<PAGE>



                                    CONFORMED
                                    FORM 10-Q
                                    
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                   
                 (x) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                    
                      For Quarter Ended September 30, 1998

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

                          Commission File Number 1-7801

                            ORION CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

                      Delaware                           95-6069054
            (State of other jurisdiction of           (I.R.S. Employer
             incorporation or organization)        Identification Number)

              9 Farm Springs Road, Farmington, Connecticut         06032
            (Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (860) 674-6600

Former name, former address and former fiscal year if changed since last report.

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 ( )


27,092,000  shares of Common  Stock,  $1.00 par value,  of the  registrant  were
outstanding on October 30, 1998.

                                 
                        Exhibit Index Appears at Page 32


                                      

<PAGE>


                            ORION CAPITAL CORPORATION
                                 FORM 10-Q INDEX
                    For the Quarter Ended September 30, 1998

                                                                           Page

PART I. FINANCIAL INFORMATION

  Item 1. Consolidated Financial Statements:
          Consolidated Balance Sheet at September 30, 1998 (Unaudited)
          and December 31, 1997                                           3 - 4

          Consolidated Statement of Earnings for the three and nine-
          months ended September 30, 1998 and 1997 (Unaudited)                5

          Consolidated Statement of Stockholders' Equity for the
          nine-months ended September 30, 1998 and 1997 (Unaudited),
          and for the year ended December 31, 1997                            6

          Consolidated Statement of Cash Flows for the nine-months
          ended September 30, 1998 and 1997 (Unaudited)                   7 - 8
 
          Notes to Consolidated Financial Statements (Unaudited)          9 -13

          Independent Accountants' Review Report                             14

  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                           15 - 29

PART II. OTHER INFORMATION                                                   30

                                       2


<PAGE>
<TABLE>

                          PART I. FINANCIAL INFORMATION
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                     ASSETS
<CAPTION>


                                                    September 30, 1998        December 31,
(In millions)                                         (Unaudited)                1997
------------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>
Assets:
Investments: -
Fixed maturities, at amortized cost
   (market $271.9 - 1998 and $322.4 - 1997)             $   260.0              $   312.8
Fixed maturities, at market (amortized cost
   $1,330.0 - 1998 and $1,395.4 - 1997)                   1,394.3                1,469.8
Common stocks, at market (cost $163.3 -
   1998 and $163.0 - 1997)                                  195.3                  245.4
Non-redeemable preferred stocks, at market
   (cost $228.9 - 1998 and $183.6 - 1997)                   227.4                  193.1
Other long-term investments                                 107.9                   94.3
Short-term investments                                      292.8                  228.3
                                                        ---------              ---------
 
      Total investments                                   2,477.7                2,543.7

Cash                                                         38.5                    9.3
Accrued investment income                                    20.3                   29.6
Investment in affiliate                                      30.5                   31.3
Accounts and notes receivable                               226.1                  189.3
Reinsurance recoverables and prepaid reinsurance            820.2                  622.2
Deferred policy acquisition costs                           154.6                  147.1
Property and equipment                                       89.1                   70.8
Excess of cost over fair value of net assets acquired       168.6                  140.0
Other assets                                                177.3                  100.8
                                                        ---------              ---------

      Total assets                                      $ 4,202.9              $ 3,884.1
                                                        =========              =========
</TABLE>
[FN]

           See Notes to Consolidated Financial Statements (Unaudited)
</FN>


                                       3
<PAGE>
<TABLE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<CAPTION>

                                                            September 30, 1998          December 31,
(In millions, except for share data)                           (Unaudited)                  1997
----------------------------------------------------------------------------------------------------
<S>                                                             <C>                     <C> 
Liabilities:
Policy liabilities: -
  Losses                                                        $ 1,589.6               $ 1,476.4
  Loss adjustment expenses                                          416.9                   395.3
  Unearned premiums                                                 605.7                   551.6
  Policyholders' dividends                                           20.8                    20.5
                                                                ---------               ---------
Total policy liabilities                                          2,633.0                 2,443.8
Notes payable                                                       219.9                   310.2
Other liabilities                                                   384.6                   282.0
                                                                ---------               ---------
Total liabilities                                                 3,237.5                 3,036.0
                                                                ---------               ---------
Contingencies (Note 8)

Company-obligated mandatorily redeemable preferred
   capital securities of subsidiary trusts holding solely
   the junior subordinated debentures of the Company                250.0                   125.0

Stockholders' equity:
Preferred stock, authorized 5,000,000 shares; issued
   and outstanding - none
Common stock, $1 par value; authorized 50,000,000
   shares; issued 30,675,300 shares                                  30.7                    30.7
Capital surplus                                                     149.7                   152.1
Retained earnings                                                   538.0                   469.5
Accumulated other comprehensive income                               62.9                   109.2
Treasury stock, at cost (3,497,737 shares -
  1998 and 3,069,756 shares -  1997)                                (58.2)                  (34.3)
Deferred compensation on restricted stock                            (7.7)                   (4.1)
                                                                ---------               ---------
    Total stockholders' equity                                      715.4                   723.1
                                                                ---------               ---------
    Total liabilities and stockholders' equity                  $ 4,202.9               $ 3,884.1
                                                                =========               =========
</TABLE>
[FN]
 
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       4
<PAGE>
<TABLE>

                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF EARNINGS
                                   (UNAUDITED)

<CAPTION>
                                                          Three Months Ended           Nine Months Ended
                                                            September 30,                September 30,
                                                      --------------------------  ---------------------------
(In millions, except for per share data)                 1998          1997          1998            1997
--------------------------------------------------------------------------------  ----------------------------
<S>                                                     <C>           <C>          <C>            <C>    
Revenues:
Premiums earned                                         $ 396.5       $ 347.4     $ 1,115.7       $ 1,006.6
Net investment income                                      22.3          40.8         106.2           122.3
Realized investment gains                                   0.4           5.2          52.1            29.3
Other income                                                2.1           5.0          14.7            15.2
                                                        -------       -------     ---------       ---------
 Total revenues                                           421.3         398.4       1,288.7         1,173.4
                                                        -------       -------     ---------       ---------
Expenses:
Losses incurred                                           223.0         177.3         600.7           520.8
Loss adjustment expenses                                   57.7          51.8         163.0           153.0
Amortization of deferred policy acquisition costs         101.7          99.5         305.6           287.6
Other insurance expenses                                   24.4           9.5          39.1            26.1
Dividends to policyholders                                  9.7           7.9          23.3            17.8
Interest expense                                            6.0           6.2          14.9            18.5
Other expenses                                              6.4           8.5          29.9            30.1
Restructuring expenses and other (Note 3)                 (15.3)            -         (15.3)              -
                                                        -------       -------     ---------       ---------
 Total expenses                                           413.6         360.7       1,161.2       $ 1,053.9
                                                        -------       -------     ---------       ---------
Earnings before equity in earnings (loss) of
  affiliate, federal income taxes and minority
  interest expense                                          7.8          37.7         127.5           119.5
Equity in earnings (loss) of affiliate                      0.2           0.4          (0.4)            1.3
                                                        -------       -------     ---------       ---------
Earnings before federal income taxes and
  minority interest expense                                 8.0          38.1         127.1           120.8
Federal income taxes                                        2.3           9.7          35.0            30.5
Minority interest expense:
  Subsidiary trust preferred securities, net
    of federal income taxes                                 3.4           1.8           9.4             5.1
  Subsidiary net earnings                                     -           2.1             -             5.8
                                                        -------       -------     ---------       ---------
 Net earnings                                           $   2.3       $  24.5     $    82.7       $    79.4
                                                        =======       =======     =========       =========
 Net earnings per basic common share                    $  0.08       $  0.90     $    3.02       $    2.91
                                                        =======       =======     =========       =========
 Net earnings per diluted common share                  $  0.08       $  0.88     $    2.95       $    2.85
                                                        =======       =======     =========       =========
</TABLE>
[FN]

           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       5
<PAGE>
<TABLE>
                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


<CAPTION>
                                        Nine Months Ended         Nine Months Ended          Year Ended
                                        September 30, 1998       September 30, 1997       December 31, 1997
(In millions)                              (Unaudited)               (Unaudited)
---------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>        <C>            <C>         <C>
Common Stock:
Balance, beginning of period             $  30.7                  $  15.3                   $  15.3
Stock issued in 2-for-1
common stock split                             -                     15.4                      15.4
                                         -------                  -------                   -------
Balance, end of period                   $  30.7                  $  30.7                   $  30.7
                                         =======                  =======                   =======
Capital Surplus:
Balance, beginning of period             $ 152.1                  $ 158.6                   $ 158.6
Exercise of stock options and net
issuance of restricted stock                (2.4)                     0.5                       0.5
Acquisition of Guaranty National               -                        -                       8.4
Stock issued in 2-for-1
common stock split                             -                    (15.4)                    (15.4)
                                         -------                  -------                   -------
Balance, end of period                   $ 149.7                  $ 143.7                   $ 152.1
                                         =======                  =======                   =======
Retained Earnings:
Balance, beginning of period             $ 469.5                  $ 370.8                   $ 370.8
Net earnings                                82.7     $  82.7         79.4    $  79.4          115.8     $ 115.8
                                                     -------                 -------                    -------
Dividends declared                         (14.2)                   (12.7)                    (17.1)
                                         -------                  -------                   -------
Balance, end of period                   $ 538.0                  $ 437.5                   $ 469.5
                                         =======                  =======                   =======
Accumulated Other
Comprehensive Income:
Balance, beginning of period             $ 109.2                  $  70.1                   $  70.1
Unrealized investment
gains (losses), net of taxes                          (46.5)                    42.7                       41.3
Unrealized foreign exchange
translation gains (losses), net of taxes                0.2                     (1.1)                      (2.2)
                                                    -------                  -------                    -------
Other comprehensive income (loss)          (46.3)     (46.3)         41.6       41.6           39.1        39.1
                                         -------    -------       -------    -------        -------     -------
Comprehensive income                                $  36.4                  $ 121.0                    $ 154.9
                                                    =======                  =======                    =======
Balance, end of period                   $  62.9                  $ 111.7                   $ 109.2
                                         =======                  =======                   =======
Treasury Stock:
Balance, beginning of period             $ (34.3)                 $ (35.0)                  $ (35.0)
Exercise of stock options and net
issuance of restricted stock                11.4                      1.7                       3.2
Acquisition of treasury stock              (35.3)                    (1.5)                     (2.5)
                                         -------                  -------                   -------
Balance, end of period                   $ (58.2)                 $ (34.8)                  $ (34.3)
                                         =======                  =======                   ======= 
Deferred Compensation on
Restricted Stock:
Balance, beginning of period             $  (4.1)                 $  (3.1)                  $  (3.1)
Net issuance of restricted stock            (4.8)                    (1.6)                     (1.9)
Amortization of deferred
compensation on restricted stock             1.2                      0.7                       0.9
                                         -------                  -------                   -------
Balance, end of period                   $  (7.7)                 $  (4.0)                  $  (4.1)
                                         =======                  =======                   ======= 
</TABLE>
[FN]
                               
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       6
<PAGE>
<TABLE>
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<CAPTION>
                                                         Nine Months Ended September 30,
                                                         -------------------------------
(In millions)                                               1998                1997
----------------------------------------------------------------------------------------
<S>                                                      <C>                 <C>    
Cash flows from operating activities:
Premiums collected                                       $ 1,144.4           $ 1,034.6
Net investment income collected                              111.4               104.4
Losses and loss adjustment expenses paid                    (728.5)             (658.4)
Policy acquisition costs paid                               (343.2)             (307.2)
Dividends paid to policyholders                              (23.1)              (19.0)
Interest paid                                                (18.3)              (22.2)
Payments on trust preferred securities                       (12.8)               (5.1)
Federal income tax payments                                  (43.6)              (23.2)
Other payments                                               (61.7)              (26.1)
                                                         ---------           ---------
Net cash provided by operating activities                     24.6                77.8
                                                         ---------           ---------
Cash flows from investing activities:
Maturities of fixed maturity investments                     170.4               107.4
Sales of fixed maturity investments                          613.1               231.9
Sales of equity securities                                   337.6               134.1
Investments in fixed maturities                             (595.3)             (509.4)
Investments in equity securities                            (338.3)             (135.9)
Net purchases of short-term investments                      (73.3)              (26.5)
Acquisition of businesses, net of cash acquired              (61.6)                  -
Sale of business, net of cash sold                            13.4                   -
Purchases of property and equipment                          (20.9)              (11.6)
Other receipts (payments)                                    (17.5)               13.7
                                                         ---------           ---------
Net cash provided by (used in) investing activities           27.6              (196.3)
                                                         ---------           ---------
Cash flows from financing activities:
Net proceeds from issuance of trust preferred securities     121.9               123.0
Net repayments of notes payable                              (99.5)               (0.6)
Dividends paid to stockholders                               (13.6)              (13.2)
Purchases of common stock                                    (32.9)               (1.4)
Proceeds from exercise of stock options                        1.1                 0.4
Other receipts                                                   -                 1.3
                                                         ---------           ---------
Net cash provided by (used in) financing activities          (23.0)              109.5
                                                         ---------           ---------
Net increase (decrease) in cash                               29.2                (9.1)
Cash balance, beginning of period                              9.3                11.6
                                                         ---------           ---------
Cash balance, end of period                              $    38.5           $     2.5
                                                         =========           =========
</TABLE>
[FN]

           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       7
<PAGE>
<TABLE>
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
                                   (UNAUDITED)

<CAPTION>

                                                           Nine Months Ended September 30,
                                                           -------------------------------
(In millions)                                                1998                 1997
------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>    
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings                                               $ 82.7               $ 79.4
                                                           ------               ------

Adjustments:
Depreciation and amortization                                12.5                  9.4
Amortization of excess of cost over fair
value of net assets acquired                                  4.6                  2.3
Deferred federal income taxes                                (7.5)                 0.3
Amortization of fixed maturity investments                   (1.1)                (1.7)
Non-cash investment loss (income)                             4.0                (13.4)
Equity in (earnings) loss of affiliate,
   net of dividends received                                  0.8                 (1.0)
Realized investment gains                                   (52.1)               (29.3)
Restructuring expenses and other (Note 3)                   (15.3)                   -
Minority interest in subsidiary earnings                        -                  5.8

Changes in assets and liabilities, net of acquisitions,
   divestiture and restructuring:
Decrease (increase) in accrued investment income              9.5                 (2.3)
Increase in accounts and notes receivable                   (40.8)                (2.8)
Increase in reinsurance recoverable
   and prepaid reinsurance                                  (66.5)                (4.7)
Increase in deferred policy acquisition costs               (12.3)                (9.2)
Increase in other assets                                    (28.5)                (8.2)
Increase (decrease) in losses                                42.6                (14.1)
Increase in loss adjustment expenses                         24.1                 33.5
Increase in unearned premiums                                40.7                 12.7
Increase (decrease) in policyholders' dividends               0.2                 (1.2)
Increase in other liabilities                                27.0                 22.3
                                                           ------               ------
 Total adjustments and changes                              (58.1)                (1.6)
                                                           ------               ------ 
Net cash provided by operating activities                  $ 24.6               $ 77.8
                                                           ======               ======
</TABLE>
[FN]

           See Notes to Consolidated Financial Statements (Unaudited)
 
</FN>

                                       8

<PAGE>
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                  Nine Months Ended September 30, 1998 and 1997

Note 1 - Basis of Financial Statement Presentation

     The  consolidated  financial  statements  and notes thereto are prepared in
accordance  with  generally  accepted  accounting  principles  for  property and
casualty  insurance  companies.  The consolidated  financial  statements include
Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively  the "Company").  The Company's  investment in its  unconsolidated
affiliate (Intercargo Corporation) is accounted for using the equity method. All
material intercompany balances and transactions have been eliminated.

     The Company  completed a tender  offer  that  increased  its ownership of
Guaranty National Corporation ("Guaranty National") from 81% to 100% in December
1997. A minority  interest charge was recorded by the Company for the portion of
Guaranty National's earnings attributable to the shares not owned by the Company
in 1997 until it became a wholly-owned subsidiary.

     As of January 1, 1998 the Company adopted Financial Accounting Standard No.
130, "Reporting  Comprehensive Income". This statement establishes standards for
the reporting and  presentation  of  comprehensive  income and its components in
financial   statements.   Comprehensive   income   encompasses  all  changes  in
shareholders'  equity (except those arising from transactions with shareholders)
and  includes  net  income,   net   unrealized   capital   gains  or  losses  on
available-for-sale securities and foreign currency translation adjustments. This
standard  requires  additional  disclosures  and does not affect  the  Company's
financial position or results of operations.

     In the  opinion of  management,  the  accompanying  consolidated  financial
statements  reflect  all  adjustments  (consisting  solely of  normal  recurring
adjustments)  necessary to present  fairly the Company's  results of operations,
financial  position  and cash flows for all periods  presented.  Although  these
consolidated financial statements are unaudited,  they have been reviewed by the
Company's  independent  accountants,  Deloitte & Touche LLP, for conformity with
accounting  requirements for interim financial  reporting.  Their report on such
review is included herein.  These  consolidated  financial  statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K.

Note 2 - Acquisitions

         On  April  30,  1998  the  Company  completed  the  acquisition  of the
non-standard  personal  automobile  insurance business of North Carolina - based
Strickland  Insurance Group, Inc.  ("Strickland").  The acquisition included two
insurance companies,  a premium finance company, a claim adjusting company and a
general  agency in  Florida.  In 1997,  Strickland  reported  approximately  $99
million of personal  automobile  gross  premiums  written and $46 million of net
premiums  written.  The  purchase  price was $44.0  million in cash,  subject to
adjustment,  and included acquisition expenses of $0.2 million. The Company made
cash  payments of $38.5 million to Strickland on April 30, 1998 and $2.0 million
in 1997, with $3.3 million of the purchase price retained by the Company in part

                                       9
<PAGE>

to secure  obligations of Strickland.  Simultaneous  with the  acquisition,  the
Company repaid $9.4 million of Strickland bank debt. The acquisition  includes a
purchase  price  contingency  for  loss  development  incurred  by the  acquired
business  during the period  from the  acquisition  date to  December  31,  2000
relating to accident years prior to the acquisition  date. The Company used cash
and  short-term  investments  to fund the  acquisition  and debt  payments.  The
acquisition  was  accounted  for as a purchase  and  accordingly,  the  acquired
business has been included in the Company's  consolidated  financial  statements
from the date of acquisition. The total consideration exceeded the fair value of
the net assets acquired by approximately  $28.9 million,  subject to adjustment,
and is being amortized over 25 years.

On July 9, 1998 the Company completed the acquisition of Grocers Insurance Group
("Grocers")  from United  Grocers,  Inc  ("United").  Grocers is an Oregon-based
specialty  insurance  holding  company  serving  the  grocery  and food  service
industry.  In 1997,  Grocers reported  approximately $23 million of net premiums
written,  principally general liability,  property and workers compensation with
the majority of its volume concentrated in the Northwestern states. The purchase
price was $36.7 million in cash including acquisition expenses of $ 0.4 million.
The Company paid approximately  $32.3 million to United at closing.  The Company
retained $4.0 million of the purchase price to secure  obligations of United and
Grocers. The Company used cash and short-term  investments to fund the purchase.
The  acquisition  was accounted for as a purchase and  accordingly,  Grocers has
been included in the Company's  consolidated  financial statements from the date
of  acquisition.  The total  consideration  exceeded  the fair  value of the net
assets acquired by  approximately  $7.7 million,  subject to adjustment , and is
being amortized over 25 years.

Note 3 - Orion Specialty Realignment

     In the third quarter of 1998, the Company  announced the realignment of its
Orion  Specialty  unit  because  it has  not  met  the  Company's  profitability
expectations.  The realignment will result in Orion Specialty's  continued shift
away from commodity business, primarily commercial auto and transportation, to a
smaller  number  of more  client-focused  programs  and  specialty  niches.  The
realignment   includes  the  cancellation  of  approximately   $100  million  in
annualized net written premiums of unprofitable  commodity and marginal lines of
business,  the reduction of approximately 90 employees  related to the cancelled
business,  and  the  sale  of  Colorado  Casualty.  Colorado  Casualty  produced
approximately  $55  million  in annual  net  premiums  but  consists  largely of
business that does not fit the Company's  specialization  strategy.  The Company
expects to complete the realignment in 1999.

     The Company  recorded  severance and program  termination  expenses of $7.0
million and asset write downs of $1.9 million related to the cancelled  business
in the third quarter of 1998.  On September 29, 1998,  the Company sold Colorado
Casualty to Liberty  Mutual  Insurance  Company  resulting  in a pre-tax gain of
approximately  $24.2  million.  Charges for  severance  and program  termination
expenses and asset write-offs,  and the gain from the sale of Colorado Casualty,
representing  a pre-tax gain of $15.3 million,  are reflected as  "Restructuring
expenses and other" in the consolidated statement of earnings. The liability for
severance  and  program  termination  expenses  was  reduced to $6.8  million at
September 30, 1998 for cash payments related to program terminations.

     In  connection  with the  realignment,  in the third  quarter of 1998,  the
Company  completed  a  detailed  actuarial  analysis  for  the  business  to  be

                                       10
<PAGE>

cancelled. As a result of this actuarial study, the Company recorded a provision
for losses and loss adjustment expenses of $27.8 million in the third quarter of
1998.

Note 4 - Investment in Affiliate

     As of  September  30, 1998 the Company  owned 24.7% of the common  stock of
Intercargo  Corporation  ("Intercargo"),  a publicly held  company.  The Company
records its share of  Intercargo's  operating  results on a quarterly lag basis,
after  Intercargo  has  reported its  financial  results.  Summarized  financial
information  of  Intercargo  as  reflected by the Company for the three and nine
months ended September 30, 1998 and 1997 is as follows:


<TABLE>
<CAPTION>
                                                  Three Months Ended            Nine Months Ended
                                                    September 30,                 September 30,
                                              -------------------------       ----------------------
(In millions)                                   1998             1997           1998          1997
----------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>          <C>             <C>    

Premiums earned                               $ 13.1             $ 13.8       $ 41.7          $ 43.9
Investment and other income                      3.0                1.3          6.7             6.3
Equity in earnings of affiliate                    -                1.4            -             3.4
                                              -------------------------       ----------------------
   Total revenues                               16.1               16.5         48.4            53.6
Expenses                                        14.5               14.2         46.2            46.0
                                              -------------------------       ----------------------
Earnings before federal income taxes             1.6                2.3          2.2             7.6
Federal income taxes                            (0.3)              (0.3)        (2.6)           (0.9)
                                              -------------------------       ----------------------
   Net earnings (losses)                      $  1.3             $  2.0       $ (0.4)         $  6.7
                                              =========================       ======================
Company's proportionate share,                                                            
   including goodwill amortization            $  0.2             $  0.4       $ (0.4)         $  1.3
                                              =========================       ======================
</TABLE>
                                         
Note 5 - Reinsurance

     In the normal  course of business,  the  Company's  insurance  subsidiaries
reinsure certain risks,  generally on an  excess-of-loss or pro rata basis, with
other companies to limit exposure to losses.  Reinsurance does not discharge the
primary  liability of the original insurer.  The table below summarizes  certain
reinsurance information.

<TABLE>
<CAPTION>
                                                  Three Months Ended            Nine Months Ended
                                                    September 30,                 September 30,
                                               -----------------------        ----------------------
(In millions)                                    1998           1997            1998          1997
----------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>          <C>            <C>    

Direct premiums written                        $  485.2        $  394.3       $1,395.7      $1,142.6
Reinsurance assumed                                20.0            18.8           65.7          74.0
                                               ------------------------       ----------------------
Gross premiums written                            505.2           413.1        1,461.4       1,216.6
Reinsurance ceded                                 (97.9)          (61.6)        (300.3)       (190.6)
                                               ------------------------       ----------------------
Net premiums written                           $  407.3        $  351.5       $1,161.1      $1,026.0
                                               ========================       ======================
                                       
Direct premiums earned                         $  464.2        $  379.0       $1,342.3      $1,113.2
Reinsurance assumed                                38.9            27.0          79.1          89.6
                                               ------------------------       ----------------------
Gross premiums earned                             503.1           406.0        1,421.4       1,202.8
Reinsurance ceded                                (106.6)          (58.6)        (305.7)       (196.2)
                                               ------------------------       ----------------------
Net premiums earned                            $  396.5        $  347.4       $1,115.7      $1,006.6
                                               ========================       ======================
Loss and loss adjustment expenses
   incurred recoverable from reinsurers        $  143.0        $   56.5       $  308.8      $  130.7
                                               ========================       ======================
</TABLE>
                                       

                                       11
<PAGE>

Note 6 - Trust Preferred Securities

The  Company-obligated  mandatorily  redeemable  preferred capital securities of
subsidiary  trusts  holding  solely the junior  subordinated  debentures  of the
Company ("Trust Preferred Securities") comprise the following:

                                           September 30,           December 31,
(In millions)                                  1998                   1997
-------------------------------------------------------------------------------
8.73% Trust Preferred Securities
  due January 1, 2037                        $ 125.0                $ 125.0
7.701% Trust Preferred Securities                                         
  due April 15, 2028                           125.0                      -
                                             -------                ------- 
                                             $ 250.0                $ 125.0
                                             =======                =======
                                        

     On February 2, 1998 Orion issued $125 million of 7.701% Junior Subordinated
Deferrable  Interest  Debentures due April 15, 2028 to Orion Capital Trust II, a
Delaware statutory business trust sponsored by the Company.  Orion Capital Trust
II then sold $125 million of 7.701%  capital  securities,  which mature on April
15, 2028 ("Capital  Securities"),  in a private  placement.  Approximately  $100
million of the net proceeds from the sale of the junior subordinated  debentures
were used to retire bank indebtedness of Guaranty National. Orion registered the
Capital  Securities  under the  Securities  Act of 1933  pursuant to an exchange
offer  which  expired on June 4, 1998.  On January  13,  1997 Orion  issued $125
million  of 8.73%  Trust  Preferred  Securities  which may be  redeemed  without
premium on or after January 1, 2007.

         The Trust  Preferred  Securities are  subordinate to all liabilities of
the Company. The Company may defer interest distributions on the Trust Preferred
Securities;  however, during any period when such cumulative  distributions have
been deferred,  Orion may not declare or pay any dividends or  distributions  on
its common  stock.  The  Trusts  are  consolidated  in the  Company's  financial
statements because they are wholly-owned by the Company.  The sole assets of the
Trusts  are the  Debentures  issued  by  Orion.  Orion  has  given  its  partial
guarantee,  which when taken together with the Company's  obligations  under the
declaration of the Trusts, the Debentures,  and the indentures pursuant to which
the Trust  Preferred  Securities  are issued  including its  obligations  to pay
costs, expenses, debts and liabilities of the Trusts (other than with respect to
the Trust Preferred Securities),  provides a full and unconditional guarantee of
amounts due on the Trust Preferred Securities.

Note 7 - Stockholders' Equity and Earnings Per Common Share

     In the nine months ended September 30, 1998 the Company repurchased 750,300
shares of its  common  stock at an  aggregate  cost of $32.9  million  under the
Company's  stock  repurchase  program and 45,153 shares at an aggregate  cost of
$2.4 million  relating to the Company's  employee  benefit plans.  The Company's
Board of Directors increased  authorization for purchases of its common stock by
an  additional  $50 million on August 4, 1998.  The  remaining  stock  purchases
authorization was $42.5 million at October 30, 1998.

     Basic  earnings per share  computations  are based on the weighted  average
number of shares  of  common  stock  outstanding  during  the  period  excluding

                                       12
<PAGE>

dilution.  Diluted earnings per share reflects the potential decrease that could
occur if all stock  options  and other  stock-based  awards were  exercised  and
converted into common stock, if their effect is dilutive.  The weighted  average
common shares were  27,215,000 and  27,335,000  for the three months ended,  and
27,357,000 and 27,313,000 for the nine months ended September 30, 1998 and 1997,
respectively.  The weighted  average common and diluted  equivalent  shares were
27,853,000  and  27,881,000  for the three  months  ended,  and  28,051,000  and
27,828,000 for the nine months ended September 30, 1998 and 1997, respectively.

Note 8 - Contingencies

     Orion and its subsidiaries are routinely  engaged in litigation  incidental
to their  businesses.  Management  believes that there are no significant  legal
proceedings  pending  against the  Company  which,  net of reserves  established
therefor, are likely to result in judgments for amounts that are material to the
financial  condition,  liquidity  or  results  of  operations  of Orion  and its
consolidated subsidiaries, taken as a whole.

Note 9 - Accumulated Other Comprehensive Income

Accumulated other comprehensive income balances, net of taxes, are as follows:

<TABLE>
<CAPTION>
                                          Unrealized           Unrealized Foreign         Accumulated Other
                                       Investment Gains        Exchange Translation        Comprehensive
                                           (Losses)              Gains (Losses)             Income (Loss)
(In millions)
------------------------------------------------------------------------------------------------------------
<S>                                        <C>                     <C>                        <C> 
Nine Months ended Sept. 30, 1998:
Balance, beginning of period               $ 113.6                 $  (4.4)                   $ 109.2
Current period change                        (46.5)                    0.2                      (46.3)
                                           -------                 -------                    ------- 
Balance, end of period                     $  67.1                 $  (4.2)                   $  62.9
                                           =======                 =======                    =======

Nine Months ended Sept. 30, 1997:
Balance, beginning of period               $  72.3                 $  (2.2)                   $  70.1
Current period change                         42.7                    (1.1)                      41.6
                                           -------                 -------                    ------- 
Balance, end of period                     $ 115.0                 $  (3.3)                   $ 111.7
                                           =======                 =======                    =======
Year ended December 31, 1997:
Balance, beginning of year                 $  72.3                 $  (2.2)                   $  70.1
Current year change                           41.3                    (2.2)                      39.1
                                           -------                 -------                    ------- 
Balance, end of year                       $ 113.6                 $  (4.4)                   $ 109.2
                                           =======                 =======                    =======
</TABLE>

     The pretax  unrealized  investment  gains (losses) were $(71.5) million and
$65.0  million  for  the  nine  months  ended   September  30,  1998  and  1997,
respectively,  and $62.9  million  for the year ended  December  31,  1997.  The
pre-tax unrealized foreign exchange translation gains (losses) were $0.3 million
and $(1.7)  million  for the nine  months  ended  September  30,  1998 and 1997,
respectively, and $(3.4) million for the year ended December 31, 1997.


                                       13
<PAGE>


                     INDEPENDENT ACCOUNTANTS' REVIEW REPORT




Board of Directors and Stockholders
Orion Capital Corporation
Farmington, Connecticut

         We have reviewed the accompanying  consolidated  balance sheet of Orion
Capital  Corporation and subsidiaries  (the "Company") as of September 30, 1998,
and the related  consolidated  statements  of earnings for the  three-month  and
nine-month  periods  ended  September 30, 1998 and 1997,  and the  statements of
stockholders'  equity and cash flows for the nine-month  periods ended September
30, 1998 and 1997.  These  financial  statements are the  responsibility  of the
Company's management.

     We conducted our review in accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial data and of making inquiries of persons  responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the  expression  of an opinion  regarding the  financial  statements  taken as a
whole. Accordingly, we do not express such an opinion.

         Based on our  review,  we are not aware of any  material  modifications
that should be made to such consolidated  financial statements for them to be in
conformity with generally accepted accounting principles.

         We have  previously  audited,  in accordance  with  generally  accepted
auditing standards,  the consolidated balance sheet of Orion Capital Corporation
and  subsidiaries  as  of  December  31,  1997,  and  the  related  consolidated
statements  of earnings,  stockholders'  equity and cash flows for the year then
ended;  and in our report dated  February 11, 1998, we expressed an  unqualified
opinion on those consolidated financial statements.  The consolidated statements
of  earnings  and  cash  flows  for the year  ended  December  31,  1997 are not
presented herein. In our opinion,  the information set forth in the accompanying
consolidated  balance  sheet as of December  31,  1997 and related  consolidated
statement of stockholders'  equity for the year then ended is fairly stated,  in
all material respects, in relation to the consolidated financial statements from
which it has been derived.



DELOITTE & TOUCHE LLP


Hartford, Connecticut
October 23, 1998




                                       14
<PAGE>


                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                     GENERAL

Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively  the "Company")  operate  principally in the property and casualty
insurance  business.  The Company  reports  its  insurance  operations  in three
segments.  In  addition,   the  miscellaneous  income  and  expenses  (primarily
interest,   general  and   administrative   expenses  and  other   consolidating
elimination  entries) of the parent company are reported as a fourth segment. As
a result of the acquisition of Guaranty National,  the 1997 segment  disclosures
have been revised to conform with the current basis of  presentation.  The three
insurance segments as of September 30, 1998 are as follows:

Regional Operations - this segment includes the workers  compensation  insurance
       products and services sold by the EBI Companies ("EBI").

Special Programs - this segment comprises the following:

     DPIC Companies ("DPIC"), which markets professional liability insurance;

     Orion Specialty, which writes client-focused specialty insurance programs;

     Wm. H. McGee ("McGee"), an underwriting management company that specializes
     in ocean marine, inland marine and commercial property insurance; and

     The  Company's  24.7%  interest in Intercargo  Corporation  ("Intercargo"),
     which sells insurance coverages for international trade.

Guaranty National Companies ("Guaranty  National") - this segment specializes in
non-standard personal automobile insurance.

The Company  increased  its  ownership of Guaranty  National to 100% in December
1997.  The Company  increased  its ownership in Guaranty  National,  in part, to
provide Guaranty National with additional  financing options,  on terms that may
not be available  to it as an  independent  entity,  so that it can continue its
expansion in the non-standard personal automobile insurance business.  Beginning
in 1998, the commercial  business lines of Guaranty  National were  consolidated
with  Connecticut  Specialty  to  form  a new  company  named  Orion  Specialty.
Following the formation of Orion Specialty,  Guaranty National became a personal
non-standard   automobile  insurance  operation.   Orion  Specialty  focuses  on
specialty commercial insurance.

On April 30, 1998 the Company  completed  the  acquisition  of the  non-standard
personal  automobile  insurance  business of North  Carolina - based  Strickland
Insurance Group,  Inc.  ("Strickland").  The acquisition  included two insurance
companies,  a premium finance company,  a claim adjusting  company and a general
agency in Florida.  In 1997,  Strickland  reported  approximately $99 million of

                                       15
<PAGE>

personal  automobile  gross  premiums  written and $46  million of net  premiums
written. The purchase price was $44.0 million in cash subject to adjustment. The
acquisition  was  accounted  for as a purchase  and  accordingly,  the  acquired
business has been included in the Company's  consolidated  financial  statements
from the date of acquisition. The total consideration exceeded the fair value of
the acquired net assets by approximately  $28.9 million,  subject to adjustment,
and is being amortized over 25 years.

On July 9, 1998 the Company completed the acquisition of Grocers Insurance Group
("Grocers")  from  United  Grocers,  Inc.  for $36.7  million in cash  including
acquisition  expenses  of $0.4  million.  Grocers is an  Oregon-based  specialty
insurance  holding  company  serving the grocery and food service  industry.  In
1997,  Grocers  wrote  approximately  $23 million of net  premiums,  principally
general  liability,  property and workers  compensation with the majority of its
volume  concentrated in the Northwestern  states.  The acquisition was accounted
for as a purchase and  accordingly,  Grocers has been  included in the Company's
consolidated  financial  statements  from the  date of  acquisition.  The  total
consideration   exceeded   the  fair  value  of  the  net  assets   acquired  by
approximately $7.7 million and is being amortized over 25 years.

     In the third quarter of 1998, the Company  announced the realignment of its
Orion  Specialty  unit  because  it has  not  met  the  Company's  profitability
expectations.  The realignment will result in Orion Specialty's  continued shift
away from commodity business, primarily commercial auto and transportation, to a
smaller  number  of more  client-focused  programs  and  specialty  niches.  The
realignment   includes  the  cancellation  of  approximately   $100  million  in
annualized net written premiums of unprofitable  commodity and marginal lines of
business,  the reduction of approximately 90 employees  related to the cancelled
business,  and  the  sale  of  Colorado  Casualty.  Colorado  Casualty  produced
approximately  $55  million  in annual  net  premiums  but  consists  largely of
business that does not fit the Company's  specialization  strategy.  The Company
expects to complete the realignment in 1999.

         The Company recorded severance and program termination expenses of $7.0
million and asset write downs of $1.9 million related to the cancelled  business
in the third quarter of 1998.  On September 29, 1998,  the Company sold Colorado
Casualty to Liberty  Mutual  Insurance  Company  resulting  in a pre-tax gain of
approximately $24.2 million.

     In connection  with the  realignment,   in the third quarter of 1998,  the
Company  completed  a  detailed  actuarial  analysis  for  the  business  to  be
cancelled. As a result of this actuarial study, the Company recorded a provision
for losses and loss adjustment expenses of $27.8 million in the third quarter of
1998.






                                       16
<PAGE>




                              RESULTS OF OPERATIONS

Overview

Earnings  (loss) by segment before  federal  income taxes and minority  interest
expense are summarized as follows:
<TABLE>
<CAPTION>

                                         Three Months Ended                         Nine Months Ended
                                            September 30,                              September 30,
                                   ----------------------------------        ----------------------------------
(In millions)                      1998          1997        % Change        1998          1997        % Change
---------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>         <C>             <C>           <C>         <C>

Regional Operations                $ 10.8        $ 22.9        -52.9%        $ 63.7       $  60.4          5.6%
Special Programs                     (9.1)          9.6       -194.1%          48.3          47.2          2.4%
Guaranty National                     7.3           9.8        -25.2%          25.6          26.4         -3.2%
                                   ----------------------------------        ----------------------------------
                                      9.0          42.3        -78.7%         137.6         134.0          2.7%
Other                                (1.0)         (4.2)       -75.7%         (10.5)        (13.2)       -20.3%
                                   ----------------------------------        ----------------------------------
                                   $  8.0        $ 38.1        -79.0%        $127.1       $ 120.8          5.2%
                                   ==================================        ==================================
                                   
</TABLE>
<TABLE>



Operating  earnings,  after-tax realized  investment gains, net earnings and per
diluted common share amounts are summarized as follows:
<CAPTION>
                                         Three Months Ended                         Nine Months Ended
                                            September 30,                              September 30,
                                   ------------------------------------   -------------------------------------
(In millions, except share data)   1998          1997        % Change        1998          1997        % Change
---------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>         <C>             <C>           <C>         <C>

Operating earnings                 $ 2.0         $ 21.6        -90.9%        $ 48.8        $ 61.3         -20.4%
After-tax realized investment
   gains                             0.3            2.9        -88.5%          33.9          18.1          87.1%
                                   ----------------------------------        -----------------------------------
Net earnings                       $ 2.3         $ 24.5        -90.6%        $ 82.7        $ 79.4           4.1%
                                   ==================================        ===================================
                                     
Per diluted common share:
Operating earnings                 $0.07         $ 0.78        -90.9%        $ 1.74        $ 2.20         -21.1%
After-tax realized investment
   gains                            0.01           0.10        -88.5%          1.21          0.65          85.6%
                                   ----------------------------------        -----------------------------------
Net earnings                       $0.08         $ 0.88        -90.6%        $ 2.95        $ 2.85           3.3%
                                   ==================================        ===================================
</TABLE>
                                     

Operating  earnings  represents  earnings  after taxes,  excluding  net realized
investment  gains.  Operating  earnings of $2.0 million in the third  quarter of
1998 reflects the  realignment of Orion  Specialty and losses from the Company's
limited  partnership  investments.  The  Company  recorded a $12.5  million  net
pre-tax charge,  or $.35 per diluted share on an after-tax  basis, in connection
with the realignment of Orion Specialty and related  reserve  strengthening  for
cancelled business.  Furthermore, the Company reported pre-tax investment losses
of $14.1 million,  or $.33 per diluted share on an after-tax  basis,  related to
declines in the value of the Company's limited partnership investments which are
accounted  for on an equity  basis.  These  charges  and losses  have offset the
continued strong operating  performance from the Company's insurance operations,
in particular EBI, DPIC and Guaranty National, and are combined with significant

                                       17
<PAGE>

increases in year-to-date  after-tax realized  investment gains to arrive at net
earnings.  Weighted  average common shares and diluted  equivalents  outstanding
were 27,853,000 for the third quarter of 1998 and 28,051,000 for the nine months
ended  September 30, 1998 and 27,881,000 and 27,828,000,  for the  corresponding
1997 periods, respectively.

                                    REVENUES

Revenues are summarized as follows:
<TABLE>
<CAPTION>

                                        Three Months Ended                           Nine Months Ended
                                           September 30,                               September 30,
                               ----------------------------------        ----------------------------------
(In millions)                    1998         1997       % Change          1998         1997       % Change
-----------------------------------------------------------------------------------------------------------
<S>                            <C>         <C>           <C>             <C>          <C>          <C>


Net premiums written           $ 407.3     $ 351.5         15.9%         $ 1,161.1    $ 1,026.0       13.2%
                               =================================         ==================================
Net premiums earned            $ 396.5     $ 347.4         14.1%         $ 1,115.7    $ 1,006.6       10.8%
Net investment income             22.3        40.8        -45.3%             106.2        122.3      -13.2%
Realized investment gains          0.4         5.2        -91.8%              52.1         29.3       77.8%
Other                              2.1         5.0        -58.3%              14.7         15.2       -2.7%
                               ---------------------------------         ----------------------------------
                               $ 421.3     $ 398.4          5.8%         $ 1,288.7    $ 1,173.4        9.8%
                               =================================         ==================================
                                
</TABLE>

Premiums Written

The Company's net premiums written by segment are as follows:
<TABLE>
<CAPTION>

                                        Three Months Ended                          Nine Months Ended
                                           September 30,                              September 30,
                               ----------------------------------       -----------------------------------
(In millions)                    1998         1997       % Change          1998         1997       % Change
-----------------------------------------------------------------------------------------------------------
<S>                            <C>         <C>           <C>            <C>          <C>           <C>

Regional Operations            $ 132.0     $ 99.2          33.1%        $  349.4     $  277.0         26.2%
Special Programs                 168.1      168.3          -0.1%           501.9        500.5          0.3%
Guaranty National                107.2       84.0          27.6%           309.8        248.5         24.7%
                               ---------------------------------        -----------------------------------
                               $ 407.3     $351.5          15.9%        $1,161.1     $1,026.0         13.2%
                               =================================        ===================================
                            
</TABLE>

In November  1996,  the Company sold the renewal book of business of its assumed
reinsurance  operation to concentrate on businesses where the Company can better
service its specialized niche markets.  Excluding  premiums from this operation,
the  Company's net premiums  written  increased by 16.3% in the third quarter of
1998 and 14.3% in the first nine months of 1998 over the same 1997 periods.

Regional Operations

Net  premiums  written for Regional  Operations  increased by 33.1% in the third
quarter of 1998 and 26.2% in the first nine  months of 1998 from the  comparable
1997  periods  largely due to new business  written  through  EBI's  multi-state
program   established   last  year  and  continued   geographic   expansion  and
penetration,  partly offset by the impact of statutory  rate  reductions of last
year.





                                       18
<PAGE>



<TABLE>


Special Programs

Net premiums written from Special Programs are as follows:
<CAPTION>

                                  Three Months Ended                          Nine Months Ended
                                     September 30,                              September 30,
                            --------------------------------           ---------------------------------
(In millions)                 1998       1997       % Change            1998        1997        % Change
--------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>                <C>         <C>          <C>

Orion Specialty             $  83.4     $ 101.4        -17.7%          $ 288.7     $ 305.1         -5.4%
DPIC                           46.6        51.1         -8.8%            138.5       142.0         -2.4%
McGee                          38.2        14.7        160.4%             75.1        43.3         73.5%
                            ---------------------------------          ---------------------------------
                              168.2       167.2          0.7%            502.3       490.4          2.4%
Assumed reinsurance            (0.1)        1.1       -109.4%             (0.4)       10.1       -104.3%
                            ---------------------------------          ---------------------------------
                            $ 168.1     $ 168.3         -0.1%          $ 501.9     $ 500.5          0.3%
                            =================================          =================================
</TABLE>
                            

Net premiums written by DPIC for professional  liability  insurance decreased in
1998  compared  to 1997  primarily  as a  result  of rate  reductions  in a very
competitive  professional liability insurance market offset in part by continual
high levels of policy renewals and growth in project policies.

Orion Specialty's net premiums written decreased in 1998 compared to 1997 due to
the  cancellation  of  unprofitable  commodity  and  marginal  lines of business
primarily related to the realignment of Orion Specialty. Cancelled programs with
the largest  year-over-year impact on net premiums written were truck liability,
ocean marine, coal mine, and non-standard automobile personal injury protection.
Net  premiums  written  also  reflect  lower  premiums  from  Orion  Specialty's
collateral  protection  business.  These  decreases were partly offset by higher
premiums from Colorado Casualty, which was sold on September 29, 1998 as part of
the  realignment  of  Orion  Specialty,  and  from the  acquisition  of  Grocers
Insurance on July 9, 1998.

McGee's  net  premiums  written  increased  in 1998  compared to 1997 due to the
Company's greater  participation in the underwriting  pools managed by McGee and
increased premium retention reflecting a change in McGee's reinsurance programs.
The Company's  participation in McGee's United States pool is approximately  71%
and 52% in 1998 and 1997,  respectively.  Participation in McGee's Canadian pool
is approximately 72% and 61% in 1998 and 1997, respectively.

Guaranty National

The net  premiums  written  growth in 1998 over the  comparable  1997 periods is
primarily due to the  acquisitions of Strickland and Unisun  Insurance  Company,
modest  year-to-date  growth in the monthly product business in California,  and
increases in premiums  from the  Northwestern  states,  offset in part by modest
rate reductions due from a very competitive market. Premium growth in California
is primarily attributed to enacted legislation requiring all drivers to maintain
liability insurance.


                                       19
<PAGE>


Premiums Earned

The Company's premiums earned increased 14.1% and 10.8% in the third quarter and
first  nine  months of 1998  compared  to the same 1997  periods,  respectively.
Premiums  earned reflect the  recognition of income from the changing  levels of
net premium writings.

Net Investment Income

Pre-tax net investment income was $106.2 million and $122.3 million for the nine
months  of  1998  and  1997,  and  $22.3  million  and  $40.8  million  for  the
corresponding third quarter periods,  respectively. Net investment income in the
third quarter of 1998 was negatively  impacted by losses of $14.1 million on the
Company's limited  partnership  investments which are accounted for on an equity
basis. The pre-tax yields on the average investment  portfolio were 5.9% for the
nine months of 1998 and 7.0% for the nine months of 1997, with after-tax  yields
of 4.5% and 5.3%,  respectively.  Excluding equity earnings  (losses) in limited
partnership investments,  the pre-tax yields on the average investment portfolio
were  6.3% and 6.5% in the nine  months  of 1998  and  1997,  respectively.  The
pre-tax investment yields have also been impacted by a shifting of the Company's
investment  portfolio from taxable to tax-advantage  securities during 1998. Net
investment income was favorably affected by a modestly higher average investment
base in 1998 as compared to 1997,  reflecting  positive  operating cash flow and
net cash provided by investing activities.

Net investment income reflects equity losses in limited partnership  investments
of $14.1 million and $5.1 million for the third quarter and nine months of 1998,
respectively,  and equity earnings of $3.8 million and $12.3 million in the same
1997  periods.  As a result of recent  volatility  and declines in the financial
markets,  three of the Company's limited partnership  investments  significantly
declined in value in the third quarter of 1998.  Earnings  (losses) from limited
partnership  investments can vary considerably from year-to-year.  The Company's
long-term  experience  with  limited  partnership  investments  has  been  quite
favorable.  The Company plans to reduce its  proportion  of limited  partnership
investments to total investments from 4.2% at September 30, 1998 by exiting some
of the more volatile partnerships in 1999.

Fixed maturity  investments,  which the Company has both the positive intent and
the ability to hold to maturity,  are recorded at amortized cost. Fixed maturity
investments  which may be sold in response  to, among other  things,  changes in
interest rates,  prepayment  risk,  income tax strategies or liquidity needs are
classified as  available-for-sale  and are carried at market value. The carrying
value of fixed  maturity  and  short-term  investments  is  $1,947.2  million at
September 30, 1998 and $2,010.9  million at December 31, 1997, or  approximately
77.4% and 78.8% of the Company's cash and investments, respectively.

The  Company's  investment  philosophy  is to achieve a superior  rate of return
after taxes, while maintaining a proper balance of safety,  liquidity,  maturity
and marketability.  The Company invests primarily in investment grade securities
and strives to enhance  the  average  return of its  portfolio  through  limited
investment  in a  diversified  group  of  non-investment  grade  fixed  maturity
securities or securities that are not rated.  The risk of loss due to default is
generally  considered  greater  for  non-investment  grade  securities  than for
investment grade securities  because the former,  among other things,  are often
subordinated to other  indebtedness of the issuer and are often issued by highly
leveraged companies.  At September 30, 1998 and December 31, 1997, the Company's

                                       20
<PAGE>

investments in non-investment grade and non-rated fixed maturity securities were
carried at $225.9 million and $256.7 million,  respectively.  These  investments
represented a total of 9.0% and 10.1% of cash and  investments and 5.4% and 6.6%
of total assets at September 30, 1998 and December 31, 1997, respectively.

Realized Investment Gains

Net realized  investment  gains are $52.1 million and $29.3 million for the nine
months of 1998 and 1997,  and $0.4  million and $5.2  million for  corresponding
third quarter periods, respectively.  Approximately 25% of the year-to-date 1998
net realized  investment  gains  resulted  from the sale of two  investments  in
entities which were acquired or taken public during the first quarter.  Realized
investment gains may be reduced by provisions for losses on securities deemed to
be  other-than-temporarily  impaired.  Impairment provisions of $2.5 million and
$1.8 million were  recognized  in the nine months ended  September  30, 1998 and
1997, respectively.  Any such provision is based on available information at the
time and is made in consideration  of the decline in the financial  condition of
the issuers of such  securities.  Realized  investment  gains (losses) vary from
period to period,  depending  on market  conditions  relative  to the  Company's
investment holdings, the timing of investment sales generating gains and losses,
the occurrence of events which give rise to  other-than-temporary  impairment of
investments,  and other factors.  Net unrealized  investment gains, after taxes,
recorded  in  stockholders'  equity  were $67.1  million  and $113.6  million at
September  30, 1998 and December 31, 1997.  Such amounts can vary  significantly
depending upon fluctuations in the financial markets.

                               EXPENSES AND OTHER

Operating Ratios

The following table sets forth certain ratios of insurance operating expenses to
premiums earned:

<TABLE>
<CAPTION>
                                                 Three Months Ended                Nine Months Ended
                                                     September 30,                    September 30,
                                               -----------------------           ---------------------
                                                1998            1997              1998           1997
------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>              <C>             <C>

Loss and loss adjustment expenses               70.8%           65.9%             68.5%          66.9%
Policy acquisition costs and other
   insurance expenses                           31.7%           31.4%             30.8%          31.2%
                                               ----------------------            ---------------------
   Total before policyholders' dividends       102.5%           97.3%             99.3%          98.1%
Policyholders' dividends                         2.5%            2.3%              2.1%           1.8%
                                               ----------------------            ---------------------
   Combined ratio                              105.0%           99.6%            101.4%          99.9%
                                               ======================            =====================
                                              
Loss and loss adjustment expenses
   ratio by segment:
     Regional Operations                        56.2%           49.4%             56.9%          55.5%
     Special Programs                           83.7%           73.2%             75.8%          71.2%
     Guaranty National                          67.1%           70.1%             69.2%          70.9%

</TABLE>

Excluding reserve  strengthening  related to the cancellation of Orion Specialty
business in the third quarter of 1998,  the  consolidated  combined  ratio would
have been 98.0% and 98.9% for three months ended and nine months ended September
30, 1998, respectively.

                                       21
<PAGE>

The higher loss ratio for Regional  Operations  is  attributed to the effects of
competitive  pricing  pressure and less favorable loss  development  relating to
prior  accident  years,  partly  offset by lower loss  expenses  achieved by EBI
through its service-oriented  approach.  EBI's  service-oriented  approach is to
work with its  customers  to prevent  losses and reduce  claim  costs.  Guaranty
National's  loss ratio  improved  in 1998  compared to 1997  primarily  due to a
decline in claims  frequency  and claims  severity  partly offset by higher loss
expenses.

The  increased  loss ratio for  Special  Programs  in 1998  compared  to 1997 is
primarily  attributable to $27.8 million of loss reserve strengthening  recorded
in the third  quarter of 1998 related to business  being  canceled in connection
with the Orion Specialty realignment.  Excluding this charge, the loss ratio for
Special  Programs  would be 67.2% in  third  quarter  of 1998 and  70.1% in nine
months of 1998. Additionally, the loss ratio for Special Programs was negatively
impacted by assumed reinsurance  business exited in late 1996 because net earned
premiums  from this  business  declined  at a greater  rate than  losses in 1998
compared to 1997. These increases were partly offset by an improvement in DPIC's
loss ratio in 1998 as compared to 1997 from its loss prevention competencies.

The ratios of policy  acquisition costs and other insurance expenses to premiums
earned (the  "expense  ratio") are 31.7% and 30.8% for the three months and nine
months  ended  September  30,  1998,  respectively,  and 31.4% and 31.2% for the
respective 1997 periods.  Policy acquisition costs include direct costs, such as
commissions,  premium  taxes,  and  salaries  that  relate  to and vary with the
production  of new  business.  These costs are  deferred  and  amortized  as the
related premiums are earned, subject to a periodic test for recoverability.

Management  believes  that the Company's  reserves for loss and loss  adjustment
expenses make  reasonable and sufficient  provision for the ultimate cost of all
losses on claims  incurred.  However,  there can be no assurance that changes in
loss trends will not result in additional  development of prior years'  reserves
in the  future.  Provisions  for losses  and loss  adjustment  expenses  include
development  of loss and loss  adjustment  expense  reserves  relating  to prior
accident  years,  which  increased  the  calendar  year  combined  ratio  by 2.5
percentage  points in the first nine months of 1998 and 0.7 percentage points in
the same period of 1997.  In the third  quarter of 1998,  the  Company  recorded
$17.0  million  of loss  reserves  pertaining  to prior  accident  years  for
business  being  canceled in connection  with the Orion  Specialty  realignment.
Excluding this charge, adverse development of prior accident years increased the
calendar year combined  ratio by 1.0 percentage  points in 1998.  Variability in
claim emergence and settlement  patterns and other trends in loss experience can
result in future development patterns different than expected. After considering
the additional reserve strengthening  recorded for Orion Specialty,  the Company
believes that any such variability or development will generally continue at the
low levels experienced in recent years, considering actions that have been taken
to increase reserving levels,  improve underwriting standards and emphasize loss
prevention and control.

The  Company  limits both  current  losses and future  development  of losses by
ceding business to reinsurers.  The Company  continually  monitors the financial
strength of its  reinsurers  and, to the  Company's  knowledge,  has no material
exposure with regard to potential  unrecognized  losses due to reinsurers having
known financial difficulties.

                                       22
<PAGE>

Interest Expense

Interest expense is $6.0 million and $6.2 million for the third quarters of 1998
and 1997,  and $14.9 million and $18.5 million for the first nine months of 1998
and 1997,  respectively.  Interest  expense  declined in 1998 as a result of the
repayment of the $100 million bank indebtedness of Guaranty National in February
1998 with  proceeds from the issuance of the  Company's  7.701% Trust  Preferred
Securities.

Equity in Earnings (Loss) of Affiliate

Equity in earnings  (loss) of  affiliate  consists  of earnings  (loss) from the
Company's  24.7%  investment  in  Intercargo.  The Company  records its share of
Intercargo's  results  in the  subsequent  quarter  as  Intercargo  reports  its
quarterly earnings after the Company reports its earnings.

Federal Income Taxes

Federal income taxes  (including tax benefits from  subsidiary  trust  preferred
securities)  and the related  effective tax rates are $29.9 million  (26.6%) and
$27.8 million  (24.6%) for the nine months of 1998 and 1997,  respectively.  The
Company's  effective tax rates for 1998 and 1997 are less than the statutory tax
rate of 35% primarily because of income derived from tax-advantaged securities.

Minority Interest Expense

Minority  interest  expense in subsidiary  Trust  Preferred  Securities was $3.4
million and $9.4 million for three months and nine months  ended  September  30,
1998,  and $1.8  million  and  $5.1  million  for  corresponding  1997  periods,
respectively. Minority interest expense in subsidiary Trust Preferred Securities
represents the financing cost, after the federal income tax benefit,  on Orion's
8.73% and 7.701%  Trust  Preferred  Securities.  The  increase in 1998  reflects
minority  interest  expense  associated with the issuance of $125 million 7.701%
Trust Preferred Securities in February 1998.

Minority  interest expense of $2.1 million and $5.8 million was recorded for the
after-tax  portion of  Guaranty  National's  1997 third  quarter  and nine month
earnings  attributable  to  stockholders  of  Guaranty  National  other than the
Company, respectively. Guaranty National became a wholly owned subsidiary of the
Company in December 1997.

                         LIQUIDITY AND CAPITAL RESOURCES

Cash  provided  by  operating  activities  decreased  by $53.2  million to $24.6
million  in the first nine  months of 1998 from  $77.8  million in the same 1997
period.  The decrease in operating cash flow for 1998 is primarily the result of
higher  payments for losses,  policy  acquisition  costs,  federal income taxes,
minority interest from subsidiary trust preferred  securities and an increase in
funds  due from  others.  The  higher  loss  payments  in 1998  reflect  both an
acceleration  of claims  settlement in two of our  operations  and loss payments
related  to the  assumed  reinsurance  business  exited by the  Company in 1996.
Higher  payments  for policy  acquisition  costs are  related  to the  Company's
current rate of growth. Federal tax payments are higher in part due to increased
realized  investment  gains in 1998. Funds due from others related to a commuted

                                       23
<PAGE>

reinsurance agreement executed in the third quarter of 1998 to be settled in the
fourth quarter of 1998.  Partially  offsetting these increased cash outflows are
higher premiums  collected,  reflective of the Company's current rate of growth,
as well as higher investment income collected.

The Company's investment  activities provided $27.6 million of cash in the first
nine months of 1998 and used $196.3 million of cash in the 1997 period.  Cash is
used in or provided by  investment  activities  primarily  for purchases or from
sales/maturities  of  investments  and for  acquisition  activities.  Investment
purchases are funded by maturities and sales of  investments,  as well as by the
net cash from  operating  cash flows after cash provided by or used in financing
activities. Cash used for acquisitions totaled $79.1 million (excluding acquired
cash of $17.5  million) in the first nine months of 1998. The Company paid $38.5
million to Strickland for the purchase of its non-standard  personal  automobile
insurance  business on April  30,1998 and $2.0 million in 1997 with $3.3 million
of the purchase price  retained by the Company in part to secure  obligations of
Strickland.  On July 9, 1998 the Company  paid  approximately  $32.3  million to
United Grocers,  Inc. for the purchase of Grocers Insurance with $4.0 million of
the purchase price  retained by the Company to secure  obligations of United and
Grocers.  On  September  29,  1998,  the Company sold  Colorado  Casualty  which
provided cash  proceeds to the Company (net of cash sold with Colorado  Casualty
and before taxes) of approximately $13.4 million.

The Company's financing activities used $23.0 million of cash for the first nine
months of 1998 and provided $109.5 million of cash for the same 1997 period. The
net proceeds  from the  issuance of trust  preferred  securities  by the Company
provided   $121.9  million  and  $123.0  million  of  cash  in  1998  and  1997,
respectively.  Approximately  $100 million of net proceeds  from the issuance of
the 7.701% Trust Preferred  Securities  were used to repay bank  indebtedness of
Guaranty  National  in  February  1998.  Simultaneous  with the  acquisition  of
Strickland's  non-standard personal automobile business, the Company repaid $9.4
million  of  assumed  bank  debt in the  acquisition.  Cash  used  in  financing
activities  also includes  dividend  payments,  scheduled  debt  repayments  and
payments related to the Company's common stock  repurchase  program.  During the
third quarter of 1998,  the Company used $10 million from  unsecured  borrowings
under  its bank  credit  facility  to fund  uses of cash.  Orion  increased  the
quarterly  dividend  rate on its  common  stock by 12.5% and 14.3% in the second
quarters of 1998 and 1997, respectively.

Orion's uses of cash consist of debt  service,  dividends  to  stockholders  and
overhead  expenses.  These cash uses are funded from  existing  available  cash,
financing  transactions  and  receipt of  dividends,  reimbursement  of overhead
expenses  and amounts in lieu of federal  income  taxes from  Orion's  insurance
subsidiaries.  Payments of  dividends  by Orion's  insurance  subsidiaries  must
comply with insurance regulatory  limitations  concerning  stockholder dividends
and  capital  adequacy.  State  insurance  regulators  have broad  discretionary
authority  with respect to  limitations on the payment of dividends by insurance
companies.  Limitations under current  regulations are well in excess of Orion's
cash requirements.

Orion's insurance subsidiaries maintain liquidity in their investment portfolios
substantially  in  excess of that  required  to pay  claims  and  expenses.  The
insurance  subsidiaries  held cash and short-term  investments of $320.3 million
and $160.4  million at September  30, 1998 and December 31, 1997,  respectively.
The consolidated  policyholders'  surplus of Orion's  insurance  subsidiaries is

                                       24
<PAGE>

$755.4  million and $789.0  million at September 30, 1998 and December 31, 1997,
respectively.  The Company's  statutory  operating  leverage  ratios of trailing
twelve  months  net  premiums  written  to  policyholders'  surplus  is 2.0:1 at
September 30, 1998 and 1.8:1 at December 31, 1997.

On July 8, 1998 the  Company  entered  into a credit  agreement  with a group of
banks which  provides for unsecured  borrowings  up to $150 million.  The credit
agreement  expires  on July 8,  2003 and  provides  for two  one-year  extension
periods.  The Company intends to use the credit  facility for general  corporate
purposes that may include  acquisitions.  The credit agreement carries an annual
facility fee on the unused amounts of the credit facility.  Borrowings under the
credit agreement bear interest at LIBOR (London Interbank  Offerred Rate) plus a
margin based upon the Company's credit ratings.  The credit  agreement  requires
the Company to maintain certain financial  covenants including a maximum debt to
total  capitalization  ratio of 0.4 to 1.0, as defined,  and a minimum  combined
statutory surplus of $650 million plus 30% of the Company's  aggregate  combined
annual statutory net income.  The credit agreement limits the Company's  ability
to incur  secured  indebtedness  or certain  contingent  obligations  except for
indebtedness secured by liens specifically permitted by the credit agreement and
additional secured indebtedness with a principal amount not exceeding 10% of the
Company's  consolidated  net worth, as defined.  Borrowings of $10.0 million are
outstanding  under this credit agreement at September 30, 1998.  Management does
not believe that the credit agreement's covenants or limitations unduly restrict
the  Company's  operations  or  limit  Orion's  ability  to  acquire  additional
indebtedness.

The terms of Orion's  indentures  for its $100 million of 7.25% Senior Notes due
2005 and its $110  million of 9.125%  Senior  Notes due 2002 limit the amount of
liens  and   guarantees  by  the  Company  and  its  ability  to  incur  secured
indebtedness  without equally and ratably securing the senior notes.  Management
does not believe that these limitations unduly restrict the Company's operations
or limit Orion's  ability to pay  dividends on its stock.  At September 30, 1998
the  Company  is in  compliance  with the terms of its senior  note  indentures.
Management  believes that the Company  continues to have substantial  sources of
capital and liquidity from the capital markets and bank borrowings.

On January  13,  1997 Orion  issued $125  million of 8.73%  Junior  Subordinated
Deferrable  Interest  Debentures due January 1, 2037 (the "8.73% Debentures") to
Orion Capital Trust I ("Trust I"), a Delaware statutory business trust sponsored
by Orion.  Trust I simultaneously  sold $125 million of 8.73% capital securities
(the "8.73% Trust Preferred Securities") which have substantially the same terms
as the 8.73%  Debentures.  The net  proceeds  from the sale of the  8.73%  Trust
Preferred  Securities were used in part for the acquisition of Guaranty National
common  stock in December  1997.  The 8.73% Trust  Preferred  Securities  may be
redeemed without premium on or after January 1, 2007.

On February  2, 1998 Orion  issued $125  million of 7.701%  Junior  Subordinated
Deferrable  Interest  Debentures due April 15, 2028 (the "7.701%  Debenture") to
Orion  Capital  Trust II ("Trust  II"),  a  Delaware  statutory  business  trust
sponsored by Orion. Trust II then sold $125 million of 7.701% capital securities
(the "7.701% Trust Preferred  Securities"),  which have  substantially  the same
terms as the  7.701%  Debentures,  in a private  placement.  Approximately  $100
million of net proceeds from the sales of the 7.701% Trust Preferred  Securities
were used to repay bank indebtedness of Guaranty National in February 1998.

                                       25
<PAGE>

The 8.73% and 7.701% capital  securities are  subordinated to all liabilities of
the  Company.  The Company may defer  interest  distributions  on these  capital
securities;  however, during any period when such cumulative  distributions have
been deferred,  Orion may not declare or pay any dividends or  distributions  on
its common stock.

For the  year-to-date  period to October 30,  1998 the  Company has  repurchased
750,300  shares of its common stock at an aggregate  cost of $32.9 million under
the  Company's  stock  repurchase  program . The  Company's  Board of  Directors
increased  authorization  for purchases of its common stock by an additional $50
million on August 4, 1998. The remaining stock purchase  authorization was $42.5
million at October 30, 1998.

                                LEGAL PROCEEDINGS

Orion and its  subsidiaries  are routinely  engaged in litigation  incidental to
their  businesses.  Management  believes  that  there are no  significant  legal
proceedings  pending  against the  Company  which,  net of reserves  established
therefor, are likely to result in judgments for amounts that are material to the
financial  condition,  liquidity  or  results  of  operations  of Orion  and its
consolidated subsidiaries, taken as a whole.


                              YEAR 2000 COMPLIANCE

The "Year 2000 problem"  exists because many computer  programs which  companies
use rely on only the last two digits to refer to a particular year. As a result,
these  computer  programs may interpret the year 2000 as 1900. If not corrected,
computer software may fail or create erroneous results.  The potential impact of
the  Year  2000  problem  on  business,   financial  and  governmental  entities
throughout  the world is not known and,  if not timely  corrected,  may  broadly
affect the national economy in which we operate.

The Company concluded that as an extensive user of technology, it has a material
exposure to the Year 2000 problem and has taken steps to assess and address that
exposure.  In response to this issue,  the Company has inventoried and assessed,
for all its operations and locations, its insurance policy issuance, billing and
collection,  claims  paying,  and  other  operational  systems,  along  with the
hardware and software used in its computing  facilities,  embedded chips used in
its physical structures,  third party  data-exchanges,  and reliance on external
business  relations.  This  work has been  carried  out by the  Company  through
central coordination  supported by dedicated teams working at each Company site.
Progress has been reviewed regularly by senior management.  The process by which
the  Company  is  managing  its Year  2000  efforts  has also been  reviewed  by
independent consultants.

The Company  began  addressing  its computer  programs in 1996 at the  locations
where  its  most  significant  technology  concentration  exists.  Similar  work
commenced shortly thereafter at other locations.

As of September  30, 1998,  the Company had completed  approximately  75% of its
scheduled  remediation of its critical  production  systems for processing  Year
2000 dates.  This  places the  Company on or ahead of its plan for meeting  Year
2000 processing needs.  Non-critical systems will be tested and critical systems
will be re-tested  during 1999. The total costs to test or modify these existing
systems,  which  include both  internal and external  costs of  programming  and

                                       26
<PAGE>

testing,  is estimated to be approximately $19.8 million, of which $13.4 million
has been  expensed  ($2.4  million in 1997 and $11.0  million in the nine months
ended September 30, 1998).

With a timely start on correcting  the Year 2000  problem,  the Company has been
able to  address  this  potential  exposure  without  delaying  other  important
projects.  This has  allowed the  Company to  continue  replacement  of outdated
systems  with  newer   versions   offering   greater   functionality   and  cost
efficiencies. The Company will complete replacing its financial,  personnel, and
payroll systems in 1998 and begin phasing in new integrated  processing  systems
for certain of its operations in 1999. The total  estimated cost for these major
technology  improvement  projects are  estimated at $11.5  million of which $8.1
million has been  capitalized  through  September 30, 1998.  All costs are being
funded through operating cash flows.

In addition to addressing its own hardware,  software and  processing  exposure,
the  Company  has been  engaged  since  1996 in a  process  of  identifying  and
prioritizing critical suppliers and customers at the direct interface level, and
communicating  with them about their plans and progress in  addressing  the Year
2000 problem.

The Company has mailed letters to its significant  vendors and service providers
and has verbally  communicated  with many  strategic  customers to determine the
extent  to which  interfaces  with such  entities  are  vulnerable  to Year 2000
problems  and  whether  the  products  and  services  purchased  from or by such
entities  are Year 2000  compliant.  As of September  30, 1998,  the Company had
received  responses from approximately 70% of such third parties and 95% of the
companies that have responded have provided written  assurances that they expect
to  address  all their  significant  Year 2000  problems  on a timely  basis.  A
follow-up  mailing to  significant  vendors and service  providers  that did not
initially respond, or whose responses were deemed unsatisfactory by the Company,
will be completed by March 31, 1999.

Evaluations  of the most  critical  third  parties  have been  initiated.  These
evaluations will be followed by the development of contingency plans, which have
been prepared for third  parties  having near term Year 2000 impact or are being
developed for other third parties,  with completion  during the first quarter of
1999.  The  Company  estimates  that this  aspect of its Year 2000 effort was on
schedule at September 30, 1998.

The  Company  presently  believes  that the  Year  2000  problems  will not pose
significant  operational  problems  for the Company.  However,  if all Year 2000
problems are not properly identified, or assessment, remediation and testing are
not effected  timely with  respect to Year 2000  problems  that are  identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's  results of  operations  or adversely  affect the Company's
relationships with customers, vendors, or others.

The Company is unable to  determine  at this time  whether the  consequences  of
counter-parties  Year 2000 failures will have a material impact on the Company's
results of operations,  liquidity or financial condition. The possibility exists
that a portion of its third-party  distribution  channels may not be ready, that
communications with its agents could be disrupted,  that underwriting data, such
as motor vehicle reports, could be unobtainable, that the claim settling process
could be delayed or that the  frequency  and severity of losses may increase due
to  external  factors.  When  concern  appears  justified  about  an  aspect  of

                                       27
<PAGE>

readiness, contingency plans have been prepared or are being developed. However,
there can be no assurance that  unanticipated Year 2000 issues of other entities
will not have a material  adverse impact on the Company's  systems or results of
operations.

This is a Year 2000 Readiness Disclosure  statement.  Readers are cautioned that
forward-looking statements contained in "Year 2000 Compliance" should be read in
conjunction with the company's  disclosures under the heading:  "Forward-Looking
Statements".

                     ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of
an Enterprise and Related  Information",  which changes the way public companies
report information about segments. This statement will be adopted by the Company
in the fourth quarter of 1998. Financial statement disclosures for prior periods
are required to be  restated.  The Company is in the process of  evaluating  the
disclosure requirements and presently expects that the adoption of this standard
will  have  no  impact  on the  Company's  consolidated  results  of  operation,
financial position or cash flows.

In 1998, the FASB issued SFAS No. 133,  "Accounting  for Derivative  Instruments
and Hedging  Activities."  SFAS No. 133 requires that derivatives be reported on
the balance  sheet at fair value.  Changes in fair value are  recognized  in net
income or, for  derivatives  that are hedging market risk related to future cash
flows, in the accumulated  other  comprehensive  income section of shareholders'
equity.  Implementation  is  required  by the first  quarter  of 2000,  with the
cumulative  effect of adoption  reflected  in net income and  accumulated  other
comprehensive  income,  as  appropriate.  Orion has not determined the effect or
timing of implementation of this pronouncement.


                           FORWARD-LOOKING STATEMENTS

All  statements  made in this  quarterly  report that do not reflect  historical
information  are  forward-looking  statements  within the meaning of the Private
Securities  Litigation  Reform  Act of  1995.  Such  forward-looking  statements
involve known and unknown risks,  uncertainties and other factors that may cause
the actual results,  performance or achievements of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by the  forward-looking  statements.  Such factors include,  among other
things,  (i) general  economic  and  business  conditions;  (ii)  interest  rate
changes;  (iii)  competition  and  regulatory  environment  in which the Company
operates;  (iv)  claims  frequency;  (v)  claims  severity;  (vi)  medical  cost
inflation;  (vii) increases in the cost of property repair; (viii) the number of
new and renewal  policy  applications  submitted to the Company;  (ix) Year 2000
problems and (x) other  factors over which the Company has little or no control.
The  Company's  expectation  that  it's plan for Year  2000  Compliance  will be
completed on schedule  depends,  in large part, on the Company's own efforts and
expenditures on hardware, software and systems, which is on schedule as to those
exposures  which the  Company  has been  able to  identify.  However,  Year 2000
problems could also arise because of unanticipated non-compliance on the part of
vendors,  agents,  customers  and other  third  parties  including  governmental
entities.  Significant  Year 2000 problems could materially and adversely affect
future  performance  and  results  of  operations.  The  Company  disclaims  any

                                       28
<PAGE>

obligation  to update or to publicly  announce the impact of any such factors or
any  revisions to any  forward-looking  statements  to reflect  future events or
developments.



                                       29

                                      
<PAGE>


                           PART II. OTHER INFORMATION

Items 1-5. - None

Item 6.   Exhibits and reports on Form 8-K

Exhibits

Exhibit 11:              Computation of Earnings Per Common Share.

Exhibit 15:              Deloitte & Touche LLP Letter re: unaudited
                         interim financial information.

Exhibit 27:              Financial Data Schedule.

Report on Form 8-K

None.



                                       30
<PAGE>


    


                                   SIGNATURES





Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                                   ORION CAPITAL CORPORATION

Date: November 12, 1998                            By: /s/ W. Marston  Becker
                                                   --------------------------
                                                   Chairman of the Board and
                                                   Chief Executive Officer



Date: November 12, 1998                            By: /s/ Donald W. Ebbert, Jr.
                                                   -----------------------------
                                                   Executive Vice President and
                                                   Chief Financial Officer




                                       31
<PAGE>

                           EXHIBIT INDEX


Exhibit 11:              Computation of Earnings Per Common Share


Exhibit 15:              Deloitte & Touche LLP Letter
                         re: unaudited interim financial information


Exhibit 27:              Financial Data Schedule


Exhibits have been omitted in the conformed copy.


                                       32