FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                (x) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      For Quarter Ended September 30, 1999

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

                          Commission File Number 1-7801

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

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

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

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

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

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

                   Yes  (x)                             No (  )

Approximately  27.4  million  shares of Common  Stock,  $1.00 par value,  of the
registrant were outstanding on November 12, 1999.

                                  Page 1 of 36
                        Exhibit Index Appears at Page 36



<PAGE>



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

                                                                          Page

PART I. FINANCIAL INFORMATION

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

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

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

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

        Notes to Consolidated Financial Statements (Unaudited)           9 - 15

        Independent Accountants' Review Report                               16

Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            17 - 33

PART II. OTHER INFORMATION                                                   34

                                       2
<PAGE>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                     ASSETS

                                                September 30, 1999 December 31,
(In millions)                                      (Unaudited)       1998
-------------------------------------------------------------------------------
Assets:
Investments: -
Fixed maturities, at amortized cost
   (market $253.8 - 1999 and $272.7 - 1998)           $   250.2      $   260.6
Fixed maturities, at market (amortized cost
   $1,429.0 - 1999 and $1,305.5 - 1998)                 1,391.4        1,349.9
Common stocks, at market (cost $158.1 -
   1999 and $200.3 - 1998)                                181.7          242.4
Non-redeemable preferred stocks, at market
   (cost $175.8 - 1999 and $269.1 - 1998)                 168.1          268.5
Other long-term investments                                88.8          116.2
Short-term investments                                    184.6          248.7
                                                      ---------      ---------

      Total investments                                 2,264.8        2,486.3

Cash                                                        2.8           18.0
Accrued investment income                                  28.8           27.0
Investment in affiliate                                       -           22.8
Accounts and notes receivable                             218.8          217.2
Reinsurance recoverables and prepaid reinsurance        1,024.8          801.5
Deferred policy acquisition costs                         138.3          155.6
Property and equipment                                    102.9           95.4
Excess of cost over fair value of net assets acquired     143.4          167.7
Federal income taxes receivable                            40.5           22.4
Deferred federal income taxes                              73.9           26.7
Other assets                                              110.8          123.8
                                                      ---------      ---------

      Total assets                                    $ 4,149.8      $ 4,164.4
                                                      =========      =========
[FN]

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

                                       3
<PAGE>
<TABLE>
<CAPTION>
                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                     September 30, 1999  December 31,
(In millions, except for share data)                    (Unaudited)         1998
-------------------------------------------------------------------------------------
Liabilities:
Policy liabilities: -
<S>                                                      <C>              <C>
  Losses                                                 $ 1,638.1        $ 1,602.1
  Loss adjustment expenses                                   478.3            415.6
  Unearned premiums                                          602.4            564.0
  Policyholders' dividends                                    14.1             17.9
Total policy liabilities                                 ---------        ---------
                                                           2,732.9          2,599.6
Notes payable                                                209.5            217.4
Other liabilities                                            355.3            370.1
                                                         ---------        ---------
Total liabilities                                          3,297.7          3,187.1
                                                         ---------        ---------

Contingencies (Note 7)

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                                              145.4            149.6
Retained earnings                                            492.2            553.2
Accumulated other comprehensive income                       (11.1)            58.5
Treasury stock, at cost (3,298,622 shares -
   1999 and 3,505,091 shares - 1998)                         (49.9)           (57.8)
Deferred compensation on restricted stock                     (5.2)            (6.9)
                                                         ---------        ---------
    Total stockholders' equity                               602.1            727.3
                                                         ---------        ---------
    Total liabilities and stockholders' equity           $ 4,149.8        $ 4,164.4
                                                         =========        =========
</TABLE>
[FN]

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

                                       4
<PAGE>
<TABLE>
<CAPTION>

                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                                                         Three Months Ended        Nine Months Ended
                                                            September 30,            September 30,
                                                        ----------------------    ----------------------
(In millions, except for per share data)                  1999         1998        1999         1998
--------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                     <C>          <C>         <C>           <C>
Premiums earned                                         $   340.8    $   396.5   $   983.5     $ 1,115.7
Net investment income                                        34.8         22.3       103.8         106.2
Realized investment gains (loss)                             (2.9)         0.4         1.5          52.1
Other income                                                  1.1          2.1         3.3          14.7
                                                        ---------    ---------   ---------     ---------
 Total revenues                                             373.8        421.3     1,092.1       1,288.7
                                                        ---------    ---------   ---------     ---------
Expenses:
Losses incurred and loss adjustment expenses                249.3        280.7       848.5         763.7
Amortization of deferred policy acquisition costs            89.9        101.7       266.8         305.6
Other insurance expenses                                      7.9         24.4        27.6          39.1
Dividends to policyholders                                    8.8          9.7        19.0          23.3
Interest expense                                              4.4          6.0        13.5          14.9
Other expenses                                                8.0          6.4        20.9          29.9
Restructuring expenses and other (Note 3)                       -        (15.3)      (40.2)        (15.3)
                                                        ---------    ---------   ---------     ---------
 Total expenses                                             368.3        413.6     1,156.1       1,161.2
                                                        ---------    ---------   ---------     ---------
Earnings  (loss)  before  equity in loss of
   affiliate,  federal  income  taxes, minority
   interest expense and cumulative effect of adoption
   of new accounting principle                                5.5          7.8       (64.0)        127.5
Equity in loss of affiliate                                     -          0.2           -          (0.4)
                                                        ---------    ---------   ---------     ---------
Earnings (loss) before federal income taxes, minority
   interest expense and cumulative effect of
   adoption of new accounting principle                       5.5          8.0       (64.0)        127.1
Federal income tax expense (benefit)                         (1.4)         2.3       (32.2)         35.0
Minority interest expense of subsidiary trust
   preferred securities, net of  taxes                        3.4          3.4        10.0           9.4
                                                        ---------    ---------   ---------     ---------
Earnings (loss) before cumulative effect of adoption of
   new accounting principle                                   3.5          2.3       (41.8)         82.7
Cumulative effect of adoption of new accounting
   principle, net of tax                                        -            -        (4.6)            -
                                                        ---------    ---------   ---------     ---------
 Net earnings (loss)                                    $     3.5    $     2.3   $   (46.4)    $    82.7
                                                        =========    =========   =========     =========
Net earnings (loss) per common share:
Earnings (loss) before cumulative effect of adoption of
   new accounting principle                             $    0.13    $    0.08   $   (1.55)    $    3.02
Cumulative effect of adoption of new accounting
   principle                                                    -            -       (0.17)            -
                                                        ---------    ---------   ---------     ---------
 Basic                                                  $    0.13    $    0.08   $   (1.72)    $    3.02
                                                        =========    =========   =========     =========
Earnings (loss) before cumulative effect of adoption of
   new accounting principle                             $    0.13    $    0.08   $   (1.55)    $    2.95
Cumulative effect of adoption of new accounting
   principle                                                    -            -       (0.17)            -
                                                        ---------    ---------   ---------     ---------
 Diluted                                                $    0.13    $    0.08   $   (1.72)    $    2.95
                                                        =========    =========   =========     =========

</TABLE>
[FN]

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

                                       5
<PAGE>
<TABLE>
<CAPTION>

                    ORION CAPITAL CORPORATON AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                         Nine Months Ended        Nine Months Ended
                                        September 30, 1999       September 30, 1998          Year Ended
(In millions)                               (Unaudited)              (Unaudited)          December 31, 1998
--------------------------------------------------------------------------------------------------------------
<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              (4.2)                     (2.4)                    (2.5)
                                       -------                   -------                  -------
Balance, end of period                 $ 145.4                   $ 149.7                  $ 149.6
                                       =======                   =======                  =======
Retained Earnings:
Balance, beginning of period           $ 553.2                   $ 469.5                  $ 469.5
Net earnings (loss)                      (46.4)     $ (46.4)        82.7      $  82.7       102.8      $ 102.8
                                                    -------                   -------                  -------
Dividends declared                       (14.6)                    (14.2)                   (19.1)
                                       -------                   -------                  -------
Balance, end of period                 $ 492.2                   $ 538.0                  $ 553.2
                                       =======                   =======                  =======
Accumulated Other
Comprehensive Income:
Balance, beginning of period            $ 58.5                   $ 109.2                  $ 109.2
Unrealized investment
losses, net of taxes                                  (70.2)                    (46.5)                   (52.4)
Unrealized foreign exchange
translation gains, net of taxes                         0.6                       0.2                      1.7
                                                    -------                   -------                  -------
Other comprehensive income (loss)        (69.6)       (69.6)       (46.3)       (46.3)      (50.7)       (50.7)
                                        -------     -------      -------      -------     -------      -------
Comprehensive income (loss)                        $ (116.0)                  $  36.4                  $  52.1
                                                   ========                   =======                  =======
Balance, end of period                 $ (11.1)                   $ 62.9                   $ 58.5
                                       =======                   =======                  =======
Treasury Stock:
Balance, beginning of period           $ (57.8)                  $ (34.3)                 $ (34.3)
Exercise of stock options and net
issuance of restricted stock               6.5                      11.4                     13.4
Common stock issued pursuant to
employee stock purchase plan               1.4                         -                      1.1
Acquisition of treasury stock                -                     (35.3)                   (38.0)
                                       -------                   -------                  -------
Balance, end of period                 $ (49.9)                  $ (58.2)                 $ (57.8)
                                       =======                   =======                  =======
Deferred Compensation on
Restricted Stock:
Balance, beginning of period           $  (6.9)                  $  (4.1)                 $  (4.1)
Net cancellation (issuance) of
   restricted stock                        0.7                      (4.8)                    (4.3)
Amortization of deferred
compensation on restricted stock           1.0                       1.2                      1.5
                                       -------                   -------                  -------
Balance, end of period                 $  (5.2)                  $  (7.7)                 $  (6.9)
                                       =======                   =======                  =======
</TABLE>
[FN]
           See Notes to Consolidated Financial Statements (Unaudited)
</FN>

                                       6
<PAGE>
<TABLE>
<CAPTION>

                   ORION CAPITAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                                              Nine Months Ended September 30,
                                                             ---------------------------------
(In millions)                                                    1999                  1998
----------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                            <C>                  <C>
Premiums collected                                             $   996.9            $ 1,144.4
Net investment income collected                                     98.2                111.4
Losses and loss adjustment expenses paid                          (873.5)              (728.5)
Policy acquisition costs paid                                     (264.2)              (343.2)
Dividends paid to policyholders                                    (22.8)               (23.1)
Interest paid                                                      (17.3)               (18.3)
Payments on trust preferred securities                             (15.7)               (12.8)
Federal income tax refunds (payments)                               11.7                (43.6)
Other payments                                                     (64.7)               (61.7)
                                                               ---------            ---------
Net cash (used in) provided by operating activities               (151.4)                24.6
                                                               ---------            ---------

Cash flows from investing activities:
Maturities of fixed maturity investments                            59.6                170.4
Sales of fixed maturity investments                                304.7                613.1
Sales of equity securities                                         399.5                337.6
Investments in fixed maturities                                   (586.5)              (595.3)
Investments in equity securities                                  (139.6)              (338.3)
Net sales (purchases) of short-term investments                     68.7                (73.3)
Acquisition and divestiture activities                              47.2                (48.2)
Purchase of property and equipment, net                            (23.9)               (20.9)
Other receipts (payments)                                           24.4                (17.5)
                                                               ---------            ---------
Net cash provided by (used in) investing activities                154.1                 27.6
                                                               ---------            ---------
Cash flows from financing activities:
Proceeds from stock issued under employee benefit plans              4.7                  1.1
Net proceeds from issuance of trust preferred securities               -                121.9
Repayment of notes payable                                          (8.0)               (99.5)
Dividends paid to stockholders                                     (14.6)               (13.6)
Purchases of common stock                                              -                (32.9)
                                                               ---------            ---------
Net cash (used in) provided by financing activities                (17.9)               (23.0)
                                                               ---------            ---------
Net increase (decrease) in cash                                    (15.2)                29.2
Cash balance, beginning of period                                   18.0                  9.3
                                                               ---------            ---------
Cash balance, end of period                                    $     2.8            $    38.5
                                                               =========            =========
</TABLE>
[FN]


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

                                       7
<PAGE>
<TABLE>
<CAPTION>

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

                                                              Nine Months Ended September 30,
                                                            ----------------------------------
(In millions)                                                    1999                 1998
----------------------------------------------------------------------------------------------
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
<S>                                                            <C>                  <C>
Net earnings (loss)                                            $   (46.4)           $    82.7
                                                               ---------            ---------

Adjustments:
Net gain on divestiture                                            (26.3)                   -
Deferred federal income taxes                                      (25.5)                (7.5)
Non-cash investment income                                          (8.1)                 4.0
Realized investment gains                                           (1.5)               (52.1)
Depreciation and amortization                                       14.3                 12.5
Cumulative effect of adoption of new
   accounting principle                                              4.6                    -
Amortization of excess of cost over fair
   value of net assets acquired                                      4.5                  4.6
Amortization of fixed maturity investments                           1.0                 (1.1)
Restructuring expenses and other                                    (0.1)               (14.5)

Changes in assets and liabilities, net of acquisition
   and divestiture activities:
Decrease (increase) in accrued investment income                    (1.8)                 9.5
Increase in accounts and notes receivable                          (27.3)               (40.8)
Increase in reinsurance recoverable
   and prepaid reinsurance                                        (228.2)               (66.5)
Decrease (increase) in deferred policy acquisition costs             4.7                (12.3)
Increase in federal income taxes receivable                        (34.2)                   -
Decrease (increase) in other assets                                 23.5                (28.5)
Increase in losses and loss adjustment expenses                    135.3                 66.7
Increase in unearned premiums                                       78.3                 40.7
Increase (decrease) in policyholders' dividends                     (3.7)                 0.2
Increase (decrease) in other liabilities                           (14.5)                27.0
                                                               ---------            ---------
 Total adjustments and changes                                    (105.0)               (58.1)
                                                               ---------            ---------
Net cash (used in) provided by operating activities            $  (151.4)           $    24.6
                                                               =========            =========
</TABLE>
[FN]

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


                                       8
<PAGE>


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

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The  consolidated  financial  statements  and  notes  thereto  are  prepared  in
accordance  with  generally  accepted  accounting  principles  for  property and
casualty  insurance  companies.  The consolidated  financial  statements include
Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively   the   "Company").   All  material   intercompany   balances  and
transactions have been eliminated.  See note 2 for discussion of the acquisition
of Orion by Royal & SunAlliance USA, Inc. ("RSA").

As of January 1, 1999, the Company adopted  Statement of Position  ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, issued by the American Institute of Certified Public Accountants ("AICPA").
This Statement  requires that certain costs incurred in developing  internal-use
computer software be capitalized,  and provides guidance for determining whether
computer  software is  considered  to be for  internal  use.  The  Company  will
amortize  these costs over the  software's  useful  life,  which is  generally a
period  of 3 to 6 years.  Previously,  the  Company  expensed  internal  cost of
computer  software as incurred.  The adoption of this  Statement  resulted in an
after-tax  benefit  of $1.9  million,  or $0.07 per common  share,  for the nine
months ended September 30, 1999.

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

In the opinion of management, the accompanying consolidated financial statements
reflect all  adjustments  (consisting  solely of normal  recurring  adjustments)
necessary  to present  fairly the  Company's  results of  operations,  financial
position and cash flows for all periods  presented.  Although these consolidated
financial  statements  are  unaudited,  they have been reviewed by the Company's
independent  accountants,  Deloitte & Touche LLP, for conformity with accounting
requirements  for interim  financial  reporting.  Their report on such review is
included  herein.  These  consolidated  financial  statements  should be read in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in the Company's 1998 Annual Report on Form 10-K.

NOTE 2 -  ACQUISITION OF ORION BY ROYAL & SUNALLIANCE

Effective  November 12, 1999, RSA completed a tender offer which it had made for
all of the Company's  common stock,  together with  associated  preferred  stock
purchase  rights,  for $50 per share in cash,  or  approximately  $1.4  billion,
pursuant to a merger agreement dated July 12, 1999. RSA tendered for,  accepted,
and purchased  approximately  93.5% of the outstanding shares of common stock of


                                       9
<PAGE>

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

Orion. Following the tender offer on November 16, 1999, Orion became an indirect
wholly owned subsidiary of RSA through a merger between Orion and a wholly owned
subsidiary of RSA. Each  remaining  outstanding  share of Orion not owned by RSA
was  converted,  subject to  appraisal  rights,  into a right to receive $50 per
share,  in cash,  without  interest.  The merger was approved by all  applicable
state insurance regulatory agencies.  As a result of the merger,  Orion's common
stock was delisted  from trading on the New York Stock  Exchange on November 16,
1999.

Pursuant  to the  merger  agreement,  participants  of the  Company's  Long-Term
Performance  Incentive Plan and Equity  Incentive Plan were entitled to receive,
in cash,  the excess of $50 over the per share  exercise  price for each  option
held plus $50 per share for each  unvested  restricted  stock award.  Both plans
will be terminated. In connection with the acquisition, the Company has commuted
or  plans  to  commute  various  reinsurance  agreements  and  enter  into a new
reinsurance  agreement to provide adverse loss protection for its reserves as of
the closing. These transactions and merger related costs will be recorded in the
fourth  quarter of 1999.  See  discussion  under  section  "Expense  and Other -
Operating Ratios" on page 28.

NOTE 3 - REALIGNMENT EVENTS

As part of the final steps in a two-year reshaping of Orion Capital, the Company
completed  a  detailed  study of its loss and loss  adjustment  expense  reserve
position  as of March 31,  1999.  The loss  reserve  study,  performed  with the
assistance of independent actuarial advisors, focused on the businesses that the
Company has exited.  As a result of this study,  the Company recorded a net pre-
tax charge of $164.5 million in the first quarter of 1999  primarily  related to
the  Specialty  Commercial  and Workers  Compensation  segments.  The net charge
included a provision  for loss and loss  adjustment  expenses of $139.0  million
relating to 1998 and prior accident years,  which was net of reinsurance,  and a
$25.5  million  net ceded  premium  adjustment  based  upon the  Company's  loss
experience.  Approximately  $123.4  million of the loss  reserve  provision  was
attributed to exited  businesses.  The study also reviewed the reserve  position
for the Company's ongoing business in light of current industry conditions.  The
Company  recorded  loss reserve  strengthening  of  approximately  $15.6 million
relating to its ongoing businesses  including $8.4 million for EBI, $4.2 million
for DPIC and $3.0 million for OrionAuto in the first  quarter of 1999.  Further,
the Company has adjusted loss ratios for the 1999 accident year in consideration
of the reserve study findings.

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

                                       10
<PAGE>

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

In the  third  quarter  of  1998,  "Restructuring  expenses  and  other"  in the
consolidated  statement of earnings  represents a $24.2 million  pre-tax gain on
sale of Colorado  Casualty  Insurance  Company less $8.9  million  restructuring
charges  related to the  realignment of Orion  Specialty.  Activity for the nine
months ended September 30, 1999 within the Orion Specialty restructuring reserve
was as follows:

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

Balance at December 31, 1998                     $       5.1
   Actions taken:
   Severance and program termination costs              (2.2)
                                                 -----------
Balance at September 30, 1999                    $       2.9
                                                 ===========

NOTE 4 - INVESTMENT IN AFFILIATE

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

In 1998, the Company recorded its share of Intercargo's  operating  results on a
quarterly lag basis,  after Intercargo had reported its financial  results.  For
the three and nine months ended  September 30, 1998,  Intercargo  reported $16.1
million and $48.4 million of revenues and $1.3 million and $(0.4) million of net
earnings (loss),  respectively.  The Company's proportionate share of Intercargo
net earnings (loss) including goodwill  amortization was $0.2 million and $(0.4)
million for the three and nine months ended September 30, 1998, respectively.


                                       11
<PAGE>


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

NOTE 5 - REINSURANCE

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

                                            Three Months Ended    Nine Months Ended
                                              September 30,         September 30,
                                          -------------------------------------------
(In millions)                                 1999      1998        1999        1998
------------------------------------------------------------------------------------
<S>                                       <C>       <C>       <C>         <C>
Direct premiums written ...............   $  492.7  $  485.2  $  1,499.1  $  1,395.7
Reinsurance assumed ...................       19.5      20.0        65.8        65.7
                                          --------  --------  ----------  ----------
Gross premiums written ................      512.2     505.2     1,564.9     1,461.4
Reinsurance ceded .....................     (168.7)    (97.9)     (614.1)     (300.3)
                                          --------  --------  ----------  ----------
Net premiums written ..................   $  343.5  $  407.3  $    950.8  $  1,161.1
                                          ========  ========  ==========  ==========
Direct premiums earned ................   $  504.1  $  464.2  $  1,522.1  $  1,342.3
Reinsurance assumed ...................        4.4      38.9        62.7        79.1
                                          --------  --------  ----------  ----------
Gross premiums earned .................      508.5     503.1     1,584.8     1,421.4
Reinsurance ceded .....................     (167.7)   (106.6)     (601.3)     (305.7)
                                          --------  --------  ----------  ----------
Net premiums earned ...................   $  340.8  $  396.5  $    983.5  $  1,115.7
                                          ========  ========  ==========  ==========
Loss and loss adjustment expenses
   incurred recoverable from reinsurers   $  126.7  $  143.0  $    435.9  $    308.8
                                          ========  ========  ==========  ==========
</TABLE>

NOTE 6 - STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

In  the  nine  months  ended   September  30,  1999,  the  Company   repurchased
approximately  12,400 of its common shares at an aggregate cost of approximately
$0.5 million related to its employee benefit plans.

Orion declared  dividends on its common stock of $14.6 million and $14.2 million
or $0.54 and $0.52 per common share for the nine months ended September 30, 1999
and 1998, respectively.

For the first nine  months of 1999,  the  Company  issued  38,458  shares of its
common stock at an aggregate purchase price of $1.4 million under the Employees'
Stock Purchase Plan,  which will be terminated upon merger of the Company into a
RSA subsidiary.

Basic earnings per share  computations  are based on the weighted average number
of shares of common  stock  outstanding  during the period  excluding  dilution.
Diluted  earnings per share reflects the potential  decrease that could occur if
all stock options and other stock-based awards were exercised and converted into
common stock,  if their effect is dilutive.  The weighted  average common shares
were 27.2 million and 27.2 million for the three months ended,  and 27.1 million
and  27.4  million  for the nine  months  ended  September  30,  1999 and  1998,
respectively.  The weighted  average common and diluted  equivalent  shares were
27.6  million  and 27.9  million  for the three

                                       12
<PAGE>

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

months  ended,  and 27.1  million and 28.1  million  for the nine  months  ended
September 30, 1999 and 1998, respectively.

NOTE 7 - CONTINGENCIES

On July 12-14,  1999,  five  lawsuits were filed against the Company in Delaware
Chancery Court in Wilmington,  Delaware alleging, among other things, violations
of breach of fiduciary duty on the part of the Board of Directors of the Company
in connection  with RSA's  agreement to acquire all of the common stock of Orion
Capital  Corporation  for $50 per  share in cash  (see  note 2 to the  Company's
financial  statements).  A sixth  action  was filed in the same  court  alleging
similar  claims on August 12, 1999. On September 29, 1999,  the six actions were
consolidated  by order of the Court.  The complaint in the  consolidated  action
purports to assert a class  action on behalf of the common  stockholders  of the
Company,   and  alleges  that  the  terms  of  the  proposed   transaction   are
intrinsically   unfair  and   inadequate   from  the  standpoint  of  the  Orion
stockholders.  The plaintiffs  seek injunctive  relief and unspecified  monetary
damages and  attorney's  fees and expenses.  On October 28, 1999, the defendants
moved to dismiss the complaint in the consolidated  action.  The Company intends
to contest the consolidated  action  vigorously if the pending motion to dismiss
is  denied.  The  Company  believes  that the  outcome  will not have a material
adverse effect on its financial position or earnings.

In general, other than described above, 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.


                                       13
<PAGE>

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

NOTE 8 - 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)
-------------------------------------------------------------------------------------------
Nine Months ended September 30, 1999:
<S>                                     <C>                <C>                <C>
Balance, beginning of period ........   $      61.2        $      (2.7)       $      58.5
Current period change ...............         (70.2)               0.6              (69.6)
                                        -----------        -----------        -----------
Balance, end of period ..............   $      (9.0)       $      (2.1)       $     (11.1)
                                        ===========        ===========        ===========

Nine Months ended September 30, 1998:
Balance, beginning of period ........   $     113.6        $      (4.4)       $     109.2
Current period change ...............         (46.5)               0.2              (46.3)
                                        -----------        -----------        -----------
Balance, end of period ..............   $      67.1        $      (4.2)       $      62.9
                                        ===========        ===========        ===========

Year ended December 31, 1998:
Balance, beginning of year ..........   $     113.6        $      (4.4)       $     109.2
Current year change .................         (52.4)               1.7              (50.7)
                                        -----------        -----------        -----------
Balance, end of year ................   $      61.2        $      (2.7)       $      58.5
                                        ===========        ===========        ===========
</TABLE>


The pretax  unrealized  investment  losses arising during the period were $108.1
million and $71.5 million for the nine months ended September 30, 1999 and 1998,
respectively, and $80.4 million for the year ended December 31, 1998. The pretax
unrealized  foreign  exchange  translation  gains arising during the period were
$0.9 million and $0.3 million for the nine months ended  September  30, 1999 and
1998, respectively, and $2.6 million for the year ended December 31, 1998.

NOTE 9 - SEGMENT INFORMATION

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

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

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

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

                                       14
<PAGE>

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

operations of the Company's assumed reinsurance business,  SecurityRe, which was
sold in late 1996. The Company  exited the marine  business by selling McGee and
its 26% interest in  Intercargo  in the second  quarter of 1999 (see notes 3 and
4).

Financial information for the Company's segments is shown below and discussed in
detail in "Results of Operations" on page 19:
<TABLE>
<CAPTION>
                                        Three Months Ended        Nine Months Ended
                                           September 30,            September 30,
                                    ----------------------------------------------------
(In millions)                           1999         1998           1999           1998
----------------------------------------------------------------------------------------
Revenues:
<S>                                 <C>          <C>          <C>            <C>
   Workers Compensation ......      $  107.5     $  127.6     $    312.0     $    371.6
   Nonstandard Automobile ....         126.7        107.4          375.9          316.5
   Specialty Commercial ......         137.3        183.1          398.4          592.7
   Other .....................           2.3          3.2            5.8            7.9
                                    --------     --------     ----------     ----------
      Consolidated ...........      $  373.8     $  421.3     $  1,092.1     $  1,288.7
                                    ========     ========     ==========     ==========
Pre-tax Earnings (Loss) before
    Minority Interest (a):
   Workers Compensation ......      $   (7.8)    $   10.8     $    (37.5)    $     63.7
   Nonstandard Automobile ....           2.1          7.3           16.4           25.6
   Specialty Commercial ......          11.1         (9.1)         (74.7)          48.3
   Other .....................           0.1         (1.0)          31.8          (10.5)
                                    --------     --------     ----------     ----------
      Consolidated ...........      $    5.5     $    8.0     $    (64.0)    $    127.1
                                    ========     ========     ==========     ==========
</TABLE>
[FN]
(a) Excludes  cumulative effect of adoption of new accounting  principle in 1999
(see note 1).
</FN>

The  miscellaneous  income  and  expenses  (primarily   interest,   general  and
administrative  expenses  and other  consolidating  elimination  entries) of the
parent  company are  reported as "Other" in the above  table.  For  year-to-date
1999,  a  pre-tax  gain of $40.2  million  related  to the sale of McGee is also
included in Other under the  heading  titled  "Pre-tax  Earnings  (Loss)  before
Minority Interest."

                                       15
<PAGE>

                     INDEPENDENT ACCOUNTANT'S REVIEW REPORT




Board of Directors and Stockholders
Orion Capital Corporation
Farmington, Connecticut


We have reviewed the  accompanying  consolidated  balance sheet of Orion Capital
Corporation and  subsidiaries  (the "Company") as of September 30, 1999, and the
related consolidated statements of operations for the three month and nine month
periods ended  September 30, 1999 and 1998, and the statements of  stockholders'
equity and cash flows for the  nine-month  periods ended  September 30, 1999 and
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.

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

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

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  consolidated  balance  sheet of Orion Capital  Corporation  and
subsidiaries as of December 31, 1998, and the related consolidated statements of
earnings,  stockholders'  equity and cash flows for the year then ended;  and in
our report dated  February 22, 1999 (except for Note 20, as to which the date is
March 11,  1999),  we expressed  an  unqualified  opinion on those  consolidated
financial statements. The consolidated statements of earnings and cash flows for
the year ended December 31, 1998 are not presented herein.  In our opinion,  the
information  set  forth in the  accompanying  consolidated  balance  sheet as of
December 31, 1998 and related consolidated statement of stockholders' equity for
the year then ended is fairly stated, in all material  respects,  in relation to
the consolidated financial statements from which it has been derived.



DELOITTE & TOUCHE LLP



Hartford, Connecticut
November 16, 1999


                                       16
<PAGE>

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

                                    GENERAL

Orion  Capital   Corporation   ("Orion")  and  its   wholly-owned   subsidiaries
(collectively  the "Company")  operate  principally in the property and casualty
insurance business. As described in note 2 to the Company's financial statements
and below on page 18 in  "Recent  Activities,"  Royal &  SunAlliance  USA,  Inc.
("RSA")  completed  a tender  offer  which it had made for all of the  Company's
common stock effective November 12, 1999. Approximately 93.5% of the outstanding
shares of Orion were  tendered,  accepted and  purchased by RSA.  Following  the
tender  offer on  November  16,  1999,  Orion  became an indirect  wholly  owned
subsidiary of RSA through a merger  between Orion and a wholly owned  subsidiary
of  RSA.  Each  remaining  outstanding  share  of  Orion  not  owned  by RSA was
converted,  subject to appraisal rights,  into a right to receive $50 per share,
in cash, without interest.

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

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

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

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

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

In Orion's  nonstandard  automobile  segment,  Orion  increased its ownership in
Guaranty National Corporation ("Guaranty National") to 100% in December 1997 and
then  transformed   Guaranty  National   (OrionAuto)  into  a  focused  personal
nonstandard  automobile  company.  The  commercial  lines  business  of Guaranty
National was shifted to a newly-formed  unit,  Orion Specialty  Group,  Inc. and
integrated  with  Connecticut  Specialty  Insurance  Group,  Inc. In early 1999,
Guaranty  National was renamed  OrionAuto,  Inc. The Company  added scale to its
nonstandard  automobile operation by acquiring two businesses,  Unisun Insurance
Company in December  1997 and portions of  Strickland  Insurance  Group in April
1998 expanding its geographic market to 35 states.

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

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

                                       17
<PAGE>

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

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

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

     -    specialty  commercial  programs and binding authority business through
          the P&C Division.

As described  below,  during the second  quarter of 1999, the Company exited the
marine  business by selling Wm. H. McGee & Co ("McGee")  and its 26% interest in
Intercargo  Corporation.  In  September  1998,  the Company sold a unit of Orion
Specialty,  Colorado  Casualty  Insurance  Company.  During the third quarter of
1998,  the  Company  took  steps  to  exit a $100  million  book  of  commercial
automobile and  transportation  business at Orion  Specialty's  P&C Division and
restructured  Orion Specialty's  operations  related to the exited business (see
note 3 to the Company's financial statements).

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

RECENT ACTIVITIES

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

On April 9, 1999,  the Company sold McGee for $59.4 million in cash resulting in
a pre-tax gain of $40.2 million and an after-tax gain of $26.3 million, or $0.97
per common share,  in 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 McGee.

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

Effective  November 12, 1999, RSA completed a tender offer which it had made for
all of the Company's  common stock,  together with  associated  preferred  stock

                                       18
<PAGE>

purchase  rights,  for $50 per share in cash,  or  approximately  $1.4  billion,
pursuant to a merger agreement dated July 12, 1999. RSA tendered for,  accepted,
and purchased  approximately  93.5% of the outstanding shares of common stock of
Orion. Following the tender offer on November 16, 1999, Orion became an indirect
wholly owned subsidiary of RSA through a merger between Orion and a wholly owned
subsidiary of RSA. Each  remaining  outstanding  share of Orion not owned by RSA
was  converted,  subject to  appraisal  rights,  into a right to receive $50 per
share,  in cash,  without  interest.  The merger was approved by all  applicable
state insurance regulatory agencies.  As a result of the merger,  Orion's common
stock was delisted  from trading on the New York Stock  Exchange on November 16,
1999.

                              RESULTS OF OPERATIONS


OVERVIEW

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


                                Three Months Ended         Nine Months Ended
                                  September 30,               September 30,
                            ------------------------    -----------------------
(In millions)                    1999          1998          1999          1998
-------------------------------------------------------------------------------
   Workers Compensation     $    (7.8)    $    10.8     $   (37.5)    $    63.7
   Nonstandard Automobile         2.1           7.3          16.4          25.6
   Specialty Commercial          11.1          (9.1)        (74.7)         48.3
   Other                          0.1          (1.0)         31.8         (10.5)
                            ---------     ---------     ---------     ---------
      Consolidated          $     5.5     $     8.0     $   (64.0)    $   127.1
                            =========     =========     =========     =========

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


                                       19
<PAGE>

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

                                                   Three Months Ended            Nine Months Ended
                                                      September 30,                 September 30,
                                                  -------------------           --------------------
(In millions, except for per share amounts)       1999           1998           1999            1998
-------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>              <C>
Operating earnings (loss) .......             $      5.4     $      2.0     $     (42.8)     $     48.8
After-tax investment gains (loss)                   (1.9)           0.3             1.0            33.9
Cumulative effect of adoption of
   new accounting principle .....                     --             --            (4.6)             --
                                              ----------     ----------     -----------      ----------
      Net earnings (loss) .......             $      3.5     $      2.3     $     (46.4)     $     82.7
                                              ==========     ==========     ===========      ==========
Per diluted common share:
Operating earnings (loss) .......             $     0.20     $     0.07     $     (1.58)     $     1.74
After-tax investment gains (loss)                  (0.07)          0.01            0.03            1.21
Cumulative effect of adoption of
   new accounting principle .....                     --             --           (0.17)             --
                                              ----------     ----------     -----------      ----------
      Net earnings (loss) .......             $     0.13     $     0.08     $     (1.72)     $     2.95
                                              ==========     ==========     ===========      ==========
Weighted average common shares ..                   27.2           27.2            27.1            27.4
Weighted average common shares
    and diluted equivalents .....                   27.6           27.9            27.1            28.1

</TABLE>

Operating earnings (loss) represents earnings (loss) after taxes,  excluding net
realized  investment  gains and the cumulative  effect of an accounting  change.
Year-to-date  1999 operating  earnings includes a first quarter after-tax charge
of $106.9 million,  or $3.96 per share,  related to an increase in loss reserves
in connection  with a loss reserve study,  partially  offset by a second quarter
after-tax  gain on the  sale of  McGee of $26.3  million,  or $0.97  per  share.
Excluding these items, the Company's afte tax operating  earnings would be $37.8
million, or $1.39 per share, for the nine months ended September 30, 1999.

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

The  average  shares for the nine  months  ended  September  30,  1999  excludes
equivalent  shares of 0.3 million in the  computation  of diluted  earnings  per
common share because to include them would have been antidilutive.

                                       20
<PAGE>



                                    REVENUES

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

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

<S>                                   <C>          <C>            <C>      <C>           <C>              <C>
Gross Premiums Written .........      $  512.2     $  505.2       1.4 %    $  1,564.9    $  1,461.4       7.1 %
                                      ========     ========     =====      ==========    ==========     =====
Net Premiums Written ...........      $  343.5     $  407.3     (15.7)%    $    950.8    $  1,161.1     (18.1)%
                                      ========     ========     =====      ==========    ==========     =====
Premiums earned ................      $  340.8     $  396.5     (14.0)%    $    983.5    $  1,115.7     (11.9)%
Net investment income ..........          34.8         22.3      56.1           103.8         106.2      (2.3)
Realized investment gains (loss)          (2.9)         0.4       (a)             1.5          52.1     (97.2)
Other ..........................           1.1          2.1     (47.5)            3.3          14.7     (77.5)
                                      --------     --------     -----      ----------    ----------     -----
   Total revenues ..............      $  373.8     $  421.3     (11.3)%    $  1,092.1    $  1,288.7     (15.3)%
                                      ========     ========     =====      ==========    ==========     =====
</TABLE>
[FN]

(a)  Not meaningful.
</FN>

PREMIUMS

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

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

<S>                                   <C>          <C>            <C>      <C>           <C>             <C>
Workers Compensation .                $  147.8     $  138.5       6.7 %    $    435.1    $    366.6      18.7 %
Nonstandard Automobile                   139.2        142.9      (2.6)          431.4         416.0       3.7
Specialty Commercial .                   225.2        223.8       0.6           698.4         678.8       2.9
                                      --------     --------     -----      ----------    ----------     -----
   Consolidated ......                $  512.2     $  505.2       1.4 %    $  1,564.9    $  1,461.4       7.1 %
                                      ========     ========     =====      ==========    ==========     =====
</TABLE>

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

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

<S>                                   <C>         <C>          <C>        <C>           <C>            <C>
Workers Compensation ...........      $  105.3    $  132.0     (20.2)%    $    294.1    $    349.4     (15.8)%
Nonstandard Automobile .........         120.0       107.2      11.9           364.2         309.8      17.6
Specialty Commercial ...........         118.2       168.1     (29.7)          292.5         501.9     (41.7)
                                      --------    --------     -----      ----------    ----------     -----
   Consolidated ................      $  343.5    $  407.3     (15.7)%    $    950.8    $  1,161.1     (18.1)%
                                      ========    ========     =====      ==========    ==========     =====
   Consolidated, excluding McGee      $  343.5    $  369.1      (6.9)%    $    990.8    $  1,086.0      (8.8)%
                                      ========    ========     =====      ==========    ==========     =====
</TABLE>

In connection with the sale of McGee in April 1999, the Company  transferred its
participation  in McGee's United States and Canadian pools effective  January 1,
1999,  resulting in negative net written premiums of $40.0 million and no effect
on premiums  earned in the first  quarter of 1999. In the first quarter of 1999,
based on the Company's loss  experience,  the Company ceded an additional  $35.2
million of  premiums  under a  corporate-wide  aggregate  stop loss  reinsurance
agreement  entered  into in 1998  related  to the 1998  accident  year.


                                       21
<PAGE>


WORKERS COMPENSATION

Net premiums written for Workers Compensation decreased in 1999 compared to 1998
reflecting  lower premium  retention of $36.0 million and $122.0  million in the
third quarter and nine months of 1999, respectively,  primarily from a change in
EBI's reinsurance programs effective October 1998. The effect of this change was
partly offset by gross  premium  growth of $9.3 million and $68.5 million in the
third quarter and nine months of 1999,  respectively,  from new business written
through EBI's multi-state  accounts program and continued  geographic  expansion
and  penetration.  To improve  profitability,  EBI has instituted rate increases
which have  substantially  offset  statutory rate decreases,  and may reduce the
growth of EBI's gross premiums written for the remainder of 1999.

NONSTANDARD AUTOMOBILE

Net premiums  written for  Nonstandard  Automobile  increased  primarily  due to
higher  net  premiums  of $19.3  million  in South  Carolina,  $12.0  million in
California,  and $8.9  million  in North  Carolina  for the nine  months of 1999
compared to the same 1998 period. Additionally,  OrionAuto generated net premium
growth in 20 of the 35 states  where it writes  business for  year-to-date  1999
compared to the same 1998 period.  The increase in net premiums written in South
Carolina is attributed to transition to a voluntary  market  environment in that
state on March 1, 1999. Higher  year-to-date  premiums in North Carolina are due
to the acquisition of Strickland on April 30, 1998. Excluding the effects of the
acquisitions of Strickland and Unisun,  Nonstandard  Automobile's gross premiums
written and net premiums  written  growth was 12.7% and 13.5% in the nine months
and  16.8%  and 17.1% in the third  quarter  of 1999  compared  to the same 1998
periods, respectively.

SPECIALTY COMMERCIAL

Net premiums written for Specialty Commercial are as follows:
<TABLE>
<CAPTION>

                                          Three Months Ended                   Nine Months Ended
                                             September 30,                       September 30,
                                 ---------------------------------     ----------------------------------
(In millions, except for %)         1999        1998     % Change         1999        1998      % Change
---------------------------------------------------------------------------------------------------------
Net Written Premiums:
<S>                              <C>         <C>            <C>        <C>          <C>             <C>
   DPIC ...................      $   48.3    $   46.6       3.6 %      $  139.2     $  138.5        0.5 %
   Grocers ................          10.2         6.3      61.9            27.8          6.3        (a)
   Orion Financial ........          21.8        20.5       6.3            62.1         63.0       (1.4)
   ARTIS ..................           0.4         0.1       (a)             2.2          0.1        (a)
   P&C Division ...........          37.4        56.5     (33.8)          101.0        219.3      (54.0)
                                 --------    --------     -----        --------     --------      -----
      Total Orion Specialty         118.1       130.0      (9.2)          332.3        427.2      (22.2)
      McGee ...............            --        38.2       (a)           (40.0)        75.1        (a)
      Assumed Reinsurance .           0.1        (0.1)      (a)             0.2         (0.4)       (a)
                                 --------    --------     -----        --------     --------      -----
                                 $  118.2    $  168.1     (29.7)%      $  292.5     $  501.9      (41.7)%
                                 ========    ========     =====        ========     ========      =====
</TABLE>
[FN]

(a)  Not meaningful.
</FN>


                                       22
<PAGE>


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

Grocers was acquired by the Company in July 1998.  The decrease in  year-to-date
net written  premiums at Orion  Financial,  which  primarily  writes  collateral
protection  insurance,  is principally  due to higher ceded  premiums  partially
offset  by  growth  in  gross  premiums  written  from  that  unit.  ARTIS,  the
alternative  risk  business of Orion  Specialty  formed in June 1997,  generated
significant  growth in gross premiums written  reflecting a move from the status
of a start-up  operation in 1998 to a profitable  operating unit in 1999.  ARTIS
generated  gross  premiums  written of $45.8 million and $116.9  million for the
third  quarter and nine months of 1999 and $13.6  million and $32.3  million for
the corresponding 1998 periods, respectively.

Net  premiums  written  by Orion  Specialty's  P&C  Division  decreased  in 1999
compared to 1998 primarily due to the effect of exiting  unprofitable  commodity
business in  connection  with the third quarter 1998  realignment  of this unit,
$23.9  million  of  ceded  premiums  in the  first  quarter  of 1999  under  the
corporate-wide reinsurance agreement previously mentioned and lower net premiums
of $11.8 million in third quarter and $37.4 million  year-to-date  from the sale
of Colorado Casualty Insurance Company in September 1998.

As part of the sale of McGee,  the  Company is fronting  business  for the buyer
until such time as the buyer  receives  various  state  regulatory  approvals to
issue marine  insurance  policies,  resulting in gross written premiums of $29.6
million in the third  quarter of 1999 and $122.4  million in the nine  months of
1999, as compared to $47.9 million and $152.7 million for the corresponding 1998
periods, respectively. In the first quarter of 1999, McGee recorded negative net
premiums  written of $40.0 million  reflecting  the unearned  premium  portfolio
transferred as of January 1, 1999 in connection with its sale.

PREMIUMS EARNED

The Company's  premiums  earned  decreased  14.0% to $340.8 million and 11.9% to
$983.5  million in the third  quarter  and the nine  months of 1999 from  $396.5
million and $1,115.7  million  ($372.9  million and $1,062.2  million  excluding
McGee)  in  the  corresponding   1998  periods.   Premiums  earned  reflect  the
recognition of income from the changing levels of net premium writings.

OTHER INCOME

Other income is $3.3  million and $14.7  million for the nine months of 1999 and
1998,  and $1.1  million and $2.1  million in the  corresponding  third  quarter
periods,  respectively. The decrease is primarily due to lower commission income
resulting from the sale of McGee.

                                       23
<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  and carrying
value of the Company's investment portfolio is as follows:
<TABLE>
<CAPTION>

                                               Three Months Ended        Nine Months Ended
                                                 September 30,             September 30,
                                             ---------------------     ---------------------
(In millions, except for %)                    1999         1998         1999          1998
--------------------------------------------------------------------------------------------
<S>                                          <C>          <C>         <C>          <C>
Net investment income .................      $  34.8      $  22.3     $  103.8     $  106.2
Realized investment gains (loss) ......         (2.9)         0.4          1.5         52.1
Unrealized depreciation ...............        (45.4)       (46.9)      (116.6)       (69.2)
                                             -------      -------     --------     --------
                                             $ (13.5)     $ (24.2)    $  (11.3)    $   89.1
                                             =======      =======     ========     ========
Investment yields on average portfolio:
   Pre-tax ............................          5.9%         3.7%         5.8%         5.9%
                                             =======      =======     ========     ========
   After-tax ..........................          4.5%         3.1%         4.5%         4.5%
                                             =======      =======     ========     ========
Equity earnings (loss) in limited
   Partnership investments (a) ........      $   2.5      $ (14.1)    $    8.0     $   (5.1)
                                             =======      =======     ========     ========
</TABLE>
[FN]

(a) Included in net investment income .
</FN>
<TABLE>
<CAPTION>

                                              September 30, 1999        December 31, 1998
                                             -----------------------------------------------
Fixed maturities and short-term investments:
<S>                                          <C>             <C>      <C>              <C>
      Investment grade ..................... $  1,670.1      73.7%    $  1,650.5       65.9%
      Non-investment grade and non-rated ...      156.1       6.9          208.7        8.3
                                             ----------     -----     ----------      -----
                                                1,826.2      80.6        1,859.2       74.2
Equity securities ..........................      349.8      15.4          510.9       20.4
Limited partnerships and other .............       88.8       3.9          116.2        4.6
                                             ----------     -----     ----------      -----
                                                2,264.8      99.9        2,486.3       99.2
Cash .......................................        2.8       0.1           18.0        0.8
                                             ----------     -----     ----------      -----
   Total investments and cash .............. $  2,267.6     100.0%    $  2,504.3      100.0%
                                             ==========     =====     ==========      =====
</TABLE>

NET INVESTMENT INCOME

Pre-tax  net  investment  income for the nine  months of 1999 was lower than the
comparable  1998  period  due,  most  significantly,  to  the  effect  of  lower
reinvestment  rates in prior quarters  resulting in reduced investment yields of
the Company's fixed income portfolio and the effect of previous  shifting in the
fixed income portfolio from taxable to tax-advantaged securities.  These effects
were  substantially  mitigated  by more  favorable  earnings  impact of  limited
partnership investments accounted for on an equity basis.

Equity earnings in limited  partnership  investments,  which are included in net
investment  income,  were higher in 1999 compared to same 1998 period  primarily
due to a $14.1 million pre-tax  investment loss recorded in the third quarter of
1998.  This loss was  attributed  to  volatility  and declines in the  financial
markets during the third quarter of 1998  resulting in  significant  declines in
value of three of the Company's larger limited partnership investments. Earnings
from limited  partnership  investments can vary considerably from  year-to-year.
The Company's long-term experience with limited partnership investments has been
favorable.

                                       24
<PAGE>

Fixed maturity  investments  which the Company has both the positive  intent and
the ability to hold to maturity are recorded at amortized  cost.  Fixed maturity
investments  which may be sold in response  to, among other  things,  changes in
interest rates,  prepayment  risk,  income tax strategies or liquidity needs are
classified as available-for-sale and are carried at market value.

The Company manages its total investments, so that at all times, there are fixed
income  securities  that are  adequate  in amount and  duration to meet the cash
requirements of current  operations and longer term  liabilities,  as well as to
meet  insurance  regulatory  requirements  with  respect  to  investments  under
specific state insurance laws. The Company invests primarily in investment grade
securities and additionally  invests a portion of its portfolio in a diversified
group of non-investment  grade fixed maturity  securities or securities that are
not rated to increase  the  portfolio  average  return.  The risk of loss due to
default is generally considered greater for non-investment grade securities than
for investment  grade  securities  because the former,  among other things,  are
often  subordinated to other  indebtedness of the issuer and are often issued by
highly leveraged companies.

REALIZED AND UNREALIZED INVESTMENT RESULTS

Realized  investment  gains  (losses)  vary from period to period,  depending on
market conditions relative to the Company's investment  holdings,  the timing of
investment  sales  generating  gains and losses,  the occurrence of events which
give rise to other-than-temporary  impairment of investments, and other factors.
Approximately  25%  of the  year-to-date  1998  net  realized  investment  gains
resulted  from the sale of two  investments  in entities  which were acquired or
taken public during the first quarter of 1998.  Realized investment gains may be
reduced   by   provisions    for   losses   on    securities    deemed   to   be
other-than-temporarily  impaired.  Any such  provision  is  based  on  available
information  at the  time and is made in  consideration  of the  decline  in the
financial condition of the issuers of such securities.

Net unrealized investment appreciation  (depreciation) for equity securities and
fixed maturities classified as available-for-sale  are recorded in stockholders'
equity, net of federal taxes, and included as a component of other comprehensive
income (see note 8 to consolidated financial statements).  Unrealized investment
appreciation  (depreciation) can vary significantly  depending upon fluctuations
in interest  rates,  changes in credit spreads and in equity prices.  Unrealized
investment  depreciation  in 1999  primarily  results  from the impact of higher
market interest rates on the Company's fixed maturity investments.


                                       25
<PAGE>
                               EXPENSES AND OTHER

OPERATING RATIOS

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

                                                    Three Months Ended    Nine Months Ended
                                                      September 30,        September 30,
                                                    ------------------   ------------------
                                                      1999      1998      1999      1998
-------------------------------------------------------------------------------------------

<S>                                                   <C>       <C>       <C>       <C>
Loss and loss adjustment expenses .................   73.2%     70.8%     86.3%     68.5%
Policy acquisition costs and other
   insurance expenses .............................   28.6      31.7      29.9      30.8
                                                     -----     -----     -----     -----
   Total before policyholders' dividends ..........  101.8     102.5     116.2      99.3
Policyholders' dividends ..........................    2.6       2.5       1.9       2.1
                                                     -----     -----     -----     -----
   Combined ratio .................................  104.4%    105.0%    118.1%    101.4%
                                                     =====     =====     =====     =====

Loss and loss adjustment expenses ratio by segment:
   Workers Compensation ...........................   74.5%     56.2%     82.0%     56.9%
   Nonstandard Automobile .........................   76.1%     67.1%     73.5%     69.2%
   Specialty Commercial ...........................   69.1%     83.7%    103.3%     75.8%

</TABLE>

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

The  year-to-date  1999 ratio of loss and loss  adjustment  expenses to premiums
earned (the "loss ratio") of 86.3%  reflects  significant  strengthening  of the
Company's  reserve  position as of March 31,  1999 based upon the first  quarter
loss reserve study.

Excluding the first  quarter  provision  for loss and loss  adjustment  expenses
recorded in connection with the loss reserve study, the loss and loss adjustment
expenses  ratio by segment for the nine months  ended  September  30, 1999 would
have been 66.0% for Workers Compensation,  72.6% for Nonstandard Automobile, and
69.6% for Specialty Commercial.  The Company's  year-to-date 1999 combined ratio
would have been 101.0% excluding the first quarter reserve charge and the second
quarter bad faith claim settlement related to a discontinued program.

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

                                       26
<PAGE>

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  was
attributable to businesses that the Company has exited.

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

The 1999 year-to-date loss ratio for Workers Compensation reflects first quarter
reserve strengthening of $31.9 million related to non-workers compensation lines
that  originated  in this  segment,  but are no longer  written by the  Company.
Additionally,  EBI  strengthened  its net reserves in the first  quarter 1999 by
recording a loss and loss adjustment expense provision of $8.4 million primarily
relating to the 1998 accident year as a result of the loss reserve study.  EBI's
net reserves were further  strengthened  by $9.1 million in the third quarter of
1999 for loss  development  related to prior  accident  years.

The 1999 loss ratio for  Nonstandard  Automobile  reflects  an  increase in loss
costs  due to  higher  claims  severity  offset  in part by a  decrease  in loss
adjustment expenses from continued efficiencies.

In  connection  with the loss  reserve  study,  in the  first  quarter  of 1999,
Specialty Commercial  strengthened its loss reserve positions by recording a net
provision for loss and loss adjustment expenses of $95.7 million related to 1998
and prior  accident  years.  Approximately  $47.1  million of this net charge is
related to the assumed  reinsurance  business  that the  Company  exited in late
1996,  $44.4  million is related to the exited P&C  Division  business  at Orion
Specialty,  and $4.2 million is related to the ongoing  business at DPIC. In the
third quarter of 1998, $27.8 million of loss reserve  strengthening was recorded
related to business cancelled in connection with the previously  disclosed Orion
Specialty realignment.

The ratio of policy  acquisition costs and other insurance  expenses to premiums
earned (the "expense  ratio") was  modestly  lower in 1999 compared to 1998 on a
year-to-date  basis.  Policy  acquisition  costs include  direct costs,  such as
commissions,  premium  taxes,  and  salaries  that  relate  to and vary with the
production  of new  business.  These costs are  deferred  and  amortized  as the
related premiums are earned, subject to a periodic test for recoverability.

The  Company  regularly  evaluates  its  reserves  for loss and loss  adjustment
expenses.  Loss reserve amounts are based on management's informed estimates and
judgements,  using data  currently  available.  As part of the evaluation of its
first quarter loss reserve  position,  the Company took the additional action of
having an  independent  actuarial  review of its loss  reserves.  The results of
which were considered in the increases in loss reserves during the first quarter
of 1999.  Management  believes  that the  Company's  reserves  for loss and loss
adjustment   expenses  make  reasonable  and  sufficient   provision  within  an
acceptable  actuarial  range  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.
Variability in claim emergence and settlement  patterns and other trends in loss
experience can result in future development patterns different than expected.

                                       27
<PAGE>

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.

In connection  with the acquisition of Orion by RSA, the Company will enter into
a new reinsurance agreement to provide adverse loss protection for the Company's
reserves  relating to business written on or before the date of acquisition.  In
the  fourth  quarter of 1999,  the  Company  commuted  two  aggregate  stop-loss
reinsurance  agreements  to  allow  for the  completion  of the new  reinsurance
agreement.  These  commutations will result in taking back previously ceded loss
reserves totaling $73.3 million of reinsurance  recoverable  offset by principal
consideration  of $45.3 million plus future  economic value thereon  anticipated
under the aggregate  stop-loss  agreements,  which the Company believes to be at
least equal to the reduction to the reinsurance recoverable.  Additionally,  the
Company is  negotiating  the  commutation  of an excess of loss and quota  share
reinsurance agreement in which EBI participates.

OTHER EXPENSES

Other  expenses  were $20.9  million and $29.9 million for the nine months ended
September 30, 1999 and 1998, respectively.  The decrease is primarily due to the
elimination of McGee agency expense  resulting from the sale of this unit partly
offset by expenses incurred by Orion for planning activities related to upcoming
integration with RSA.

EQUITY IN EARNINGS (LOSS) OF AFFILIATE

Equity in earnings  (loss) of affiliate  was $0.2 million and $(0.4)  million in
the third quarter and nine months of 1998 from the  Company's 26%  investment in
Intercargo. In May 1999, the Company sold its investment in Intercargo for $22.8
million in cash pursuant to the terms of the merger agreement between Intercargo
and a subsidiary of XL Capital,  Ltd. The sale of Intercargo resulted in no gain
or loss during 1999 because the Company adjusted its investment in Intercargo to
its net realizable value in the fourth quarter of 1998.

Federal Income Tax Expense (Benefit)

The Company's  federal  income taxes and effective tax rates were as follows for
the nine months ended September 30:

(In millions, except for %)                    1999       1998
---------------------------------------------------------------
Federal income tax expense (benefit) (a)    $ (37.6)   $  29.9

Effective tax rate (a) .................      (47.3)%     26.6%

[FN]

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

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

                                       28
<PAGE>


                         LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flows is as follows:

                             Nine Months Ended September 30,
                             -------------------------------
(In millions)                     1999           1998
------------------------------------------------------------
Cash flows:
   Operating activities         $ (151.4)       $  24.6
   Investing activities            154.1           27.6
   Financing activities            (17.9)         (23.0)
                                --------        -------
                                $  (15.2)       $  29.2
                                ========        =======


Cash provided by operating  activities  decreased by $176.0  million in the nine
months of 1999  compared  to the  corresponding  1998  period.  The  decrease in
operating  cash flow in 1999 is  primarily  the result of reduction in premiums,
higher payments for losses and loss adjustment  expenses,  largely influenced by
the runoff of exited business,  and lower investment income  collections as well
as an increased use of reinsurance. Partially offsetting these cash flow changes
were declines in policy  acquisition  costs and federal income tax payments,  as
well as a $20.0 million federal tax refund received by the Company.  The sale of
McGee  resulted in a $10.7 million  reduction to operating cash flow in the nine
months of 1999 as  compared  to the same 1998  period,  and will result in $15.6
million for the year. Due to the anticipated level of claim payments from exited
business,  operating  cash flow for 1999 is expected to be lower than 1998.  The
Company  sold  investment  securities  in the fourth  quarter of 1999 to provide
funding for the new reinsurance agreement described above and merger related
costs.

Cash related to investment  activities  are primarily for purchases, sales and
maturities of investments, acquisition and divestiture activities, and purchases
of property and  equipment.  Investment  purchases are funded by maturities  and
sales of investments, as well as by the net cash from operating cash flows after
cash provided by or used in financing activities. In the second quarter of 1999,
the Company received  approximately $28.8 million and $22.8 million, of net cash
in connection with the sale of McGee and Intercargo, respectively. Cash used for
acquisition  and  divestiture  activities  in the first nine  months of 1998 was
primarily  related to the acquisitions of Strickland's  non-standard  automobile
insurance  business on April 30, 1998 and Grocers  Insurance  Company on July 9,
1998, and the sale of Colorado Casualty Insurance Company on September 29, 1998.

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

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

                                       29
<PAGE>

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

                                            September 30,    December 31,
(In millions, except for ratios)                 1999            1998
-------------------------------------------------------------------------
Cash and short-term investments held
   by insurance subsidiaries .........         $  184.8       $  242.4

Consolidated policyholders' surplus ..         $  641.1       $  732.1

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

[FN]

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

In July 1998, the Company entered into a five year credit agreement with a group
of  banks  which  provides  for  unsecured  borrowings  up to $150  million.  No
borrowings  are  outstanding  at  September  30,  1999.  On November 9, 1999 the
Company  terminated  this  credit  agreement  effective  with the  merger of the
Company into a RSA subsidiary.

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. At September
30,  1999 the  Company  is in  compliance  with the  terms  of its  senior  note
indentures.

In February 1998, Orion issued $125 million of 7.701% Trust Preferred Securities
due April 15, 2028.  In January  1997,  Orion issued $125 million of 8.73% Trust
Preferred  Securities due January 1, 2037. The 8.73% and 7.701% Trust  Preferred
Securities are subordinated to all liabilities of the Company.

                                LEGAL PROCEEDINGS

Orion and its  subsidiaries  are routinely  engaged in litigation  incidental to
their  businesses.  Management  believes  that  there are no  significant  legal
proceedings  pending  against the  Company  which,  net of reserves  established
therefore,  are likely to result in  judgments  for amounts that are material to
the  financial  condition,  liquidity or results of  operations of Orion and its
consolidated  subsidiaries,  taken as a whole. Also, see note 7 to the Company's
financial statements.


                              YEAR 2000 COMPLIANCE

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

                                       30
<PAGE>

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

The Company  began  addressing  its computer  programs in 1996 at the  locations
where  its  most  significant  technology  concentration  exists.  Similar  work
commenced shortly  thereafter at other locations.  As of September 30, 1999, the
Company had completed substantially all of its scheduled remediation of critical
production  systems for processing  Year 2000 dates.  Non-critical  systems were
tested and critical  systems were 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  $19.3 million, of
which  $2.2  million  has been  expensed  in the nine  months  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 and capitalized as fixed assets in
1998, totaled  approximately $13.0 million. 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 September 30, 1999,  the Company had received  responses
from  approximately  93% of the  most  critical  third  parties  of  whom it has
inquired.  The companies that have responded  have provided  written  assurances
that they plan to address all their  significant  Year 2000 problems by year-end
1999. For critical third parties who have not responded,  the Company  continues
to perform follow-up  procedures with such parties.  If an acceptable  follow-up
response is not received,  a contingency plan for that third party  relationship
has been developed by the Company. 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,  and the
Company  also  expanded its survey to vendors and service  providers  who do not
directly interface with the Company's systems.

                                       31
<PAGE>

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."


                                       32
<PAGE>
                     ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED

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

                           FORWARD-LOOKING STATEMENTS

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


                                       33
<PAGE>

                           PART II. OTHER INFORMATION

Items 1 - 5.

None.

Item 6.        Exhibits and reports on Form 8-K

Exhibits

Exhibit 11     Computation of Earnings per Common Share

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

Exhibit 27:    Financial Data Schedule.

Report on Form 8-K

None.

                                       34
<PAGE>
                                   SIGNATURES

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

                            ORION CAPITAL CORPORATION


Date: November 16, 1999                             By: /s/ W. Marston Becker
                                                    -------------------------
                                                    Chairman of the Board and
                                                    Chief Executive Officer



Date: November 16, 1999                             By: /s/ Michael L. Pautler
                                                    --------------------------
                                                    Senior Vice President and
                                                    Chief Financial Officer


                                       35
<PAGE>
                                  EXHIBIT INDEX

Exhibit 11:       Computation of Earnings per Common Share

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

Exhibit 27:       Financial Data Schedule