.2%      75.2%      65.8%      62.3%      60.3%      54.4%      55.2%
  Software and software
    services.....................     8.0       14.9       23.0       32.4       35.4       37.8       42.4       41.5
  Other..........................     1.0        0.9        1.8        1.8        2.3        1.9        3.2        3.3
                                    -----      -----      -----      -----      -----      -----      -----      -----
         Total revenues..........   100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0
                                    -----      -----      -----      -----      -----      -----      -----      -----
Expenses:
  Cost of outsourcing services...    70.2       66.0       51.7       41.8       35.3       25.8       28.0       30.7
  Cost of software and software
    services.....................    10.2       13.8       15.2       15.6       18.4       24.7       23.1       22.2
  Cost of other revenues.........     0.6        0.5        0.9        1.3        1.8        1.3        2.1        2.3
  Selling, general and
    administrative...............    12.1       14.9       11.2       14.0       14.1       18.2       18.0       17.2
  Research and development,
    net..........................     6.8        3.0        1.9        3.1        4.2        3.6        3.2        2.3
  Depreciation and
    amortization.................     6.1        6.4        6.8        6.9        7.5        7.4        6.8        6.6
  Purchased research and
    development..................     0.0        0.0        0.0        0.0        0.0        0.0        2.4        0.0
  Provision for severance
    costs........................     4.1        0.1        0.2        0.5        0.0        0.0        0.0        0.0
  Provision for bad debts........     0.2       29.0        0.1        0.2        0.5        0.1        0.1        0.5
  Litigation.....................     0.0        3.3        0.0        0.0        0.0        0.0        0.0        0.0
  Intangible assets impairment...     0.0       44.9        0.0        0.0        0.0        0.0        0.0        0.0
  Other..........................     0.0        2.2        0.0        0.0        0.0        0.0        0.0        0.0
                                    -----      -----      -----      -----      -----      -----      -----      -----
         Total expenses..........   110.3      184.1       88.0       83.4       81.8       81.1       83.7       81.8
                                    -----      -----      -----      -----      -----      -----      -----      -----
Operating income (loss)..........   (10.3)     (84.1)      12.0       16.6       18.2       18.9       16.3       18.2
Other income (expense)...........     0.7        0.8        1.1        1.4        2.3        3.7        4.1        2.2
                                    -----      -----      -----      -----      -----      -----      -----      -----
Income (loss) before income
  tax............................    (9.6)     (83.3)      13.1       18.0       20.5       22.6       20.4       20.4
Income tax benefit (expense).....    (6.2)      28.7       (5.3)      (7.2)      (7.2)      (7.9)      (8.1)      (7.8)
                                    -----      -----      -----      -----      -----      -----      -----      -----
Net income (loss)................   (15.8)%    (54.6)%      7.8%      10.8%      13.3%      14.7%      12.3%      12.6%
                                    =====      =====      =====      =====      =====      =====      =====      =====
</TABLE>

     INSpire has experienced in the past and will experience in the future
quarterly variations in net revenues and net income. Thus, operating results for
any particular quarter are not necessarily indicative of results for any future
period. Factors that have affected quarterly operating results include the
introduction of new or enhanced services and products by INSpire or its
competitors, customer acceptance or rejection of new services and products,
product development expenses, the timing of new contract signings, the timing of
large scale catastrophes, the volume of usage of INSpire's services and
products, acquisitions, competitive conditions in its industry, general economic
conditions and the level of selling and administrative expenses.

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

     Not applicable.

                                       27
<PAGE>   30

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by Item 10 is hereby incorporated by reference
from the 2000 Proxy Statement under the captions "Proposal 1 -- Election of
Directors -- Nominees," "-- Other Directors," "-- Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION

     The information required by Item 11 is hereby incorporated by reference
from the 2000 Proxy Statement under the caption "Management."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is hereby incorporated by reference
from the 2000 Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by Item 13 is hereby incorporated by reference
from the 2000 Proxy Statement under the caption "Certain Transactions."

                                       28
<PAGE>   31

                                    PART IV

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

     (a) The following documents are filed as part of this report:

        (1) Financial Statements

           Independent Auditors' Report
           Consolidated Balance Sheets as of December 31, 1999 and 1998
           Consolidated Statements of Operations for each of the three years
            ended December 31, 1999,
             1998 and 1997
           Consolidated Statements of Shareholders' Equity for each of the three
            years ended
             December 31, 1999, 1998 and 1997
           Consolidated Statements of Cash Flows for each of the three years
            ended December 31, 1999,
             1998 and 1997
           Notes to the Consolidated Financial Statements

        (2) Financial Statement Schedules

            None

            Schedules not listed above have been omitted because they are not
            required or are not applicable.

        (3) Exhibits

            The information required by this Item 14(a)(3) is set forth in the
            Exhibit Index immediately following INSpire's financial statements.
            The exhibits listed herein will be furnished upon written request to
            the Investor Relations Department of INSpire located at INSpire's
            headquarters and payment of a reasonable fee that will be limited to
            INSpire's reasonable expense in furnishing such exhibits.

     (b) The following report was filed on Form 8-K during the three months
         ended December 31, 1999, including the date and description of such
         report.

<TABLE>
<CAPTION>
DATE OF REPORT                            DESCRIPTION
--------------                            -----------
<S>               <C>
December 3, 1999  On December 3, 1999 a shareholder class action lawsuit was
                  filed in the United States District Court for the Northern
                  District of Texas on behalf of all purchasers of
                  Registrant's Common Stock during the period between January
                  28, 1998 and October 14, 1999 (Southland Securities
                  Corporation et. al. v. Inspire Insurance Solutions, Inc. et.
                  al. (7-99CV- 243-R)) The named defendants include
                  Registrant, certain officers and directors of Registrant,
                  and Millers Mutual Fire Insurance Company. The complaint
                  alleges violations under Sections 10(b) and 20(a) of the
                  Securities Exchange Act of 1934 and Rule 10b-5 promulgated
                  thereunder by making false and misleading statements and
                  failing to disclose material facts necessary in order to
                  make the statements made, in light of the circumstances
                  under which they were made, not misleading. The plaintiff
                  seeks monetary damages and interest. Registrant intends to
                  defend the suit vigorously in all aspects.
</TABLE>

                                       29
<PAGE>   32

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                            INSPIRE INSURANCE SOLUTIONS, INC.

                                            By:  /s/ F. GEORGE DUNHAM, III
                                              ----------------------------------
                                              Name:  F. George Dunham, III
                                              Title:   Chief Executive Officer
                                                and Director
Date March 9, 2000

     Each person whose signature appears below hereby constitutes and appoints
F. George Dunham, III his true and lawful attorney-in-fact, for him and in his
name, place and stead, to sign any and all amendments to this report and to
cause the same to be filed with the Securities and Exchange Commission, hereby
granting to said attorney-in-fact full power and authority to do and perform all
and every act and thing whatsoever requisite or desirable to be done in and
about the premises as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all acts and things that
said attorney-in-fact may do or cause to be done by virtue of these presents.

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

<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                        DATE
                      ---------                                      -----                        ----
<C>                                                    <S>                                 <C>

              /s/ F. GEORGE DUNHAM, III                Chief Executive Officer (principal    March 9, 2000
-----------------------------------------------------    executive officer) and Director
                F. George Dunham, III

               /s/ KENNETH J. MEISTER                  Executive Vice President and Chief    March 9, 2000
-----------------------------------------------------    Financial Officer (principal
                 Kenneth J. Meister                      financial officer and principal
                                                         accounting officer)

                 /s/ HARRY E. BARTEL                   Director                              March 9, 2000
-----------------------------------------------------
                   Harry E. Bartel

                 /s/ DANIEL E. BERCE                   Director                              March 9, 2000
-----------------------------------------------------
                   Daniel E. Berce

                /s/ R. EARL COX, III                   Director                              March 9, 2000
-----------------------------------------------------
                  R. Earl Cox, III

               /s/ JEFFREY W. ROBINSON                 Director                              March 9, 2000
-----------------------------------------------------
                 Jeffrey W. Robinson

                 /s/ MITCH S. WYNNE                    Director                              March 9, 2000
-----------------------------------------------------
                   Mitch S. Wynne
</TABLE>

                                       30
<PAGE>   33

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Independent Auditors' Report................................   F-2
Consolidated Financial Statements:
  Consolidated Balance Sheets...............................   F-3
  Consolidated Statements of Operations.....................   F-4
  Consolidated Statements of Shareholders' Equity...........   F-5
  Consolidated Statements of Cash Flows.....................   F-6
  Notes to Consolidated Financial Statements................   F-7
</TABLE>

                                       F-1
<PAGE>   34

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
INSpire Insurance Solutions, Inc.
Fort Worth, Texas

     We have audited the accompanying consolidated balance sheets of INSpire
Insurance Solutions, Inc. and subsidiary (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of INSpire Insurance Solutions,
Inc. and subsidiary at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Fort Worth, Texas
February 25, 2000

                                       F-2
<PAGE>   35

                       INSPIRE INSURANCE SOLUTIONS, INC.

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................  $    899,032   $ 27,599,967
  Investments...............................................    16,774,703     20,494,443
  Accounts receivable, net..................................    24,593,172     18,601,724
  Unbilled receivables......................................     4,814,894      5,751,405
  Income taxes receivable...................................     6,861,736      1,830,868
  Deferred income taxes.....................................     5,753,743      1,176,686
  Prepaid expenses and other current assets.................     1,881,424      1,528,580
                                                              ------------   ------------
          Total current assets..............................    61,578,704     76,983,673
Property and equipment, net.................................    14,179,800     11,824,787
Intangibles and other assets, net...........................    56,269,846     43,999,890
                                                              ------------   ------------
          TOTAL.............................................  $132,028,350   $132,808,350
                                                              ============   ============

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable..........................................  $  2,054,937   $  1,386,440
  Accrued payroll and compensation..........................       970,633        632,691
  Other accrued expenses....................................    19,043,135      2,455,309
  Unearned revenue..........................................     1,777,580      1,831,406
  Deferred compensation.....................................     1,325,583      1,907,389
  Current portion of long-term debt.........................            --        383,402
                                                              ------------   ------------
          Total current liabilities.........................    25,171,868      8,596,637
Deferred compensation.......................................       380,175        260,047
Deferred income taxes.......................................     2,005,629      3,606,945
Commitments and contingencies (Note 16)
SHAREHOLDERS' EQUITY:
  Preferred stock, $1.00 par value; 1,000,000 shares
     authorized, none issued and outstanding................            --             --
  Common stock, $.01 par value; 50,000,000 shares authorized
     and 18,998,270 issued and outstanding in 1999;
     18,685,813 issued and outstanding in 1998..............       189,983        186,858
  Additional paid-in capital................................   112,523,113    108,710,195
  Retained earnings (accumulated deficit)...................    (8,242,418)    11,447,668
                                                              ------------   ------------
          Total shareholders' equity........................   104,470,678    120,344,721
                                                              ------------   ------------
          TOTAL.............................................  $132,028,350   $132,808,350
                                                              ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   36

                       INSPIRE INSURANCE SOLUTIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------
                                                           1999          1998          1997
                                                       ------------   -----------   -----------
<S>                                                    <C>            <C>           <C>
REVENUES:
  Outsourcing services...............................  $111,700,370   $50,900,998   $32,458,600
  Software and software services.....................    26,939,783    33,987,807    21,100,899
  Other..............................................     1,917,424     2,289,797     3,009,960
                                                       ------------   -----------   -----------
          Total revenues.............................   140,557,577    87,178,602    56,569,459
                                                       ------------   -----------   -----------
EXPENSES:
  Cost of outsourcing services.......................    81,458,067    26,302,637    20,797,969
  Cost of software and software services.............    19,184,026    19,120,468    10,680,787
  Cost of other revenues.............................     1,154,209     1,605,708     2,413,170
  Selling, general and administrative................    18,308,059    14,580,548     8,643,072
  Research and development, net......................     5,195,214     2,983,228     1,190,114
  Depreciation and amortization......................     9,186,295     6,210,231     4,001,260
  Purchased research and development.................            --       500,000     3,000,000
  Deferred compensation..............................            --            --     3,949,000
  Provision for severance costs......................     1,720,586            --            --
  Provision for bad debts............................    10,990,519       275,000        71,120
  Litigation.........................................     1,229,442            --            --
  Intangible assets impairment.......................    16,756,701            --            --
  Management fees to shareholder.....................            --   -- ........     1,290,000
  Gain on sale of subsidiary.........................            --            --    (1,634,291)
  Other..............................................       804,000            --            --
                                                       ------------   -----------   -----------
          Total expenses.............................   165,987,118    71,577,820    54,402,201
                                                       ------------   -----------   -----------
OPERATING INCOME (LOSS)..............................   (25,429,541)   15,600,782     2,167,258
OTHER INCOME (EXPENSE):
  Interest income....................................     1,410,306     2,734,328       680,508
  Interest expense...................................       (14,150)      (58,852)     (348,007)
  Other..............................................            --            --        17,539
                                                       ------------   -----------   -----------
          Total other income (expense)...............     1,396,156     2,675,476       350,040
                                                       ------------   -----------   -----------
INCOME (LOSS) BEFORE INCOME TAX......................   (24,033,385)   18,276,258     2,517,298
INCOME TAX BENEFIT (EXPENSE).........................     4,343,299    (6,706,431)     (801,218)
                                                       ------------   -----------   -----------
NET INCOME (LOSS)....................................  $(19,690,086)  $11,569,827   $ 1,716,080
                                                       ============   ===========   ===========
NET INCOME (LOSS) PER SHARE (BASIC)..................  $      (1.04)  $      0.65   $      0.14
                                                       ============   ===========   ===========
NET INCOME (LOSS) PER SHARE (DILUTED)................  $      (1.04)  $      0.58   $      0.13
                                                       ============   ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   37

                       INSPIRE INSURANCE SOLUTIONS, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                      RETAINED
                                                      ADDITIONAL      EARNINGS
                                           COMMON      PAID-IN      (ACCUMULATED
                                           STOCK       CAPITAL        DEFICIT)        TOTAL
                                          --------   ------------   ------------   ------------
<S>                                       <C>        <C>            <C>            <C>
Balance, January 1, 1997................  $      1   $  2,383,417   $ (1,777,178)  $    606,240
  Shareholder's contribution of fixed
     assets.............................        --      1,308,191             --      1,308,191
  Shareholder's contribution of
     additional paid-in capital.........        --     10,500,000             --     10,500,000
  Stock dividend to shareholder of
     64,900 shares......................       649           (649)            --             --
  Stock dividend to shareholder of
     6,935,000 shares...................    69,350        (69,350)            --             --
  Initial public offering of 3,191,250
     shares.............................    31,913     34,603,690             --     34,635,603
  Net income............................        --             --      1,716,080      1,716,080
                                          --------   ------------   ------------   ------------
Balance, December 31, 1997..............   101,913     48,725,299        (61,098)    48,766,114
  Shares issued for exercise of 450,500
     options............................     5,884      3,702,330             --      3,708,214
  Shares purchased for employee stock
     purchase plan 17,413 shares, net...        --       (218,671)            --       (218,671)
  Income tax effect related to stock
     options............................        --      3,538,424             --      3,538,424
  Public offering of 1,800,000 shares...    18,000     52,962,813             --     52,980,813
  Effect of 3-for-2 stock split.........    61,061             --        (61,061)            --
  Net income............................        --             --     11,569,827     11,569,827
                                          --------   ------------   ------------   ------------
Balance, December 31, 1998..............   186,858    108,710,195     11,447,668    120,344,721
  Shares issued for exercise of 312,457
     options............................     3,125      1,445,272             --      1,448,397
  Shares purchased for employee stock
     purchase plan 32,309 shares, net...        --         32,321             --         32,321
  Income tax effect related to stock
     options............................        --      1,384,025             --      1,384,025
  Options issued for contract
     acquisition........................        --        951,300             --        951,300
  Net loss..............................        --             --    (19,690,086)   (19,690,086)
                                          --------   ------------   ------------   ------------
Balance, December 31, 1999..............  $189,983   $112,523,113   $ (8,242,418)  $104,470,678
                                          ========   ============   ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   38

                       INSPIRE INSURANCE SOLUTIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------
                                                                  1999           1998           1997
                                                              ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
OPERATING ACTIVITIES:
  Net income (loss).........................................  $(19,690,086)  $ 11,569,827   $  1,716,080
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
    Depreciation and amortization...........................     9,186,295      6,210,231      4,001,260
    Purchased research and development......................            --        500,000      3,000,000
    Bad debts...............................................    10,990,519        275,000         71,120
    Intangible assets impairment............................    16,756,701             --             --
    Deferred income taxes...................................    (6,178,373)     1,141,259     (2,429,531)
    Gain on sale of subsidiary..............................            --             --     (1,634,291)
    Changes in operating assets and liabilities (net of
      effects of acquisitions):
      Accounts receivable...................................   (16,981,967)    (1,843,321)    (5,815,406)
      Unbilled receivables..................................       936,511     (5,751,405)            --
      Prepaid expenses and other current assets.............      (352,844)    (3,055,858)    (3,570,937)
      Other assets..........................................       466,781       (448,446)      (468,530)
      Accounts payable......................................       668,497        539,495     (1,766,791)
      Accrued payroll and compensation......................       337,942       (261,865)      (324,320)
      Other accrued expenses................................     7,487,826        612,037      1,222,702
      Unearned revenue......................................       (53,826)    (3,318,634)     3,736,856
      Income taxes receivable...............................    (3,646,843)    (1,709,602)     2,821,062
      Deferred compensation.................................       186,768       (148,619)     3,949,000
                                                              ------------   ------------   ------------
         Net cash provided by operating activities..........       113,901      4,310,099      4,508,274
                                                              ------------   ------------   ------------
INVESTING ACTIVITIES:
  Proceeds from sale of subsidiary, net of cash
    relinquished............................................            --             --      2,499,262
  Purchases of property and equipment, net..................    (6,418,278)    (7,809,653)    (2,060,125)
  Sale (purchase) of investments............................     3,719,740    (20,494,443)            --
  Purchase of software licensing agreement..................            --             --     (1,623,750)
  Capitalized software development costs....................    (1,611,650)    (1,997,837)      (819,105)
  Capitalized contract implementation costs.................    (4,846,833)      (432,064)            --
  Facility acquisition costs................................   (18,106,685)    (3,000,000)            --
  Acquisition of subsidiary, net of cash acquired...........            --    (24,237,161)   (17,118,849)
                                                              ------------   ------------   ------------
         Net cash used in investing activities..............   (27,263,706)   (57,971,158)   (19,122,567)
                                                              ------------   ------------   ------------
FINANCING ACTIVITIES:
  Proceeds from borrowings..................................            --             --      8,677,503
  Repayment of borrowings...................................      (383,402)    (1,128,434)   (10,792,589)
  Repayment of borrowings to shareholder....................            --             --       (995,706)
  Contribution from shareholder.............................            --             --     10,500,000
  Issuance of common stock, net of issuance costs paid......            --     52,980,813     34,635,603
  Proceeds from exercises under stock plans, net............       832,272      1,369,324             --
  Bank overdrafts...........................................            --             --        265,407
                                                              ------------   ------------   ------------
         Net cash provided by investing activities..........       448,870     53,221,703     42,290,218
                                                              ------------   ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........   (26,700,935)      (439,356)    27,675,925
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............    27,599,967     28,039,323        363,398
                                                              ------------   ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................  $    899,032   $ 27,599,967   $ 28,039,323
                                                              ============   ============   ============
SUPPLEMENTAL CASH FLOW INFORMATION
  Interest paid.............................................  $     14,150   $     56,682   $    360,083
                                                              ============   ============   ============
  Income taxes paid (refunded)..............................  $  5,481,917   $  7,463,624   $    (48,686)
                                                              ============   ============   ============
  Noncash investing activities -- contribution of fixed
    assets from shareholder.................................  $         --   $         --   $  1,308,191
                                                              ============   ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   39

                       INSPIRE INSURANCE SOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General -- INSpire Insurance Solutions, Inc. and subsidiary ("INSpire" or
the "Company") is a provider of policy and claims administration and information
technology ("IT") outsourcing services to the property and casualty ("P&C")
insurance industry. Until recently, the Company also marketed and licensed
computer software to the P&C insurance industry. The Company sells its services
and products directly to the customer. The majority of sales are in North
America. Prior to the initial public offering of common stock on August 22,
1997, the Company was a wholly owned subsidiary of The Millers Insurance Company
("Millers Insurance") (formerly The Millers Mutual Fire Insurance Company).

     Basis of Presentation -- The consolidated financial statements include the
financial statements of INSpire and its wholly owned subsidiary, INSpire Claims
Management, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.

     Property and Equipment -- The Company records property and equipment at
cost, less accumulated depreciation. Depreciation is calculated using the
straight-line method based on the estimated useful lives of assets, which range
from three to ten years. Leasehold improvements are amortized over the lease
term or the estimated useful life, whichever is less. Repairs and maintenance
are charged to operating expenses as incurred.

     Revenue Recognition -- Revenues from outsourcing services are recognized as
services are rendered. INSpire is typically paid a percentage of premiums
written for policy administration services, a percentage of premiums earned or
claims paid for claims administration services and a percentage of premiums
written, subject to a minimum fee, for IT services. Outsourcing services
contracts generally are for terms of two to ten years. Due to the ongoing nature
of these outsourcing services and the length of the terms of the service
contracts, outsourcing services generate recurring revenues. Initial
installations of software systems generally include a one-time license fee and a
contract for the installation and customization of the system to meet the
customer's specifications, which INSpire bills at an hourly rate. Amounts
charged for the initial license and the installation and customization of
systems are recognized as revenue during the installation period in proportion
to the hours expended for installation compared to the total hours projected for
installation. In other instances, revenues are recognized based on performance
milestones specified in the contract. INSpire recognizes the annual fee charged
for maintenance of the customer's system over the maintenance contract period.
Revenues from computer hardware and equipment sales, included in other revenues,
are recognized when INSpire receives notification that the equipment has been
shipped by the manufacturer and title has passed to the customer. Changes in
estimates of percentage of completion or losses, if any, associated with
software services are recognized in the period in which they are determined.
Losses, if any, associated with outsourcing services are recognized in the
period in which they are determined. Unearned revenues consist of billings to
customers in advance of revenues recognized on such services. Unbilled
receivables consist of revenues recognized in advance of billings due to timing
differences related to billing schedules specified in contracts.

     Income Taxes -- Prior to the initial public offering on August 22, 1997,
Millers Insurance and its subsidiaries, including the Company, filed a
consolidated federal income tax return. In accordance with federal income tax
regulations, all corporations included in a consolidated tax return were jointly
and severally liable for all tax liabilities. A tax sharing agreement among
Millers Insurance, the Company and the other subsidiaries of Millers Insurance
(the "Tax Allocation Agreement") provided that taxes on income were charged to
profitable subsidiaries as if they were filing their own separate returns.
Subsidiaries with losses were given credit for tax benefits of their losses to
the extent utilized to reduce the consolidated tax liability or to the extent
the benefits are funded currently. Subsidiaries received the benefit of all tax
credits. Intercompany tax balances were settled annually. Effective August 23,
1997, the Tax Allocation Agreement was terminated as it related to the Company.
The agreement to terminate the Tax Allocation Agreement provides that the
Company will indemnify the other members of the Millers Insurance consolidated
tax group for any of the
                                       F-7
<PAGE>   40
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

group's income taxes and related expenses attributable to the Company and
Millers Mutual will indemnify the Company for any income taxes and related
expenses attributable to any members of the tax group other than the Company's.

     The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the year in deferred tax assets and
liabilities.

     Industry Concentration -- The Company's revenues and accounts receivable
are derived primarily from the United States P&C insurance industry.

     Research and Development -- INSpire incurs research and development costs
that relate primarily to the development of new services and products and major
enhancements to existing services and products. Research and development costs
are comprised primarily of salaries. INSpire expenses or capitalizes, as
appropriate, these research and development costs in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." All research and
development costs incurred prior to the time management believes a project has
reached "technological feasibility" are expensed. Software production costs
incurred subsequent to reaching technological feasibility are capitalized, if
material, and reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized over the expected service life of the related
software, generally three to seven years, using the straight-line method. The
cost and related accumulated amortization of projects are written off as they
become fully amortized.

     The Company assesses the recoverability of these costs by determining
whether the carrying amount of the capitalized costs can be recovered through
undiscounted future operating cash flows.

     Cash and Cash Equivalents -- For the purposes of reporting cash flows, cash
and cash equivalents include investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.

     Intangibles and Other Assets -- Costs in excess of net assets acquired are
amortized over periods ranging from five to twenty years using the straight-line
method. Acquired software and other intangibles are amortized over a period of
five to ten years using the straight-line method. Deferred contract costs are
comprised of the incremental fees and direct costs associated with long-term
outsourcing service agreements and are amortized over the related contract
period of up to ten years using the straight-line method. The Company
periodically evaluates the carrying value of long lived assets to determine if
impairment exists based upon estimated undiscounted future cash flows. The
impairment, if any, is measured by the difference between net book value and
estimated discounted future cash flows, and is charged to expense in the period
identified.

     Financial Instruments -- The Company does not have any derivative financial
instruments as of December 31, 1999. However, the Company is exposed to interest
rate risk. The Company employs established policies and procedures to manage its
exposure to changes in the market risk of its marketable securities, which are
classified as available for sale securities under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." At December 31, 1999, the
costs of the securities approximate their fair market value. The Company
believes that the market risk arising from holdings of its financial instruments
is not material. The carrying amounts for the Company's cash, investments, and
accounts receivable approximate fair value at December 31, 1999.

                                       F-8
<PAGE>   41
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of its
holdings of cash and marketable securities. The Company's credit risk is managed
by investing its cash and marketable securities in money market instruments and
securities of the U.S. government and its agencies, municipalities and
high-quality corporate issuers. At December 31, 1999, the Company had no
significant concentrations of credit risk.

     Net Income (Loss) Per Share -- Net income (loss) per share of the Company
is computed by dividing net income (loss) by the weighted average number of
shares outstanding. Diluted net income (loss) per share considers the impact of
potential common shares, unless the inclusion of such shares would have an anti-
dilutive effect. The weighted average number of shares (basic) was 18,930,371 in
1999, 17,854,390 in 1998 and 12,206,055 in 1997 after giving effect to the stock
dividends paid in August 1998 and March and June 1997. The weighted average
number of shares (diluted) was 18,930,371 in 1999, 19,838,583 in 1998 and
13,173,746 in 1997.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------
                                                                1999            1998           1997
                                                             -----------     ----------     ----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>             <C>            <C>
Basic
  Average shares outstanding...............................     18,930         17,854         12,206
                                                              ========        =======        =======
  Net income (loss)........................................   $(19,690)       $11,570        $ 1,716
                                                              ========        =======        =======
  Per share amount.........................................   $  (1.04)       $  0.65        $  0.14
                                                              ========        =======        =======
Diluted
  Average shares outstanding...............................     18,930         17,854         12,206
  Net effect of dilutive stock options based on the
     treasury stock method using the average market
     price.................................................         --          1,985            968
                                                              --------        -------        -------
  Total....................................................     18,930         19,839         13,174
                                                              ========        =======        =======
  Net income (loss)........................................   $(19,690)       $11,570        $ 1,716
                                                              ========        =======        =======
  Per share amount.........................................   $  (1.04)       $  0.58        $  0.13
                                                              ========        =======        =======
</TABLE>

     Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these amounts.

     Certain Reclassifications -- Certain reclassifications have been made to
the prior period statements to conform them to the current year classifications.

  Recently Issued Accounting Pronouncements

     In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for transactions
entered into in fiscal years beginning after December 31, 1998. The adoption of
SOP 98-1 did not have a material effect on the Company's consolidated financial
position or results of operations.

     In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 is effective for the Company's
fiscal year ended December 31, 1999. SOP 98-5 requires costs of

                                       F-9
<PAGE>   42
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

start-up activities and organization costs to be expensed as incurred. The
adoption of SOP 98-5 did not have a material effect on the Company's
consolidated financial statements.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133, as amended, is effective for fiscal years beginning after June 15,
2000. SFAS 133 requires all derivative instruments to be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company does not expect that the adoption of
SFAS 133 will have a material impact on its financial statements because the
Company does not currently hold any derivative instruments.

2. ACCOUNTS RECEIVABLE

     Accounts receivable is comprised of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             -------------------------
                                                                1999          1998
                                                             -----------   -----------
<S>                                                          <C>           <C>
Accounts receivable -- trade...............................  $33,912,215   $18,802,382
Other......................................................      219,835       293,884
                                                             -----------   -----------
                                                              34,132,050    19,096,266
Allowance for doubtful accounts............................   (9,538,878)     (494,542)
                                                             -----------   -----------
                                                             $24,593,172   $18,601,724
                                                             ===========   ===========
</TABLE>

     The following table summarizes activity in the allowance for doubtful
accounts for the three years ended December 31, 1999:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                     ---------------------------------
                                                        1999         1998       1997
                                                     -----------   --------   --------
<S>                                                  <C>           <C>        <C>
Balance at beginning of period.....................  $   494,542   $303,022   $     --
Additions:
  Charged to costs and expenses....................   10,990,519    275,000     71,120
  Charged to other accounts(1).....................           --         --    231,902
Deductions(2)......................................    1,946,183     83,480         --
                                                     -----------   --------   --------
Balance at end of period...........................  $ 9,538,878   $494,542   $303,022
                                                     ===========   ========   ========
</TABLE>

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

(1)  Recorded in connection with net assets acquired from Strategic Data
     Systems, Inc. in March 1997.

(2)  Represents amounts written off as uncollectible.

                                      F-10
<PAGE>   43
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           ---------------------------
                                                               1999           1998
                                                           ------------   ------------
<S>                                                        <C>            <C>
Computer equipment.......................................  $ 19,397,149   $ 16,583,024
Office equipment.........................................     4,696,818      3,923,522
Automobiles..............................................       239,687        228,287
Airplanes................................................     3,167,581      3,167,581
Leasehold improvements...................................     4,128,906      1,601,695
                                                           ------------   ------------
                                                             31,630,141     25,504,109
Accumulated depreciation.................................   (17,450,341)   (13,679,322)
                                                           ------------   ------------
                                                           $ 14,179,800   $ 11,824,787
                                                           ============   ============
</TABLE>

     Depreciation expense was approximately $4,063,000, $3,179,000, and
$2,263,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

4. RESEARCH AND DEVELOPMENT

     Research and development costs were approximately $6,807,000, $4,981,000
and $2,009,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, including capitalized software costs of approximately $1,612,000,
$1,998,000 and $819,000.

5. INTANGIBLES AND OTHER ASSETS

     Intangibles and other assets consist of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             -------------------------
                                                                1999          1998
                                                             -----------   -----------
<S>                                                          <C>           <C>
Costs in excess of net assets acquired, net of accumulated
  amortization of $2,550,767 and $2,119,521...............   $47,920,956   $32,896,217
Acquired software, net of accumulated amortization of
  $84,461 and $2,290,500..................................     1,740,863     4,609,500
Other intangibles, net of accumulated amortization of $0
  and $406,328............................................            --     2,820,614
Software license agreement................................            --     1,623,750
Capitalized contract implementation costs.................     5,278,897       432,064
Other assets..............................................     1,329,130     1,617,745
                                                             -----------   -----------
                                                             $56,269,846   $43,999,890
                                                             ===========   ===========
</TABLE>

     Amortization expense was approximately $5,123,000, $3,031,000 and
$1,738,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

     The Company recognized an impairment charge in September 1999 of
$16,756,701 for certain intangible assets, including a substantial portion of
the goodwill and software acquired in the purchases of Strategic Data Systems,
Inc. in March 1997 and Paragon Interface, Inc. in April 1998, the software
license associated with the Company's agreement with Cover-All Systems, Inc.
entered into in October 1997, and internally capitalized software production
costs. The Company periodically evaluates the carrying value of long lived
assets to determine if impairment exists based upon estimated undiscounted
future cash flows. The impairment, if any, is measured by the difference between
net book value and estimated discounted future
                                      F-11
<PAGE>   44
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cash flows, and is charged to expense in the period identified. The impairment
charge was necessitated by the Company's determination, based on recent
operating results, that the future expected sales and cash flows from the
Company's software operations would be significantly lower than previously
expected.

     Effective April 1, 1999, INSpire entered into an Asset Purchase Agreement
with The Robert Plan Corporation ("The Robert Plan"), pursuant to which INSpire
agreed to acquire from The Robert Plan certain assets and employees used in the
conduct of its policy and claims administration. Costs in excess of net assets
acquired associated with The Robert Plan acquisition were $9,524,000.

     Effective June 1, 1999, INSpire entered into an Asset and Employee Transfer
Agreement with Island Insurance Company, Ltd. ("Island Group"), pursuant to
which INSpire agreed to acquire from Island Group certain assets and employees
used in the conduct of its policy and claims administration. Costs in excess of
net assets acquired associated with the Island Group acquisition were
$9,046,000, which included the fair value of an option issued to Island Group to
purchase 105,000 shares of common stock, par value $.01 per share ("Common
Stock") of INSpire (the "Island Option"). The fair value of the Island Option on
the date of grant was estimated to be approximately $951,000 using the
Black-Scholes option pricing model, assuming a risk-free interest rate of 6%, no
dividends, an expected option life of ten years and a volatility factor of 58%.

6. OTHER ACCRUED EXPENSES

     Other accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1999          1998
                                                              -----------   ----------
<S>                                                           <C>           <C>
Accrued acquisition costs...................................  $ 9,100,000   $       --
Accrued severance costs.....................................    1,380,050           --
Other accrued expenses......................................    8,563,085    2,455,309
                                                              -----------   ----------
                                                              $19,043,135   $2,455,309
                                                              ===========   ==========
</TABLE>

7. LONG-TERM DEBT

     On August 22, 1997, the Company entered into a note agreement with a
financial institution to pay the cost of three-year professional liability and
directors and officers insurance policies. The note was payable in monthly
principal and interest installments of $54,424 through July 1999 and had a
balance of $383,402 at December 31, 1998.

                                      F-12
<PAGE>   45
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

     Federal income tax benefit (expense) consists of the following components:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                ---------------------------------------
                                                   1999          1998          1997
                                                -----------   -----------   -----------
<S>                                             <C>           <C>           <C>
Current:
  Federal.....................................  $  (409,709)  $(2,019,220)  $(3,048,994)
  State and local.............................      (41,340)     (278,329)     (634,881)
Deferred:
  Federal.....................................    5,363,885      (758,861)    2,554,340
  State and local.............................      814,488      (111,597)      328,317
Other:
  Tax deduction credited to paid in capital
     from exercise of stock options...........   (1,384,025)   (3,538,424)           --
                                                -----------   -----------   -----------
                                                $ 4,343,299   $(6,706,431)  $  (801,218)
                                                ===========   ===========   ===========
</TABLE>

     A reconciliation of income tax expense computed by applying the federal
statutory tax rate of 34% to income before income taxes, to the reported income
taxes is as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                 -------------------------------------
                                                    1999          1998         1997
                                                 -----------   -----------   ---------
<S>                                              <C>           <C>           <C>
Income tax benefit (expense) at statutory
  rate.........................................  $ 8,171,351   $(6,213,928)  $(855,881)
State income taxes, net of federal income tax
  benefit (expense)............................      386,566      (295,294)    (91,000)
Valuation of temporary differences.............           --            --     277,000
Tax-exempt interest............................      417,168       555,765          --
Goodwill.......................................   (4,205,245)     (369,367)   (254,512)
Research and development credits...............           --       100,000     100,000
Other..........................................     (426,541)     (483,607)     23,175
                                                 -----------   -----------   ---------
                                                 $ 4,343,299   $(6,706,431)  $(801,218)
                                                 ===========   ===========   =========
</TABLE>

                                      F-13
<PAGE>   46
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are presented below:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             -------------------------
                                                                1999          1998
                                                             -----------   -----------
<S>                                                          <C>           <C>
Deferred income tax assets:
Current:
  Accounts receivable......................................  $ 3,720,162   $   153,871
  Accrued expenses.........................................    2,033,581     1,022,815
                                                             -----------   -----------
                                                               5,753,743     1,176,686
Noncurrent:
  Prepaid royalties........................................      633,263            --
  Property and equipment...................................       91,807            --
                                                             -----------   -----------
                                                                 725,070            --
          Total deferred income tax assets.................    6,478,813     1,176,686
                                                             -----------   -----------
Deferred income tax liabilities:
Noncurrent:
  Property and equipment...................................           --       462,723
  Capitalized contract implementation costs................    1,982,276            --
  Capitalized research and development.....................       69,485       977,295
  Acquired software........................................      678,938     2,166,927
                                                             -----------   -----------
          Total deferred income tax liabilities............    2,730,699     3,606,945
                                                             -----------   -----------
Net deferred income tax assets (liabilities)...............  $ 3,748,114   $(2,430,259)
                                                             ===========   ===========
Represented on the balance sheet as:
  Current deferred income tax assets.......................  $ 5,753,743   $ 1,176,686
  Noncurrent deferred income tax liabilities...............   (2,005,629)   (3,606,945)
                                                             -----------   -----------
                                                             $ 3,748,114   $(2,430,259)
                                                             ===========   ===========
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods with respect to which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.

9. RELATED PARTY TRANSACTIONS

     The Company provides outsourcing services and software and software
services to Millers Insurance, a shareholder of the Company, The Millers
Casualty Insurance Company ("Millers Casualty"), an indirect 99.5% subsidiary of
Millers Insurance, and Millers American Group, Inc. ("Millers American"), of
which Millers Insurance is an indirect wholly-owned subsidiary, under the terms
of various agreements. On December 30, 1999, INSpire and various Millers
American subsidiaries entered into a five-year Master Services Agreement that
superceded existing outsourcing services agreements with Millers Insurance and
Millers Casualty. Total fees earned under these agreements were approximately
$28,458,000, $25,750,000, and $18,864,000 in 1999, 1998, and 1997, respectively.

                                      F-14
<PAGE>   47
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On September 1, 1999, INSpire entered into an Asset and Employee Transfer
Agreement with Millers American (the "Phoenix Acquisition"), pursuant to which
INSpire agreed to acquire from Millers American for a purchase price of
$3,500,000 certain assets and employees used in the conduct of its policy and
claims administration with respect to its policies written by Phoenix Indemnity
Insurance Company ("Phoenix Indemnity"), a wholly-owned subsidiary of Millers
American. In conjunction with this transaction, which is expected to close upon
obtaining all necessary regulatory authority approvals, INSpire entered into a
Service Addendum to the Company's Master Services Agreement with Millers
American to provide certain policy and claims administration services with
respect to the Phoenix Indemnity book of business for a period of ten years
beginning September 1, 1999.

     From July 1, 1995 through December 31, 1997, the Company had various
agreements with Millers Insurance to provide the Company with management and
administrative services. Total fees paid by the Company in 1997 were
approximately $1,290,000. Effective January 1, 1998, a new agreement was entered
into, whereby the Company provides benefits administration services to Millers
Insurance and Millers Casualty for a monthly fee of $15,000. Total fees earned
under this agreement for 1999 and 1998 were $180,000 each year.

     The Company incurred rental expenses to Millers Insurance for office space,
totaling approximately $273,000 and $316,500 for 1998 and 1997, respectively. In
November 1998, Millers Insurance sold the building in which INSpire's
headquarters are located to a partnership which is 100% owned by certain members
of the Company's board of directors and the Company's chief executive officer.
INSpire incurred approximately $835,000 and $138,000 of rental expense under
this agreement for the years ended December 31, 1999 and 1998, respectively.

     There was a net receivable due from Millers American of approximately
$5,189,000 and $1,996,000 at December 31, 1999 and 1998, respectively.

10. EMPLOYEE BENEFIT PLANS

     Prior to August 1997, substantially all of the Company's employees were
covered by a defined benefit pension plan (the "Pension Plan") sponsored by
Millers Insurance that provided retirement, death and disability benefits for
full-time employees completing at least 1,000 hours of service. The Company made
annual contributions to the Pension Plan equal to the amounts accrued for
pension expense, including amortization of past service cost over 30 years.
Contributions to the Pension Plan were determined by consulting actuaries based
upon future periodic payments, including lump-sum distributions that were
attributable under the Pension Plan's provisions to the service employees had
rendered. No expense was incurred relative to the Pension Plan during 1997, as
the pension plan was over-funded. In addition, the Company participated in a
defined contribution profit sharing plan sponsored by Millers Insurance that
covered substantially all of its employees (the "Profit Sharing Plan"). There
were no contributions made by the Company to the Profit Sharing Plan in 1997. In
July 1997, the Board of Directors approved the termination of the Company's
participation in the Pension Plan and the Profit Sharing Plan. The effects of
termination of the Company's participation in the Pension Plan and the Profit
Sharing Plan were immaterial to the Company's financial position, results of
operations and cash flows.

     In July 1997, the Company adopted a 401(k) plan (the "Plan") covering all
employees who meet certain minimum age and length of service requirements. The
Plan provides for payment of the employee's vested portion of the Plan upon
retirement, termination, disability or death. Discretionary contributions may be
made to the Plan under the direction of the Company's Board of Directors. The
Company made contributions of approximately $973,000, $592,000 and $434,000 and
incurred expenses of approximately $51,000, $19,000 and $8,000 related to the
Plan for the years ended December 31, 1999, 1998 and 1997, respectively.

                                      F-15
<PAGE>   48
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. EMPLOYEE AND DIRECTOR STOCK OPTION PLANS

     As of December 31, 1999, the Company's employee and director stock option
plans have authorized the grant of options to employees and outside directors
for up to 4,575,000 shares of the Company's Common Stock. The Company adopted
the Second Amended and Restated 1997 Stock Option Plan (the "Stock Option Plan")
in February 1998, which was approved by the shareholders in April 1998 and which
provides for the grant of incentive and nonqualified options to purchase up to
4,500,000 shares of Common Stock subject to certain adjustments as described in
the Stock Option Plan. Stock options are issuable only to eligible directors,
officers and employees of the Company. Options granted vest over a period
ranging from immediately to six years of continued employment or service to the
Company.

     The per share exercise price of an incentive option may not be less than
the greater of par value or 100% of the fair value of the Common Stock on the
date the option is granted. Incentive options granted to an employee who owns in
excess of 10% of the voting stock of the Company must have an exercise price of
at least 110% of the fair value of the Common Stock at the date of grant.
Options may be exercised only if the option holder remains continuously
associated with the Company from the date of grant to the date of exercise,
subject to certain conditions as specified in the Stock Option Plan. Any options
that expire unexercised or that terminate upon an optionee's ceasing his or her
association with the Company become available once again for issuance.

     On July 30, 1997, the Board of Directors adopted the Director Stock Option
Plan, which was amended by the Board of Directors in February 1998, and was
approved by the shareholders in April 1998 ("Director Plan"). The Director Plan
provides that each current nonemployee director be granted options to purchase
3,750 shares of Common Stock as of the effective date of the initial public
offering at an exercise price equal to the initial public offering price. Such
options became immediately exercisable as of the date of the initial public
offering. A total of 75,000 shares has been reserved for issuance pursuant to
the Director Plan. Each new nonemployee director who is elected (or appointed to
fill any vacancy) as a director of the Company will be granted options under the
Director Plan to purchase 3,750 shares of Common Stock at the fair market value
of the Common Stock on the date of grant. Also, each nonemployee director who
has previously been granted options under the Director Plan will be granted
additional options under the Director Plan to purchase 375 shares of Common
Stock on the day immediately after each annual meeting of shareholders of the
Company subsequent to the time at which such nonemployee director is first
elected or appointed as a director of the Company if such nonemployee director
continues to serve as a director on such date of grant. The options under the
Director Plan will vest and be exercisable as of the date of grant.

     Effective December 21, 1999, the Board of Directors approved a stock option
repricing program pursuant to which 877,657 stock options were amended to have
an exercise price of $6.00. All other terms of the options, including vesting
and expiration dates, remained the same. Repriced options are reflected in the
stock option activity table below as forfeited and granted options at the date
of repricing.

                                      F-16
<PAGE>   49
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the stock option activity under the Stock
Option Plan and Director Plan for the three years ended December 31, 1999 after
giving effect to the stock dividend paid in August 1998:

<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                               NUMBER OF    EXERCISE PRICE      AVERAGE
                                                OPTIONS       PER OPTION     EXERCISE PRICE
                                               ----------   --------------   --------------
<S>                                            <C>          <C>              <C>
Options outstanding as of January 1, 1997....           0
  Options granted............................   3,038,814   $ 0.87-$ 8.00        $ 5.05
  Options forfeited..........................     (40,345)  $ 0.87-$ 8.00        $ 6.08
                                               ----------
Options outstanding as of December 31,
  1997.......................................   2,998,469   $ 0.87-$ 8.00        $ 5.03
  Options granted............................   1,233,615   $13.96-$26.50        $21.31
  Options exercised..........................    (698,958)  $ 0.87-$ 8.00        $ 2.23
  Options forfeited..........................    (308,279)  $ 0.87-$22.00        $ 6.39
                                               ----------
Options outstanding as of December 31,
  1998.......................................   3,224,847   $ 0.87-$26.50        $11.67
  Options granted............................   2,004,407   $ 4.11-$19.06        $ 8.97
  Options exercised..........................    (312,457)  $ 0.87-$ 8.00        $ 3.28
  Options forfeited..........................  (1,741,650)  $ 6.00-$26.50        $16.55
                                               ----------
Options outstanding as of December 31,
  1999.......................................   3,175,147   $ 0.87-$26.50        $ 8.07
                                               ==========
Exercisable as of December 31, 1999..........   1,617,185   $ 0.87-$26.50        $ 6.36
                                               ==========
Options available for grant..................     388,438
                                               ==========
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, based on the following assumptions for
options granted in 1999, 1998 and 1997, respectively: risk-free interest rates
of 6.7%, 5.5% and 6.3%; expected lives of 4.5 years, 4.7 years and 4.7 years;
volatility factors of 70%, 58% and 17%; and no dividends.

     Under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," the Company recognized no compensation expense for the
years ended December 31, 1999 and 1998, as the exercise price of all stock
options granted under the terms of the Stock Option Plan was at or above the
fair market value of the Common Stock at the date of grant. For the year ended
December 31, 1997, the Company recognized $3,949,000 of compensation expense
relating to stock options as the stock options granted were at an exercise price
that was less than the estimated fair market value of the Common Stock at the
date of grant. Had the Company implemented SFAS 123, "Accounting for Stock-Based
Compensation," the Company's compensation expense would have increased by
approximately $8,317,000, $6,337,000 and $126,000 for the years ended December
31, 1999, 1998 and 1997, respectively. The Company's pro forma net income
(loss), net income (loss) per share (basic) and net income (loss) per share
(diluted), considering the effects of implementing SFAS 123, net of tax effects,
would have been approximately $(25,013,000), $7,512,000 and $1,633,000, $(1.32),
$0.42 and $0.13, $(1.32), $0.38 and $0.13, respectively, for the years ended
December 31, 1999, 1998 and 1997.

     The weighted average fair value of options granted during the year ended
December 31, 1999 was $4.83 compared to $11.47 for the year ended December 31,
1998 and $3.04 for the year ended December 31, 1997. There were no options
granted during 1999 at a value less than market value on the date of grant. All
options granted expire six years from date of grant.

                                      F-17
<PAGE>   50
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the stock options outstanding under the
Stock Option Plan and Director Plan as of December 31, 1999:

<TABLE>
<CAPTION>
                                 WEIGHTED
                                  AVERAGE
                  NUMBER OF      REMAINING         WEIGHTED       NUMBER OF       WEIGHTED
   RANGE OF        OPTIONS      CONTRACTUAL        AVERAGE         OPTIONS        AVERAGE
EXERCISE PRICES  OUTSTANDING  LIFE (IN YEARS)   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------  -----------  ---------------   --------------   -----------   --------------
<S>              <C>          <C>               <C>              <C>           <C>
$ 0.87-$ 2.50..     376,523         3.2             $ 0.87          376,523        $ 0.87
$ 2.51-$ 4.50..     404,000         6.0             $ 4.11                0        $ 0.00
$ 4.51-$ 7.50..     907,712         4.4             $ 6.02          263,750        $ 6.00
$ 7.51-$10.50..     912,352         3.6             $ 8.00          912,352        $ 8.00
$10.51-$18.50..     300,000         5.0             $16.13           60,000        $16.13
$18.51-$26.50..     274,560         4.2             $22.02            4,560        $23.50
                  ---------         ---             ------        ---------        ------
                  3,175,147         4.3             $ 8.07        1,617,185        $ 6.36
                  =========         ===             ======        =========        ======
</TABLE>

12. EMPLOYEE STOCK PURCHASE PLAN

     In July 1997 the Board of Directors adopted the Employee Stock Purchase
Plan (the "Stock Purchase Plan"), under which a total of 637,500 shares of
Common Stock has been reserved for issuance. Any employee who has been employed
by the Company for 90 days is eligible to participate in offerings under the
Stock Purchase Plan.

     The Stock Purchase Plan was initially implemented by an offering of 37,500
shares of Common Stock from October 1, 1997 to December 31, 1997. Pursuant to
such offering, 9,360 shares of Common Stock were purchased by participants under
the Stock Purchase Plan. During 1998 and 1999, offerings of 75,000 shares each
were made on January 1 and July 1, respectively. As a result of these offerings,
participants purchased 16,760 and 13,741 shares in 1998 and 18,455 and 30,691
shares in 1999, respectively, of Common Stock. The Company anticipates that the
Stock Purchase Plan will be further implemented by four additional semiannual
offerings of Common Stock beginning on January 1 and July 1 for each of the
years 2000 and 2001. The maximum number of shares issued in each semi-annual
offering will be 75,000 shares plus the cumulative number of unissued shares
from prior offerings under the Stock Purchase Plan.

     On the commencement date of each offering under the Stock Purchase Plan, a
participating employee will be deemed to have been granted an option to purchase
a maximum number of shares of Common Stock equal to: (i) the percentage of the
employee's base pay that such employee has elected to be withheld (not to exceed
10%), (ii) multiplied by such employee's base pay during the period of such
offering and (iii) divided by the lower of 85% of the closing market price of
the Common Stock on the applicable offering commencement date or 85% of the
closing market price of the Common Stock on the offering termination date.
Options held by a participant shall be exercisable only by that participant.

     No employee may be granted options to participate in the Stock Purchase
Plan if, as a result of such grant, such employee would (i) own stock or hold
options to purchase stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or (ii) have rights to
purchase stock under all employee stock purchase plans of the Company that
accrue at a rate in excess of $25,000 in fair market value for any calendar
year.

     Unless a participant gives written notice to the Company, such
participant's option for the purchase of Common Stock with payroll deductions
made during an offering shall be deemed to have been exercised automatically on
the offering termination date applicable to such offering, for the purchase of
the number of full shares of Common Stock that the accumulated payroll
deductions at that time will purchase at the applicable option price. A
participant may withdraw payroll deductions credited to his account under the
Stock Purchase Plan at any time prior to the offering termination date.
                                      F-18
<PAGE>   51
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SHAREHOLDERS' EQUITY

     On June 12, 1997, the Board of Directors and the shareholder of the Company
approved an amendment to the Articles of Incorporation of the Company providing
for an increase in the number of authorized shares of Common Stock from 1,000
shares to 14,000,000 shares. On July 30, 1997, the Board of Directors and the
shareholder of the Company approved an amendment to the Articles of
Incorporation of the Company providing for an increase in the number of
authorized shares of Common Stock from 14,000,000 shares to 50,000,000 shares.

     On July 30, 1997, the Board of Directors authorized 300,000 shares of
Series A Junior Preferred Stock, par value $1.00 per share, adopted the Rights
Agreement ("Rights Agreement") and authorized and declared a dividend
distribution of one right (a "Right") for each outstanding share of Common Stock
to Millers Insurance under the terms of the Rights Agreement. One Right will
thereafter be issued for each share of Common Stock that was outstanding between
the date of adoption of the Rights Agreement and the earlier of the date the
Rights become exercisable or are redeemed and the termination of the Rights
Agreement. Accordingly, one Right has been issued for each share of Common Stock
outstanding. Each Right represents the right to purchase one one-hundredth of a
share of Series A Junior Preferred Stock at a price of $100.00, subject to
adjustment. The Rights are exercisable only in the event that a person or group
(with certain exceptions) becomes the beneficial owner of shares representing
15% or more of the voting power of the Company, or announces or commences a
tender or exchange offer that would result in the acquisition of such number of
shares. The Rights Agreement expires ten years from the date of adoption.

14. TRANSACTIONS WITH MAJOR CUSTOMERS

     In addition to the outsourcing revenues derived from Millers American (see
Note 9), for the years ended December 31, 1999, 1998 and 1997 one customer
accounted for approximately 7%, 13% and 16% of revenues, respectively. In
addition, for the year ended December 31, 1999, two other customers accounted
for approximately 23% and 14% of revenues, respectively.

15. SALE OF SUBSIDIARY

     On September 15, 1997, the Company sold Applied Quoting Systems, Inc.
("AQS"), a wholly-owned subsidiary of INSpire, for $2,500,000. The sale resulted
in a gain of approximately $1,634,000. For the period from March 12, 1997 (the
date of acquisition) through September 15, 1997 (date of sale), AQS had revenues
of approximately $2,535,000 and net income of approximately $376,000. Net income
per common share from the separate operations of AQS for the period of March 12,
1997 through September 15, 1997 was $.03. Total assets and total liabilities of
AQS on the date of sale were approximately $1,228,000 and $412,000,
respectively.

16. COMMITMENTS AND CONTINGENCIES

     Operating Leases -- The Company leases certain office space and equipment
under operating leases and a sublease for periods ranging from one to ten years.
Rentals on operating leases (exclusive of real estate taxes, insurance and other
expenses payable under the leases) amounted to approximately $9,368,000,
$5,660,000 and $3,818,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. These leases generally

                                      F-19
<PAGE>   52
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contain optional renewal provisions for one or more periods. Future annual
minimum lease payments for each of the next five years and in the aggregate are:

<TABLE>
<S>                                                       <C>
2000....................................................    7,640,586
2001....................................................    6,327,234
2002....................................................    5,045,198
2003....................................................    4,098,519
2004....................................................    2,873,046
Thereafter..............................................    8,092,860
                                                          -----------
                                                          $34,077,443
                                                          ===========
</TABLE>

     Employment Agreements -- The Company has employment agreements with certain
key officers that provide for minimum annual salaries aggregating approximately
$735,000 and an annual bonus based on the Company's operating performance.

     Other -- The Company participates in a self-insurance program for certain
of its employees that provides for the payment of employee health claims. The
program provides for specific excess loss reinsurance for aggregate claims
greater than a specified amount for any one claimant. The Company accrues the
estimated liabilities for the ultimate costs of both reported claims and
incurred but not reported claims.

     From time to time the Company receives various claims incidental to its
business, including claims alleging breach of warranty, breach of contract,
deceptive trade practices and similar claims under license agreements and other
agreements with customers of the Company. Such claims include a lawsuit filed on
June 23, 1999 in the United States District Court for the Eastern District of
North Carolina by Medical Mutual Insurance Company of North Carolina ("Medical
Mutual"), a former customer of the Company (Medical Mutual Insurance Company of
North Carolina vs. INSpire Insurance Solutions, Inc. (5-99CV-416-F3)). Medical
Mutual seeks recovery for an amount of at least approximately $696,000
previously paid to the Company, damages in excess of $1.0 million, a declaratory
judgment that approximately $1.1 million invoiced to such customer is not owed
and treble damages and attorney fees. The Company intends to vigorously defend
this lawsuit, and has filed a counterclaim seeking recovery of approximately
$1.1 million invoiced to such customer and attorney fees. Management does not
believe the outcome of this lawsuit will have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.

     Such claims also include a lawsuit filed on November 9, 1999 in the United
States District Court for the Northern District of Illinois by Zurich American
Insurance Company ("Zurich"), a former customer of the Company (Zurich American
Insurance Company vs. INSpire Insurance Solutions, Inc. (99C-7288)). Zurich
seeks recovery for an amount of at least approximately $4.3 million previously
paid to the Company, a declaratory judgment that approximately $2.0 million
invoiced to such customer is not owed and damages to compensate Zurich for
INSpire's alleged breaches of contract. The Company intends to vigorously defend
this lawsuit, and has filed a counterclaim seeking recovery of approximately
$2.0 million invoiced to such customer and attorney fees. Management does not
believe the outcome of this lawsuit will have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.

     In December 1997, the Company entered into a contract with Sul America Cia
Nacional de Seguros ("Sul America") to provide a license for WPC and other
software products, and software services for the implementation of such
products. In conjunction with this contract, the Company was required to arrange
a surety to provide Sul America with a performance bond in the amount of $3.7
million, the proceeds of which could be used in the event that INSpire did not
fulfill its obligations under the contract. The contract was segregated into
three phases of deliverables, two of which have been accepted and paid for in
the amount of $2.5 million by Sul America. In August 1999, Sul America
terminated its contract with the Company, and

                                      F-20
<PAGE>   53
                       INSPIRE INSURANCE SOLUTIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

demanded payment under the performance bond. Under its agreement to indemnify
the surety against losses under the performance bond allegedly caused by
INSpire's default, the Company arranged an irrevocable standby letter of credit
in October 1999 with Bank of America, N.A. in the amount of $3.7 million. On
December 21, 1999, INSpire filed a lawsuit in the 8th Civil Court of Rio de
Janeiro (INSpire Insurance Solutions, Inc. vs. Sul America Seguros S.A. and INA
Seguradora S.A. (99.001.175.210-6)) requesting a preliminary injunction, which
was granted in January 2000, restricting the surety from paying $3.7 million to
Sul America until a final decision is rendered in the ordinary lawsuit to be
filed. The Company intends to pursue collection of its outstanding receivable
balance of $1.2 million from Sul America and defend itself against Sul America's
claims that the Company failed to comply with the terms of the contract. The
ultimate outcome of this matter cannot presently be determined.

     On December 3, 1999, a shareholder class action lawsuit was filed in the
United States District Court for the Northern District of Texas on behalf of all
purchasers of the Company's Common Stock during the period between January 28,
1998 and October 14, 1999 (Southland Securities Corporation et. al. v. Inspire
Insurance Solutions, Inc. et. al. (7-99CV-243-R)). The named defendants include
the Company, certain officers and directors of the Company, and Millers
Insurance. The complaint alleges violations under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by
making false and misleading statements and failing to disclose material facts
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading. The plaintiff seeks monetary damages
and interest. Two additional shareholder class action lawsuits, nearly identical
to the one described above, have been filed against the Company in the United
States District Court for the Northern District of Texas: Larry Altobell and
Lawrence J. Miller et. al. v. Inspire Insurance Solutions, Inc. et. al.
(7-99CV-248-R) filed on December 16, 1999, and Stacy B. and Rhonda K. Lofton et.
al. v. Inspire Insurance Solutions, Inc. et. al. (7-00CV-001-R) filed on January
3, 2000. The Company intends to defend these suits vigorously in all aspects.
However, the ultimate outcome of this matter cannot presently be determined.

                                      F-21
<PAGE>   54

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          2.1            -- Stock Purchase Agreement, dated as of October 29, 1998,
                            by and among INSpire, ACM and the shareholders of ACM
                            (Incorporated by reference to Exhibit 2.1 of INSpire's
                            Form 8-K, dated December 1, 1998 and filed on December
                            14, 1998).
          2.2            -- Asset Purchase Agreement, dated as of October 29, 1998,
                            by and between INSpire and AGIA (Incorporated by
                            reference to Exhibit 2.2 of INSpire's Form 8-K, dated
                            December 1, 1998 and filed on December 14, 1998).
          2.3            -- Form of Stock Purchase Agreement, dated April 20, 1998,
                            by and among INSpire, Paragon and the shareholders of
                            Paragon (Incorporated by reference to Exhibit 2.1 of
                            INSpire's Form 10-Q for the three months ended March 31,
                            1998, filed on May 14, 1998).
          3.1            -- Restated Articles of Incorporation of INSpire and
                            Articles of Amendment No. 1 thereto (Incorporated by
                            reference to Exhibit 3.1 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
          3.2            -- Amended and Restated Bylaws of INSpire (Incorporated by
                            reference to Exhibit 3.2 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
          3.3            -- Form of First Amendment to the Bylaws of INSpire
                            (Incorporated by reference to Exhibit 3.3 of INSpire's
                            Form 10-Q for the three months ended March 31, 1998,
                            filed on May 14, 1998).
          4.1            -- Specimen Certificate for shares of Common Stock of
                            INSpire (Incorporated by reference to Exhibit 4.1 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
          4.2            -- Form of Amended and Restated Rights Agreement, by and
                            between INSpire and U.S. Trust Company of Texas, N.A.,
                            dated as of December 18, 1998 (Incorporated by reference
                            to Exhibit 4.2 of INSpire's Form 10-K for the year ended
                            December 31, 1998, filed on March 25, 1999).
         10.1            -- Benefits Administration Contract, dated as of July 1,
                            1997, by and between INSpire and Millers Mutual
                            (Incorporated by reference to Exhibit 10.1 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.2            -- Amended Service Contract, dated as of July 1, 1997, by
                            and among INSpire, Millers Mutual and Millers Casualty
                            (Incorporated by reference to Exhibit 10.2 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.3            -- Amended Information Services Contract, dated as of July
                            1, 1997, by and among INSpire, Millers Mutual and Millers
                            Casualty (Incorporated by reference to Exhibit 10.3 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.4            -- Form of Agreement to Lease Office Space, effective as of
                            May 1, 1996, by and between INSpire and Millers Mutual
                            (Incorporated by reference to Exhibit 10.4 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.5            -- Form of Sublease Agreement, effective as of January 1,
                            1997, by and between INSpire and Millers Mutual
                            (Incorporated by reference to Exhibit 10.5 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
</TABLE>
<PAGE>   55

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.6            -- Claims Life Cycle Services Agreement, effective as of
                            August 15, 1996, by and among INSpire, Blanch Wholesale
                            Insurance Services, Inc. and Blanch Insurance Services,
                            Inc. (Incorporated by reference to Exhibit 10.6 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.7            -- Amendment No. 1 to Claims Life Cycle Services Agreement,
                            dated as of June 27, 1997 (Incorporated by reference to
                            Exhibit 10.7 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.8            -- Policy Life Cycle Services Agreement, effective as of
                            August 15, 1996, by and among INSpire, Blanch Wholesale
                            Insurance Services, Inc., and Blanch Insurance Services,
                            Inc. (Incorporated by reference to Exhibit 10.8 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.9            -- Form of Amendment No. 1 to Policy Life Cycle Services
                            Agreement, effective as of August 15, 1996 (Incorporated
                            by reference to Exhibit 10.9 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
         10.10           -- Administration Services Agreement, effective as of March
                            12, 1996, by and among State Corporation Commission of
                            the Commonwealth of Virginia as Deputy Receiver for HOW
                            Insurance Company, Home Warranty Corporation, and Home
                            Owners Warranty Corporation, In Receivership, and INSpire
                            (Incorporated by reference to Exhibit 10.10 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.11           -- Form of Indemnification Agreement with a schedule of
                            director signatories (Incorporated by reference to
                            Exhibit 10.11 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.12           -- Employment Agreement, effective as of July 1, 1997, by
                            and between INSpire and F. George Dunham, III
                            (Incorporated by reference to Exhibit 10.12 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.13           -- Form of License Agreement (Incorporated by reference to
                            Exhibit 10.24 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.14           -- Building Lease, dated March 12, 1997, between SDS and
                            Riverview Building, LLC (Incorporated by reference to
                            Exhibit 10.15 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.15           -- Form of System Support Agreement (Incorporated by
                            reference to Exhibit 10.25 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
         10.16           -- Form of Implementation Support Agreement (Incorporated by
                            reference to Exhibit 10.26 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
         10.17           -- Form of Accelerated Enhancement Plan Agreement
                            (Incorporated by reference to Exhibit 10.27 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.18           -- Form of Stock Option Agreement (Incorporated by reference
                            to Exhibit 10.29 of INSpire's Registration Statement on
                            Form S-1, Registration No. 333-31173).
         10.19           -- Consolidated Federal Income Tax Allocation Agreement
                            effective January 1, 1994 by and between INSpire and
                            Millers Mutual, as amended by Addendum No. 1 and Addendum
                            No. 2 thereto (Incorporated by reference to Exhibit 10.30
                            of INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.20           -- Form of Policy Life Cycle Services Agreement, effective
                            as of May 1, 1997, by and between INSpire and Millers
                            Casualty (Incorporated by reference to Exhibit 10.31 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
</TABLE>
<PAGE>   56

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.21           -- Form of Claims Life Cycle Services Agreement, effective
                            as of June 1, 1997, by and between INSpire and Millers
                            Casualty (Incorporated by reference to Exhibit 10.32 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.22           -- Form of Employment Agreement, effective as of July 1,
                            1997, by and between INSpire and Jeffrey W. Robinson
                            (Incorporated by reference to Exhibit 10.35 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.23           -- Director Stock Option Plan (Incorporated by reference to
                            Exhibit 10.36 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.24           -- Form of Director Stock Option Agreement (Incorporated by
                            reference to Exhibit 10.37 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-31173).
         10.25           -- Employee Stock Purchase Plan (Incorporated by reference
                            to Exhibit 10.38 of INSpire's Registration Statement on
                            Form S-1, Registration No. 333-31173).
         10.26           -- Claims Administration Agreement, effective April 1, 1997,
                            by and between INSpire and the Specialty Personal Lines
                            Division of Millers Mutual (Incorporated by reference to
                            Exhibit 10.39 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.27           -- Form of Management Agreement, effective as of January 1,
                            1996, by and between INSpire and Millers Mutual
                            (Incorporated by reference to Exhibit 10.40 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.28           -- Service Contract, effective as of January 1, 1996, by and
                            between INSpire, Millers Mutual and Millers Casualty
                            (Incorporated by reference to Exhibit 10.41 of INSpire's
                            Registration Statement on Form S-1, Registration No.
                            333-31173).
         10.29           -- Form of Service Contract, effective as of December 1,
                            1996, by and between INSpire, Millers Mutual and Millers
                            Casualty (Incorporated by reference to Exhibit 10.42 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-31173).
         10.30           -- Form of Information Services Contract, effective as of
                            October 1, 1996, by and between INSpire, Millers Mutual
                            and Millers Casualty (Incorporated by reference to
                            Exhibit 10.43 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-31173).
         10.31           -- Software License and Support Services Agreement, dated
                            October 29, 1997, between INSpire and Cover-All Systems,
                            Inc. (Incorporated by reference to Exhibit 10.44 of
                            INSpire's Registration Statement on Form S-1,
                            Registration No. 333-47413).
         10.32           -- Form of Contract to Provide Services and Acquire License
                            to Use Software, dated December 29, 1997, between INSpire
                            and Sul America Cia Nacional de Seguros (Incorporated by
                            reference to Exhibit 10.45 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.33           -- Form of Consulting Agreement, effective March 15, 1998,
                            between INSpire and Stuart Warrington (Incorporated by
                            reference to Exhibit 10.46 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.34           -- Form of Amendment No. 1 to Employment Agreement, dated
                            and effective as of January 1, 1998, for each of F.
                            George Dunham, III and Jeffrey W. Robinson (Incorporated
                            by reference to Exhibit 10.47 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.35           -- 1998 Annual Bonus Plan (Incorporated by reference to
                            Exhibit 10.48 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-47413).
</TABLE>
<PAGE>   57

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.36           -- Form of Claims Administration Services Agreement,
                            effective as of October 1, 1997, by and between INSpire,
                            Millers Mutual and Millers Casualty (Incorporated by
                            reference to Exhibit 10.49 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.37           -- Form of Policy Administration Services Agreement,
                            effective as of October 1, 1997, by and between INSpire,
                            Millers Mutual and Millers Casualty (Incorporated by
                            reference to Exhibit 10.50 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.38           -- Form of Second Amended Information Services Contract,
                            effective as of October 1, 1997, by and between INSpire,
                            Millers Mutual and Millers Casualty (Incorporated by
                            reference to Exhibit 10.51 of INSpire's Registration
                            Statement on Form S-1, Registration No. 333-47413).
         10.39           -- Form of Amendment No. 1 to the Policy Life Cycle Services
                            Agreement, effective October 1, 1997, by and between
                            INSpire and Millers Casualty (Incorporated by reference
                            to Exhibit 10.52 of INSpire's Registration Statement on
                            Form S-1, Registration No. 333-47413).
         10.40           -- Form of Amended and Restated Benefits Administration
                            Contract, effective as of January 1, 1998, by and between
                            INSpire and Millers Mutual (Incorporated by reference to
                            Exhibit 10.54 of INSpire's Registration Statement on Form
                            S-1, Registration No. 333-47413).
         10.41           -- Employment Agreement, dated and effective as of April 28,
                            1998, by and between INSpire and William J. Smith, III
                            (Incorporated by reference to Exhibit 10.1 of INSpire's
                            Form 10-Q for the three months ended March 31, 1998,
                            filed on May 14, 1998).
         10.42           -- Second Amended and Restated 1997 Stock Option Plan
                            (Incorporated by reference to Exhibit 10.2 of INSpire's
                            Form 10-Q for the three months ended March 31, 1998,
                            filed on May 14, 1998).
         10.43           -- Form of First Amendment to the Director Stock Option Plan
                            (Incorporated by reference to Exhibit 10.3 of INSpire's
                            Form 10-Q for the three months ended March 31, 1998,
                            filed on May 14, 1998).
         10.44           -- Form of executive employment agreement (Incorporated by
                            reference to Exhibit 10.46 of INSpire's Form 10-K for the
                            year ended December 31, 1998, filed on March 25, 1999).
         10.45           -- Registration Rights Agreement, dated as of December 1,
                            1998 between INSpire and AGIA (Incorporated by reference
                            to Exhibit 10.2 of INSpire's Form 8-K dated December 1,
                            1998 and filed on December 14, 1998).
         10.46           -- Option Agreement, dated as of December 1, 1998, between
                            INSpire and AGIA (Incorporated by reference to Exhibit
                            10.1 of INSpire's Form 8-K dated December 1, 1998 and
                            filed on December 14, 1998).
         10.47           -- Commercial Lease Agreement, dated November 13, 1998,
                            between IIS Realty Ltd. and INSpire (Incorporated by
                            reference to Exhibit 10.50 of INSpire's Form 10-K for the
                            year ended December 31, 1998, filed on March 25, 1999).
         10.48           -- Lease, dated April 10, 1996, between ADI Arrow Partners,
                            L.P. and AGIA (Incorporated by reference to Exhibit 10.51
                            of INSpire's Form 10-K for the year ended December 31,
                            1998, filed on March 25, 1999).
         10.49           -- Office Lease, dated October 18, 1996, between Dr. Peter
                            Schmalisch and SDS (Incorporated by reference to Exhibit
                            10.52 of INSpire's Form 10-K for the year ended December
                            31, 1998, filed on March 25, 1999).
</TABLE>
<PAGE>   58

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.50           -- Amendment No. 1 to the Commercial Lease Agreement,
                            effective May 1, 1999, between IIS Realty Ltd. and
                            INSpire.
         10.51           -- Amendment No. 2 to the Commercial Lease Agreement,
                            effective November 1, 1999, between IIS Realty Ltd. and
                            INSpire.
         10.52           -- Letter agreement, dated as of October 14, 1999, between
                            INSpire and Kenneth J. Meister.
         10.53           -- Letter agreement, dated as of October 14, 1999, between
                            INSpire and William J. Smith, III.
         10.54           -- Letter agreement, dated as of December 10, 1999, between
                            INSpire and William J. Smith, III.
         10.55           -- Master Services Agreement, dated as of December 30, 1999,
                            between INSpire and Millers American Group and its
                            affiliates.
         11              -- Statement regarding Computation of Per Share Earnings.
         21              -- Subsidiaries of the Registrant.
         23              -- Consent of Deloitte & Touche LLP.
         24              -- Power of Attorney (included on signature page of this
                            Form 10-K).
         27              -- Financial Data Schedule (included in SEC-filed copy
                            only).
</TABLE>