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 June 30, 1999

             ( ) 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 (  )

Approximately  27.4  million  shares of Common  Stock,  $1.00 par value,  of the
registrant were outstanding on August 1, 1999.

                                  Page 1 of 36
                        Exhibit Index Appears at Page 36


<PAGE>



                            ORION CAPITAL CORPORATION
                                 FORM 10-Q INDEX
                       For the Quarter Ended June 30, 1999

                                                                           Page
PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements:
         Consolidated Balance Sheet at June 30, 1999 (Unaudited)
         and December 31, 1998                                            3 - 4

         Consolidated Statement of Operations for the three and six months
         ended June 30, 1999 and 1998 (Unaudited)                             5

         Consolidated Statement of Stockholders' Equity for the
         six months ended June 30, 1999 and 1998 (Unaudited),
         and for the year ended December 31, 1998                             6

         Consolidated Statement of Cash Flows for the six months
         ended June 30, 1999 and 1998 (Unaudited)                         7 - 8

         Notes to Consolidated Financial Statements (Unaudited)          9 - 15

         Independent Accountants' Review Report                              16

Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            17 - 32

PART II. OTHER INFORMATION                                                   33


                                       2
<PAGE>


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

                                                    June 30, 1999  December 31,
(In millions)                                        (Unaudited)      1998
-------------------------------------------------------------------------------
Assets:
Investments: -
Fixed maturities, at amortized cost
   (market $265.6 - 1999 and $272.7 - 1998)           $   260.4     $   260.6
Fixed maturities, at market (amortized cost
   $1,434.0 - 1999 and $1,305.5 - 1998)                 1,424.7       1,349.9
Common stocks, at market (cost $158.5 -
   1999 and $200.3 - 1998)                                194.0         242.4
Non-redeemable preferred stocks, at market
   (cost $198.4 - 1999 and $269.1 - 1998)                 194.5         268.5
Other long-term investments                                87.2         116.2
Short-term investments                                    214.4         248.7
                                                      ---------     ---------

      Total investments                                 2,375.2       2,486.3

Cash                                                       15.8          18.0
Accrued investment income                                  27.8          27.0
Investment in affiliate                                       -          22.8
Accounts and notes receivable                             190.9         217.2
Reinsurance recoverables and prepaid reinsurance          926.5         801.5
Deferred policy acquisition costs                         138.9         155.6
Property and equipment                                    102.1          95.4
Excess of cost over fair value of net assets acquired     144.9         167.7
Federal income taxes receivable                            38.4          22.4
Deferred federal income taxes                              57.9          26.7
Other assets                                               96.7         123.8
                                                      ---------     ---------

      Total assets                                    $ 4,115.1     $ 4,164.4
                                                      =========     =========

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


                                       3
<PAGE>

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

                                                   June 30, 1999   December 31,
(In millions, except for share data)                (Unaudited)        1998
-------------------------------------------------------------------------------
Liabilities:
Policy liabilities: -
  Losses                                                 $ 1,621.1   $ 1,602.1
  Loss adjustment expenses                                   479.7       415.6
  Unearned premiums                                          567.0       564.0
  Policyholders' dividends                                    18.2        17.9
                                                         ---------   ---------
       Total policy liabilities                            2,686.0     2,599.6
Notes payable                                                209.4       217.4
Other liabilities                                            339.6       370.1
                                                         ---------   ---------
       Total liabilities                                   3,235.0     3,187.1
                                                         ---------   ---------

Contingencies (Note 6)

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

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                                              146.6       149.6
Retained earnings                                            493.5       553.2
Accumulated other comprehensive income                        17.4        58.5
Treasury stock, at cost (3,364,941 shares -
  1999 and 3,505,091 shares -  1998)                         (52.2)      (57.8)
Deferred compensation on restricted stock                     (5.9)       (6.9)
                                                         ---------   ---------
       Total stockholders' equity                            630.1       727.3
                                                         ---------   ---------
       Total liabilities and stockholders' equity        $ 4,115.1   $ 4,164.4
                                                         =========   =========
[FN]
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       4
<PAGE>
<TABLE>
<CAPTION>

                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                                                    Three Months Ended    Six Months Ended
                                                         June 30,             June 30,
                                                    -------------------   ----------------
(In millions, except for per share data)               1999      1998       1999    1998
------------------------------------------------------------------------------------------
Revenues:
<S>                                                  <C>       <C>       <C>       <C>
Premiums earned                                      $ 343.5   $ 370.4   $ 642.7   $ 719.2
Net investment income                                   34.6      42.5      69.0      83.9
Realized investment gains                                2.7      22.7       4.4      51.7
Other income                                             1.2       7.0       2.2      12.6
                                                     -------   -------   -------   -------
 Total revenues                                        382.0     442.6     718.3     867.4
                                                     -------   -------   -------   -------
Expenses:
Losses incurred and loss adjustment expenses           233.6     250.7     599.2     483.0
Amortization of deferred policy acquisition costs       96.4     103.1     177.0     203.9
Other insurance expenses                                10.7       7.8      19.7      14.7
Dividends to policyholders                               4.2       7.2      10.2      13.6
Interest expense                                         4.5       3.1       9.1       8.9
Other expenses                                           5.7      12.5      12.9      23.5
Other (Note 2)                                         (40.2)        -     (40.2)        -
                                                     -------   -------   -------   -------
 Total expenses                                        314.9     384.4     787.9     747.6
                                                     -------   -------   -------   -------
Earnings  (loss)  before  equity in loss of
   affiliate,  federal  income  taxes, minority
   interest expense and cumulative effect of adoption
   of new accounting principle                          67.1      58.2     (69.6)    119.8
Equity in loss of affiliate                                -         -         -      (0.7)
                                                     -------   -------   -------   -------
Earnings (loss) before federal income taxes, minority
   interest expense and cumulative effect of
   adoption of new accounting principle                 67.1      58.2     (69.6)    119.1
Federal income tax expense (benefit)                    21.3      16.7     (30.8)     32.7
Minority interest expense of subsidiary trust
   preferred securities, net of  taxes                   3.3       3.3       6.6       6.1
                                                     -------   -------   -------   -------
Earnings (loss) before cumulative effect of adoption
   of new accounting principle                          42.5      38.2     (45.4)     80.3
Cumulative effect of adoption of new accounting
   principle, net of tax                                   -         -      (4.6)        -
                                                     -------   -------   -------   -------
 Net earnings (loss)                                 $  42.5   $  38.2   $ (50.0)  $  80.3
                                                     =======   =======   =======   =======
Net earnings (loss) per common share:
Earnings (loss) before cumulative effect of adoption
   of new accounting principle                       $  1.57   $  1.39   $ (1.68)  $  2.93
Cumulative effect of adoption of new accounting
   principle                                               -         -     (0.17)        -
                                                     -------   -------   -------   -------
 Basic                                               $  1.57   $  1.39   $ (1.85)  $  2.93
                                                     =======   =======   =======   =======
Earnings (loss) before cumulative effect of adoption
   of new accounting principle                       $  1.56   $  1.36   $ (1.68)  $  2.85
Cumulative effect of adoption of new accounting
   principle                                               -         -     (0.17)        -
                                                     -------   -------   -------   -------
 Diluted                                             $  1.56   $  1.36   $ (1.85)  $  2.85
                                                     =======   =======   =======   =======
</TABLE>
[FN]
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       5
<PAGE>
<TABLE>
<CAPTION>

                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                    Six Months Ended        Six Months Ended        Year Ended
                                     June 30, 1999           June 30, 1998       December 31, 1998
(In millions)                         (Unaudited)             (Unaudited)
----------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>         <C>        <C>       <C>        <C>
Common Stock                         $  30.7                 $  30.7              $  30.7
                                     =======                 =======              =======
Capital Surplus:
Balance, beginning of period         $ 149.6                 $ 152.1              $ 152.1
Exercise of stock options and net
   issuance of restricted stock         (3.0)                   (2.5)                (2.5)
                                     -------                 -------              -------
Balance, end of period               $ 146.6                 $ 149.6              $ 149.6
                                     =======                 =======              =======
Retained Earnings:
Balance, beginning of period         $ 553.2                 $ 469.5              $ 469.5
Net earnings (loss)                    (50.0)    $ (50.0)       80.3    $  80.3     102.8    $ 102.8
                                                 -------                -------              -------
Dividends declared                      (9.7)                   (9.4)               (19.1)
                                     -------                 -------              -------
Balance, end of period               $ 493.5                 $ 540.4              $ 553.2
                                     =======                 =======              =======
Accumulated Other
Comprehensive Income:
Balance, beginning of period         $  58.5                 $ 109.2              $ 109.2
Unrealized investment
   losses, net of taxes                            (41.7)                 (14.1)               (52.4)
Unrealized foreign exchange
   translation gains, net of taxes                   0.6                     -                   1.7
                                                 -------                -------              -------
Other comprehensive income (loss)      (41.1)      (41.1)      (14.1)     (14.1)    (50.7)     (50.7)
                                     -------     -------     -------    -------   -------    -------
Comprehensive income (loss)                      $ (91.1)               $  66.2              $  52.1
                                                 =======                =======              =======
Balance, end of period               $  17.4                 $  95.1              $  58.5
                                     =======                 =======              =======
Treasury Stock:
Balance, beginning of period         $ (57.8)                $ (34.3)             $ (34.3)
Exercise of stock options and net
   issuance of restricted stock          4.6                     6.6                 13.4
Common stock issued pursuant to
   employee stock purchase plan          1.0                       -                  1.1
Acquisition of treasury stock              -                    (8.5)               (38.0)
                                     -------                 -------              -------
Balance, end of period               $ (52.2)                $ (36.2)             $ (57.8)
                                     =======                 =======              =======
Deferred Compensation on
Restricted Stock:
Balance, beginning of period          $ (6.9)                 $ (4.1)              $ (4.1)
Net (issuance) cancellation of
   restricted stock                      0.4                    (1.6)                (4.3)
Amortization of deferred
   compensation on restricted stock      0.6                     0.8                  1.5
                                     -------                 -------              -------
Balance, end of period               $  (5.9)                $  (4.9)             $  (6.9)
                                     =======                 =======              =======
</TABLE>
[FN]
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       6
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                                      Six Months Ended June 30,
                                                      -------------------------
(In millions)                                              1999          1998
-------------------------------------------------------------------------------
Cash flows from operating activities:
Premiums collected                                      $  663.0      $  741.6
Net investment income collected                             64.0          82.0
Losses and loss adjustment expenses paid                  (575.0)       (501.0)
Policy acquisition costs paid                             (173.8)       (228.8)
Dividends paid to policyholders                             (9.9)        (13.1)
Interest paid                                               (8.6)        (11.3)
Payments on trust preferred securities                     (10.3)         (7.3)
Federal income tax refunds (payments)                       11.7         (31.6)
Other payments                                             (31.5)        (17.7)
                                                        --------      --------
Net cash (used in) provided by operating activities        (70.4)         12.8
                                                        --------      --------

Cash flows from investing activities:
Maturities of fixed maturity investments                    59.7          63.3
Sales of fixed maturity investments                        291.7         526.8
Sales of equity securities                                 251.9         258.7
Investments in fixed maturities                           (492.2)       (502.2)
Investments in equity securities                          (127.5)       (205.0)
Net sales (purchases) of short-term investments             38.8         (76.6)
Acquisition and divestiture activities                      47.2         (36.0)
Purchase of property and equipment, net                    (20.5)        (12.8)
Other receipts (payments)                                   33.9         (14.7)
                                                        --------      --------
Net cash provided by (used in) investing activities         83.0           1.5
                                                        --------      --------

Cash flows from financing activities:
Proceeds from stock issued under employee benefit plans      2.9           0.8
Net proceeds from issuance of trust preferred securities       -         121.9
Repayment of notes payable                                  (8.0)       (109.5)
Dividends paid to stockholders                              (9.7)         (8.9)
Purchases of common stock                                      -          (6.6)
                                                        --------      --------
Net cash (used in) provided by financing activities        (14.8)         (2.3)
                                                        --------      --------
Net increase (decrease) in cash                             (2.2)         12.0
Cash balance, beginning of period                           18.0           9.3
                                                        --------      --------
Cash balance, end of period                             $   15.8      $   21.3
                                                        ========      ========
[FN]
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       7
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
                                   (UNAUDITED)

                                                     Six Months Ended June 30,
                                                     -------------------------
(In millions)                                              1999         1998
------------------------------------------------------------------------------
Reconciliation  of  net  earnings  (loss)
   to net  cash  provided  by  operating
   activities:
Net earnings (loss)                                     $  (50.0)     $   80.3
                                                        --------      --------

Adjustments:
Net gain on divestiture                                    (26.3)            -
Deferred federal income taxes                               (7.8)         (4.0)
Non-cash investment income                                  (5.7)         (9.0)
Realized investment gains                                   (4.4)        (51.6)
Depreciation and amortization                               10.8           9.0
Cumulative effect of adoption of new
   accounting principle                                      4.6             -
Amortization of excess of cost over fair
   value of net assets acquired                              3.0           2.7
Amortization of fixed maturity investments                   1.4          (0.5)
Other                                                          -           0.8

Changes  in  assets  and   liabilities,
   net  of  acquisition  and  divestiture
   activities:
Decrease (increase) in accrued investment income            (0.8)          4.2
Decrease (increase) in accounts and notes receivable         0.6         (12.4)
Increase in reinsurance recoverable
   and prepaid reinsurance                                (129.8)        (84.3)
Decrease (increase) in deferred policy acquisition costs     4.1         (10.1)
Increase in federal income taxes receivable                (32.1)            -
Decrease (increase) in other assets                         48.3          (3.0)
Increase in losses and loss adjustment expenses            119.6          32.6
Increase in unearned premiums                               42.9          43.2
Increase in policyholders' dividends                         0.3           0.5
Increase (decrease) in other liabilities                   (49.1)         14.4
                                                        --------      --------

 Total adjustments and changes                             (20.4)        (67.5)
                                                        --------      --------

Net cash (used in) provided by operating activities     $  (70.4)     $   12.8
                                                        ========      ========
[FN]

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

                                       8
<PAGE>


                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                     Six Months Ended June 30, 1999 and 1998

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").   All  material   intercompany   balances  and
transactions  have been  eliminated.  See note 9 for  discussion  of the tender
offer to acquire all of the shares of common stock of Orion by Royal &
SunAlliance USA, Inc. ("RSA").

As of January 1, 1999, the Company adopted  Statement of Position  ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, issued by the American Institute of Certified Public Accountants ("AICPA").
This Statement  requires that certain costs incurred in developing  internal-use
computer software be capitalized,  and provides guidance for determining whether
computer  software is  considered  to be for  internal  use.  The  Company  will
amortize  these costs over the  software's  useful  life,  which is  generally a
period  of 3 to 6 years.  Previously,  the  Company  expensed  internal  cost of
computer  software as incurred.  The adoption of this  statement  resulted in an
after-tax benefit of $1.8 million, or $0.07 per common share, for the six months
ended June 30, 1999.

On January 1, 1999,  the Company  adopted SOP 97-3,  Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments, which provides guidance for
determining when an insurance or other  enterprise  should recognize a liability
for  guaranty-fund  and other  insurance-related  assessments  and  guidance for
measuring the liability. This Statement requires recognition of a liability when
it is probable that an assessment will be imposed,  the amount of the assessment
can be  reasonably  estimated,  and the event  obligating  a company  to pay has
occurred.   Previously,   the   Company   expensed   guaranty-fund   and   other
insurance-related  assessments as reported to the Company. The cumulative effect
recorded  at January 1, 1999,  as if this new  accounting  standard  was applied
retroactively for all periods,  resulted in an after-tax charge of $4.6 million,
or $0.17 per common share.

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 1998 Annual Report on Form 10-K.

Note 2 - Realignment Events

As part of the final steps in a two-year reshaping of Orion Capital, the Company
completed  a  detailed  study of its loss and loss  adjustment  expense  reserve
position  as of March 31,  1999.  The loss  reserve  study,  performed  with the
assistance of independent actuarial advisors, focused on the businesses that the
Company has exited. As a result of this study, the Company recorded a net pre-

                                       9
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

tax charge of $164.5 million in the first quarter of 1999  primarily  related to
the  Specialty  Commercial  and Workers  Compensation  segments.  The net charge
included a provision  for loss and loss  adjustment  expenses of $139.0  million
relating to 1998 and prior accident years,  which was net of reinsurance,  and a
$25.5  million  net ceded  premium  adjustment  based  upon the  Company's  loss
experience.  Approximately  $123.4  million of the loss  reserve  provision  was
attributed to exited  businesses.  The study also reviewed the reserve  position
for the Company's ongoing business in light of current industry conditions.  The
Company  recorded  loss reserve  strengthening  of  approximately  $15.6 million
relating to its ongoing businesses  including $8.4 million for EBI, $4.2 million
for DPIC and $3.0 million for OrionAuto in the first  quarter of 1999.  Further,
the Company has adjusted loss ratios for the 1999 accident year in consideration
of the reserve study findings.

As part of the Company's  reshaping to more  narrowly  focus its  resources,  on
April 9, 1999 the Company sold Wm. H. McGee & Co. ("McGee") for $59.4 million in
cash resulting in a pre-tax gain of $40.2 million and an after-tax gain of $26.3
million.  The  pre-tax  gain on the sale of McGee is  reported as "Other" in the
Company's consolidated statement of operations. In connection with the sale, the
Company  entered into  reinsurance  agreements with the buyer  transferring  the
Company's participation in McGee's United States and Canadian pools effective as
of January 1, 1999,  resulting in negative net premiums written of $40.0 million
in the first quarter of 1999.  These  transfers have resulted in a $23.5 million
cash payment to the buyer on the sale date for the transfer of the Company's net
liabilities  and  assets  of  the  McGee  pools.  Additionally,  the  buyer  was
designated  as the clearing  company for McGee pools  effective  January 1, 1999
under McGee's Inter-Office Reinsurance Agreements.  At December 31, 1998 and for
the year then  ended,  the  Company  reflected  net  premiums  written and total
revenue of approximately  $104.4 million and $100.2 million,  respectively,  and
total assets of approximately $112.0 million related to sold business of McGee.

In the third quarter of 1998, the Company established a restructuring reserve in
connection  with a  realignment  of Orion  Specialty  resulting  in  exiting  of
approximately  $100  million  of  unprofitable  commodity  business,   primarily
commercial  automobile  and  transportation.  This  restructuring  included  the
reduction of approximately 90 employees related to exited business. Activity for
the six months  ended June 30,  1999 within  this  restructuring  reserve was as
follows:

(In millions)
-----------------------------------------------------------

Balance at December 31, 1998                    $       5.1
   Actions taken:
   Severance and program termination costs             (1.7)
                                                -----------
Balance at June 30, 1999                        $       3.4
                                                ===========

Note 3 - Investment in Affiliate

In May 1999,  the Company sold its investment in Intercargo for $22.8 million in
cash  pursuant to the terms of the merger  agreement  between  Intercargo  and a
subsidiary  of XL Capital,  Ltd. The sale of  Intercargo  resulted in no gain or
loss during 1999 because the Company  adjusted its  investment  in Intercargo to
its net realizable value in the fourth quarter of 1998.

                                       10
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 1998, the Company recorded its share of Intercargo's  operating  results on a
quarterly lag basis,  after Intercargo has reported its financial  results.  For
the three and six months ended June 30, 1998,  Intercargo reported $13.5 million
and $32.3  million  of  revenues  and $0.4  million  and  $(1.7)  million of net
earnings (loss),  respectively.  The Company's proportionate share of Intercargo
net loss  including  goodwill  amortization  was $0.7 million for the six months
ended June 30, 1998.

Note 4 - 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 its 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 June 30,    Six Months Ended June 30,
                                        ---------------------------------------------------------
(In millions)                                 1999            1998            1999           1998
-------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>            <C>
Direct premiums written ............... $    525.6      $    445.5      $  1,006.4     $    887.3
Reinsurance assumed ...................       13.8            54.8            46.3           68.9
                                        ----------      ----------      ----------     ----------
Gross premiums written ................      539.4           500.3         1,052.7          956.2
Reinsurance ceded .....................     (207.0)         (115.5)         (445.4)        (202.4)
                                        ----------      ----------      ----------     ----------
Net premiums written .................. $    332.4      $    384.8      $    607.3     $    753.8
                                        ==========      ==========      ==========     ==========
Direct premiums earned ................ $    523.6      $    442.5      $  1,018.0     $    878.1
Reinsurance assumed ...................       42.9            29.3            58.3           40.2
                                        ----------      ----------      ----------     ----------
Gross premiums earned .................      566.5           471.8         1,076.3          918.3
Reinsurance ceded .....................     (223.0)         (101.4)         (433.6)        (199.1)
                                        ----------      ----------      ----------     ----------
Net premiums earned ................... $    343.5      $    370.4      $    642.7     $    719.2
                                        ==========      ==========      ==========     ==========
Loss and loss adjustment expenses
   incurred recoverable from reinsurers $    150.7      $     95.5      $    309.2     $    165.8
                                        ==========      ==========      ==========     ==========
</TABLE>

Note 5 - Stockholders' Equity and Earnings per Share

In the first half of 1999, the Company repurchased approximately 6,600 shares at
an aggregate cost of approximately  $0.3 million related to its employee benefit
plans. In the first half of 1998, the Company  repurchased 132,000 shares of its
common stock at an aggregate  cost of $6.6  million  under the stock  repurchase
program authorized by the Board of Directors and repurchased 34,744 shares at an
aggregate cost of $1.9 million related to its employee benefit plans.

Orion declared dividends on its common stock of $9.7 million and $9.4 million or
$0.36 and $0.34 per  common  share for the six months  ended  June 30,  1999 and
1998, respectively.

As of June 30, 1999,  the Company issued 26,992 shares of its common stock at an
aggregate  purchase  price of $0.9 million under the  Employees'  Stock Purchase
Plan.

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

                                       11
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 27.0 million and
27.5 million for the three months  ended,  and 27.0 million and 27.4 million for
the six months ended June 30, 1999 and 1998, respectively.  The weighted average
common and diluted  equivalent shares were 27.2 million and 28.2 million for the
three months  ended,  and 27.0 million and 28.1 million for the six months ended
June 30, 1999 and 1998, respectively.

Note 6 - Contingencies

In general, other than described below, 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 therefore,  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.

On July 12-14,  1999,  five  lawsuits were filed against the Company in Delaware
Chancery Court in Wilmington,  Delaware alleging, among other things, violations
of breach of fiduciary duty on the part of the Board of Directors of the Company
as a result of RSA's  agreement  to acquire  all of the common  stock of Orion
Capital  Corporation  for $50 per  share in cash  (see  note 9 to the  Company's
financial  statements).  The  plaintiffs  in each  lawsuit seek to bring a class
action  representing  the  common  stockholders  of the  Company.  The  lawsuits
generally  allege that the terms of the proposed  transaction are  intrinsically
unfair  and  inadequate  from the  standpoint  of the  Orion  shareholders.  The
plaintiffs  seek  injunctive   relief  and  unspecified   monetary  damages  and
attorney's  fees and  expenses.  The  Company  intends to defend  these  actions
vigorously,  and  believes  that the  outcome  will not have a material  adverse
effect on its financial position or earnings.


                                       12
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 - Accumulated Other Comprehensive Income

Accumulated other comprehensive income balances, net of taxes, are as follows:
<TABLE>
<CAPTION>

                                  Unrealized     Unrealized Foreign  Accumulated Other
                               Investment Gains     Translation        Comprehensive
(In millions)                      (Losses)        Gains (Losses)       Income (Loss)
--------------------------------------------------------------------------------------
Six Months ended June 30, 1999:
<S>                                <C>               <C>                <C>
Balance, beginning of period ..    $    61.2         $    (2.7)         $    58.5
Current period change .........        (41.7)              0.6              (41.1)
                                   ---------         ---------          ---------
Balance, end of period ........    $    19.5              (2.1)         $    17.4
                                   =========         =========          =========
Six Months ended June 30, 1998:
Balance, beginning of period ..    $   113.6         $    (4.4)         $   109.2
Current period change .........        (14.1)                -              (14.1)
                                   ---------         ---------          ---------
Balance, end of period ........    $    99.5              (4.4)         $    95.1
                                   =========         =========          =========
Year ended December 31, 1998:
Balance, beginning of year ....    $   113.6         $    (4.4)         $   109.2
Current year change ...........        (52.4)              1.7              (50.7)
                                   ---------         ---------          ---------
Balance, end of year ..........    $    61.2              (2.7)         $    58.5
                                   =========         =========          =========
</TABLE>

The pretax  unrealized  investment  losses  arising during the period were $64.2
million  and $21.7  million  for the six months  ended  June 30,  1999 and 1998,
respectively, and $80.4 million for the year ended December 31, 1998. The pretax
unrealized  foreign  exchange  translation  gains arising during the period were
$0.9  million for the six months  ended June 30,  1999 and $2.6  million for the
year ended December 31, 1998.

Note 8 - Segment Information

The Company reports its insurance operations in three segments at June 30, 1999.
These  reportable  segments  comprise  operating  units of the Company that have
different  insurance  products  and  services,   market  focus  and  operational
structure. The Company's reportable segments comprise:

Workers  Compensation - this segment  provides  workers  compensation  insurance
products and services  sold by the EBI  Companies  ("EBI") and includes  package
commercial insurance policies that are no longer written by the Company.

Nonstandard  Automobile  - this  segment  specializes  in  nonstandard  personal
automobile  insurance  sold by OrionAuto  (formerly  known as Guaranty  National
Corporation).

Specialty  Commercial - this segment  markets various  client-focused  specialty
commercial  products  and services to targeted  customer  groups  through  Orion
Specialty  (see page 17 for  description  of business  units that comprise Orion
Specialty); and also includes the run-off

                                       13
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

operations of the Company's assumed reinsurance business,  SecurityRe, which was
sold in late 1996. The Company  exited the marine  business by selling McGee and
its 26% interest in  Intercargo  in the second  quarter of 1999 (see notes 2 and
3).

Financial information for the Company's segments is shown below and discussed in
detail in "Results of Operations" on page 19:

                                      Three Months Ended      Six Months Ended
                                           June 30,               June 30,
                                      ------------------      ----------------
(In millions)                          1999       1998        1999        1998
------------------------------------------------------------------------------
Revenues:
   Workers Compensation ......     $  110.8   $  124.8    $  204.5    $  244.0
   Nonstandard Automobile ....        127.8      109.4       249.2       209.1
   Specialty Commercial ......        142.7      205.8       261.1       409.6
   Other .....................          0.7        2.6         3.5         4.7
                                   --------   --------    --------    --------
      Consolidated ...........     $  382.0   $  442.6    $  718.3    $  867.4
                                   ========   ========    ========    ========
 Pre-tax Earnings (Loss) before
   Minority Interest (a):
   Workers Compensation ......     $    9.4   $   24.5    $  (29.7)   $   52.9
   Nonstandard Automobile ....          8.5       10.4        14.3        18.3
   Specialty Commercial ......         13.1       27.7       (85.8)       57.4
   Other .....................         36.1       (4.4)       31.6        (9.5)
                                   --------   --------    --------    --------
      Consolidated ...........     $   67.1   $   58.2    $  (69.6)   $  119.1
                                   ========   ========    ========    ========
[FN]

(a) Excludes  cumulative effect of adoption of new accounting  principle in 1999
(see note 1).
</FN>

The  miscellaneous  income  and  expenses  (primarily   interest,   general  and
administrative  expenses  and other  consolidating  elimination  entries) of the
parent company are reported as "Other" in the above table. In the second quarter
of 1999,  a pre-tax gain of $40.2  million  related to the sale of McGee is also
included in Other.

Note 9 - Subsequent Event

On July 12,  1999 the  Company  announced  that  Orion and RSA have  signed a
definitive agreement providing for the acquisition of Orion for $50 per share in
cash,  or  approximately  $1.4 billion.  The  transaction  has been  unanimously
approved  by  the  boards  of  both  companies.  Pursuant  to the  terms  of the
agreement, affiliates of RSA have commenced an offer to purchase  any and all
outstanding shares of Orion's common stock together with the associated
preferred stock purchase rights issued under the Company's Stockholder Rights
Plan. On July 16, 1999 affiliates of RSA filed a tender offer statement on Sche-
-dule 14D-1 with the Securities and Exchange Commission. Due to the need for
certain state insurance regulatory approvals, it is currently expected that the
tender offer will not be  completed  until the fourth quarter of 1999.

RSA's  tender  offer is  conditioned  on, among other things, the valid
tendering of at least a majority  of Orion's  outstanding  shares.  The
tender  offer is also  conditioned  upon the expiration or termination of any
applicable antitrust

                                       14
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

waiting  period,  and the receipt of any  required  state  insurance  regulatory
approvals  and other  customary  conditions. The Company and RSA have recieved
verbal notification that the waiting period under the Hart-Scott-Rodino Anti-
trust Improvements Act has been terminated. Following  the tender  offer, the
acquisition of Orion will be completed by merging it with a subsidiary of RSA,
and all of Orion's shares not owned by RSA will be converted into the right to
receive $50 per share in cash. The agreement and plan of merger provides for
the payment to RSA of a fee of $45 million if the agreement is  terminated in
certain circumstances. Orion has also granted to RSA an irrevocable option to
purchase up  to   5,443,697 (or approximately   19.9%)   Orion  shares upon
the same circumstances.


                                       15
<PAGE>

                     INDEPENDENT ACCOUNTANT'S 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 June 30,  1999,  and the
related consolidated  statements of operations for the three month and six month
periods ended June 30, 1999 and 1998, and the statements of stockholders' equity
and cash flows for the  six-month  periods  ended June 30, 1999 and 1998.  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, 1998, and the related consolidated statements of
earnings,  stockholders'  equity and cash flows for the year then ended;  and in
our report dated  February 22, 1999 (except for Note 20, as to which the date is
March 11,  1999),  we expressed  an  unqualified  opinion on those  consolidated
financial statements. The consolidated statements of earnings and cash flows for
the year ended December 31, 1998 are not presented herein.  In our opinion,  the
information  set  forth in the  accompanying  consolidated  balance  sheet as of
December 31, 1998 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
August 3, 1999

                                       16
<PAGE>



                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                     SIX MONTHS ENDED JUNE 30, 1999 AND 1998

                                     GENERAL

Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively  the "Company")  operate  principally in the property and casualty
insurance business. As described in note 9 to the Company's financial statements
and below on page 18 in "Recent  Activities,"  the Company  has entered into an
agreement and plan of merger with certain affiliates of Royal & SunAlliance
USA, Inc. ("RSA").

The Company  reports its insurance  operations in three  segments as of June 30,
1999 as follows:

Workers Compensation - this segment markets the workers  compensation  insurance
products and services  sold by the EBI  Companies  ("EBI") and includes  package
commercial insurance policies that are no longer written by the Company.

Nonstandard  Automobile  - this  segment  specializes  in  nonstandard  personal
automobile  insurance  sold by OrionAuto,  formerly  known as Guaranty  National
Corporation.

Specialty  Commercial - this segment  markets various  client-focused  specialty
commercial products and services to target customer groups through the new Orion
Specialty (as described below),  and also includes the run-off operations of the
Company's assumed reinsurance business, SecurityRe, which was sold in late 1996.

Over the past two years,  Orion has been  reshaping  its  business  to focus its
resources  on high  potential  lines of  business.  Business in Orion's  workers
compensation  segment is  conducted  through EBI, a specialty  monoline  workers
compensation  operation.  Orion  has been  reshaping  EBI from a  regional  to a
national monoline workers compensation specialist.

In Orion's  nonstandard  automobile  segment,  Orion  increased its ownership in
Guaranty National Corporation ("Guaranty National") to 100% in December 1997 and
then  transformed   Guaranty  National   (OrionAuto)  into  a  focused  personal
nonstandard  automobile  company.  The  commercial  lines  business  of Guaranty
National was shifted to a newly-formed  unit,  Orion Specialty  Group,  Inc. and
integrated with Connecticut  Specialty  Insurance Group,  Inc. Guaranty National
was recently renamed OrionAuto,  Inc. The Company added scale to its nonstandard
automobile  operation by acquiring two businesses,  Unisun Insurance  Company in
December 1997 and portions of Strickland Insurance Group in April 1998 expanding
its geographic market to 35 states.

The Company continued its reshaping of the specialty commercial segment to focus
resources on more profitable  lines of business.  In the second quarter of 1999,
the Company formed a new Orion  Specialty that was configured  from the existing
business units within the Specialty Commercial segment. The new Orion Specialty,
which serves targeted commercial customer groups, includes:

     - professional liability insurance through DPIC Companies ("DPIC");

     - specialty insurance programs serving the independent grocery industry
       through Grocers Insurance Group ("Grocers"), which was acquired in July
       1998;

                                       17
<PAGE>

     - collateral   protection  insurance  and  financial  insurance
       programs through Orion Financial (formerly Intercon);

     - alternative risk insurance programs through ARTIS, which was formed in
       June 1997; and

     - specialty commercial programs and binding authority business through the
       P&C Division.  As a result of the proposed merger of the Company with
       Royal, Orion Specialty's program binding authority business is no longer
       under strategic review.

As described  below,  during the second  quarter of 1999, the Company exited the
marine  business by selling Wm. H. McGee & Co ("McGee")  and its 26% interest in
Intercargo  Corporation.  In  September  1998,  the Company sold a unit of Orion
Specialty,  Colorado  Casualty  Insurance  Company.  During the third quarter of
1998,  the  Company  took  steps  to exit a $100  million  block  of  commercial
automobile and  transportation  business at Orion  Specialty's  P&C Division and
restructured  Orion Specialty's  operations  related to the exited business (see
note 2 to the Company's financial statements).

In November 1996, the Company  exited the assumed  reinsurance  business when it
sold the ongoing operations of SecurityRe.  As a result of the sale,  SecurityRe
ceased actively writing business and became an inactive company.

RECENT ACTIVITIES

As part of its final reshaping initiatives, in early May the Company completed a
reserve study focused on business that has been exited or previously  subject to
strategic  review.  The  reserve  study was  performed  with the  assistance  of
independent  actuarial  advisors.  In the first  quarter  of 1999,  the  Company
strengthened its loss and loss adjustment  reserves by recording a net charge of
$164.5 million on a pre-tax basis and $106.9 million on an after-tax  basis,  or
$3.96 per diluted common share,  in connection  with the reserve study.  The net
charge is  substantially  related to exited  business.  See section "Expense and
Other - Operating Ratios" on page 25.

On April 9, 1999,  the Company sold McGee for $59.4 million in cash resulting in
a pre-tax gain of $40.2 million and an after-tax gain of $26.3 million, or $0.97
per  common  share.  In  connection  with the sale,  the  Company  entered  into
reinsurance  agreements with the buyer transferring the Company's  participation
in McGee's United States and Canadian pools effective  January 1, 1999 resulting
in negative net premiums  written of $40.0 million in the first quarter of 1999.
Additionally,  the buyer was  designated  as the  clearing  company of the McGee
pools  effective as of January 1, 1999 under  McGee's  Inter-Office  Reinsurance
Agreements.  The Company  reflected  net premiums  written and total  revenue of
approximately  $104.4  million and $100.2  million,  respectively,  for the year
ended  December 31, 1998 and total  assets of  approximately  $112.0  million at
December 31, 1998 related to McGee.

On May 7, 1999, the Company sold its investment in Intercargo for $22.8 million,
or $12 per share,  in cash pursuant to the terms of  Intercargo's  merger with a
subsidiary  of XL Capital,  Ltd. The sale of  Intercargo  resulted in no gain or
loss during 1999 because the Company  adjusted its  investment  in Intercargo to
its net realizable value in the fourth quarter of 1998.

On July 12, 1999 the Company and certain affiliates of RSA entered into an agree
-ment and plan of merger. Pursuant to the agreement, certain affiliates of RSA
commenced  a tender  offer for all of Orion's outstanding  common stock,
together with associated  preferred  stock purchase rights,  at $50 per share
in  cash  (see  note 9 to the  Company's  financial

                                       18
<PAGE>

statements).  Upon successful  completion  of the merger of the Company into an
RSA subsidiary, Orion Capital's  common stock will be delisted from the New
York Stock Exchange.

                              RESULTS OF OPERATIONS

OVERVIEW

Earnings  (loss) by segment  before  federal  income  taxes,  minority  interest
expense and  cumulative  effect of adoption of a new  accounting  principle  are
summarized as follows:

                        Three Months Ended June 30,   Six Months Ended June 30,
                        ---------------------------   -------------------------
(In millions)                1999        1998               1999         1998
-------------------------------------------------------------------------------

Workers Compensation .    $   9.4     $  24.5            $ (29.7)     $  52.9
Nonstandard Automobile        8.5        10.4               14.3         18.3
Specialty Commercial .       13.1        27.7              (85.8)        57.4
Other ................       36.1        (4.4)              31.6         (9.5)
                          -------     -------            -------      -------
   Consolidated ......    $  67.1     $  58.2            $ (69.6)     $ 119.1
                          =======     =======            =======      =======

Miscellaneous   income   and   expenses   (primarily   interest,   general   and
administrative  expenses  and other  consolidating  elimination  entries) of the
parent company are reported as "Other" in the above table. In the second quarter
of 1999,  a pre-tax gain of $40.2  million  related to the sale of McGee is also
included in Other.

Operating  earnings (loss),  after-tax  realized  investment gains, net earnings
(loss) and per diluted common share amounts are summarized as follows:
<TABLE>
<CAPTION>

                                   Three Months Ended June 30,  Six Months Ended June 30,
(In millions, except for           ---------------------------  -------------------------
 per share amounts)                    1999           1998           1999           1998
-----------------------------------------------------------------------------------------

<S>                               <C>            <C>            <C>            <C>
Operating earnings (loss)         $    40.8      $    23.4      $   (48.3)     $    46.7
After-tax investment gains              1.7           14.8            2.9           33.6
Cumulative effect of adoption of
   new accounting principle               -              -           (4.6)             -
                                  ---------      ---------      ---------      ---------
      Net earnings (loss)         $    42.5      $    38.2      $   (50.0)     $    80.3
                                  =========      =========      =========      =========
Per diluted common share:
Operating earnings (loss)         $    1.50      $    0.83      $   (1.79)     $    1.66
After-tax investment gains             0.06           0.53           0.11           1.19
Cumulative effect of adoption of
   new accounting principle               -              -          (0.17)             -
                                  ---------      ---------      ---------      ---------
      Net earnings (loss)         $    1.56      $    1.36      $   (1.85)     $    2.85
                                  =========      =========      =========      =========
Weighted average common shares         27.0           27.5           27.0           27.4
Weighted average common shares
    and diluted equivalents            27.2           28.2           27.2           28.1

</TABLE>

                                       19
<PAGE>

Operating earnings (loss) represents earnings (loss) after taxes,  excluding net
realized  investment gains and the cumulative effect of an accounting change. In
the first quarter of 1999,  operating  earnings  includes an after-tax charge of
$106.9 million,  or $3.96 per share,  related to an increase in loss reserves in
connection with a loss reserve study.  In the second quarter of 1999,  operating
earnings  includes an after-tax gain on the sale of McGee of $ 26.3 million,  or
$0.97 per share,  partially  offset by a $0.09 per share impact from a bad faith
claim settlement related to a discontinued  program.  Excluding these items, the
Company's  after-tax  operating  earnings would be $34.6  million,  or $1.28 per
share, for the first half of 1999 and $16.8 million, or $0.62 per share, for the
second quarter of 1999.

The Company's  results of operations for 1999 reflects a $4.6 million  after-tax
charge, or $0.17 per diluted common share, for the cumulative effect of adoption
of a new accounting  principle,  AICPA Statement of Position 97-3 "Accounting by
Insurance and Other Enterprises for Insurance  Related  Assessments." See note 1
to  the  Company's  financial   statements  for  discussion  of  new  accounting
principles adopted by the Company in 1999.

The average  shares for the six months ended June 30, 1999  excludes  equivalent
shares of  238,000  in the  computation  of diluted  earnings  per common  share
because to include them would have been antidilutive.

                                    REVENUES

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

                             Three Months Ended June 30,      Six Months Ended June 30,
                            ----------------------------     ----------------------------
(In millions, except for %)    1999      1998   % Change        1999      1998   % Change
-----------------------------------------------------------------------------------------

<S>                         <C>       <C>        <C>         <C>       <C>        <C>
Gross Premiums Written      $  539.4  $  500.3     7.8%      $1,052.7  $  956.2    10.1%
                            ========  ========   =====       ========  ========   =====
Net Premiums Written        $  332.4  $  384.8   (13.6)%     $  607.3  $  753.8   (19.4)%
                            ========  ========   =====       ========  ========   =====
Premiums earned             $  343.5  $  370.4    (7.3)%     $  642.7  $  719.2   (10.6)%
Net investment income           34.6      42.5   (18.7)          69.0      83.9   (17.8)
Realized investment gains        2.7      22.7   (88.2)           4.4      51.7   (91.4)
Other                            1.2       7.0   (82.5)           2.2      12.6   (82.4)
                            --------  --------   -----       --------  --------   -----
   Total revenues           $  382.0  $  442.6   (13.7)%     $  718.3  $  867.4   (17.2)%
                            ========  ========   =====       ========  ========   =====

PREMIUMS

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

                             Three Months Ended June 30,      Six Months Ended June 30,
                            ----------------------------     ----------------------------
(In millions, except for %)    1999      1998   % Change        1999      1998   % Change
-----------------------------------------------------------------------------------------

<S>                         <C>       <C>         <C>        <C>       <C>          <C>
Workers Compensation        $  140.3  $  112.5    24.6%      $  287.3  $  228.2     25.9%
Nonstandard Automobile         139.8     145.5    (3.9)         292.2     273.1      7.0
Specialty Commercial           259.3     242.3     7.0          473.2     454.9      4.0
                            --------  --------   -----       --------  --------    -----
   Consolidated             $  539.4  $  500.3     7.8%      $1,052.7  $  956.2     10.1%
                            ========  ========   =====       ========  ========    =====
</TABLE>


                                       20
<PAGE>
<TABLE>
<CAPTION>

The Company's net premiums written by segment are as follows:

                                  Three Months Ended June 30,   Six Months Ended June 30,
                                 ----------------------------  ----------------------------
(In millions, except for %)        1999      1998   % Change     1999      1998   % Change
-------------------------------------------------------------------------------------------

<S>                              <C>       <C>       <C>        <C>       <C>       <C>
Workers Compensation             $   94.2  $  106.8  (11.8)%    $  188.8  $  217.4  (13.2)%
Nonstandard Automobile              119.4     106.5   12.2         244.2     202.6   20.5
Specialty Commercial                118.8     171.5  (30.7)        174.3     333.8  (47.8)
                                 --------  --------  -----      --------  --------  -----
   Consolidated                  $  332.4  $  384.8  (13.6)%    $  607.3  $  753.8  (19.4)%
                                 ========  ========  =====      ========  ========  =====

   Consolidated, excluding McGee $  332.4  $  364.6   (8.8)%    $  647.3  $  717.0   (9.7)%
                                 ========  ========  =====      ========  ========  =====
</TABLE>
In connection with the sale of McGee in April 1999, the Company  transferred its
participation  in McGee's United States and Canadian pools effective  January 1,
1999,  resulting in negative net written premiums of $40.0 million and no effect
on premiums  earned in the first  quarter of 1999. In the first quarter of 1999,
based on the Company's loss  experience,  the Company ceded an additional  $35.2
million of  premiums  under a  corporate-wide  aggregate  stop loss  reinsurance
agreement entered into in 1998 related to the 1998 accident year.

WORKERS COMPENSATION

Net premiums written for Workers Compensation decreased in 1999 compared to 1998
reflecting  lower  premium  retention of $39.4  million and $86.0 million in the
second quarter and first half of 1999, respectively,  primarily from a change in
EBI's reinsurance programs effective October 1998. The effect of this change was
partly offset by gross premium  growth of $27.7 million and $59.2 million in the
second quarter and first half of 1999,  respectively,  from new business written
through EBI's multi-state  accounts program and continued  geographic  expansion
and  penetration.  To improve  profitability,  EBI has instituted rate increases
which have  substantially  offset  statutory rate decreases,  and may reduce the
growth of EBI's gross premiums written for the remainder of 1999.

NONSTANDARD AUTOMOBILE

Net premiums  written for Nonstandard  Automobile  increased in 1999 compared to
1998  primarily due to higher net premiums of $15.8  million in South  Carolina,
$6.7 million in  California,  and $9.1  million in North  Carolina for the first
half of 1999 and $6.8 million, $4.2 million and $0.2 million,  respectively, for
the corresponding second quarter of 1999. Additionally,  OrionAuto generated net
premium growth in 21 of the 35 states where it writes business in the first half
of 1999 compared to the same 1998 period.  The increase in net premiums  written
in South Carolina is attributed to transition to a voluntary market  environment
in that state on March 1, 1999. Higher  year-to-date  premiums in North Carolina
are due to the  acquisition  of  Strickland  on April 30,  1998.  Excluding  the
effects of the acquisitions of Strickland and Unisun,  Nonstandard  Automobile's
gross  premiums  written and net  premiums  written  growth was 10.7% and 11.6%,
respectively,  in the  first  half of 1999  and  16.1%  for both  gross  and net
premiums  written  in the  second  quarter  of 1999  compared  to the same  1998
periods.


                                       21
<PAGE>
<TABLE>
<CAPTION>

SPECIALTY COMMERCIAL

Net premiums written of Specialty Commercial are as follows:

                                   Three Months Ended June 30,     Six Months Ended June 30,
                                 ------------------------------  ----------------------------
(In millions, except for %)          1999    1998    % Change       1999   1998   % Change
---------------------------------------------------------------------------------------------
Net Written Premiums:
<S>                              <C>        <C>       <C>         <C>        <C>        <C>
   DPIC                          $   52.5   $   49.7    5.6%      $   90.9   $   92.0    (1.2)%
   Grocers                            8.0          -    (a)           17.6          -     (a)
   Orion Financial                   23.5       19.5   20.5           40.3       42.5    (5.2)
   ARTIS                              1.2          -    (a)            1.8       (0.1)    (a)
   P&C Division                      33.5       82.3  (59.3)          63.6      162.9   (61.0)
                                 --------   --------  -----       --------   --------   -----
      Total Orion Specialty         118.7      151.5  (21.7)         214.2      297.3   (28.0)
      McGee                             -       20.2    (a)          (40.0)      36.8     (a)
      Assumed Reinsurance             0.1       (0.2)   (a)            0.1       (0.3)    (a)
                                 --------   --------  -----       --------   --------   -----
                                 $  118.8   $  171.5  (30.7)%     $  174.3   $  333.8   (47.8)%
                                 ========   ========  =====       ========   ========   =====
</TABLE>
[FN]
(a)  Not meaningful.
</FN>

The modest  change in net premiums  written  generated by DPIC for  professional
liability  insurance,  the largest special program of Orion Specialty,  reflects
continued high levels of policy  renewals offset by increased use of reinsurance
in its lawyers and accountants programs.

Grocers was acquired by the Company in July 1998.  The decrease in  year-to-date
net written  premiums at Orion  Financial,  which  primarily  writes  collateral
protection insurance, is primarily due to higher ceded premiums partially offset
by growth in gross premiums written from that unit.  ARTIS, the alternative risk
business of Orion Specialty formed in June 1997, generated significant growth in
gross premiums written reflecting a move from the status of a start-up operation
in 1998 to a profitable  operating unit in 1999.  ARTIS generated gross premiums
written of $44.4 million and $71.1 million for the second  quarter and first six
months of 1999 and $13.0  million and $18.7 million for the  corresponding  1998
periods, respectively.

Net  premiums  written  by Orion  Specialty's  P&C  Division  decreased  in 1999
compared to 1998 primarily due to the effect of exiting  unprofitable  commodity
business in  connection  with the third quarter 1998  realignment  of this unit,
$23.9  million  of  ceded  premiums  in the  first  quarter  of 1999  under  the
corporate-wide reinsurance agreement previously mentioned and lower net premiums
of $12.3 million in second quarter and $25.6 million  year-to-date from the sale
of Colorado Casualty Insurance Company in September 1998.

As part of the sale of McGee,  the  Company is fronting  business  for the buyer
until such time that the buyer receives  various state  regulatory  approvals to
issue marine  insurance  policies,  resulting in gross written premiums of $64.5
million  in the second  quarter  of 1999 and $92.8  million in the first half of
1999, as compared to $56.3 million and $104.8 million for the corresponding 1998
periods, respectively. In the first quarter of 1999, McGee recorded negative net
premiums  written of $40.0 million  reflecting  the unearned  premium  portfolio
transferred as of January 1, 1999 in connection with its sale.


                                       22
<PAGE>
PREMIUMS EARNED

The Company's  premiums  earned  decreased  7.3% to $343.5  million and 10.6% to
$642.7  million in the  second  quarter  and the first half of 1999 from  $370.4
million and $719.2 million ($354.7 million and $689.3 million  excluding  McGee)
in the  corresponding  1998 periods.  Premiums earned reflect the recognition of
income from the changing levels of net premium writings.

OTHER INCOME

Other  income is $2.2  million and $12.6  million for the first half of 1999 and
1998,  and $1.2 million and $7.0  million in the  corresponding  second  quarter
periods,  respectively. The decrease is primarily due to lower commission income
resulting from the sale of McGee.

                             INVESTMENT PERFORMANCE

The Company  manages its  investment  portfolio on a total return  basis,  which
emphasizes both current net investment  income and realized  investment gains as
well as unrealized  investment  results.  The pre-tax  performance  and carrying
value of the Company's investments portfolio is as follows:
<TABLE>
<CAPTION>

                                            Three Months Ended June 30,   Six Months Ended June 30,
                                            ---------------------------  --------------------------
(In millions, except for %)                     1999           1998          1999          1998
---------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>           <C>           <C>
Net investment income                       $   34.6       $   42.5      $   69.0      $   83.9
Realized investment gains                        2.7           22.7           4.4          51.7
Unrealized depreciation                        (43.8)         (30.4)        (71.2)        (22.3)
                                            --------       --------      --------      --------
                                            $   (6.5)      $   34.8      $    2.2      $  113.3
                                            ========       ========      ========      ========
Investment yields on average portfolio:
   Pre-tax                                       5.9%           6.9%          5.8%          7.0%
                                            ========       ========      ========      ========
   After-tax                                     4.4%           5.1%          4.5%          5.3%
                                            ========       ========      ========      ========
Equity earnings in limited
   partnership investments (a)              $    3.5       $    3.8      $    5.5      $    9.0
                                            ========       ========      ========      ========
</TABLE>
[FN]
(a) Included in net investment income.
</FN>
<TABLE>
<CAPTION>


                                                 June 30, 1999              December 31, 1998
                                            ----------------------------------------------------
Fixed maturities and short-term investments:
<S>                                         <C>             <C>          <C>              <C>
      Investment grade                      $1,735.9         72.6%       $1,650.5          65.9%
      Non-investment grade and non-rated       163.6          6.8           208.7           8.3
                                            --------       ------        --------        ------
                                             1,899.5         79.4         1,859.2          74.2
Equity securities                              388.5         16.2           510.9          20.4
Limited partnerships and other                  87.2          3.7           116.2           4.6
                                            --------       ------        --------        ------
                                             2,375.2         99.3         2,486.3          99.2
Cash                                            15.8          0.7            18.0           0.8
                                            --------       ------        --------        ------
   Total investments and cash               $2,391.0        100.0%       $2,504.3         100.0%
                                            ========       ======        ========        ======

</TABLE>

                                       23
<PAGE>


NET INVESTMENT INCOME

Pre-tax  net  investment  income for the second  quarter and first six months of
1999 was lower than comparable  1998 periods  primarily due to lower earnings on
limited partnership  investments accounted for on an equity basis, the effect of
previous  shifting in the fixed income portfolio from taxable to  tax-advantaged
securities  and most  significantly  the impact of lower  reinvestment  rates in
recent quarters  resulting in reduced  investment  yields of the Company's fixed
income portfolio.

Equity earnings in limited  partnership  investments,  which are included in net
investment income,  were lower in 1999 compared to same 1998 periods in part due
to planned  reductions in these investments.  Earnings 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.

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 Company manages its total investments, so that at all times, there are fixed
income  securities  that are  adequate  in amount and  duration to meet the cash
requirements of current  operations and longer term  liabilities,  as well as to
meet  insurance  regulatory  requirements  with  respect  to  investments  under
specific state insurance laws. The Company invests primarily in investment grade
securities and additionally  invests a portion of its portfolio in a diversified
group of non-investment  grade fixed maturity  securities or securities that are
not rated to increase  the  portfolio  average  return.  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.

REALIZED AND UNREALIZED INVESTMENT RESULTS

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.
Approximately 25% of the first half 1998 net realized  investment gains resulted
from the sale of two investments in entities which were acquired or taken public
during the first quarter of 1998.  Realized  investment  gains may be reduced by
provisions  for  losses  on  securities  deemed  to  be   other-than-temporarily
impaired.  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.

Net unrealized investment appreciation  (depreciation) for equity securities and
fixed maturities classified as available-for-sale  are recorded in stockholders'
equity, net of federal taxes, and included as a component of other comprehensive
income (see note 7 to condensed  financial  statements).  Unrealized  investment
appreciation  (depreciation) can vary significantly  depending upon fluctuations
in interest  rates,  changes in credit spreads and in equity prices.  Unrealized
investment  depreciation  in 1999  primarily  results  from the impact of higher
market interest rates on the Company's fixed maturity investments.



                                       24
<PAGE>



                               EXPENSES AND OTHER

OPERATING RATIOS

The following table sets forth certain ratios of insurance operating expenses to
premiums earned:
<TABLE>
<CAPTION>

                                                    Three Months Ended   Six Months Ended
                                                         June 30,            June 30,
                                                   -------------------- ------------------
                                                     1999       1998       1999      1998
-------------------------------------------------------------------------------------------

<S>                                                <C>         <C>        <C>       <C>
Loss and loss adjustment expenses                   68.0%      67.7%      93.2%     67.2%
Policy acquisition costs and other
   insurance expenses                               31.2       30.0       30.6      30.3
                                                   -----      -----      -----     -----
   Total before policyholders' dividends            99.2       97.7      123.8      97.5
Policyholders' dividends                             1.2        1.9        1.6       1.9
                                                   -----      -----      -----     -----
   Combined ratio                                  100.4%      99.6%     125.4%     99.4%
                                                   =====      =====      =====     =====

Loss and loss adjustment expenses ratio by segment:
   Workers Compensation                             61.1%      58.1%      86.0%     57.3%
   Nonstandard Automobile                           71.4%      68.9%      72.1%     70.4%
   Specialty Commercial                             70.3%      73.2%     122.0%     71.5%

</TABLE>

In the third  quarter of 1998,  the  Company  announced a  realignment  of Orion
Specialty to address lines of business that had not met growth and profitability
expectations.  The  realignment  continued  Orion  Specialty's  shift  away from
commodity  business.  The Company's recent trends in the loss development of the
previously   cancelled   program   business  at  Orion  Specialty   indicated  a
deterioration  of claims  experience  and prompted a loss  reserve  study in the
first quarter of 1999.

The  year-to-date  1999 ratio of loss and loss  adjustment  expenses to premiums
earned (the "loss ratio") of 93.2%  reflects  significant  strengthening  of the
Company's  reserve  position as of March 31,  1999 based upon the first  quarter
loss reserve study.

Excluding the first  quarter  provision  for loss and loss  adjustment  expenses
recorded in connection with the loss reserve study, the loss and loss adjustment
expenses ratio by segment for the six months ended June 30, 1999 would have been
61.6% for Workers Compensation,  70.9% for Nonstandard Automobile, and 69.8% for
Specialty Commercial.  The Company's year-to-date 1999 combined ratio would have
been  99.3%  excluding  the first  quarter  reserve  charge  and the  previously
mentioned bad faith claim settlement.

The  Company  made the  decision  to conduct a review of its loss  reserves  for
exited  business  and to review  strategic  alternatives  for Orion  Specialty's
remaining program and binding authority business in the first quarter of 1999 as
part of the final steps in an  aggressive  two-year  reshaping of the  Company's
business.  The  Company  expanded  the  analysis to a  full-scale  review of all
reserves and elected to add the perspective of an independent  actuarial review.
As a result of this study, in the first quarter of 1999, the Company  recorded a
provision for loss and loss adjustment expenses of $139.0 million related to the
1998 and prior  accident  years,  which was net of  reinsurance,  and included a

                                       25
<PAGE>

$25.5  million  net ceded  premium  adjustment  based  upon the  Company's  loss
experience.  The loss reserve study focused on the business that the Company has
exited or plans to exit and the provision included costs of settling outstanding
claims  for  exited  business.  Approximately  89%  of  the  net  provision  was
attributed to businesses that the Company has exited.

The loss reserve  study also  reviewed the reserve  positions  for the Company's
ongoing  business in light of current  market  conditions  and industry  trends.
Approximately  11% of the 1999  first  quarter  loss  reserve  strengthening  is
related to ongoing  business,  including  $8.4 million for EBI, $4.2 million for
DPIC and $3.0 million for  OrionAuto.  Further,  the Company has  adjusted  loss
ratios  for  the  1999  accident  year in  consideration  of the  reserve  study
findings.

The 1999 year-to-date loss ratio for Workers Compensation reflects first quarter
reserve strengthening of $31.9 million related to non-workers compensation lines
that  originated  in this  segment,  but are no longer  written by the  Company.
Additionally,  EBI  strengthened  its net reserves in the first  quarter 1999 by
recording a loss and loss adjustment expense provision of $8.4 million primarily
relating to the 1998  accident year as a result of the loss reserve  study.  The
benefit  of EBI's  service-oriented  approach,  working  with its  customers  to
prevent  losses and reduce  claim costs,  has allowed EBI to report  better than
industry results.

The 1999 loss ratio for  Nonstandard  Automobile  reflects  an  increase in loss
costs resulting from the loss reserve study  substantially  offset by a decrease
in loss adjustment expenses from continued efficiencies.

In  connection  with the loss  reserve  study,  in the  first  quarter  of 1999,
Specialty Commercial  strengthened its loss reserve positions by recording a net
provision for loss and loss adjustment expenses of $95.7 million related to 1998
and prior  accident  years.  Approximately  $47.1  million of this net charge is
related to the assumed  reinsurance  business  that the  Company  exited in late
1996,  $44.4  million is related to the exited P&C  Division  business  at Orion
Specialty, and $4.2 million is related to the ongoing business at DPIC.

The ratio of policy  acquisition costs and other insurance  expenses to premiums
earned (the "expense  ratio")  slightly  increased in 1999 compared to 1998 on a
year-to-date  basis.  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.

The  Company  regularly  evaluates  its  reserves  for loss and loss  adjustment
expenses.  Loss reserve amounts are based on management's informed estimates and
judgements,  using data  currently  available.  As part of the evaluation of its
first quarter loss reserve  position,  the Company took the additional action of
having an  independent  actuarial  review of its loss  reserves.  The results of
which were considered in the increases in loss reserves during the first quarter
of 1999.  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.  Although there can be no assurance that
changes in loss trends will not result in additional development of prior years'
reserves in the future,  the Company  believes that the current and  prospective
loss reserving reflects an increased level of conservatism. Variability in claim
emergence and settlement patterns and other trends in loss experience can result
in future  development  patterns  different than expected.  The Company believes
that any such  variability  or  development  will  generally  be at low  levels,
considering  actions  that have been taken to increase  loss  reserving  levels,
improve  underwriting  standards and emphasize loss prevention and control.  The

                                       26
<PAGE>

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.

OTHER EXPENSES

Other  expenses  are $5.7 million and $12.5  million for the second  quarters of
1999 and 1998,  and $12.9  million and $23.5 million for the  corresponding  six
month periods, respectively. The decrease is primarily due to the elimination of
McGee agency expense resulting from the sale of this unit.

EQUITY IN LOSS OF AFFILIATE

Equity in loss of affiliate  was $0.7 million in the first half of 1998 from the
Company's  26%  investment  in  Intercargo.  In May 1999,  the Company  sold its
investment in Intercargo  for $22.8 million in cash pursuant to the terms of the
merger  agreement  between  Intercargo and a subsidiary of XL Capital,  Ltd. The
sale of  Intercargo  resulted in no gain or loss during 1999 because the Company
adjusted its investment in Intercargo to its net realizable  value in the fourth
quarter of 1998.

FEDERAL INCOME TAX EXPENSE (BENEFIT)

The Company's federal income taxes and effective tax rate is as follows:
<TABLE>
<CAPTION>

                                        Three Months Ended June 30,   Six Months Ended June 30,
                                        ---------------------------   -------------------------
(In millions, except for %)                  1999       1998               1999        1998
-----------------------------------------------------------------------------------------------
<S>                                      <C>        <C>                <C>         <C>
Federal income tax expense (benefit) (a) $   19.5   $   14.9           $  (34.4)   $   29.4

Effective tax rate (a)                       31.5%      28.1%             (43.1)%      26.8%

</TABLE>
[FN]
(a) includes  tax  benefits  from trust  preferred  securities  and excludes tax
    benefits from an accounting change.
</FN>

The  Company's  effective  tax  rates for 1999 and 1998 are  different  than the
statutory   tax  rate  of  35%   primarily   because  of  income   derived  from
tax-advantaged  securities. The 1999 effective tax rate has been calculated on a
discrete  period  basis  giving  effect of expected  tax benefits to be realized
during the year. Excluding the gain on the sale of McGee, the effective tax rate
would have been 25.8% in the second quarter of 1999.

                                       27
<PAGE>


                         LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flows is as follows:

                          Six Months Ended June 30,
                          -------------------------
(In millions)                1999         1998
---------------------------------------------------
Cash flows:
   Operating activities   $   (70.4)   $    12.8
   Investing activities        83.0          1.5
   Financing activities       (14.8)        (2.3)
                          ---------    ---------
                          $    (2.2)   $    12.0
                          =========    =========

Cash  provided by operating  activities  decreased by $83.2 million in the first
half  of 1999  compared  to the  corresponding  1998  period.  The  decrease  in
operating  cash flow in 1999 is  primarily  the result of reduction in premiums,
higher payments for losses and loss adjustment  expenses,  largely influenced by
the runoff of exited business,  and lower investment income  collections as well
as an increased use of reinsurance. Partially offsetting these cash flow changes
were declines in policy  acquisition  costs and federal income tax payments,  as
well as a $20.0 million federal tax refund received by the Company.  The sale of
McGee  resulted in a $5.0 million  reduction to operating cash flow in the first
half of 1999 as  compared  to the same  1998  period,  and will  result in $15.6
million for the year. Due to the anticipated level of claim payments from exited
business,  operating  cash flow for 1999 is expected to be lower than 1998.  The
Company's existing cash and expected investment maturities are anticipated to be
adequate to cover any additional operating cash flow needs in 1999.

Cash is used in or provided by investment  activities primarily for purchases or
sales and  maturities  of  investments,  for  acquisition  and from  divestiture
activities,  and for purchases of property and equipment.  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.  In the second quarter of 1999, the Company  received  approximately
$28.8  million and $22.8  million,  of net cash in  connection  with the sale of
McGee and Intercargo,  respectively. Cash used for acquisitions in the first six
months of 1998 was primarily  related to purchase of  Strickland's  non-standard
automobile insurance business.

Cash  used  in  financing  activities  in 1999  includes  the  repayment  of the
outstanding balance of $8.0 million under the Company's bank credit agreement in
the first quarter of 1999. The issuance of 7.701% trust preferred  securities by
the Company  provided  $121.9 million of cash from  financing  activities in the
first  quarter of 1998.  Net proceeds  from that issuance were used to repay the
$100  million  bank  indebtedness  of Guaranty  National in February  1998.  The
Company repaid $9.4 million of assumed bank debt in the  Strickland  acquisition
in the second quarter of 1998.

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,  debt service costs from loans due from  subsidiaries,  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  stockholders' 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.

                                       28
<PAGE>

Orion's insurance subsidiaries maintain liquidity in their investment portfolios
substantially  in  excess of that  required  to pay  claims  and  expenses.  The
Company's insurance subsidiaries have:

                                             June 30,       December 31,
(In millions, except for ratio)               1999             1998
------------------------------------------------------------------------
Cash and short-term investments held
   by insurance subsidiaries               $     200.1     $     242.4

Consolidated policyholders' surplus        $     662.1     $     732.1

Statutory operating leverage ratio (a)           2.0:1           2.1:1

[FN]
(a)  based upon  trailing 12 months of net  premiums  written to  policyholders'
     surplus.
</FN>

In July 1998, the Company entered into a five year credit agreement with a group
of  banks  which  provides  for  unsecured  borrowings  up to $150  million.  No
borrowings  are  outstanding  at June 30,  1999.  Borrowings  under  the  credit
agreement bear interest at LIBOR (London  Interbank  Offered Rate) plus a margin
based upon the  Company's  credit  ratings.  The credit  agreement,  as amended,
requires the Company to maintain  certain  defined  financial  covenants and may
limit the Company's ability to incur secured  indebtedness or certain contingent
obligations.  The  Company  is in  compliance  with  the  terms  of this  credit
agreement.  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 the Company's 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 June 30, 1999 the
Company is in compliance with the terms of its senior note indentures.

In February 1998, Orion issued $125 million of 7.701% Trust Preferred Securities
due April 15, 2028.  In January  1997,  Orion issued $125 million of 8.73% Trust
Preferred  Securities due January 1, 2037. The 8.73% and 7.701% Trust  Preferred
Securities are  subordinated to all liabilities of the Company.  The Company may
defer interest  distributions  on these Trust Preferred  Securities.  During any
period when such  cumulative  distributions  have been  deferred,  Orion may not
declare or pay any dividends or distributions on its common stock.

Management  believes that the Company  continues to have substantial  sources of
capital and liquidity from the capital markets and bank borrowings.

There were no stock repurchases made in 1999 under the stock repurchase  program
authorized by the Company's Board of Directors.


                                       29
<PAGE>


                                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
therefore,  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. Also, see note 6 to the Company's
financial statements.

                              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 June 30,  1999,  the
Company had completed approximately 99% of its scheduled remediation of 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 testing,  is estimated to be  approximately
$20.1 million, of which $1.3 million has been expensed in the first half of 1999
and $15.8 million in 1998 and prior periods.

With a timely start on correcting  the Year 2000  problem,  the Company has been
able to address this  potential  exposure while  continuing to replace  outdated
systems  with  newer   versions   offering   greater   functionality   and  cost
efficiencies.  The Company  completed  replacing its financial,  personnel,  and
payroll systems in 1998 and began phasing in new integrated  processing  systems
for  certain  other  operations  in 1999.  Those  major  technology  improvement
projects,  which were  substantially  completed in 1998,  totaled  approximately
$13.0 million and have been or will be capitalized as fixed assets.  The Company
does not expect to incur any significant Year 2000 capital expenditures in 1999.

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.

                                       30
<PAGE>

The Company has mailed letters to 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 June 30, 1999,  the Company had received  responses from
approximately  93% of the most  critical  third parties of whom it has inquired.
The companies  that have responded have provided  written  assurances  that they
plan to address all their significant Year 2000 problems by year-end 1999.

Evaluations  of the most  critical  third  parties  have been  initiated.  These
evaluations will be followed by the development of contingency plans, which have
already  been  prepared  for third  parties  having near term Year 2000  impact.
During the first  quarter of 1999,  contingency  plans  were  finalized  for all
critical  production  systems.  Focus has been  shifting  to third  parties  and
non-technical   functions.   During  the  third  quarter  of  1999,  appropriate
contingency  plans will be completed for all critical third party  relationships
and business  functions.  The Company believes that this aspect of its Year 2000
effort was on schedule at June 30, 1999.

A follow-up  mailing to significant  vendors and service  providers that did not
initially respond, or whose responses were deemed unsatisfactory by the Company,
was completed by March 31, 1999. The Company also expanded its survey to vendors
and service providers who do not directly  interface with the Company's systems.
In the third quarter of 1999,  the Company plans to re-survey all critical third
parties.

The  Company  presently  believes  that the  Year  2000  problems  will not pose
significant  operational  problems  for the  Company.  However,  if a Year  2000
problem is not properly  identified so that assessment,  remediation and testing
can be effected timely,  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.  Where  concern  appears  justified  about an  aspect  of
readiness,  contingency plans have been and will be prepared. 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."


                                       31
<PAGE>

                     ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

In June 1998,  the  Financial  Accounting  Standards  Board  issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.  This standard, as
amended,  requires  companies to record all  derivatives on the balance sheet as
either assets or liabilities  and measure those  instruments at fair value.  The
manner in which  companies are to record gains or losses  resulting from changes
in the  values of those  derivatives  depends on the use of the  derivative  and
whether it qualifies  for hedge  accounting.  This standard is effective for the
Company's  financial  statements  beginning January 1, 2001, with early adoption
permitted.  The Company is  currently  evaluating  the impact of the adoption of
this statement and the potential effect on its financial  position or results of
operations.

                           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  its 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
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.


                                       32
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

On July 12-14,  1999,  five  lawsuits were filed against the Company in Delaware
Chancery Court in Wilmington,  Delaware alleging, among other things, violations
of breach of fiduciary duty on the part of the Board of Directors of the Company
as a result of RSA's  agreement  to acquire  all of the common  stock of Orion
Capital  Corporation  for $50 per share in cash.  The plaintiffs in each lawsuit
seek  to  bring a class  action  representing  the  common  stockholders  of the
Company.   The  lawsuits  generally  allege  that  the  terms  of  the  proposed
transaction are  intrinsically  unfair and inadequate from the standpoint of the
Orion  stockholders.  The  plaintiffs  seek  injunctive  relief and  unspecified
monetary damages and attorney's fees and expenses. The Company intends to defend
these actions vigorously, and believes that the outcome will not have a material
adverse effect on its financial position or earnings.

ITEMS 2 & 3.

NONE.

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

At the Orion  Annual  Meeting  of  Stockholders  held on May 25,  1999  ("Annual
Meeting"), 27,278,483 shares of Orion Common stock were outstanding and entitled
to vote (the "Outstanding  Common Stock"),  and 24,659,432 shares of Outstanding
Common Stock (90.399%),  consisting of a quorum,  were represented at the Annual
Meeting in person or by proxy, and voted on the following proposals:

PROPOSAL 1

At the Annual  Meeting,  the directors  nominated  were elected by the following
votes:

                       Number of Shares Voted For     Number of Shares Withheld
W. Marston Becker      23,998,134                     661,298
Gordon F. Cheesbrough  23,998,134                     661,298
David H. Elliott       23,998,134                     661,298
Victoria R. Fash       23,998,134                     661,298
Robert H. Jeffrey      23,998,134                     661,298
Warren R. Lyons        23,998,134                     661,298
James K. McWilliams    23,998,134                     661,298
Ronald W. Moore        23,998,134                     661,298
William B. Weaver      23,998,134                     661,298


As stated in the chart above, all director nominees received 23,998,134 votes
for election,  or 87.975% of the Outstanding  Common Stock  (or 97.318% of
the shares voted at the Annual  Meeting). There were no broker non-votes on
this proposal.

PROPOSAL 2

At the Annual Meeting, the approval of the adoption of an amendment to the Orion
Capital  Corporation Equity Incentive Plan ("Equity Incentive Plan") to increase
the number of shares of common stock  available  for  issuance  under the Equity
Incentive  Plan was  ratified by a vote of  21,682,458  shares or 79.486% of the

                                       33
<PAGE>

Outstanding  Common Stock  (or 87.928% of the shares voted at the Annual
Meeting). Holders of  2,914,028  shares or 10.682% of the  Outstanding
Common Stock voted against the  ratification  of the  amendments to the Equity
Incentive  Plan and holders of 62,946  shares or 0.231% of the  Outstanding
Common Stock  abstained from  voting.  There  were no broker  non-votes  on
the  Equity  Incentive  Plan proposal.

PROPOSAL 3

At the Annual  Meeting,  the  selection  of Deloitte & Touche  LLP,  independent
certified public accountants,  as auditors for the Corporation for the year 1999
was ratified by a vote of 24,292,855 shares or 89.055% of the Outstanding Common
Stock (or 98.513% of the shares voted at the Annual Meeting). Holders of 322,561
shares or approximately 1.183% of the Outstanding Common Stock voted against the
ratification of Deloitte and Touche LLP as auditors and holders of 44,016 shares
or approximately  0.161% of the Outstanding  Common Stock abstained from voting.
There were no broker non-votes on this proposal.

ITEM 5.   OTHER INFORMATION

On July 16, 1999 the Company filed a Schedule 14D-9  Solicitation/Recommendation
Statement with the Securities  and Exchange  Commission.  The Schedule 14D-9 was
filed by the Company pursuant to a definitive merger agreement  reached between
it and RSA providing for the  acquisition of Orion Capital  Corporation  for
$50 per common share in cash. The Company's  Board of Directors has recommended
in the Schedule 14D-9 that the  stockholders  accept RSA's tender offer,  and
tender their shares in the offer pursuant to the definitive agreement.

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.


                                       34
<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: August 10, 1999                                By: /s/ W. Marston Becker
                                                     Chairman of the Board and
                                                     Chief Executive Officer



Date: August 10, 1999                                By: /s/ Michael L. Pautler
                                                     Senior Vice President and
                                                     Chief Financial Officer




                                       35
<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





                                       36