<PAGE>





                                    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 March 31, 1998

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

                          Commission File Number 1-7801

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                Yes(x)                                  No (  )


27,672,300  shares of Common  Stock,  $1.00 par value,  of the  registrant  were
outstanding on May 13, 1998.

                                  Page 1 of 31
                        Exhibit Index Appears at Page 27


<PAGE>



                            ORION CAPITAL CORPORATION
                                 FORM 10-Q INDEX
                      For the Quarter Ended March 31, 1998

                                                                        Page

PART I. FINANCIAL INFORMATION

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

           Consolidated Statement of Earnings for the three-months
           ended March 31, 1998 and 1997 (Unaudited)                          5

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

           Consolidated Statement of Cash Flows for the three-months
           ended March 31, 1998 and 1997 (Unaudited)                      7 - 8

           Notes to Consolidated Financial Statements (Unaudited)         9 -13

           Independent Accountants' Review Report                            14

        Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                          15 - 24

PART II. OTHER INFORMATION                                                   25


                                       2

<PAGE>
<TABLE>
<CAPTION>
                          PART I. FINANCIAL INFORMATION
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                     ASSETS
                                                               March 31, 1998    December 31,
(In millions)                                                    (Unaudited)            1997
--------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
ASSETS:
Investments: -
Fixed maturities, at amortized cost
   (market $322.7 - 1998 and $322.4 - 1997)                       $   313.6        $   312.8
Fixed maturities, at market (amortized cost
   $1,396.9 - 1998 and $1,395.4 - 1997)                             1,465.4          1,469.8
Common stocks, at market (cost $170.1 -
   1998 and $163.0 - 1997)                                            259.8            245.4
Non-redeemable preferred stocks, at market
   (cost $183.8 - 1998 and $183.6 - 1997)                             200.6            193.1
Other long-term investments                                           111.3             94.3
Short-term investments                                                272.8            228.3
                                                                  ---------        ---------

      Total investments                                             2,623.5          2,543.7

Cash                                                                    1.1              9.3
Accrued investment income                                              27.3             29.6
Investment in affiliate                                                30.7             31.3
Accounts and notes receivable                                         185.1            189.3
Reinsurance recoverables and prepaid reinsurance                      699.1            622.2
Deferred policy acquisition costs                                     153.4            147.1
Property and equipment                                                 71.2             70.8
Excess of cost over fair value of net assets acquired                 139.2            140.0
Other assets                                                          100.5            100.8
                                                                  ---------        ---------

      Total assets                                                $ 4,031.1        $ 3,884.1
                                                                  =========        =========

<FN>

                See Notes to Consolidated Financial Statements (Unaudited)





                                       3

<PAGE>
<CAPTION>


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

                                                              March 31, 1998      December 31,
(In millions-- except for share data)                           (Unaudited)              1997
----------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
Liabilities:
Policy liabilities: -
  Losses                                                            $ 1,470.3        $ 1,476.4
  Loss adjustment expenses                                              406.4            395.3
  Unearned premiums                                                     565.7            551.6
  Policyholders' dividends                                               20.7             20.5
                                                                    ---------        ---------
  Total policy liabilities                                            2,463.1          2,443.8
Notes payable                                                           210.1            310.2
Other liabilities                                                       347.1            282.0
                                                                    ---------        ---------
    Total liabilities                                                 3,020.3          3,036.0
                                                                    ---------        ---------

Contingencies (Note 6)

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

Stockholders' equity:
Preferred stock, authorized 5,000,000 shares; issued
   and outstanding - none
Common stock, $1 par value; authorized 50,000,000
   shares; issued 30,675,300 shares                                      30.7             30.7
Capital surplus                                                         152.8            152.1
Retained earnings                                                       507.3            469.5
Accumulated other comprehensive income                                  114.7            109.2
Treasury stock, at cost (3,145,435 shares -
  1998 and 3,069,756 shares -  1997)                                    (39.4)           (34.3)
Deferred compensation on restricted stock                                (5.3)            (4.1)
                                                                    ---------        ---------
    Total stockholders' equity                                          760.8            723.1
                                                                    ---------        ---------
    Total liabilities and stockholders' equity                      $ 4,031.1        $ 3,884.1
                                                                    =========        =========
<FN>
                 See Notes to Consolidated Financial Statements (Unaudited)

                                       4
<PAGE>
<CAPTION>



                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF EARNINGS

                                   (UNAUDITED)


                                                               Three Months Ended March 31,
(In millions, except for per share data)                              1998              1997
--------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>
Revenues:
Premiums earned                                                     $ 348.8           $ 324.0
Net investment income                                                  41.4              40.2
Realized investment gains                                              29.0              15.8
Other income                                                            5.6               4.9
                                                                    -------           -------
      Total revenues                                                  424.8             384.9
                                                                    -------           -------
Expenses:
Losses incurred                                                       178.6             170.0
Loss adjustment expenses                                               53.7              49.0
Amortization of deferred policy acquisition costs                     100.8              94.8
Other insurance expenses                                                6.9               6.1
Dividends to policyholders                                              6.4               5.1
Interest expense                                                        5.8               6.1
Other expenses                                                         11.1              11.0
                                                                    -------           -------
      Total expenses                                                  363.3             342.1
                                                                    -------           -------
Earnings before equity in earnings (loss) of
  affiliate, federal income taxes and minority
  interest expense                                                     61.5              42.8

Equity in earnings (loss) of affiliate                                 (0.6)              0.6
                                                                    -------           -------
Earnings before federal income taxes and
  minority interest expense                                            60.9              43.4
Federal income taxes                                                   16.0              10.7
Minority interest expense:
  Subsidiary trust preferred securities, net
  of federal income taxes                                               2.7               1.6

  Subsidiary net earnings                                                 -               1.6
                                                                    -------           -------
      Net earning                                                   $  42.2           $  29.5
                                                                    =======           =======
      Net earnings per basic common share                           $  1.54           $  1.08
                                                                    =======           =======
      Net earnings per diluted common share                         $  1.50           $  1.06
                                                                    =======           =======

<FN>

                See Notes to Consolidated Financial Statements (Unaudited)


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

                                        Three Months Ended            Three Months Ended           Year Ended
                                          March 31, 1998               March 31, 1997              December 31, 1997
(In millions)                               (Unaudited)                  (Unaudited)
-------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>               <C>      <C>                 <C>       <C> 
Common Stock:
Balance, beginning of period              $  30.7                    $  15.3                      $  15.3   
Stock issued in 2-for-1
  common stock split                            -                          -                         15.4
                                          -------                    -------                      -------
Balance, end of period                    $  30.7                    $  15.3                      $  30.7
                                          =======                    =======                      =======
Capital Surplus:
Balance, beginning of period              $ 152.1                    $ 158.6                      $ 158.6
Exercise of stock options and net
  issuance of restricted stock                0.7                          -                          0.5
Acquisition of Guaranty National                -                          -                          8.4
Stock issued in 2-for-1
  common stock split                            -                          -                        (15.4)
                                           -------                   -------                      -------
Balance, end of period                     $ 152.8                   $ 158.6                      $ 152.1
                                           =======                   =======                      =======
Retained Earnings:
Balance, beginning of period              $ 469.5                    $ 370.8                      $ 370.8
Net earnings                                 42.2  $  42.2              29.5  $  29.5               115.8   $ 115.8
                                                   -------                    -------                       -------
Dividends declared                           (4.4)                      (3.9)                       (17.1)
                                          -------                    -------                      -------
Balance, end of period                    $ 507.3                    $ 396.4                      $ 469.5
                                          =======                    =======                      =======
Accumulated Other
  Comprehensive Income:
Balance, beginning of period              $ 109.2                    $  70.1                      $  70.1
Unrealized investment
  gains (losses), net of taxes                         5.5                      (24.1)                         41.3
Unrealized foreign exchange
  translation losses, net of taxes                       -                       (0.4)                         (2.2)
                                                   -------                    -------                       -------
Other comprehensive income (loss)             5.5      5.5             (24.5)   (24.5)               39.1      39.1
                                          -------  -------           -------  -------             -------   -------
Comprehensive income                               $  47.7                    $   5.0                       $ 154.9
Balance, end of period                    $ 114.7  =======           $  45.6  =======             $ 109.2   =======
                                          =======                    =======                      =======
Treasury Stock:
Balance, beginning of period              $ (34.3)                   $ (35.0)                     $ (35.0)
Exercise of stock options and net
  issuance of restricted stock                1.6                          -                          3.2
Acquisition of treasury stock                (6.7)                       (0.7)                       (2.5)
                                          -------                     -------                     -------
Balance, end of period                    $ (39.4)                    $ (35.7)                    $ (34.3)
                                          =======                     =======                     =======
Deferred Compensation on
  Restricted Stock:
Balance, beginning of period              $  (4.1)                    $  (3.1)                    $  (3.1)
Net issuance of restricted stock             (1.6)                          -                        (1.9)
Amortization of deferred
  compensation on restricted stock            0.4                         0.2                         0.9
                                          -------                     -------                     -------
Balance, end of period                    $  (5.3)                    $  (2.9)                    $  (4.1)
                                          =======                     =======                     =======
<FN>
           See Notes to Consolidated Financial Statements (Unaudited)



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

                                                                Three Months Ended March 31,
                                                                ----------------------------
(In millions)                                                           1998            1997
---------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>
Cash flows from operating activities:
Premiums collected                                                   $ 386.1          $ 338.1
Net investment income collected                                         40.1             31.6
Losses and loss adjustment expenses paid                              (241.5)          (206.7)
Policy acquisition costs paid                                         (115.6)          (108.6)
Dividends paid to policyholders                                         (7.2)            (6.8)
Interest paid                                                           (9.7)           (10.3)
Payments on trust preferred securities                                  (5.5)               -
Federal income tax refunds (payments)                                   (8.5)             0.1
Other payments                                                         (15.4)           (13.4)
                                                                     -------          -------
Net cash provided by operating activities                               22.8             24.0
                                                                     -------          -------
Cash flows from investing activities:
Maturities of fixed maturity investments                                54.9             31.4
Sales of fixed maturity investments                                    198.8             67.6
Sales of equity securities                                             108.0             49.5
Investments in fixed maturities                                       (240.5)          (272.3)
Investments in equity securities                                      (104.1)           (49.3)
Net sales (purchases) of short-term investments                        (39.0)            15.1
Other receipts (payments)                                              (20.1)             9.3
                                                                     -------          -------
Net cash used in investing activities                                  (42.0)          (148.7)
                                                                     -------          -------
Cash flows from financing activities:
Net proceeds from issuance of trust preferred securities               121.9            123.2
Proceeds from exercise of stock options                                  0.7              0.2
Repayment of notes payable                                            (100.2)            (0.2)
Dividends paid to stockholders                                          (4.4)            (3.9)
Purchases of common stock                                               (6.6)            (0.3)
Other payments                                                          (0.4)            (0.3)
                                                                     -------          -------
Net cash provided by financing activities                               11.0            118.7
                                                                     -------          -------
Net decrease in cash                                                    (8.2)            (6.0)
Cash balance, beginning of period                                        9.3             11.6
                                                                     -------          -------
Cash balance, end of period                                          $   1.1          $   5.6
                                                                     =======          =======
<FN>
                 See Notes to Consolidated Financial Statements (Unaudited)


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

                                                                Three Months Ended March 31,
                                                               -----------------------------
(In millions)                                                          1998             1997
--------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings                                                         $  42.2         $  29.5
                                                                     -------         -------
Adjustments:
Depreciation and amortization                                           3.6              3.1
Amortization of excess of cost over fair
  value of net assets acquired                                          1.3              0.7
Deferred federal income taxes                                          (0.9)            (1.4)
Amortization of fixed maturity investments                             (0.6)            (0.2)
Non-cash investment income                                             (5.4)            (4.8)
Equity in (earnings) loss of affiliate,
  net of dividends received                                             0.6             (0.4)
Realized investment gains                                             (29.0)           (15.8)
Minority interest in subsidiary earnings                                -                1.6
Other                                                                   -               (0.1)

Changes in assets and liabilities:
Decrease (increase) in accrued investment income                        2.3             (2.5)
Decrease (increase) in accounts and notes receivable                    4.1             (0.6)
Decrease (increase) in reinsurance recoverable
  and prepaid reinsurance                                             (76.9)            10.3
Increase in deferred policy acquisition costs                          (6.3)            (3.3)
Increase in other assets                                               (0.8)            (1.1)
Increase (decrease) in losses                                          (6.1)             0.2
Increase in loss adjustment expenses                                   11.1              9.0
Increase in unearned premiums                                          14.1              1.0
Increase (decrease) in policyholders' dividends                         0.2             (1.7)
Increase in other liabilities                                          69.3              0.5
                                                                    -------          -------
 Total adjustments and changes                                        (19.4)            (5.5)
                                                                    -------          -------
Net cash provided by operating activities                           $  22.8          $  24.0
                                                                    =======          =======
<FN>
                See Notes to Consolidated Financial Statements (Unaudited)
</TABLE>



                                       8
<PAGE>
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

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

        The Company  completed two tender offers,  which increased its ownership
of Guaranty National Corporation ("Guaranty National") from 49.5% to 81% in July
1996 and to 100% in December 1997. A minority  interest charge was recorded
for the portion of Guaranty National's  earnings  attributable to the shares not
owned by the Company in 1997 until it became a wholly-owned subsidiary.

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

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

NOTE 2 - INVESTMENT IN AFFILIATE

         As of March 31 1998  the Company owned 24.7% of the common stock of
Intercargo  Corporation  ("Intercargo"),  a publicly held  company.  The Company
records its share of  Intercargo's  operating  results on a quarterly lag, after
Intercargo has reported its financial results.  Summarized financial information
of Intercargo reflected by the Company for the three months ended March 31, 1998
and 1997 is as follows:

                                       9
<PAGE>
<TABLE>
<CAPTION>

                                                             Three Months Ended March 31,
                                                            -----------------------------
(In millions)                                                      1998          1997
----------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>
Revenues:                                                           
Premiums earned                                                  $  16.9       $  16.4
Investment and other income                                          1.9           3.7
                                                                 -------       -------
                                                                    18.8          20.1
                                                                 -------       -------  
Expenses:
Insurance expenses                                                  18.8          17.7
Interest                                                              -            0.3
                                                                 -------       -------
                                                                    18.8          18.0
                                                                 -------       ------- 
Earnings (loss) before equity in earnings of
  affiliate and federal income taxes                                  -            2.1
Equity in earnings of affiliate                                       -            1.0
Federal income taxes                                                (2.1)         (0.2)
                                                                 -------       -------
Net earnings (loss)                                              $  (2.1)      $   2.9
                                                                 =======       ======= 
Company's proportionate share, including goodwill amortization   $  (0.6)      $   0.6
                                                                 =======       =======
<CAPTION>

NOTE 3 - REINSURANCE

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

                                                                Three Months Ended March 31,
                                                               -----------------------------
(In millions)                                                      1998              1997
-------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C> 
Direct premiums written                                          $ 441.7           $ 371.5
Reinsurance assumed                                                 14.1              25.2
                                                                 -------           -------
Gross premiums written                                             455.8             396.7
Reinsurance ceded                                                  (86.8)            (62.5)
                                                                 -------           -------
Net premiums written                                             $ 369.0           $ 334.2
                                                                 =======           =======
Direct premiums earned                                           $ 435.6           $ 362.1
Reinsurance assummed                                                10.9              33.5
                                                                 -------           -------
Gross premiums earned                                              446.5             395.6
Reinsurance ceded                                                  (97.7)            (71.6)
                                                                 -------           -------
Net premiums earned                                              $ 348.8           $ 324.0
                                                                 =======           =======
Loss and loss adjustment expenses incurred
  recoverable from reinsurers                                    $  70.4           $  32.6
                                                                 =======           =======
</TABLE>

                                       10
<PAGE>




NOTE 4 - TRUST PREFERRED SECURITIES

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

                                                Three Months Ended March 31,
(In millions)                                       1998            1997
----------------------------------------------------------------------------
8.73% Trust Preferred Securities
  due January 1, 2037                            $ 125.0         $ 125.0
7.701% Trust Preferred Securities
  due April 15, 2028                               125.0              -
                                                 -------         -------
                                                 $ 250.0         $ 125.0
                                                 =======         =======

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

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

NOTE 5 - STOCKHOLDERS' EQUITY AND EARNINGS PER COMMON SHARE

        The  Company  repurchased  134,377  shares  of its  common  stock  at an
aggregate  cost of $6.7  million  in the first  quarter of 1998.  The  remaining
authorization  from the Company's  Board of Directors for the purchase of common
stock was $21.6 million as of March 31, 1998.

        Basic  earnings  per  share  computations  are  based on the  weighted
average  number of shares of common  stock  outstanding  during  the  period and
excludes  dilution.  Diluted earnings per share reflects the potential  dilution
that could occur if all stock options and other stock-based awards were


                                       11
<PAGE>

exercised and  converted  into common  stock,  if their effect is dilutive.  The
weighted average common shares were 27,400,000 and 27,304,000,  and the weighted
average  common  shares  and  diluted  equivalent  shares  were  28,130,000  and
27,798,000  for the quarters  ended March 31, 1998 and 1997,  respectively.  The
1997 first  quarter  common  stock  shares and per common  stock data  presented
herein  has been  restated  to give  effect to the  2-for-1  stock  split of the
Company's common stock issued on July 7, 1997.

NOTE 6- CONTINGENCIES

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

NOTE 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    Exchange Translation     Comprehensive
(In millions)                        (Losses)           Gains (Losses)        Income (Loss)
-------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                  <C>
Quarter ended March 31, 1998:
Balance, beginning of period          $ 113.6             $  (4.4)             $ 109.2
Current period change                     5.5                   -                  5.5
                                      -------             -------              -------
Balance, end of period
                                      $ 119.1             $  (4.4)             $ 114.7
                                      =======             =======              =======

Quarter ended March 31, 1997:
Balance, beginning of period          $  72.3             $  (2.2)             $  70.1
Current period change                   (24.1)               (0.4)               (24.5)
                                      -------             -------              -------
Balance, end of period                $  48.2             $  (2.6)             $  45.6
                                      =======             =======              =======

Year ended December 31, 1997:
Balance, beginning of year            $  72.3             $  (2.2)             $  70.1
Current year change                      41.3                (2.2)                39.1
                                      -------             -------              -------
Balance, end of year                  $ 113.6             $  (4.4)             $ 109.2
                                      =======             =======              =======
</TABLE>

         The pretax  unrealized  investment  gains  (losses)  arising during the
period were $8.6  million and $(37.0)  million for the three  months ended March
31, 1998 and 1997,  respectively,  and $62.9 million for the year ended December
31, 1997. The pretax unrealized foreign exchange translation losses arising


                                       12
<PAGE>

during the period were $0.6  million for the three  months  ended March 31, 1997
and $3.4 million for the year ended December 31, 1997.

NOTE 8 - SUBSEQUENT EVENT

On  April  30,  1998,  Guaranty  National  completed  the  previously  announced
acquisition of the non-standard  personal automobile insurance business of North
Carolina  -  based  Strickland  Insurance  Group,  Inc.  ("SIG").  SIG  reported
approximately $99 million of personal  automobile gross premiums and $46 million
of net  premiums in 1997.  The  purchase  price was $42.6  million in cash.  The
acquisition will be accounted as a purchase. Included in the acquisition are two
insurance  companies,  a premium finance  company,  a claim adjusting firm and a
general agency in Florida.




























                                       13
<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 March 31, 1998, and
the related consolidated statements of earnings,  stockholders' equity, and cash
flows for the three-month periods ended March 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management.

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

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

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



DELOITTE & TOUCHE LLP


Hartford, Connecticut
April  30, 1998





                                       14
<PAGE>
                         ORION CAPITAL CORPORATION AND SUBSIDIARIES
                          MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                         FINANCIAL CONDITION AND RESULTS OPERATIONS
                         THREE MONTHS ENDED MARCH 31, 1998 AND 1997

GENERAL

Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively  the "Company")  operate  principally in the property and casualty
insurance  business.  The Company  reports  its  insurance  operations  in three
segments.  In  addition,   the  miscellaneous  income  and  expenses  (primarily
interest,   general  and   administrative   expenses  and  other   consolidating
elimination entries) of the parent company are reported as a fourth segment. The
three insurance segments as of March 31, 1998 are as follows:

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

SPECIAL PROGRAMS - this segment comprises the following:

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

 -  Orion Specialty, which writes specialty insurance programs and commercial
   non-standard automobile insurance;

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

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

GUARANTY NATIONAL COMPANIES ("Guaranty  National") - this segment specializes in
non-standard automobile insurance.

The Company  increased  its  ownership of Guaranty  National to 100% in December
1997. Beginning in 1998,the commercial business lines of Guaranty National were
consolidated  with  Connecticut  Specialty  to form a new  company  named  Orion
Specialty.  Orion Specialty focuses on specialty commercial  insurance.  Through
the  integration  of  these   operations,   Orion  Specialty  gains   additional
capabilities  and  efficiencies  than  could be  provided  separately.  The 1997
segment  disclosures  have been  revised to conform  with the  current  basis of
presentation.

Following  the  formation  of  Orion   Specialty,   Guaranty   National   became
substantially a personal non-standard  automobile insurance operation.  The
Company  increased  its  ownership  in Guaranty  National,  in part,  to provide
Guaranty National with additional  financing  options,  on terms that may not be
available to it as an independent  entity, so that it can continue its expansion
in the non-standard personal automobile insurance business.
                                       15

<PAGE>

On  April  30,  1998,  Guaranty  National  completed  the  previously  announced
acquisition of the non-standard  personal automobile insurance business of North
Carolina  -  based  Strickland  Insurance  Group,  Inc.  ("SIG").  SIG  reported
approximately $99 million of personal  automobile gross premiums and $46 million
of net  premiums in 1997.  The  purchase  price was $42.6  million in cash.  The
acquisition will be accounted as a purchase. Included in the acquisition are two
insurance  companies,  a premium finance  company,  a claim adjusting firm and a
general agency in Florida.

In March 1998,  Orion  announced  that a letter of intent had been signed  under
which the Company would acquire Grocers  Insurance Group ("Grocers") from United
Grocers,  Inc. Grocers is an Oregon-based  specialty  insurance  holding company
serving the grocery and food service industry.  Grocers wrote  approximately $23
million of net premiums in 1997,  principally  general  liability,  property and
workers  compensation  with  the  majority  of its  volume  concentrated  in the
northwestern  states.  A  definitive  agreement  is  expected  during the second
quarter of 1998 with  completion of the  acquisition  expected late in the third
quarter.

RESULTS OF OPERATIONS

OVERVIEW

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

                               Three Months Ended March 31,       Percentage
                               ----------------------------         change
(In millions)                     1998              1997
----------------------------------------------------------------------------

Regional Operations             $ 28.4            $ 20.7              37.2%
Special Programs                  29.7              21.1              40.8
Guaranty National                  7.9               6.9              14.5
Other                             (5.1)             (5.3)             (3.8)
                                ------            ------              ----
                                $ 60.9            $ 43.4              40.3%
                                ======            ======              ====

The Company's  operating  earnings for the first quarter of 1998 increased 20.8%
to $23.4  million  from $19.3  million in the same period  last year.  Operating
earnings  comprises  earnings  after taxes,  excluding  net realized  investment
gains. On a diluted per common share basis,  operating  earnings increased 18.6%
to $0.83 per  common  share in the first  quarter  of 1998 from $0.70 per common
share in the same 1997 period.  The Company's results include after-tax realized
investment  gains of $18.8  million,  or $0.67 per diluted  share,  in the first
quarter  of 1998,  and  $10.1  million,  or $0.36  per  diluted  share,  for the
corresponding   prior  year  period.   The  strong  performance  from  insurance
operations combined with a significant increase in quarter-to-quarter  after-tax
realized  investment gains resulted in a 43.1% increase in net earnings compared
to the prior year period. Net earnings were $42.2 million, or $1.50 per diluted
share, for the quarter ended March 31, 1998, up from $29.5 million, or $1.06 per
diluted  common share for the same 1997 period.  Weighted  average common shares
and diluted  equivalents  outstanding  were  28,130,000 for the first quarter of
1998 and 27,798,000 for the same 1997 period.

                                       16
<PAGE>


REVENUES

Revenues are summarized as follows:


                                    Three Months Ended
                                         March 31,
                                 -------------------------       Percentage
(In millions)                       1998           1997            Change
---------------------------------------------------------------------------

Premiums written                 $ 369.0        $ 334.2              10.4%
                                 =======        =======              =====
Premiums earned                  $ 348.8        $ 324.0               7.7%
Net investment income               41.4           40.2               2.9
Realized investment gains           29.0           15.8              83.4
Other                                5.6            4.9              14.3
                                 -------        -------             -----
Total revenues                   $ 424.8        $ 384.9              10.4%
                                 =======        =======             =====

PREMIUMS WRITTEN

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

                                     Three Months Ended          
                                          March 31,              
                                  -------------------------      Percentage
(In millions)                        1998            1997          Change
----------------------------------------------------------------------------

Regional Operations                $110.7          $ 87.8           26.1%
Special Programs                    162.3           164.3           (1.2)
Guaranty National                    96.0            82.1           17.0
                                   ------          ------           -----
                                   $369.0          $334.2           10.4%
                                   ======          ======           =====

In November  1996,  the Company sold the renewal book of business of its assumed
reinsurance  operation to concentrate on businesses where the Company can better
service its specialized niche markets.  Excluding  premiums from this operation,
the  Company's net premiums  written  increased by 12.4% in the first quarter of
1998 over the prior year period.

Regional Operations

Net  premiums  written  for  Regional  Operations  increased  by  26.1%  in 1998
principally from growth generated by EBI's  multi-state  program  established in
1997.  Additionally,  the increase in net premiums written in 1998 is attributed
to EBI's continued  geographic  expansion and penetration,  partly offset by the
impact of statutory rate reductions of last year.






                                       17
<PAGE>


Special Programs

Net premiums written from Special Programs are as follows:

                                   Three Months Ended
                                        March 31,
                                 ------------------------       Percentage
(In millions)                      1998            1997           Change
------------------------------------------------------------------------------

Orion Specialty                 $ 103.5         $ 102.0             1.5%
DPIC                               42.3            43.9            (3.7)
McGee                              16.6            12.7            30.4
                                -------         -------          -------
                                  162.4           158.6             2.5
Assumed reinsurance                (0.1)            5.7          (101.8)
                                -------         -------          -------
                                $ 162.3         $ 164.3           (1.2)%
                                =======         =======          =======

Excluding premiums from the assumed reinsurance  business sold in November 1996,
this  segment's net premiums  written  increased  2.5% for the 1998 period.  Net
premiums  written by DPIC for  professional  liability  insurance,  the  largest
special  program,  decreased  3.7%  in  1998,  primarily  as a  result  of  rate
reductions in a very competitive  professional liability insurance market offset
in part by continued high levels of policy renewals.

Orion   Specialty's  net  premiums   written   increase  of  1.5%  is  primarily
attributable  to increases in net  premiums  from the contract and  brokerage
division and standard commercial  insurance  operations,  partly offset by lower
premiums from trucking liability and cancelled ocean marine programs.

McGee's net premiums written  increased 30.4% for the 1998 period reflecting the
Company's greater  participation in the underwriting pools managed by McGee. The
Company's  participation in McGee's United States pool is approximately  71% and
52% in 1998 and 1997,  respectively.  Participation  in McGee's Canadian pool is
approximately 72% and 61% in 1998 and 1997, respectively.

Guaranty National

The 17.0% net premiums  written  growth in the 1998 first quarter over the prior
year period is primarily due to continued growth in the monthly product business
in  California,  increases  in premiums  from the  northwestern  states and from
premium  associated from the acquisition of Unisun Insurance Company in December
1997.  Premium  growth  in  California  is  attributed  to  enacted  legislation
requiring all drivers to maintain liability insurance.

PREMIUMS EARNED

The Company's  premiums  earned  increased  7.7% to $348.8  million in the first
quarter of 1998 from $324.0 million in the corresponding 1997  period.  Premiums
earned reflect the recognition of income from the changing levels of net premium
writings.

                                       18
<PAGE>


NET INVESTMENT INCOME

Pre-tax net  investment  income is $41.4  million and $40.2  million in 1998 and
1997,  respectively.  The pre-tax yields on the average investment portfolio are
7.0% in  1998  and  7.3% in  1997,  with  after-tax  yields  of 5.5%  and  5.6%,
respectively.  Net investment  income  increased 2.9% in 1998 primarily due to a
higher  investment base and from limited  partnership  equity earnings offset in
part by slightly lower investment  yields.  The higher  investment base for 1998
reflects the  investment  of proceeds  from the issuance of $125 million  7.701%
trust  preferred  securities  in  February  1998  and the  effects  of  positive
operating  cash flow.  These  increases have been partly offset by cash used for
acquisitions of Guaranty  National common shares and Unisun Insurance Company in
December  1997 as well as  repayment  of the $100  million  bank  indebtness  of
Guaranty National.

Net  investment  income  reflects  increases  from  equity  earnings  in limited
partnership  investments  to $5.2 million in the first quarter of 1998 from $4.6
million for the same 1997 period.  Over one-half of the equity  earnings in 1998
resulted  from three  limited  partnership  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;  however,  they represent only 4.1% and 3.6% of total  investments at
March 31, 1998 and December 31, 1997, respectively.

Fixed maturity  investments  which the Company has both the positive  intent and
the ability to hold to maturity are recorded at amortized  cost.  Fixed maturity
investments  which may be sold in response  to, among other  things,  changes in
interest rates,  prepayment  risk,  income tax strategies or liquidity needs are
classified as  available-for-sale  and are carried at market value. The carrying
value of fixed maturity and short-term  investments is $2,051.8 million at March
31, 1998 and $2,010.9 million at December 31, 1997, or  approximately  78.2% and
78.8% of the Company's cash and investments, respectively.

The  Company's  investment  philosophy  is to achieve a superior  rate of return
after taxes, while maintaining a proper balance of safety,  liquidity,  maturity
and marketability.  The Company invests primarily in investment grade securities
and strives to enhance  the  average  return of its  portfolio  through  limited
investment  in a  diversified  group  of  non-investment  grade  fixed  maturity
securities or securities that are not rated.  The risk of loss due to default is
generally  considered  greater  for  non-investment  grade  securities  than for
investment grade securities  because the former,  among other things,  are often
subordinated to other  indebtedness of the issuer and are often issued by highly
leveraged  companies.  At March 31, 1998 and December 31,  1997,  the  Company's
investment in non-investment  grade and non-rated fixed maturity securities were
carried at $262.0 million and $256.7 million,  respectively.  These  investments
represented a total of 10.0% and 10.1% of cash and investments and 6.5% and 6.6%
of total assets at March 31, 1998 and December 31, 1997, respectively.

REALIZED INVESTMENT GAINS

Net realized  investment gains are $29.0 million and $15.8 million for the three
months ended March 31, 1998 and 1997,  respectively.  Approximately  one-half of
the first quarter 1998 net realized  investment  gains resulted from the sale of
two  investments  in entities  which were  acquired or taken  public  during the
quarter. Realized investment gains may


                                       19
<PAGE>

be  reduced by  provisions  for losses on  securities  deemed to be  other-than-
temporarily  impaired.  An impairment provision was not recognized for the three
months  ended March 31, 1998 and was $1.8  million  for the three  months  ended
March 31, 1997. Any such provision is based on available information at the time
and is made in  consideration  of the decline in the financial  condition of the
issuers of such securities.  Realized investment gains (losses) vary from period
to period,  depending on market conditions relative to the Company's  investment
holdings,  the timing of  investment  sales  generating  gains and  losses,  the
occurrence  of events which give rise to  other-than-temporary  impairment  of
investments, and other factors.


EXPENSES AND OTHER

OPERATING RATIOS

The following table sets forth certain ratios of insurance operating expenses to
premiums earned:
                                                        Three Months Ended
                                                             March 31,
                                                     1998              1997
----------------------------------------------------------------------------

Loss and loss adjustment expenses                     66.5%             67.6%
Policy acquisition costs and 
  other insurance expenses                            31.0              31.1
                                                    ------            ------
   Total before policyholders' dividends              97.5              98.7
Policyholders' dividends                               1.8               1.6
                                                    ------            ------
   Combined ratio                                     99.3%            100.3%
                                                    ======            ======
Loss and loss adjustment expenses ratio by segment:
   Regional Operations                                56.6%             58.5%
   Special Programs                                   69.6              70.6
   Guaranty National                                  72.0              71.4

The  improvement  in the loss ratio for  Regional  Operations  results  from the
favorable loss  experience  and lower loss expenses  achieved by EBI through its
service-oriented  approach  offset in part by less  favorable  loss  development
relating to prior accident  years.  EBI's service  oriented  approach is to work
with its customers to prevent losses and reduce claim costs.

The  improvement  in  the  1998  loss  ratio  for  Special  Programs  is  mainly
attributable to lower losses from certain cancelled  programs at Orion Specialty
offset in part by an  increased  unfavorable  affect of the assumed  reinsurance
business  exited in late 1996. Net earned  premiums from the exited  reinsurance
business declined at a greater rate than losses in 1998 compared to 1997.

Guaranty National's loss ratio was slightly higher at 72.0% in the first quarter
of 1998 compared to 71.4% in the 1997 period.

The ratio of policy  acquisition costs and other insurance  expenses to premiums
earned  (the  "expense  ratio") is 31.0 % and 31.1% for the three  months  ended
March 31, 1998 and 1997,  respectively.  Policy acquisition costs include direct
costs, such as commissions,


                                       20
<PAGE>

premium  taxes,  and salaries that relate to and vary with the production of new
business.  These costs are  deferred and  amortized as the related  premiums are
earned, subject to a periodic test for recoverability.

Management  believes  that the Company's  reserves for loss and loss  adjustment
expenses make  reasonable and sufficient  provision for the ultimate cost of all
losses on claims  incurred.  However,  there can be no assurance that changes in
loss trends will not result in additional  development of prior years'  reserves
in the  future.  Provisions  for losses  and loss  adjustment  expenses  include
development  of loss and loss  adjustment  expense  reserves  relating  to prior
accident  years,  which  increased  the  calendar  year  combined  ratio  by 1.2
percentage  points in the first quarter of 1998 and 0.5 percentage points in the
same period of 1997.  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  continue at the low levels  experienced  in recent
years,  considering  actions that have been taken to increase  reserving levels,
improve underwriting standards and emphasize loss prevention and control.

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

INTEREST EXPENSE

Interest expense is $5.8 million and $6.1 million for the first quarters of 1998
and 1997,  respectively.  Interest  expense  declined in 1998 as a result of the
repayment of the $100 million bank indebtedness of Guaranty National in February
1998 with  proceeds from the issuance of the  Company's  7.701% trust  preferred
securities.

OTHER EXPENSES

Other expenses are $11.1 million and $11.0 million for the first quarters of 
1998 and 1997, respectively.

EQUITY IN EARNINGS (LOSS) OF AFFILIATE

Equity in earnings  (loss) of  affiliate  consists of earnings  (loss) of $(0.6)
million and $0.6 million for the first  quarters of 1998 and 1997,  respectively
from the Company's 24.7% investment in Intercargo. The Company records its share
of Intercargo's results in the subsequent quarter.

EARNINGS BEFORE FEDERAL INCOME TAXES AND MINORITY INTEREST EXPENSE

Earnings  before  federal income taxes and minority  interest  expense are $60.9
million and $43.4 million for the first quarters of 1998 and 1997, respectively.
The  increase  in pretax  earnings  for the three  months  ended  March 31, 1998
reflects  improvement in insurance  operations  profitability and an increase in
realized investment gains.

                                       21
<PAGE>


FEDERAL INCOME TAXES

Federal income taxes  (including tax benefits from trust  preferred  securities)
and the related  effective tax rates are $14.5 million  (25.6%) and $9.9 million
(22.9%) for the first  quarters of 1998 and 1997,  respectively.  The  Company's
effective  tax rates for 1998 and 1997 are less than the  statutory  tax rate of
35% primarily because of income derived from tax-advantaged securities.

MINORITY INTEREST EXPENSE

Minority  interest  expense in  subsidiary  trust  preferred  securities of $2.7
million and $1.6 million for the first quarters of 1998 and 1997,  respectively,
represents  the  financing  cost,  after the federal  income tax  deduction,  on
Orion's  8.73% and 7.701%  trust  preferred  securities.  The  increase  in 1998
reflects minority interest expense  associated with the issuance of $125 million
7.701% trust preferred securities in February 1998.

Minority interest expense of $1.6 million was recorded for the after-tax portion
of Guaranty National's 1997 first quarter earnings  attributable to stockholders
of  Guaranty  National  other  than  the  Company.  Guaranty  National  became a
wholly-owned subsidiary of the Company in December 1997.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities decreased by $1.2 million to $22.8 million
in the first  quarter of 1998 from $24.0  million in the first  quarter of 1997.
The  decrease in operating  cash flow for 1998 is the result of higher  payments
for losses, policy acquisition costs,  policyholders' dividends,  federal income
taxes  and  minority  interest  from  subsidiary  trust  preferred   securities,
consistent with the Company's growth in recent years and includes the payment of
losses for the assumed reinsurance business the Company exited in November 1996.
Partially   offsetting   these  increased  cash  outflows  are  higher  premiums
collected, reflective of the Company's current rate of growth, as well as higher
investment income collected.

Cash used in  investment  activities  decreased  by $106.7  million in the first
quarter of 1998 to $42.0  million  from $148.7  million in the first  quarter of
1997.  Cash  is  used  in  investment  activities  primarily  for  purchases  of
investments  and  acquisition  activities.  Investment  purchases  are funded by
maturities and sales of  investments,  as well as by the net cash from operating
cash flows after cash provided by or used in financing activities.

Cash  provided  by  financing  activities  is $11.0  million for 1998 and $118.7
million  for  1997.  The net  proceeds  from the  issuance  of  trust  preferred
securities by the Company  provided $121.9 million and $123.2 million of cash in
the  first  quarters  of 1998 and  1997,  respectively.  Net  proceeds  from the
issuance of the 7.701% trust  preferred  securities  were used to repay the $100
million bank  indebtedness  of Guaranty  National in February 1998. Cash used in
financing activities also includes dividend payments,  scheduled debt repayments
and payments  related to the Company  common  stock  repurchase  program.  Orion
increased the quarterly dividend rate on its common stock by 14.3% in the second
quarter of 1997.



                                       22
<PAGE>

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

Orion's insurance subsidiaries maintain liquidity in their investment portfolios
substantially  in  excess of that  required  to pay  claims  and  expenses.  The
insurance  subsidiaries  held cash and short-term  investments of $195.7 million
and $160.4  million at March 31, 1998 and December 31, 1997,  respectively.  The
consolidated  policyholders' surplus of Orion's insurance subsidiaries is $835.6
million  and  $789.0   million  at  March  31,  1998  and   December  31,  1997,
respectively.  The Company's  statutory  operating  leverage  ratios of trailing
twelve months net premiums written to policyholders'  surplus is 1.7:1 and 1.8:1
at March 31, 1998 and December 31, 1997, respectively.

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 March 31, 1998 the
Company  is in  compliance  with  the  terms  of  its  senior  note  indentures.
Management  believes that the Company  continues to have substantial  sources of
capital and liquidity from the capital markets and bank borrowings.

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

On February  2, 1998 Orion  issued $125  million of 7.701%  Junior  Subordinated
Deferrable  Interest  Debentures  due April 15, 2028 to Orion  Capital  Trust II
("Trust II"), a Delaware  statutory  business trust sponsored by Orion. Trust II
then sold $125 million of 7.701% Capital  Securities,  which have  substantially
the  same  terms as the  7.701%  Debentures,  in a  private  placement.  The net
proceeds from the sales of these securities were used to repay $100 million bank
indebtness of Guaranty  National in February 1998.  Orion registered the capital
securities under the Securities Act of 1933, pursuant to an exchange offer which
expires on June 4, 1998.

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



                                       23
<PAGE>

The Company issued a 2-for-1 split on its common stock on July 7, 1997. The 1997
first  quarter  common stock shares and per common share data  presented in this
document has been  restated to give effect to this stock split.  The Company has
repurchased  134,377  shares of its common  stock at an  aggregate  cost of $6.7
million in the first quarter of 1998. In February  1998,  the Board of Directors
increased the  authorization  for purchases of the Company's  common stock by an
additional  $25  million.  At March 31,  1998,  the  Company's  remaining  stock
purchase authorization from its Board of Directors amounted to $21.6 million.

LEGAL PROCEEDINGS

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

ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

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

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;  and (ix) other
factors over which the Company has little or no control.  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.



                                       24
<PAGE>



                                 PART II. OTHER INFORMATION

ITEMS 1 - 5.

None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   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.

(b)   Report on Form 8-K

None.




                                       25
<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:  May 13, 1998                              By: /s/ W. Marston  Becker
                                                 --------------------------
                                                 Chairman of the Board and
                                                 Chief Executive Officer



Date: May 13, 1998                               By: /s/ Donald W. Ebbert, Jr.
                                                 -----------------------------
                                                 Executive Vice President and
                                                 Chief Financial Officer
















                                       26
<PAGE>

                                       EXHIBIT INDEX

                                                                           Page
         

Exhibit 11:      Computation of Earnings Per Common Share                    28


Exhibit 15:      Deloitte & Touche LLP Letter
                 Re:unaudited interim financial information                  29


Exhibit 27:      Financial Data Schedule                                  30-31
                                    27