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, 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  27.2  million  shares of Common  Stock,  $1.00 par value,  of the
registrant were outstanding on May 1, 1999.

                                  Page 1 of 33
                        Exhibit Index Appears at Page 33

                                       1
<PAGE>
                                   

                            ORION CAPITAL CORPORATION
                                 FORM 10-Q INDEX
                      For the Quarter Ended March 31, 1999

                                                                           Page

PART I. FINANCIAL INFORMATION

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

         Consolidated Statement of Operations for the three months
         ended March 31, 1999 and 1998 (Unaudited)                             5

         Consolidated  Statement of Stockholders'  Equity for the three
         months ended March 31, 1999 and 1998 (Unaudited),
         and for the year-ended December 31, 1998                              6

         Consolidated Statement of Cash Flows for the three months
         ended March 31, 1999 and 1998 (Unaudited)                         7 - 8

         Notes to Consolidated Financial Statements (Unaudited)           9 - 14

         Independent Accountants' Review Report                               15

Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                             16 - 31

PART II. OTHER INFORMATION                                                    31


                                       2
<PAGE>
                                       

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

                                                     March 31, 1999 December 31,
(In millions)                                          (Unaudited)      1998
--------------------------------------------------------------------------------
Assets:
Investments: -
Fixed maturities, at amortized cost
   (market $270.3 - 1999 and $272.7 - 1998) .......... $    260.2    $    260.6
Fixed maturities, at market (amortized cost
   $1,391.7 - 1999 and $1,305.5 - 1998) ..............    1,429.8       1,349.9
Common stocks, at market (cost $164.0 -
   1999 and $200.3 - 1998) ...........................      189.6         242.4
Non-redeemable preferred stocks, at market
   (cost $248.1 - 1999 and $269.1 - 1998) ............      245.5         268.5
Other long-term investments ..........................       95.7         116.2
Short-term investments ...............................      198.7         248.7
                                                       ----------    ----------

      Total investments ..............................    2,419.5       2,486.3

Cash .................................................       35.4          18.0
Accrued investment income ............................       26.8          27.0
Investment in affiliate ..............................       22.8          22.8
Accounts and notes receivable ........................      154.8         217.2
Reinsurance recoverables and prepaid reinsurance .....      910.4         801.5
Deferred policy acquisition costs ....................      147.4         155.6
Property and equipment ...............................      100.7          95.4
Excess of cost over fair value of net assets acquired       166.1         167.7
Federal income taxes receivable ......................       49.8          22.4
Deferred federal income taxes ........................       53.7          26.7
Other assets .........................................      118.5         123.8
                                                       ----------    ----------

      Total assets ................................... $  4,205.9    $  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
<TABLE>
<CAPTION>

                                                       March 31, 1999   December 31,
(In millions, except for share data)                    (Unaudited)         1998
------------------------------------------------------------------------------------
Liabilities:
Policy liabilities: -
<S>                                                       <C>          <C>       
  Losses ................................................ $  1,680.1   $  1,602.1
  Loss adjustment expenses ..............................      472.4        415.6
  Unearned premiums .....................................      560.3        564.0
  Policyholders' dividends ..............................       18.1         17.9
                                                          ----------   ----------
Total policy liabilities ................................    2,730.9      2,599.6
Notes payable ...........................................      209.4        217.4
Other liabilities .......................................      400.0        370.1
                                                          ----------   ----------             
Total liabilities .......................................    3,340.3      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 .........................................      147.7        149.6
Retained earnings .......................................      455.8        553.2
Accumulated other comprehensive income ..................       42.4         58.5
Treasury stock, at cost (3,396,817 shares -
   1999 and 3,505,091 shares - 1998).....................      (53.7)       (57.8)
Deferred compensation on restricted stock ...............       (7.3)        (6.9)
                                                          ----------   ----------        
    Total stockholders' equity ..........................      615.6        727.3
                                                          ----------   ----------
    Total liabilities and stockholders' equity .......... $  4,205.9   $  4,164.4
                                                          ==========   ==========
</TABLE>
[FN]

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

                                       4
<PAGE>

                                       


                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                                                   Three Months Ended March 31,
                                                   ----------------------------
(In millions, except for per share data)                   1999       1998
-------------------------------------------------------------------------------
Revenues:
Premiums earned ....................................... $   299.1  $   348.8
Net investment income .................................      34.4       41.4
Realized investment gains .............................       1.7       29.0
Other income ..........................................       1.1        5.6
                                                        ---------  ---------
 Total revenues .......................................     336.3      424.8
                                                        ---------  ---------
Expenses:
Losses incurred and loss adjustment expenses ..........     365.6      232.3
Amortization of deferred policy acquisition costs .....      87.7      100.8
Other insurance expenses ..............................       1.8        6.9
Dividends to policyholders ............................       6.0        6.4
Interest expense ......................................       4.6        5.8
Other expenses ........................................       7.3       11.1
                                                        ---------  ---------
 Total expenses .......................................     473.0      363.3
                                                        ---------  ---------
Earnings (loss) before equity in earnings  (loss) of
   affiliate,  federal  income
   taxes, minority interest expense and cumulative 
   effect of adoption of new accounting principle .....    (136.7)      61.5
Equity in earnings (loss) of affiliate ................        --       (0.6)
                                                        ---------  ---------
Earnings (loss) before federal income taxes, minority
  interest expense and cumulative effect of
  adoption of new accounting principle ................    (136.7)      60.9
Federal income tax expense (benefit) ..................     (52.1)      16.0
Minority interest expense of subsidiary trust
   preferred securities, net of federal income taxes ..       3.4        2.7
                                                        ---------  ---------
Earnings (loss) before cumulative effect of adoption of
   new accounting principle ...........................     (88.0)      42.2
Cumulative effect of adoption of new accounting
   principle, net of tax...............................      (4.6)        --
                                                        ---------  ---------
 Net earnings (loss) .................................. $   (92.6) $    42.2
                                                        =========  =========
Net earnings (loss) per common share:
Earnings (loss) before cumulative effect of adoption of
   new accounting principle ........................... $   (3.26) $    1.54
Cumulative effect of adoption of new accounting
   principle ..........................................     (0.17)        --
                                                        ---------  ---------
 Basic ................................................ $   (3.43) $    1.54
                                                        =========  =========
Earnings (loss) before cumulative effect of adoption of
   new accounting principle ........................... $   (3.26) $    1.50
Cumulative effect of adoption of new accounting
   principle ..........................................     (0.17)        --
                                                        ---------  ---------
 Diluted .............................................. $   (3.43) $    1.50
                                                        =========  =========
[FN]
          
           See Notes to Consolidated Financial Statements (Unaudited)

</FN>

                                       

                                       5
<PAGE>



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

                                    Three Months Ended         Three Months Ended        Year Ended
                                      March 31, 1999             March 31, 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          (1.9)                      0.7                     (2.5)
                                     -------                   -------                  ------- 
Balance, end of period               $ 147.7                   $ 152.8                  $ 149.6
                                     =======                   =======                  =======
Retained Earnings:
Balance, beginning of period         $ 553.2                   $ 469.5                  $ 469.5
Net earnings (loss)                    (92.6)    $ (92.6)         42.2     $  42.2        102.8      $ 102.8
                                                 -------                   -------                   ------- 
Dividends declared                      (4.8)                     (4.4)                   (19.1)
                                     -------                   -------                  -------
Balance, end of period               $ 455.8                   $ 507.3                  $ 553.2
                                     =======                   =======                  =======             
Accumulated Other
  Comprehensive Income:
Balance, beginning of period         $  58.5                   $ 109.2                  $ 109.2
Unrealized investment
  gains (losses), net of taxes                     (16.5)                      5.5                     (52.4)
Unrealized foreign exchange
  translation gains, net of taxes                    0.4                         -                       1.7
                                                 -------                   -------                   -------              
Other comprehensive income (loss)      (16.1)      (16.1)          5.5         5.5        (50.7)       (50.7)
                                     -------     -------       -------     -------       -------     -------  
Comprehensive income (loss)                      $(108.7)                  $  47.7                   $  52.1
                                                 =======                   =======                   =======
Balance, end of period               $  42.4                   $ 114.7                  $  58.5
                                     =======                   =======                  =======             
Treasury Stock:
Balance, beginning of period         $ (57.8)                  $ (34.3)                 $ (34.3)
Exercise of stock options and net
  issuance of restricted stock           4.1                       1.6                     13.4
Common stock issued pursuant to
  employee stock purchase plan             -                         -                      1.1
Acquisition of treasury stock              -                      (6.7)                   (38.0)
                                     -------                   -------                  -------
Balance, end of period               $ (53.7)                  $ (39.4)                 $ (57.8)
                                     =======                   =======                  =======  
Deferred Compensation on
  Restricted Stock:
Balance, beginning of period         $  (6.9)                  $  (4.1)                 $  (4.1)
Net issuance of restricted stock        (1.0)                     (1.6)                    (4.3)
Amortization of deferred
  compensation on restricted stock       0.6                       0.4                      1.5
                                     -------                   -------                  -------
Balance, end of period               $  (7.3)                  $  (5.3)                 $  (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)
                                                    Three Months Ended March 31,
                                                    ----------------------------
(In millions)                                              1999         1998
--------------------------------------------------------------------------------
Cash flows from operating activities:
Premiums collected                                        $ 357.5      $ 386.1
Net investment income collected                              31.0         40.1
Losses and loss adjustment expenses paid                   (288.9)      (241.5)
Policy acquisition costs paid                               (90.5)      (115.6)
Dividends paid to policyholders                              (5.8)        (7.2)
Interest paid                                                (8.7)        (9.7)
Payments on trust preferred securities                       (5.5)        (5.5)
Federal income tax refunds (payments)                        20.0         (8.5)
Other payments                                               (7.2)       (15.4)
                                                          -------      -------
Net cash provided by operating activities                     1.9         22.8
                                                          -------      -------

Cash flows from investing activities:
Maturities of fixed maturity investments                     31.4         54.9
Sales of fixed maturity investments                         156.8        198.8
Sales of equity securities                                  165.2        108.0
Investments in fixed maturities                            (292.1)      (240.5)
Investments in equity securities                            (98.1)      (104.1)
Net sales (purchases) of short-term investments              55.5        (39.0)
Acquisition and divestiture activities                       (4.3)        (2.9)
Purchase of property and equipment, net                      (9.2)        (4.5)
Other receipts (payments)                                    21.9        (12.7)
                                                          -------      -------
Net cash provided by (used in) investing activities          27.1        (42.0)
                                                          -------      -------
Cash flows from financing activities:
Net proceeds from issuance of trust preferred securities        -        121.9
Proceeds from exercise of stock options                       1.2          0.7
Repayment of notes payable                                   (8.0)      (100.2)
Dividends paid to stockholders                               (4.8)        (4.4)
Purchases of common stock                                       -         (6.6)
Other payments                                                  -         (0.4)
                                                          -------      -------
Net cash (used in) provided by financing activities         (11.6)        11.0
                                                          -------      -------
Net increase (decrease) in cash                              17.4         (8.2)
Cash balance, beginning of period                            18.0          9.3
                                                          -------      -------
Cash balance, end of period                               $  35.4      $   1.1
                                                          =======      =======
[FN]

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


                                       7
<PAGE>

                                       



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

                                                    Three Months Ended March 31,
                                                    ----------------------------
(In millions)                                              1999         1998
--------------------------------------------------------------------------------
Reconciliation of net earnings (loss) to net cash
  provided by operating activities:
Net earnings (loss)                                       $ (92.6)    $  42.2
                                                          -------     -------

Adjustments:
Cumulative effect of adoption of new
  accounting principle                                        4.6           -
Depreciation and amortization                                 4.7         3.6
Amortization of excess of cost over fair
  value of net assets acquired                                1.5         1.3
Deferred federal income taxes                               (15.6)       (0.9)
Amortization of fixed maturity investments                    1.0        (0.6)
Non-cash investment income                                   (2.2)       (5.4)
Realized investment gains                                    (1.7)      (29.0)
Equity in loss of affiliate                                     -         0.6

Changes in assets and liabilities, net of acquisition
  and divestiture activities:
Decrease in accrued investment income                         0.2         2.3
Decrease in accounts and notes receivable                    15.4         4.1
Increase in reinsurance recoverable
  and prepaid reinsurance                                  (116.1)      (76.9)
Increase in deferred policy acquisition costs                (4.4)       (6.3)
Decrease (increase) in federal income
  taxes receivable                                          (29.3)        8.5
Increase in other assets                                     (9.5)       (0.8)
Increase in losses and loss adjustment expenses             171.4         5.0
Increase in unearned premiums                                36.3        14.1
Increase in policyholders' dividends                          0.2         0.2
Increase in other liabilities                                38.0        60.8
                                                          -------     -------

 Total adjustments and changes                               94.5       (19.4)
                                                          -------     -------

Net cash provided by operating activities                  $  1.9     $  22.8
                                                          =======     =======
[FN]

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


                                       8
<PAGE>
                                     



                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                   Three Months Ended March 31, 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.

     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 $0.9  million,  or $0.03 per common  share,  for the
three months ended March 31, 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  recently  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 or plans to exit.  As a result of this  study,  the
Company  recorded a net pre-tax charge of $164.5 million in the first quarter of
1999 primarily

                                       9
<PAGE>
                                     
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

related to the Specialty  Commercial and Workers  Compensation segments. The net
charge primarily  comprised 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 included a $25.5  million net ceded premium  adjustment  based
upon the Company's  loss  experience.  Approximately  $123.4 million of the loss
reserve  provision is 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.  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  focus  its  resources  on  more
profitable  business,  on April 9, 1999 the Company  sold Wm. H. McGee & Co. 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, which will be reported in the second quarter of
1999.  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 three months ended March 31, 1999 within this  restructuring  reserve was as
follows:

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

Balance at December 31, 1998                      $    5.1
   Actions taken:
   Severance and program termination costs            (0.9)
                                                  --------
Balance at March 31, 1999                         $    4.2
                                                  ========

     The Company is  performing  a strategic  review of the $150 million book of
specialty  commercial program and binding authority business of Orion Specialty.
See "Recent Activities" on page 17.

Note 3 - Investment in Affiliate

     As of March 31, 1999, the carrying value of the Company's 26% investment in
Intercargo Corporation ("Intercargo") was $22.8 million, representing the amount
that the Company agreed to

                                       10
<PAGE>

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

sell Intercargo in cash pursuant to Intercargo's  merger with a subsidiary of XL
Capital, Ltd. See note 9 "Subsequent Event."

         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 months ended March 31, 1998,  Intercargo  reported $18.8
million of revenues and $2.1 million of net loss.  The  Company's  proportionate
share of Intercargo net loss including  goodwill  amortization  was $0.6 million
for the first quarter of 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 for the three months ended March 31:


(In millions)                                          1999          1998
--------------------------------------------------------------------------
Direct premiums written ............................$  480.8      $  441.7
Reinsurance assumed ................................    32.6          14.1
                                                      ------        ------
Gross premiums written .............................   513.4         455.8
Reinsurance ceded ..................................  (238.5)        (86.8)
                                                      ------        ------
Net premiums written ...............................$  274.9      $  369.0
                                                      ======        ======

Direct premiums earned .............................$  494.4      $  435.6
Reinsurance assumed ................................    15.4          10.9
                                                      ------        ------
Gross premiums earned ..............................   509.8         446.5
Reinsurance ceded ..................................  (210.7)        (97.7)
                                                      ------        ------
Net premiums earned ................................$  299.1      $  348.8
                                                      ======        ======
Loss and loss adjustment expenses incurred
   recoverable from reinsurers .....................$  158.5      $   70.4
                                                      ======        ======

Note 5 - Stockholders' Equity and Earnings Per Common Share

     During the first quarter of 1999, the Company  repurchased  6,414 shares at
an aggregate cost of $0.2 million related to its employee benefit plans.  During
the first quarter 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  2,377  shares  at an
aggregate  cost of $0.1  million  related to its  employee  benefit  plans.  The
remaining  authorization  from the Company's Board of Directors for the purchase
of common stock was $42.5 million as of March 31, 1999.

     Orion  declared  dividends  on its common  stock of $4.8  million  and $4.4
million or $0.18 and $0.16 per common share for the three months ended March 31,
1999 and 1998, respectively.



                                       11
<PAGE>


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

     A reconciliation of basic and diluted earnings (loss) per share ("EPS") for
the three months ended March 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>

                                                   Net          
                                                 Earnings    Average     Per Share
(In millions, except for per share amounts)       (loss)      shares      Amount
----------------------------------------------------------------------------------
1999 -
Basic EPS:
Net earnings (loss) available to
<S>                                               <C>            <C>      <C>      
   common stockholders ....................       $  (92.6)      27.0     $  (3.43)
                                                                          ======== 
                                                                        
Stock options and awards ..................             --         --
                                                  --------   --------                    

Diluted EPS:
Net earnings (loss) available to common
   stockholders with assumed exercises ....       $  (92.6       27.0     $  (3.43)
                                                  ========   ========     ========

1998 -
Basic EPS:
Net earnings available to
   common stockholders ....................       $   42.2       27.4     $   1.54
                                                                          ========
Stock options and awards ..................            --         0.7
                                                  --------   --------             

Diluted EPS:
Net earnings available to common
   stockholders with assumed exercises ....       $   42.2       28.1     $   1.50
                                                  ========   ========     ========
</TABLE>


The  average  shares  for 1999  excludes  equivalent  shares of  279,000  in the
computation  of diluted  earnings per common share because to include them would
have been antidilutive.

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
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.



                                       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)
-------------------------------------------------------------------------------------
Quarter ended March 31, 1999:
<S>                                 <C>              <C>               <C>      
 Balance, beginning of period ..... $    61.2        $    (2.7)        $    58.5
        Current period change .....     (16.5)             0.4             (16.1)
                                    ---------        ---------         ---------                                 
       Balance, end of period ..... $    44.7        $    (2.3)        $    42.4
                                    =========        =========         =========
                                                


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
                                    =========        =========         =========
                                                                  

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 gains (losses) arising during the period
were $(25.4)  million and $8.6 million for the three months ended March 31, 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 $0.6  million for the three months ended March 31, 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 March 31,
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).



                                       13
<PAGE>



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

Specialty  Commercial  -  this  segment  markets  various  specialty  commercial
products and services,  primarily  professional liability insurance through DPIC
Companies  and  client-focused   specialty   insurance  programs  through  Orion
Specialty;  and also includes the run-off  operations  of the Company's  assumed
reinsurance  business,  SecurityRe,  which was sold in late  1996.  The  Company
exited the marine  business by selling its 26% interest in Intercargo (see Notes
3 and 9) and Wm. H. McGee (see Note 2).

     Financial information for the Company's segments for the three months
ended March 31 is shown below and discussed in detail in "Results of Operations"
on page 18:

(In millions)                                               1999       1998
----------------------------------------------------------------------------
Revenues:
   Workers Compensation ................................ $   93.7   $  119.8
   Nonstandard Automobile ..............................    121.4       99.8
   Specialty Commercial ................................    118.4      203.1
   Other ...............................................      2.8        2.1
                                                         --------   --------
      Consolidated ..................................... $  336.3   $  424.8
                                                         ========   ========
                                                                    

Pre-tax Earnings (Loss) before Minority Interest (a):
   Workers Compensation ................................ $  (39.1)  $   28.4
   Nonstandard Automobile ..............................      5.8        7.9
   Specialty Commercial ................................    (98.9)      29.7
   Other ...............................................     (4.5)      (5.1)
                                                         --------   --------
      Consolidated ..................................... $ (136.7)  $   60.9
                                                         ========   ========
                                                                    

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

     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.

Note 9 - Subsequent Event

     In December 1998, the Company agreed to sell its 26% interest in Intercargo
in cash pursuant to  Intercargo's  merger with a subsidiary of XL Capital,  Ltd.
Intercargo announced that its merger was consummated on May 7, 1999. The Company
will receive  $22.8  million in cash from the sale in the near future.  Also see
Note 2 regarding the sale of McGee.


                                       14
<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, 1999, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for the  three-month  periods  ended March 31,  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
May 7, 1999


                                       15
<PAGE>


                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION AND RESULTS OPERATIONS
                   THREE MONTHS ENDED MARCH 31, 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.  The Company  reports  its  insurance  operations  in three
segments as of March 31, 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  presently  markets  various  specialty
commercial  products and services,  primarily  professional  liability insurance
through DPIC Companies ("DPIC") and client-focused  specialty insurance programs
through  Orion  Specialty;  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  personal  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 the reshaping in its specialty  commercial  segment. As of
March 31, 1999,  this segment  included  DPIC,  Orion's  professional  liability
business,  Wm. H. McGee & Co., Inc., the marine  business,  and Orion Specialty,
which includes ARTIS,  our alternative  risk business formed in June 1997, Orion
Financial  (formerly  Intercon),  our  collateral  protection  business  and the
commercial lines business from Guaranty National and Connecticut  Specialty.  In
July  1998,  the  Company  added  a  specialty  insurance  company  serving  the
independent  grocery industry with the purchase of Grocers  Insurance Group. The
Company sold a unit of Orion Specialty,  Colorado Casualty Insurance Company, in
September 1998. Additionally, during the third quarter of 1998, the Company took
steps to exit a block of  commercial  automobile  and  transportation  business,
representing approximately $100 million in net written premiums, that was highly
price-driven and was performing below our levels of expectations.

                                       16
<PAGE>

In November 1996, the Company  exited the assumed  reinsurance  business when it
sold the ongoing operations of our subsidiary,  SecurityRe Companies,  Inc. 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, the Company in early May completed a
reserve  study  focused on business  that has been or is in the process of being
exited.  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 24.

Orion  continues  its  reshaping of the  specialty  commercial  segment to focus
resources  on more  profitable  lines of business.  As part of that effort,  the
Company  exited the marine  business by selling our 26%  interest in  Intercargo
Corporation  and Wm. H. McGee & Co.,  Inc. On April 9, 1999 the Company sold Wm.
H. McGee & Co. 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,  which will be recorded in the
second quarter of 1999. 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 sold business of McGee.

In December  1998,  the Company  agreed to sell its investment in Intercargo for
$22.8 million (its current carrying  value),  or $12 per share, in cash pursuant
to the terms of  Intercargo's  merger  with a  subsidiary  of XL  Capital,  Ltd.
Intercargo announced that its merger was consummated on May 7, 1999. The Company
will receive $22.8 million in cash from the sale in the near future.

In April 1999, the Company announced that it is working with financial  advisors
on the final  initiatives in its reshaping  process,  which includes a review of
strategic alternatives for the $150 million book of specialty commercial program
and binding authority business of Orion Specialty. The Company believes that the
specialty commercial program and binding authority business is the last piece of
Orion's operation that lacks market leadership or competitive advantage and will
explore a full  range of options  for it.  Announcement  of the  results of that
review is anticipated during the third quarter of 1999.

Excluding the Orion Specialty  business under strategic review,  after all these
steps have been completed,  the Specialty  Commercial segment will include DPIC,
Orion Financial,  Grocers Insurance, and ARTIS, and will have approximately $420
million of gross written premiums and approximately  $298 million of net written
premiums based on 1998 volume.

                                       17
<PAGE>


                              RESULTS OF OPERATIONS

OVERVIEW

Earnings  (loss) by segment  before  federal  income  taxes,  minority  interest
expense and cumulative  effect of adoption of new  accounting  principle for the
three months ended March 31 are summarized as follows:

(In millions)                        1999            1998
--------------------------------------------------------------

Workers Compensation             $     (39.1)    $       28.4
Nonstandard Automobile                   5.8              7.9
Specialty Commercial                   (98.9)            29.7
Other                                   (4.5)            (5.1)
                                 -----------     ------------
                                 $    (136.7)    $       60.9
                                 ===========     ============

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.

Operating  earnings (loss),  after-tax  realized  investment gains, net earnings
(loss) and per diluted  common share amounts for the three months ended March 31
are summarized as follows:



(In millions, except for per share amounts and %)   1999               1998
--------------------------------------------------------------------------------

Operating earnings (loss) ..................      $      (89.1)      $      23.4
After-tax investment gains .................               1.1              18.8
Cumulative effect of adoption of                  
   new accounting principle ................              (4.6)               --
                                                  ------------       -----------
   Net earnings (loss) .....................      $      (92.6)      $      42.2
                                                  ============       ===========
                                                                         

Per diluted common share:
Operating earnings (loss) ..................      $      (3.30)      $      0.83
After-tax investment gains .................              0.04              0.67
Cumulative effect of adoption of
   new accounting principle ................             (0.17)               --
                                                  ------------       -----------
   Net earnings (loss) .....................      $      (3.43)      $      1.50
                                                  ============       ===========
Operating earnings (loss) represents earnings (loss) after taxes,  excluding net
realized investment gains and the cumulative effect of an accounting change. For
the first  quarter of 1999,  operating  earnings  were  adversely  effected by a
$106.9  million  after-tax  charge,  or $3.96 per diluted  share,  related to an
increase in loss reserves in connection  with a recently  completed loss reserve
study.  Excluding this charge, the Company's  after-tax operating earnings would
be $17.8 million, or $0.66 per share.

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 condensed financial statements for discussion of new accounting
principles adopted by the Company in 1999.

                                       18
<PAGE>

Weighted  average  common  shares  and  diluted  equivalents   outstanding  were
26,993,000  and  28,130,000  for the three months ended March 31, 1999 and 1998,
respectively.  The average share for 1999 excludes  equivalent shares of 279,000
in the computation of diluted  earnings per common share because to include them
would have been antidilutive.

                                    REVENUES

Revenues for the three months ended March 31 are summarized as follows:
                                                                          
                                                                  Percentage
(In millions)                             1999        1998          Change
-----------------------------------------------------------------------------

Net Premiums written ...........       $   274.9   $   369.0        (25.5)%
                                       =========   =========        =====  
                                       
                                                                    
Premiums earned ................       $   299.1   $   348.8        (14.2)%
Net investment income ..........            34.4        41.4        (16.8)
Realized investment gains ......             1.7        29.0        (94.0)
Other ..........................             1.1         5.6        (82.3)
                                       ---------   ---------        -----   
   Total revenues ..............       $   336.3   $   424.8        (20.8)%
                                       =========   =========        =====  
PREMIUMS

The Company's gross premiums written by segment for the three months ended March
31 are as follows:
                                                                         
                                                                Percentage
(In millions)                             1999        1998        Change
---------------------------------------------------------------------------

Workers Compensation                   $   147.1   $   115.6        27.2%
Nonstandard Automobile                     152.4       127.6        19.4
Specialty Commercial                       213.9       212.6         0.6
                                       ---------   ---------        ----  
      Consolidated                     $   513.4   $   455.8        12.6%
                                       =========   =========        ==== 

The Company's  net premiums  written by segment for the three months ended March
31 are as follows:

                                                                Percentage
(In millions)                             1999        1998        Change
---------------------------------------------------------------------------

Workers Compensation ..................$    94.7   $   110.7       (14.5)%
Nonstandard Automobile ................    124.8        96.0        29.9
Specialty Commercial ..................     55.4       162.3       (65.8)
                                       ---------   ---------       -----
      Consolidated ....................$   274.9   $   369.0       (25.5)%
                                       =========   =========       =====  
      Consolidated, excluding McGee ...$   314.9   $   352.4       (10.7)%
                                       =========   =========       =====  
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,

                                       19
<PAGE>

1999,  resulting in a $40.0  million  reduction  to net written  premiums 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  also  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.
The Company does not expect to use corporate-wide aggregate stop loss agreements
for the 1999 accident year.

Workers Compensation

Net premiums  written for Workers  Compensation  decreased by 14.5% in the first
quarter  of 1999  compared  to the same 1998  period  reflecting  lower  premium
retention of $46.7 million 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  $30.7  million  from new  business  written  through  EBI's
multi-state accounts program and continued geographic expansion and penetration.
In order to improve profitability,  EBI has instituted rate increases,  which is
expected to reduce the growth of EBI's gross premiums  written for the remainder
of 1999.

NONSTANDARD AUTOMOBILE

Net premiums written for Nonstandard  Automobile increased by 29.9% in the first
quarter of 1999  compared to the same 1998  period  primarily  due to  increased
premiums of $12.1 million from the  acquisition  of Strickland in April 1998 and
higher net premiums in South  Carolina of $9.0 million from  transitioning  to a
voluntary market environment in that state on March 1, 1999. OrionAuto generated
net premium growth in 25 of the 35 states where it writes  business in the first
quarter of 1999 compared to the same 1998 period.  Excluding the acquisitions of
Strickland and Unisun,  Nonstandard  Automobile's gross premiums written and net
premiums  written growth was 5.6% and 7.6% in the first quarter of 1999 compared
to the same 1998 period.

SPECIALTY COMMERCIAL

Gross premiums written, excluding McGee, for the three months ended March 31 are
as follows:
                                                                 Percentage
(In millions)                                  1999      1998      Change  
---------------------------------------------------------------------------

Orion Specialty .........................    $ 135.1   $ 115.0     17.5%
DPIC ....................................       52.0      49.9      4.1
Assumed reinsurance and eliminations ....       (1.5)     (0.8)
                                             -------   -------     ---- 
                                             $ 185.6   $ 164.1     13.1%
                                             =======   =======     ==== 
                                             

                                       20
<PAGE>
                                             
                                                                    
Net premiums written for the three months ended March 31 are as follows:
                                                                 Percentage
(In millions)                                  1999      1998      Change
---------------------------------------------------------------------------

Orion Specialty ........................    $   57.0    $ 103.5    (44.9)%
DPIC ...................................        38.4       42.3     (9.1)
McGee ..................................       (40.0)      16.6
                                            --------    -------    ----- 
                                                55.4      162.4    (65.9)
Assumed reinsurance ....................          --       (0.1)
                                            --------    -------    ----- 
   Specialty Commercial ................    $   55.4    $ 162.3    (65.8)%
                                            ========    =======    =====  
   Specialty Commercial, excluding McGee    $   95.4    $ 145.7    (34.5)%
                                            ========    =======    =====  
                                                                      
Net premiums written by DPIC for professional  liability insurance,  the largest
special  program,  decreased  9.1% in the first  quarter of 1999 compared to the
same 1998 period  primarily as a result of increased use of  reinsurance  in its
lawyers and  accountants  programs,  offset in part by continued  high levels of
policy renewals.

Net premiums written by Orion Specialty  decreased by 44.9% in the first quarter
of 1999 compared to the same 1998 period  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 1999 under the
corporate-wide  reinsurance agreement previously mentioned and lower premiums of
$13.6 million from the sale of Colorado Casualty  Insurance Company in September
1998.  The decreases  were partly  offset by increased  net written  premiums of
$13.7  million from the  acquisition  of Grocers  Insurance  Group in July 1998.
Orion Specialty's Financial Services Division, which primarily writes collateral
protection  insurance,  had gross  premiums  written of $31.7  million and $25.2
million for the three  months ended March 31, 1999 and 1998,  respectively,  and
corresponding net premiums written of $20.4 million in 1999 and $21.4 million in
1998.  ARTIS,  our alternative  risk business formed in June 1997, had gross and
net premiums  written of $26.7  million and $0.7 million in the first quarter of
1999,  respectively,  as compared to $5.7  million of gross and no net  premiums
written for the same 1998 period.

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 the sale of McGee.

PREMIUMS EARNED

The Company's  premiums  earned  decreased  14.2% to $299.1 million in the first
quarter of 1999 from $348.8  million  ($334.6  million  excluding  McGee) in the
corresponding  1998 period.  Premiums  earned reflect the  recognition of income
from the changing levels of net premium writings.

OTHER INCOME

Other income is $1.1 million and $5.6 million for the first quarters of 1999 and
1998,  respectively.  The decrease is due to lower  commission  income resulting
from the sale of McGee.  As part of the McGee sale,  the buyer was designated as
the clearing company of the pools managed by McGee effective January 1, 1999.

                                       21
<PAGE>

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 of the Company's
investments,  including net investment  income,  net realized gains (losses) and
net unrealized  appreciation  (depreciation) for the three months ended March 31
is as follows:

(In millions, except for %)                               1999            1998
------------------------------------------------------------------------------
Net investment income ............................$       34.4     $      41.4
Realized investment gains ........................         1.7            29.0
Unrealized appreciation (depreciation) ...........       (27.4)            8.1
                                                  ------------     ----------- 
                                                  $        8.7     $      78.5
                                                  ============     ===========
                                                                            
Investment yields on average portfolio:
   Pre-tax .......................................         5.7%            7.0%
                                                                    
   After-tax .....................................         4.5%            5.5%
                                                                             

Carrying value: ................................March 31, 1999 December 31, 1998
                                                --------------------------------
   Fixed maturities and short-term investments .$    1,888.7     $   1,859.2
   Equity securities ...........................       435.1           510.9
   Other long-term investments .................        95.7           116.2
                                                ------------     -----------   
                                                $    2,419.5     $   2,486.3
                                                ============     ===========
NET INVESTMENT INCOME

Pre-tax net investment  income decreased by $7.0 million in the first quarter of
1999 compared to the same 1998 period primarily due to lower earnings on limited
partnership  investments  accounted for on an equity basis, a continued shift in
the fixed income  portfolio  from taxable to  tax-advantaged  securities and the
impact  of lower  reinvestment  rates in 1998 and in the first  quarter  of 1999
resulting in reduced investment yields of the Company's fixed income portfolio.

Net  investment   income  includes   equity  earnings  in  limited   partnership
investments  of $2.0  million in the first  quarter of 1999 and $5.2 million for
the same 1998  period,  partially  the  result of  planned  reductions  in these
investments. Earnings from limited partnership investments can vary considerably
from year-to-year.  Although,  the Company's  long-term  experience with limited
partnership  investments has been quite favorable;  they represent 3.8% and 4.5%
of total investments at March 31, 1999 and December 31, 1998, 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 $1,888.7 million at March
31, 1999 and $1,859.2 million at December 31, 1998, or  approximately  76.9% and
74.2% of the Company's cash and investments, respectively.

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

                                       22
<PAGE>

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.  At March 31,  1999 and  December  31,  1998,  the
Company's  investment  in  non-investment  grade and  non-rated  fixed  maturity
securities were as follows:

(In millions, except for %)                March 31, 1999   December 31, 1998
--------------------------------------------------------------------------------
Non-investment grade and
   non-rated fixed maturity securities       $    156.9         $   208.7
As percentage of total cash and investments         6.4%              8.3%
As percentage of total assets                       3.7%              5.0%


REALIZED AND UNREALIZED INVESTMENT RESULTS

Net realized  investment  gains are $1.7 million and $29.0 million for the three
months ended March 31, 1999 and 1998,  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 that
quarter.  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.  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.
The Company has a new outside  investment  manager that is repositioning part of
the Company's  investment portfolio and expects the repositioning to be complete
by June 30, 1999.

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.


                                       23
<PAGE>

                               EXPENSES AND OTHER

OPERATING RATIOS

The following table sets forth certain ratios of insurance operating expenses to
premiums earned for the three months ended March 31:
 
                                                           1999          1998
-------------------------------------------------------------------------------

Loss and loss adjustment expenses                         122.2%        66.5%
Policy acquisition costs and other insurance expenses      29.9         31.0
                                                       --------     --------
   Total before policyholders' dividends                  152.1         97.5
Policyholders' dividends                                    2.0          1.8
                                                       --------     --------
   Combined ratio                                         154.1%        99.3%
                                                       ========     ========

Loss and loss adjustment expenses ratio by segment:
   Workers Compensation                                   115.6%        56.6%
   Nonstandard Automobile                                  72.9         72.0
   Specialty Commercial                                   185.3         69.6


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 the recently  completed  loss
reserve study.

In the first quarter of 1999, the ratio of loss and loss adjustment  expenses to
premiums earned (the "loss ratio") of 122.2% reflects significant  strengthening
of the  Company's  reserve  position  as of March 31, 1999 based upon a recently
completed loss reserve study.

Excluding  the  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 three months ended March 31, 1999 would have been 62.3%
for  Workers  Compensation,  70.3%  for  Nonstandard  Automobile,  and 69.6% for
Specialty Commercial.

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
$25.5  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  were
attributed to businesses that the Company has exited and will be exiting.

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 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.

                                       24
<PAGE>

The 1999  first-quarter  loss  ratio for  Workers  Compensation  reflects  $31.9
million of reserve strengthening 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 improvements in 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  program  and  binding  authority
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")  improved to 29.9% from 31.0% for the three months
ended  March  31,  1999 and  1998,  respectively.  The  lower  expense  ratio is
primarily due to a favorable  change in the Company's total business mix with an
increasing  percentage  of business in  Nonstandard  Automobile  and a declining
percentage in Specialty Commercial, as well as the Company's actions to decrease
operating  expenses.  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  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.

                                       25
<PAGE>

INTEREST EXPENSE

Interest expense is $4.6 million and $5.8 million for the first quarters of 1999
and 1998,  respectively.  Interest expense declined 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 $7.3 million and $11.1 million for the first quarters of 1999
and 1998,  respectively.  The decrease is primarily  due to the  elimination  of
McGee agency expense resulting from the sale of this unit.

EQUITY IN EARNINGS (LOSS) OF AFFILIATE

Equity in loss of  affiliate  consists  of a loss of $0.6  million  in the first
quarter of 1998 from the Company's 26%  investment  in  Intercargo.  In December
1998,  the Company has agreed to sell its  investment in Intercargo  pursuant to
the  terms of a merger  agreement  between  Intercargo  and a  subsidiary  of XL
Capital, Ltd., and reduced its carrying value of Intercargo to the sale price of
$22.8  million.  The Company  continued to carry its investment in Intercargo at
$22.8 million in the first quarter of 1999. Intercargo announced that its merger
was  consummated  on May 7, 1999. The Company will receive $22.8 million in cash
from the sale in the near future.

FEDERAL INCOME TAXES (BENEFITS)

Federal  income taxes  (benefits),  including tax benefits from trust  preferred
securities and excluding tax benefits from an accounting change, and the related
effective tax rates are $(53.9)  million  (-38.0%) and $14.5 million (25.6%) for
the first quarters of 1999 and 1998,  respectively.  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
first quarter  effective tax rate has been calculated on a discrete period basis
giving effect of expected tax benefits to be realized during the year.

MINORITY INTEREST EXPENSE

Minority  interest  expense in  subsidiary  trust  preferred  securities of $3.4
million and $2.7 million for the first quarters of 1999 and 1998,  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 1999
reflects minority interest expense  associated with the issuance of $125 million
7.701% trust preferred securities in February 1998.

                                       26
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flows for the three months ended March 31 is as follows:

(In millions)                             1999          1998
--------------------------------------------------------------


Cash flows:
   Operating activities             $       1.9   $      22.8
   Investing activities                    27.1         (42.0)
   Financing activities                   (11.6)         11.0
                                    -----------   -----------
                                    $      17.4   $      (8.2)
                                    ===========   ===========

Cash provided by operating activities decreased by $20.9 million to $1.9 million
in the first  quarter of 1999 from $22.8  million in the first  quarter of 1998.
The  decrease in operating  cash flow in 1999 is primarily  the result of higher
payments for losses and loss  adjustment  expenses,  largely  influenced  by the
runoff of exited  business, and  reductions  in premium  and  investment  income
collections  as well as  certain  timing  differences  related  to  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  did  not  result  in a
significant  change  to  operating  cash flow in the  first  quarter  of 1999 as
compared to the same 1998 period.  However,  McGee  generated  $15.6  million of
operating cash for the 1998 year. Due to the anticipated level of claim payments
from exited  business,  operating cash flow for 1999 is expected to be less 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 provided by investment  activities  increased by $69.1 million in the first
quarter of 1999 to $27.1  million  from cash used in  investment  activities  of
$42.0  million in the first  quarter  of 1998.  Cash is used in or  provided  by
investment  activities  primarily  for  purchases  or sales  and  maturities  of
investments,  and 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 April
1999, the Company received approximately $33.9 million of net cash in connection
with the sale of McGee. Additionally,  the Company will receive $22.8 million of
cash related to the sale of Intercargo in the second quarter of 1999.

Cash (used in) provided by financing  activities  were $(11.6) million and $11.0
million for the three  months ended March 31, 1999 and 1998,  respectively.  The
Company  repaid the  outstanding  balance of $8.0 million  under its 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 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.

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  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.

                                       27
<PAGE>

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 $204.2 million
and $242.4  million at March 31, 1999 and December 31, 1998,  respectively.  The
consolidated  policyholders' surplus of Orion's insurance subsidiaries is $637.7
million  and  $732.1   million  at  March  31,  1999  and   December  31,  1998,
respectively.  The Company's  statutory  operating  leverage  ratios of trailing
twelve months net premiums written to policyholders'  surplus is 2.2:1 and 2.1:1
at March 31, 1999 and December 31, 1998, respectively.

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 March 31, 1999.  The Company  intends to use the
credit facility for general corporate purposes,  which may include acquisitions.
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 March 31, 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 also 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;
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.

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

The Company has  repurchased  132,000 shares of its common stock at an aggregate
cost of $6.6 million under the stock repurchase  program in the first quarter of
1998. No repurchases under this program were made in 1999. At March 31, 1999 the
Company's  remaining  stock purchase  authorization  from its Board of Directors
amounted to $42.5 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.

                                       28
<PAGE>

                              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 March 31, 1999,  the
Company had completed approximately 97% 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
$20.0  million,  of which $0.5 million has been expensed in the first quarter 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.

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 March 31, 1999, the Company had received  responses from
approximately  89% of the third  parties of whom it has  inquired and 97% of the
companies that have responded have provided written  assurances that they expect
to address all their significant Year 2000 problems on a timely basis.

                                       29
<PAGE>

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 March 31, 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."

                     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
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, 2000, 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.

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<PAGE>

                           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.

                           PART II. OTHER INFORMATION

Items 1 - 5.

None.

Item 6. Exhibits and reports on Form 8-K

Exhibits

Exhibit 4(i):     First Amendment to Credit Agreement, dated May
                  4, 1999  between  Orion  Capital  Corporation  and the lenders
                  named therein,  First Union  National Bank, as  Administrative
                  Agent.

Exhibit 10(i)     Stock Purchase Agreement by and between Fireman's
                  Fund Insurance Company, and Orion Capital Corporation
                  regarding the Sale of the Shares of Wm. H. McGee & Co.,
                  Inc. dated March 9, 1999.

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

Exhibit 27:       Financial Data Schedule.

(b) Report on Form 8-K

None.


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<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 14, 1999                           By: /s/ W. Marston Becker
                                              -------------------------
                                              Chairman of the Board and
                                              Chief Executive Officer



Date: May 14, 1999                            By: /s/ Michael L. Pautler
                                              --------------------------
                                              Senior Vice President and
                                              Chief Financial Officer



                                       32
<PAGE>






                                  EXHIBIT INDEX

                                                                            

Exhibit 4(i):  First Amendment to Credit  Agreement,  dated May 4, 1999
               between  Orion  Capital  Corporation  and  the  lenders  named
               therein, First Union National Bank, as Administrative Agent.

Exhibit 10(i)  Stock Purchase Agreement by and between Fireman's
               Fund Insurance Company, and Orion Capital Corporation
               regarding the Sale of the Shares of Wm. H. McGee & Co.,
               Inc. dated March 9, 1999.

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

Exhibit 27:    Financial Data Schedule


                                       33