SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year end                          Commission  File Number
 December 31, 2000                                0-671

                              MOTOR CLUB OF AMERICA
             (Exact name of registrant as specified in its charter)

       New Jersey                               22-0747730
(State of incorporation)             (I.R.S. Employer Identification No.)

95 Route 17 South, Paramus, New Jersey              07653
(Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code (201)291-2000

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock (par value) $.50 per share
                                (Title of Class)

Indicate by check mark whether the registrant (l) 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 .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

The aggregate market value of the voting Common Stock (par value $.50 per share)
held by non-affiliates on March 23, 2000 was $7,653,221 based on the closing
selling price of $7.188 per share.

2,124,387 shares of Common Stock were outstanding as of March 23,
2001.

Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement issued in conjunction with the June 6, 2001 Annual Meeting of
Shareholders (Part III).

<PAGE>

                              MOTOR CLUB OF AMERICA
                           ANNUAL REPORT ON FORM 10-K
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                        PAGE
<S>       <C>                                           <C>
          PART I

ITEM 1.   BUSINESS                                        4
ITEM 2.   PROPERTIES                                     41
ITEM 3.   LEGAL PROCEEDINGS                              41
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF             41
          SECURITY HOLDERS

          PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY      43
          AND RELATED STOCKHOLDER MATTERS
ITEM 6.   SELECTED FINANCIAL DATA                        44
ITEM 7.   MANAGEMENT'S DISCUSSION AND                    45
          ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS
ITEM 8.   FINANCIAL STATEMENTS AND                       72
          SUPPLEMENTARY DATA
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH              72
          ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF            72
          THE REGISTRANT
ITEM 11.  EXECUTIVE COMPENSATION                         72
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN                  72
          BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED              72
          TRANSACTIONS

          PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS                 73
          SCHEDULES AND REPORTS ON FORM 8-K
</TABLE>


Cautionary Statement

<PAGE>

     This Report on Form 10-K contains statements that are not historical facts
and are considered "forward-looking statements" (as defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by terms such
as "believes", "expects", "may", "will", "should", "anticipates", the negatives
thereof, or by discussions of strategy. Certain statements contained herein are
forward-looking statements that involve risks, uncertainties, opinions and
predictions, and no assurance can be given that the future results will be
achieved since events or results may differ materially as a result of risks
facing the Company. These include, but are not limited to, the cyclical nature
of the property casualty insurance industry, the impact of competition, product
demand and pricing, claims development and the process of estimating reserves,
the level of the Company's retentions, catastrophe and storm losses, legislative
and regulatory developments, changes in the ratings assigned to the Company by
rating agencies, investment results, availability of reinsurance, availability
of dividends from our insurance company subsidiaries, investing substantial
amounts in our information systems and technology, the ability of our reinsurers
to pay reinsurance recoverables owed to us, our entry into new markets, our
acquisition of North East Insurance Company on September 24, 1999, our
acquisition of Mountain Valley Indemnity Company on March 1, 2000, our
successful integration of these acquisitions, potential future tax liabilities
related to an insolvent subsidiary and state regulatory and legislative actions
which can affect the profitability of certain lines of business and impede our
ability to charge adequate rates, and other risks

<PAGE>

detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including this Annual Report on Form 10-K.

                                     PART I

Item 1. Business

(a)  General Development of Business

     Motor Club of America (the "Registrant") and a group of directly or
indirectly wholly-owned subsidiaries of which the Registrant is parent are known
as the "Motor Club of America Companies" (the "Motor Club of America Group") and
provide property and casualty insurance services. The Registrant, incorporated
in New Jersey in 1933 as "Automobile Association of New Jersey", is the
successor to a New Jersey corporation organized in 1926. The present name was
adopted in 1958.

     Unless otherwise indicated all references in this Form 10-K to "Motor Club
of America", "we", "us", "our" "the Company" or similar terms refer to Motor
Club of America together with its subsidiaries.

     We own and operate five regionally focused property and casualty insurance
companies, including companies that specialize in small and mid-sized commercial
insurance.

     The Preserver Insurance Group consists of Preserver Insurance Company
("Preserver"), which writes small commercial and homeowners insurance presently
in New Jersey, and Mountain Valley Indemnity Company ("Mountain Valley"), which
writes small and mid-sized commercial insurance presently in New England and New
York. American Colonial Insurance Company ("American


<PAGE>

Colonial") plans to commence operations in New York in 2001, writing commercial
lines in tandem with Mountain Valley.

     North East Insurance Company ("North East") writes personal automobile
("PPA") and small commercial lines insurance in the State of Maine. Motor Club
of America Insurance Company ("Motor Club") writes PPA insurance in New Jersey.

     We are pursuing a strategy to: (1) increase our identification as a
provider of small commercial lines insurance and have continued to expand our
product lines in support of this objective; and (2) expand and diversify our
insurance operations outside the State of New Jersey. We believe that both of
these objectives can be attained through the acquisition of other insurance
companies, which present opportunities to write these product lines in different
geographic areas, and we expect to continue to follow this strategy.

     On September 24, 1999, we acquired North East and its subsidiaries, which
include American Colonial. North East was incorporated in 1965 in the State of
Maine. American Colonial was incorporated in 1982 and has not written any
insurance coverage since March 1990. American Colonial is domiciled in New York.
On March 1, 2000, we acquired Mountain Valley, which was incorporated in 1995 in
the State of New Hampshire.

     We believe that these acquisitions fully establish us as a regional
commercial lines company in New England and the Mid-Atlantic regions. Motor
Club, Preserver, Mountain Valley, North East and American Colonial are
collectively referred to as the "Insurance Companies" in this Form 10-K.

     The Company has restated certain financial information for prior periods,
which is discussed in Note V of the Notes to Consolidated Financial Statements.

<PAGE>

(b)  Financial Information About Segments

     We have four segments, which consist of the active insurance subsidiaries
and a corporate segment. Financial information about these segments is set forth
in Note T of the Notes to Consolidated Financial Statements.

(c)  Narrative Description of Business

General

     The Insurance Companies underwrite a broad line of commercial and personal
property and casualty coverages, including commercial multi-peril, automobile
and workers' compensation through approximately 300 independent producers in
seven states.

     We anticipate continuing to grow our small commercial and ancillary
coverages written by Preserver in the State of New Jersey, Mountain Valley in
the States of New York, Massachusetts, New Hampshire, Vermont, Rhode Island and
Maine and American Colonial in New York. We expect North East to increase its
emphasis of small commercial coverages as well. To improve our competitiveness
in the commercial lines market place, we plan to license Preserver and Mountain
Valley in the same states where the other is conducting business.

     Motor Club and North East write PPA business in the States of New Jersey
and Maine, respectively. Although PPA business is expected to increase as well,
we anticipate that this business will continue to decrease as a percentage of
the total consolidated revenues.

     On March 1, 2000, Preserver and Mountain Valley entered into


<PAGE>

an Insurance Pooling Agreement (discussed on page 15) and formed the
Preserver Insurance Group. In March 2000, the Preserver Insurance Group was
rated B++ (Very Good) by A.M. Best.

     At December 31, 2000, Motor Club is separately rated B+ (Very Good) by
Best; North East is rated B (Fair). American Colonial plans to commence
insurance operations in New York in 2001.

     Best ratings are based upon factors relevant to policyholders and are not
directed toward the protection of investors. We believe that the Best rating is
an important factor in marketing the Insurance Companies' products.

     Effective July 1, 1998, Motor Club began converting its existing policies
from six month terms to twelve month policy terms ( the "Policy Term
Conversion"). While the Policy Term Conversion temporarily increased the amount
of premiums written by Motor Club in 1998, it did not affect the amount of
premiums earned. The Policy Term Conversion was implemented to reduce the
frequency of renewal, thereby increasing operating efficiency and service levels
and reducing expenses.

     Our results include the operations of North East since its acquisition on
September 24, 1999, and Mountain Valley since its acquisition on March 1, 2000.
The tables which follow set forth these direct premiums written and earned, by
line of insurance, for the last five years:

<PAGE>

                             Direct Written Premiums
              (Amounts in Thousands - Exclusive of Service Charges)

<TABLE>
<CAPTION>
                                      2000               1999                1998               1997               1996
                                 Direct  Percent    Direct  Percent     Direct  Percent    Direct  Percent    Direct  Percent
Program                         Premium  of Total  Premium  of Total   Premium  of Total  Premium  of Total  Premium  of Total
-------                         -----------------  -----------------   -----------------  -----------------  -----------------
<S>                             <C>      <C>       <C>      <C>        <C>      <C>       <C>      <C>       <C>      <C>
Commercial:
Preserver                       $13,827    13.9%   $11,504    18.6%    $ 9,672     13.7%   $8,019    13.9%    $6,744    12.5%
Mountain Valley                  20,367    20.5%        --      --          --       --        --      --         --      --
North East                        5,148     5.2%       900     1.5%         --       --        --      --         --      --
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Commercial                $39,342    39.5%   $12,404    20.1%    $ 9,672     13.7%   $8,019    13.9%    $6,744    12.5%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====

Personal Auto:
Motor Club                      $40,334    40.5%   $39,611    64.2%    $54,254     76.7%  $43,238    74.7%   $41,055    76.0%
North East                       13,154    13.2%     2,877     4.7%         --       --        --      --         --      --
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Personal Auto             $53,488    53.7%   $42,488    68.9%    $54,254     76.7%  $43,238    74.7%   $41,055    76.0%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====

Other Personal:
Preserver                       $ 6,702     6.7%    $6,804    11.0%    $ 6,833      9.7%   $6,596    11.4%    $6,216    11.5%
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Other Personal            $ 6,702     6.7%    $6,804    11.0%     $6,833      9.7%   $6,596    11.4%    $6,216    11.5%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====
Total Insurance
   Companies                    $99,532   100.0%   $61,696   100.0%    $70,759    100.0%  $57,853   100.0%   $54,015   100.0%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====
</TABLE>

                             Direct Earned Premiums
              (Amounts in Thousands - Exclusive of Service Charges)

<TABLE>
<CAPTION>
                                      2000               1999                1998               1997               1996
                                 Direct  Percent    Direct  Percent     Direct  Percent    Direct  Percent    Direct  Percent
Program                         Premium  of Total  Premium  of Total   Premium  of Total  Premium  of Total  Premium  of Total
-------                         -----------------  -----------------   -----------------  -----------------  -----------------
<S>                             <C>      <C>       <C>      <C>        <C>      <C>       <C>      <C>       <C>      <C>
Commercial:
Preserver                       $12,634    13.3%   $10,508    16.6%     $8,916     15.0%   $7,698    13.4%    $6,526    12.6%
Mountain Valley                  18,583    19.5%        --      --          --       --        --      --         --      --
North East                        4,613     4.8%       957     1.5%         --       --        --      --         --      --
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Commercial                $35,830    37.6%   $11,465    18.1%     $8,916     15.0%   $7,698    13.4%    $6,526    12.6%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====

Personal Auto:
Motor Club                      $39,214    41.4%   $41,781    65.9%    $43,631     73.6%  $43,381    75.4%   $39,242    75.6%
North East                       13,459    14.1%     3,291     5.2%         --       --        --      --         --      --
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Personal Auto             $52,673    55.3%   $45,072    71.1%    $43.631     73.6%  $43,381    75.4%   $39,242    75.6%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====

Other Personal:
Preserver                       $ 6,797     7.1%    $6,843    10.8%     $6,764     11.4%   $6,422    11.2%    $6,152    11.8%
                                -------   -----    -------   -----     -------    -----   -------   -----    -------   -----
Total Other Personal            $ 6,797     7.1%    $6,843    10.8%     $6,764     11.4%   $6,422    11.2%    $6,152    11.8%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====
Total Insurance
   Companies                    $95,300   100.0%   $63,380   100.0%    $59,311    100.0%  $57,501   100.0%   $51,920   100.0%
                                =======   =====    =======   =====     =======    =====   =======   =====    =======   =====
</TABLE>

<PAGE>

     These tables exclude premiums written and earned by Mountain Valley in the
State of Texas in 2000 (which are being transferred to another company not
affiliated with us and are 100% reinsured) and any premiums written and earned
by Mountain Valley and North East prior to their acquisition by us.

     The following table sets forth ratios for the Insurance Companies prepared
in accordance with generally accepted accounting principles ("GAAP") and with
statutory accounting practices ("SAP") prescribed or permitted by state
insurance authorities. The SAP combined ratio, a standard measure of
underwriting profitability, is the sum of: (i) the ratio of incurred losses and
loss expenses to net earned premium ("loss ratio"); and (ii) the ratio of
expenses incurred for commissions, premium taxes, administrative and other
underwriting expenses to net written premium ("expense ratio"). The GAAP
combined ratio is calculated in the same manner except that it is based on GAAP
amounts and the denominator for each component is net earned


<PAGE>

premium.

<TABLE>
<CAPTION>
                                            December 31,
                                    2000        1999       1998
                                   -----------------------------
<S>                                <C>         <C>         <C>
GAAP operating ratios:
  Loss ratio                        66.7%       72.8%      68.6%
  Expense ratio                     35.3%       36.4%      29.1%
                                   -----       -----       ----
  Combined ratio                   102.0%      109.2%      97.7%
                                   =====       =====       ====

Statutory operating ratios:
  Loss ratio                        69.1%       74.7%      69.9%
  Expense ratio                     36.2%       33.3%      28.8%
                                   -----       -----       ----
  Combined ratio                   105.3%      108.0%      98.7%
                                   =====       =====       ====
</TABLE>


     In general, when the combined ratio is under 100%, underwriting results are
considered profitable. Conversely, when the combined ratio is over 100%,
underwriting results are generally considered unprofitable. The combined ratio
reflects underwriting results and not investment income, federal income taxes or
other non-operating income or expense. Our operating income is generally a
function of both underwriting results and investment income.

Reinsurance

     The Insurance Companies follow the customary industry practice of
reinsuring a portion of their risks and paying to reinsurers a portion of the
premiums received on the policies. The Insurance Companies' reinsurance programs
permit greater diversification of business and the ability to write larger
policies while limiting maximum net losses; in addition, the reinsurance
programs are designed to protect against catastrophic losses. Reinsurance does
not legally discharge an insurer from its primary liability for the full amount
of the policies,

<PAGE>

although it does make the reinsurer liable to the insurer to the extent of the
reinsurance ceded. Therefore, the Insurance Companies are subject to credit risk
with respect to their reinsurers.

      Reinsurance for property losses of Preserver is maintained under a per
risk excess of loss treaty affording recovery to $2 million, in excess of a
retention of $100,000. On January 1, 2001, this retention was increased to
$250,000. Preserver also maintains a 100% quota share treaty for boiler and
machinery coverage.

     Casualty reinsurance is currently maintained for Motor Club and Preserver
under an excess of loss treaty affording recovery up to $3 million, in excess of
a retention, $150,000 to December 31, 1999, $200,000 in 2000 and $250,000
commencing January 1, 2001.

     Preserver also maintains reinsurance coverage for personal and commercial
umbrella policies up to $2 million for personal lines policies and up to $5
million for commercial lines policies. Effective March 1, 1998, Preserver
entered into reinsurance contracts for the workers' compensation policies it
commenced writing on that date. An 80% quota share reinsurance contract on the
first $500,000 of workers' compensation coverage has been implemented; an excess
of loss treaty affording coverage up to $10 million in excess of the retention
of $500,000 has also been implemented. After March 1, 2001, we expect to
increase our retentions under these contracts, not materially however.

     Effective January 1, 1999, Preserver purchased aggregate stop loss
reinsurance for all of its lines of business which

<PAGE>

provides $3 million coverage in excess of a loss ratio of 67.5% after
the application of all other reinsurance. The treaty is subject to experience
adjustments over a three-year period. This treaty affords Preserver protection
against elevated levels of frequency or severity of losses, which are not
consistent with its historical experience, and includes, but is not limited to,
weather-related events, which may not rise to the level of a catastrophe,
subject to a dollar limit. To date Preserver's results have not triggered any
recoveries under this agreement.

     North East's principal reinsurance protection is provided through a
combined per risk excess of loss treaty. Prior to 2000, this reinsurance
afforded recovery to $1 million in excess of a retention of $50,000. On January
1, 2000, this retention was increased to $150,000.

     In addition, the Insurance Companies' catastrophe reinsurance program
presently covers substantially all catastrophe losses in excess of $500,000 up
to $42.5 million.

     Prior to March 1, 2000, the date we acquired Mountain Valley, Mountain
Valley ceded 100% of its premiums, losses and expenses under a quota share
treaty to Trinity Universal Insurance Company ("Trinity"), a subsidiary of
Unitrin, Inc., the seller ("Trinity Quota Share"). All cessions under the
Trinity Quota Share are after the application of all third party reinsurance
that Mountain Valley maintains.

     Effective March 1, 2000, under the terms of our Purchase Agreement, the
Trinity Quota Share was terminated on a cut-off basis. Under the terms of the
cut-off,


<PAGE>

Mountain Valley will continue to cede 100% of losses and expenses incurred
before March 1, 2000, including subsequent development of those losses and
expenses. In addition, Trinity retained the premiums, losses and expenses on 79
policies in the State of New York until we renewed, canceled or non-renewed
those policies at (or prior to) their expiration dates.

     Accordingly, as of March 1, 2000, Mountain Valley had and will continue to
have no net unpaid loss and loss expense reserves for losses incurred before
March 1, 2000. We are subject to credit risk should Trinity not be able to pay
its obligations under the Trinity Quota Share. However, Trinity is presently
rated A+ (Superior) by A.M. Best and has $846 million in surplus as regards
policyholders as of December 31, 2000. Thus, we believe that such credit risk is
not material at this time.

     Third party reinsurance for property and casualty losses of Mountain Valley
are maintained under a combined per risk excess of loss treaty affording
recovery to $5 million in excess of a retention of $250,000. Mountain Valley
also maintains a third party 100% quota share treaty for boiler and machinery
coverage and reinsurance coverage for commercial umbrella policies up to $5
million.

     Third party reinsurance for workers' compensation losses of Mountain Valley
are maintained under excess of loss treaties affording recovery to $10 million
(effective July 1, 2000) in excess of a retention of $50,000. This coverage had
a limit of $5 million prior to July 1, 2000. Mountain Valley also purchases


<PAGE>

catastrophe coverage for workers compensation losses affording recovery to $20
million.

     Mountain Valley has also utilized extensively third party facultative
reinsurance for certain risks that it underwrites which it does not believe are
appropriate for coverage by its third party treaty reinsurance. Treaty
reinsurance is reinsurance placed on an aggregate or portfolio basis covering
all risks written by the Company as specified in the contract. Facultative
reinsurance is reinsurance placed on a per risk basis, covering a specific
insurance policy. During 2000, Mountain Valley ceded $1.2 million in facultative
reinsurance to third party reinsurers, generally employing a retention of
$250,000. In 2001, we plan to review Mountain Valley's utilization of
facultative reinsurance to ensure that it provides the proper cost-benefit
relationship.

    The Insurance Companies consider numerous factors in selecting reinsurers,
the most important of which is the financial stability of the reinsurer. All of
the Insurance Companies' reinsurers are presently rated A-(Excellent) or higher
by A.M. Best. The Insurance Companies have not experienced any material
collectibility problems for their reinsurance recoverables.

     We continually review all of the Insurance Companies' reinsurance coverages
for pricing, adequacy of coverage and security. The terms and charges for
reinsurance coverage are typically negotiated annually. The reinsurance market
is subject to conditions that are similar to those in the direct property


<PAGE>

and casualty insurance market, and there can be no assurance that reinsurance
will remain available to the Insurance Companies to the same extent and at the
same cost currently maintained.

     During 2000, we took numerous steps to consolidate reinsurance coverages
for the Insurance Companies with the appropriate reinsurers to gain economies of
scale and improved purchasing power in the reinsurance market place. We will
continue to conduct these reviews and take similar actions during 2001.

Insurance Pooling Agreement

     Effective March 1, 2000, Preserver and Mountain Valley entered into an
intercompany pooling arrangement with each other and formed the Preserver
Insurance Group ("Group"). The pooling is intended to permit a more uniform and
stable underwriting result from year to year for both companies than they would
experience individually and to spread the risk of loss among the pool
participants. The Group therefore has at its disposal the underwriting capacity
of the entire pool, rather than being limited to policy exposures of a size
commensurate with its own capital and surplus. The additional capacity exists
because such policy exposures are spread between both pool participants which
each have its own capital and surplus. Regulation by state insurance departments
is applied to the individual companies rather than to the pooling. The pooling
enabled Mountain Valley to attain a Best rating as part of the Group it would
not otherwise have been able to achieve, due to its insufficient

<PAGE>

operating experience, having commenced operations in 1995.

     Pursuant to the terms of the pooling agreement, Mountain Valley cedes 100%
of its premiums and expenses on all of its business, and losses incurred after
March 1, 2000 to Preserver. All of Preserver's premium and expenses on all of
its business, and losses incurred after March 1, 2000 are included in the pooled
business. Preserver then retrocedes to Mountain Valley 25% of the premiums,
losses and expenses subject to the pooling. The pooling does not legally
discharge either participant in the Group from its primary liability for the
full amount of the policies ceded. We anticipate that American Colonial will
join the pool when it recommences operations in 2001.

Loss Reserves

     Reserves for unpaid losses and loss expenses at any report date reflect the
estimate of the liabilities for the ultimate net loss of reported claims and
estimated incurred but not reported claims.

     The liability for unpaid losses and loss expenses is determined using
case-basis evaluations and statistical projections and represents estimates of
the ultimate net cost of all unpaid losses and loss expenses through December 31
of each year. These estimates are continually reviewed and refined as historical
experience develops, new information becomes known and the effects of trends in
future claim severity and frequency are considered.

<PAGE>

     The liabilities are adjusted accordingly with such adjustments being
reflected in the current year operations. Apart from the emergence of PPA
development for claims occurring in 1999 related to PPA legislation enacted in
New Jersey (discussed below), no trends that are considered abnormal have been
identified as of the most recent evaluation date, December 31, 2000.

     The following table presents a reconciliation of beginning and ending
liability balances for 2000, 1999 and 1998, reported under GAAP:

            RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS EXPENSES

<TABLE>
<CAPTION>
                                                             2000           1999            1998
                                                          --------------------------------------
                                                                   (Thousands of Dollars)
<S>                                                       <C>            <C>             <C>
Liability for losses and loss expenses, net of
    reinsurance  recoverables,  at  January 1             $52,529        $39,814         $32,884
Liability for losses and loss expenses, net
    of reinsurance recoverables,  North  East Acquisition       -          8,820               -
Incurred losses and loss expenses
   Provision for current year claims                       55,542         37,272          32,598
Increase in provision for prior years'
       claims                                                 166          3,359           3,881
Total incurred and loss expenses                           55,708         40,631          36,479
Payments for losses and loss expenses
   Payments on current year claims                         24,501         16,448          12,038
   Payments on prior years' claims                         23,541         20,288          17,511
   Total payments for losses and loss expenses             48,042         36,736          29,549
Liability for losses and loss expenses, net
    of reinsurance recoverables, at December 31            60,195         52,529          39,814
Reinsurance recoverables on unpaid losses
    and loss expenses, at December 31                      30,197         18,454          18,521
Liability for losses and loss expenses,
  gross of reinsurance recoverables,
     at December 31                                       $90,392        $70,983         $58,335
</TABLE>

<PAGE>

     The reconciliation shows a 2000 deficiency of $166,000 in the liability
recorded at December 31, 1999. The small deficiency is primarily the result of
generally neutral net development of reserves in all of the Insurance Companies
during 2000; however, Motor Club did experience favorable development of losses
occurring in 1999, offset by unfavorable development of losses occurring from
1996 to 1998.

     We believe that our book of business, particularly Motor Club's PPA book of
business, has loss development characteristics which result in initial adverse
development ("Initial Development") but ultimately develop closer to the
reserves initially established. This Initial Development typically occurs during
the first 24 to 36 months of a given year's reserves. Historically, the Initial
Development has been offset by redundancies from older years approximating or
greater than the Initial Development. However, as Motor Club's PPA book of
business has grown, the Initial Development has been greater than the
redundancies in older years. We believe that as the new PPA book of business
written by Motor Club continues to stabilize and mature, the Net Cumulative
Deficiency in the more recent years will decline and thus the deficiencies
indicated will diminish, which did occur in 2000. We believe this pattern is
supported by the generally sequential decline in the Net Cumulative Deficiency
from the most recent year presented to the oldest year presented.


<PAGE>

We also believe that the Initial Development referred to is generally consistent
and identifiable in the table on page 24.

     We also believe that the 1996, 1997 and 1998 adverse development is
attributable principally to losses which occurred in those years, primarily in
Motor Club's PPA book of business. During 1996, 1997 and 1998, Motor Club's new
PPA book of business was in its Initial Development. As is consistent with
applicable New Jersey statutes, no new business had yet been non-renewed,
resulting in a book of PPA business that lacked historical experience.
Thereafter, certain business was non-renewed and the performance of the book has
modestly improved. Given the adverse development of these particular years, it
is possible that the Net Cumulative Deficiency for 1996, 1997 and 1998 may not
develop consistently with the other years described above, but we do not believe
that this is indicative of prospective loss development for years after 1998.

     As noted, Motor Club's PPA book did experience favorable development for
losses occurring in 1999 and during 2000. This may be attributable to aspects of
New Jersey PPA reforms which are discussed in the section titled "New Jersey
Private Passenger Automobile". During 1999, Motor Club's first party medical
claims ("PIP") occurring in 1999 ("Accident Year 1999") were significantly
higher as compared to prior years. These losses did not increase until after the
rate rollback and other provisions of the reforms were implemented in 1999.

     We believe that claimants filing more severe claims on an accelerated basis
than historical patterns dictated caused this


<PAGE>

increase. We further believe that this acceleration was caused by the
implementation of regulations tightening the fee schedule, allowing
pre-certification methodologies and permitting a revised arbitration system, all
of which should serve to ultimately reduce PIP claim costs.

     While this acceleration increased the level of reported losses incurred by
Motor Club in 1999, we reserved for its projected ultimate losses for Accident
Year 1999 generally using historical loss development patterns which indicate
longer development patterns than those which may occur in Accident Year 1999.

     We believe that this resulted in more favorable development of Accident
Year 1999 PIP losses in 2000. We have also seen fewer third party liability
claims in Accident Year 1999 and 2000 since the reforms were implemented,
consistent with the stated objectives of the reforms. However, we believe it is
premature to conclude that such favorable development will continue.

     The differences between the liability for unpaid losses and loss expenses
reported in our consolidated financial statements prepared in accordance with
GAAP and those reported in the annual statements filed by the Insurance
Companies with State insurance departments in accordance with SAP are reconciled
as follows:


<PAGE>

<TABLE>
<CAPTION>
                                                          December 31,
                                               2000            1999           1998
                                              -------------------------------------
                                                     (thousands of dollars)
<S>                                           <C>           <C>             <C>
Liability for unpaid losses and
  loss expenses on a SAP basis
  (net of reinsurance recoverables
   on unpaid losses and loss expenses)        $65,742       $56,759         $43,111

Reinsurance recoverables on unpaid
   losses and loss expenses                    30,197        18,454          18,521

Anticipated salvage and subrogation
   recoveries                                  (5,547)       (4,230)         (3,297)

Liability for unpaid losses and loss
  expenses, as reported in the GAAP basis
    financial statements                      $90,392       $70,983         $58,335
</TABLE>

     The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and loss expenses. While anticipated price
increases due to inflation are considered in estimating the ultimate claim
costs, the increase in the average severity of claims is caused by a number of
factors that vary with the individual type of policy written. These anticipated
trends are monitored based on actual development and are modified if necessary.

     The table on Page 24 presents the development of the GAAP balance sheet
liabilities for 1991 through 2000; data is presented for those years in which
the Insurance Companies had operations and were owned by us.

     The top line on the table shows the estimated liability for unpaid losses
and loss expenses recorded at the balance sheet date for each of the indicated
years. This liability represents


<PAGE>

the estimated amount of losses and loss expenses for claims arising in that and
all prior years that are unpaid at the balance sheet date, including losses that
had been incurred but not yet reported. The upper portion of the table shows the
re-estimated amount of the previously recorded liability, based on experience as
of the end of each succeeding year. The estimate is increased or decreased as
more information becomes known about the frequency and severity of claims for
development years. The Net Cumulative Deficiency represents the aggregate change
in the estimates over all prior years. The lower section of the table shows the
cumulative amounts paid with respect to previously recorded liabilities as of
the end of each succeeding year.

     In evaluating this information, it should be noted that each amount
includes the effects of all changes in amounts for prior periods. For example,
the amount of deficiency relating to losses settled in 1998, but incurred in
1993, will be included in the cumulative deficiency for the 1998 year.

     This table does not present accident or policy year development data, which
readers may be more accustomed to analyzing. Conditions and trends that have
affected development of liabilities in the past may not necessarily occur in the
future. Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.

     Prior to 1992, we conducted private passenger operations in New Jersey
through Motor Club (which continues) and nationwide general insurance


<PAGE>

operations through a separate subsidiary, MCA Insurance Company("MCAIC") and its
insurance subsidiary, Property Casualty Company of MCA ("PCCMCA"). The
operations of Motor Club are included in our reserve disclosures. The operations
of MCAIC and PCCMCA have not been included in the consolidated financial
statements and loss reserve disclosures due to MCAIC's insolvency in 1992 as a
result of Hurricane Andrew. Since we wrote-off our investment in MCAIC that
year, and because the losses attributable to MCAIC are subject to the control of
its Receiver, there is no additional loss development from those operations
which impact our results since that time. Accordingly, the loss reserve
disclosures were amended to include only those operations in which we are
currently involved.

                       LOSS AND LOSS EXPENSE DEVELOPMENT
                                 (In Thousands)

<TABLE>
<CAPTION>
Year ended December 31                  1991      1992     1993     1994     1995     1996     1997     1998     1999     2000
<S>                                  <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Liability for unpaid
   losses and loss expenses, net
   of reinsurance recoverables       $26,494   $28,469  $25,334  $22,356  $23,409  $28,114  $32,884  $39,814  $52,529  $60,195
Net Liability Re-estimated as of:
One year later                        30,173    27,145   26,253   23,468   24,313   31,887   36,765   43,173   52,695        -
Two years later                       28,954    28,563   26,766   23,813   25,759   33,848   38,422   44,842        -        -
Three years later                     29,733    28,454   26,819   24,181   25,680   33,527   39,626        -        -        -
Four years later                      28,934    28,702   26,572   23,759   25,252   34,801        -        -        -        -
Five years later                      29,071    28,662   26,066   23,221   26,090        -        -        -        -        -
Six years later                       28,954    28,516   25,330   24,001        -        -        -        -        -        -
Seven years later                     28,920    27,719   25,932        -        -        -        -        -        -        -
Eight years later                     28,653    28,394        -        -        -        -        -        -        -        -
Nine years later                      28,604         -        -        -        -        -        -        -        -        -

Net Cumulative Redundancy
  (Deficiency)                       ($2,110)  $    75  $  (598) ($1,645) ($2,681) ($6,687) ($6,742) ($5,028)    (166)       -

Cumulative Amount of Liability Paid Through:

One year later                        11,979    12,314   12,311   11,106   11,414   16,203   17,511   20,288   23,541        -
Two years later                       18,855    20,270   18,992   17,231   18,357   24,830   28,427   32,143        -        -
Three years later                     24,161    24,546   23,032   20,821   22,164   30,685   35,086        -        -        -
Four years later                      26,365    26,878   24,882   22,488   24,586   33,743        -        -        -        -
Five years later                      27,696    27,642   25,373   23,297   25,576        -        -        -        -        -
Six years later                       28,207    26,810   25,818   23,799        -        -        -        -        -        -
Seven years later                     28,265    27,194   25,984        -        -        -        -        -        -        -
Eight years later                     28,394    28,335        -        -        -        -        -        -        -        -
Nine years later                      28,312         -        -        -        -        -        -        -        -        -

Net liability - December 31          $26,494   $28,469  $25,334  $22,356  $23,409  $28,114  $32,884  $39,814  $52,529  $60,195
Reinsurance recoverables              29,003    21,698   20,484   19,309   16,415   19,553   17,363   18,521   18,454   30,197
Gross liability - December 31        $55,497   $50,167  $45,818  $41,665  $39,824  $47,667  $50,247  $58,335  $70,983  $90,392
</TABLE>

<PAGE>

     The reserve for net losses and loss expenses with respect to North East is
only included in the consolidated net losses and expenses as of December 31,
2000 and 1999. No prior reserve development is presented herein as these
operations were not owned prior to the fourth quarter of 1999. The reserve for
net losses and expenses with respect to Mountain Valley is only included in the
consolidated net losses and expenses as of December 31, 2000. No reserve
development is presented herein as these operations were not owned prior to
March 1, 2000.

Competition

     The property and casualty insurance industry is generally highly
competitive on the basis of both price and service.


<PAGE>

     There are numerous companies competing for the coverages which the
Insurance Companies write, many of which are substantially larger and have
considerably greater resources than they have. In addition, because the
Insurance Companies' insurance products are marketed exclusively through
independent insurance agencies, most of which represent more than one insurance
company, they face competition within each agency.

     The commercial lines markets that we engage in are highly competitive
markets that are often subject to significant pressures, including but not
limited to the pricing of individual risks. As we become more involved in the
commercial lines markets, these competitive issues will become more widespread.

     While Motor Club distributes its personal auto policies similarly and thus
faces the same issues as the other Insurance Companies in concept, the personal
auto regulatory environment in New Jersey, particularly its "take-all-comers"
requirements (see Regulation), has suppressed competition and effectively
eliminated risk selection. In addition, the New Jersey market has historically
been subject to regulatory and legislative volatility which has, at times,
adversely affected the profitability of the PPA line of business, further
suppressing competition. Finally, approximately 24% of Motor Club's appointed
independent insurance agencies represent only Motor Club for PPA coverage and
thus, Motor Club has no competition for this business in those agencies. New
Jersey law presently also substantially restricts the ability of an insurer to
terminate its agencies, limiting Motor Club's ability to manage its agency


<PAGE>

force for PPA. We believe this lack of competition in PPA presents a significant
business risk which must be monitored very closely on an ongoing basis.

Investments and Information about Market Risk

     We have maintained, in our opinion, a conservative investing philosophy. We
manage our investment portfolio with the assistance of investment professionals
based on guidelines established by management and approved by the Board of
Directors.

     The overall goal of the portfolio is to enhance investment returns within
the structure of limited credit risk assumption which management has utilized,
with evaluations of portfolio duration made in relation to the current interest
rate environment. During 1998, our investment guidelines were expanded to allow
for a higher percentage of investments in investment grade corporate bonds and
mortgage-backed securities and to include certain investment grade asset-backed
securities, which provide more structured cash flows. The objectives of these
changes to our investment policy were: (1) to reduce the amount of interest risk
in the portfolio; and (2) enhance portfolio yield without unreasonably
increasing credit risk. We believe these objectives have been accomplished.

     We do not invest in or hold any derivative financial instruments.

     Tax exempt securities have not been acquired. We believe that our current
tax position, which includes net operating loss


<PAGE>

carryforwards, dictates the exclusion of tax exempt securities from the
portfolio, which historically provide substantially lower yields on a before tax
basis than taxable securities.

     Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to our financial
instruments relate to the investment portfolio, which exposes us to risks
related to interest rates, and to a lesser extent, credit quality and
prepayment. We do not have exposure to foreign currency exchange rates or equity
prices.

     Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. We view these potential changes in price within the
overall context of asset and liability management. The payout pattern of
insurance liabilities are actuarially determined, to determine their duration,
which is the present value of the weighted average payments expressed in years.
Duration targets are then set for our fixed income investment portfolio after
consideration of these liabilities and other factors, which we believe mitigates
the overall effect of its exposure to interest rate risk.

     At December 31, 2000 and 1999, our investment portfolio was comprised of
the following types of securities (all amounts in thousands):

<PAGE>

<TABLE>
<CAPTION>
                                  December  31, 2000      December  31, 1999
                                 --------------------     -------------------
                                  Market                  Market
                                  Value       Percent     Value       Percent
                                 --------------------     -------------------
<S>                              <C>          <C>         <C>         <C>
Taxable Fixed Maturities          $98,074       93.4%     $78,242       89.9%
Equity Securities                      48        0.1%          57        0.1%
Short Term Investments              6,760        6.4%       8,529        9.8%
Mortgage Loans                        110        0.1%         154        0.2%
                                 --------      -----      -------      -----
      Total Investment
        Portfolio                $104,992      100.0%     $86,982      100.0%
                                 ========      =====      =======      =====
</TABLE>

      At December 31, 2000 and 1999, our taxable fixed  maturity portfolio
consisted of the following types of securities (all amounts in thousands):

<TABLE>
<CAPTION>
                                   December 31, 2000       December 31, 1999
                                 --------------------     -------------------
                                   Market                  Market
                                   Value      Percent      Value      Percent
                                 --------------------     -------------------
<S>                              <C>           <C>        <C>          <C>
United States Treasuries          $20,602       21.0%     $16,248       20.8%
United States Government
   Agencies                         5,622        5.7%       3,674        4.7%
Mortgage-Backed Securities         22,921       23.4%      10,406       13.3%
Asset-Backed Securities            12,315       12.6%      10,239       13.1%
Corporate Bonds                    36,614       37.3%      37,675       48.1%
                                 --------      -----      -------      -----
     Total                        $98,074      100.0%     $78,242      100.0%
                                 ========      =====      =======      =====
</TABLE>

     Mortgage-backed securities ("MBS") consist primarily of Government National
Mortgage Association issues, along with other MBS issues of the United States
Government. Asset-backed securities ("ABS") issues are all rated "Aaa" by
Moody's and "AAA" by Standard & Poor's. The underlying collateral of ABS issues
at December 31, 2000 consists primarily of home equity loans.

     The taxable fixed maturity portfolio duration at December 31, 2000 and 1999
was 3.46 and 3.60 years, respectively.


<PAGE>

     United States Treasuries are weighted towards maturities of five years or
less, to reduce interest rate risk and match the Insurance Companies' claims
payout ratios; corporate obligations are generally weighted towards five to ten
year maturities, to take advantage of the yield curve; the average life of the
GNMA portfolio has been maintained at approximately 10 years to reduce interest
rate risk.

     Please refer to Note D in the Notes to Consolidated Financial Statements
("Notes") for statistics regarding portfolio maturity composition.

     We have not acquired, nor are there plans to acquire, below investment
grade or "junk" bonds. Ninety-four percent of the fixed maturity portfolio as of
December 31, 2000 was graded Class 1 according to the National Association of
Insurance Commissioners' valuation system. This classification is reserved for
only the highest quality securities, generally rated A or better by two major
rating services.

     At December 31, 2000 and 1999, our taxable fixed maturity investment
portfolio at market value by Moody's rating was (all amounts in thousands):

<TABLE>
<CAPTION>
                         December 31, 2000     December 31, 1999
                        -------------------   -------------------
                        Market                Market
                        Value       Percent   Value       Percent
                        -------------------   -------------------
<S>                     <C>          <C>      <C>          <C>
United States
 Government Securities  $49,145       50.1%   $29,807      38.1%
Aaa                      12,315       12.6%    10,239      13.1%
Aa                       10,888       11.1%    10,243      13.1%
A                        20,926       21.3%    23,062      29.4%
Baa                       4,800        4.9%     4,891       6.3%
                        -------      -----    -------     -----
    Total               $98,074      100.0%   $78,242     100.0%
                        =======      =====    =======     =====
</TABLE>


     The following table provides information about our taxable


<PAGE>

fixed maturity portfolio at December 31, 2000 that are sensitive to changes in
interest rates. The table presents cash flows of principal amounts and related
weighted average interest rates by expected maturity dates. The cash flows are
based on the earlier of the call date or the maturity date or, for mortgage and
asset- backed securities, expected payments patterns. Actual cash flows could
differ from the expected amounts.

                    EXPECTED CASH FLOWS OF PRINCIPAL AMOUNTS
                           (all amounts in thousands)
<TABLE>
<CAPTION>
                                                                                                                          ESTIMATED
                                                                                                             AMORTIZED     MARKET
                             2001         2002         2003          2004           2005       Thereafter      COST         VALUE
                           -------       ------       ------        ------        -------      ----------    ---------    ---------
<S>                        <C>           <C>          <C>           <C>           <C>          <C>           <C>          <C>
Taxable-- Other than
 mortgage- backed
  securities                $7,596       $5,447       $2,923        $5,671        $11,915        $28,874      $62,426     $62,838
   Average interest
     rate                      7.0%         6.6%         5.7%          6.9%           6.4%           6.5%         6.5%
 Mortgage- backed
  securities                   192        1,086          187         2,008            876         18,493       22,842      22,921
   Average interest
     rate                      6.3%         6.3%         7.4%          7.1%           6.7%           7.0%         7.0%
Asset-backed
  securities                 3,940        1,409        3,511           991          1,117          1,335       12,303      12,315
   Average interest
     rate                      6.4%         6.7%         6.4%          7.1%           6.8%           6.7%         6.6%
                           -------       ------       ------        ------        -------        -------      -------     -------
Total                      $11,728       $7,942       $6,621        $8,670        $13,908        $48,702      $97,571     $98,074
                           =======       ======       ======        ======        =======        =======      =======     =======
</TABLE>

     We anticipate continuing this minimum risk approach to investing for the
foreseeable future. We believe that the mix of investments in both type and
maturity length is appropriate in


<PAGE>

order to preserve capital, take advantage of investment opportunities as they
are presented, and provide us with sufficient liquidity to react to economic and
business circumstances as they evolve. Investment results were as follows:

<TABLE>
<CAPTION>
                                           2000         1999          1998
                                         -----------------------------------
                                               (thousands of dollars)
<S>                                      <C>         <C>            <C>
Average investments, at amortized
     cost                                $99,430      $78,018       $68,815
Investment income, after expenses        $ 6,413      $ 5,081       $ 4,305
Percent earned on average
     investments                             6.5%         6.5%          6.3%
Realized gains                           $    83      $    36       $    29
</TABLE>

Regulation

General

     Insurance companies are subject to supervision and regulation in the states
in which they transact business. Such


<PAGE>

supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition. The primary purpose of such supervision and
regulation is the protection of policyholders. The extent of such regulation
varies, but generally derives from state statutes which delegate regulatory,
supervisory and administrative authority to state insurance departments.
Accordingly, the authority of the state insurance departments includes the
establishment of standards of solvency which must be met and maintained by
insurers; the licensing to do business of insurers and agents; the nature of and
limitations on investments; premium rates for property and casualty insurance;
the provisions which insurers must make for current losses and future
liabilities; the deposit of securities for the benefit of policyholders; and the
approval of policy forms. Insurance departments also conduct periodic
examinations of the affairs of insurance companies and require the filing of
annual and other reports relating to the financial condition of insurance
companies.

     State law requires the Insurance Companies to participate in involuntary
insurance programs for automobile insurance, as well as other property and
casualty lines. These programs include joint underwriting associations, assigned
risk plans, fair access to insurance requirements plans and reinsurance
facilities. These laws generally require all companies that write lines covered
by these programs to provide coverage (either directly, via a servicing carrier
or through reinsurance) for insureds who cannot obtain insurance in the
voluntary market. The legislation creating these programs


<PAGE>

usually allocates a pro rata portion of risks attributable to such insureds to
each company on the basis of direct written premiums or the number of
automobiles insured. Generally, state law requires participation in such
programs as a condition to doing business. The loss ratio on insurance written
under involuntary programs generally has been greater than the loss ratio on
insurance in the voluntary market.

     During 1997, Motor Club began to participate in the New Jersey Personal
Automobile Insurance Plan; fees totaling $266,000, $153,000 and $254,000 were
paid in 2000, 1999 and 1998, respectively, to a servicing carrier rather than
process these policies and take a risk of further loss.

     State insurance holding company acts regulate insurance holding company
systems. Each insurance company in the holding company system is required to
register with the insurance supervisory agency of its state of domicile and
furnish certain information concerning the operations of companies within the
holding company system that may materially affect the operations, management or
financial condition of the insurers within the system. Such laws further require
disclosure of material transactions including the payment of "extraordinary
dividends" from the insurance subsidiaries.

     Insurance holding company acts require that all transactions within the
holding company system affecting the insurance subsidiaries must be fair and
equitable. Further, approval of


<PAGE>

the insurance commissioner is required prior to the consummation of transactions
affecting the control of an insurer.

     The Insurance Companies are restricted by the insurance laws of their
respective states of domicile as to the amounts of dividends they may pay
without prior approval by the appropriate regulatory authority.

     Applying current regulatory restrictions, as of December 31, 2000, and to
the extent that statutorily defined surplus is available, $3,329,000 would be
available for distribution without prior approval during 2001. The Insurance
Companies paid dividends of $750,000 (another $453,000 is declared but not yet
paid) in 2000, $749,000 in 1999 and $1 million in 1998.

National Association of Insurance Commissioners ("NAIC")

     The Insurance Companies are subject to the general statutory accounting
practices and reporting formats established by the NAIC as well as accounting
practices prescribed or permitted by the respective Departments of Insurance in
the states in which they are domiciled. The NAIC has adopted the Codification of
Statutory Accounting Principles with an effective date of January 1, 2001. The
codified principles are intended to provide a basis of accounting recognized and
adhered to in the absence of conflict with, or silence of, state statutes and
regulations. The impact of the codified principles on the statutory capital and
surplus of the Insurance Companies is still being determined and is currently
not expected to decrease statutory capital and surplus as of January 1, 2001.


<PAGE>

     The NAIC also promulgates model insurance laws and regulations relating to
the financial and operational regulation of insurance companies, which includes
the Insurance Regulating Information System ("IRIS"). IRIS identifies eleven
industry ratios and specifies "usual values" for each ratio. Departure from the
usual values on four or more of the ratios can lead to inquiries from individual
state insurance commissioners as to certain aspects of an insurer's business.

     The Insurance Companies' have, in recent years, met substantially all of
the IRIS test ratios. During 2000 however, Preserver and Mountain Valley failed
to meet certain tests by virtue of the Pooling they entered into with each other
and in Mountain Valley's instance, the termination of the Trinity Quota Share.
We expect that both companies will meet these tests in 2001 when these
non-recurring events are eliminated from the test ratio computations.

     Also in 2000, Motor Club failed the IRIS ratio test for premiums to
surplus. The threshold for this test is a ratio of less than 3.0 to 1 and Motor
Club's was 3.18 to 1. This is the direct result of automobile reforms in New
Jersey, which are discussed in greater detail in the section that follows titled
"New Jersey Private Passenger Automobile".

     NAIC model rules and regulations generally are not directly applicable to
an insurance company until they are adopted by applicable state legislatures and
departments of insurance. However, NAIC model laws and regulations have become
increasingly important in recent years, due primarily to the NAIC's Financial


<PAGE>

Regulations Standards and Accreditation Program. Under this program, states
which have adopted certain required model laws and regulations and meet various
staffing and other requirements are "accredited" by the NAIC. Such accreditation
reflects an eventual nationwide regulatory network of accredited states. The
States in which the Insurance Companies are domiciled are accredited by the
NAIC.

     The NAIC has adopted Risk-Based Capital ("RBC") requirements for
property/casualty insurance companies, to evaluate the adequacy of statutory
capital and surplus in relation to investment and insurance risks such as asset
quality, credit risk, loss reserve adequacy and other business factors. The RBC
formula is used by State insurance regulators as an early warning tool to
identify, for the purpose of initiating regulatory action, insurance companies
that potentially are inadequately capitalized. Regulatory compliance is
determined by a ratio of the insurer's regulatory total adjusted capital to its
authorized control level RBC, as defined by the NAIC. Insurers below specific
trigger points or ratios are classified within certain levels, each of which
requires specific corrective action. The ratios of the Insurance Companies are
in excess of that required, therefore requiring no action.

     However, the continuing impact of automobile reforms in New Jersey on Motor
Club raises some uncertainty as to whether its ratio will remain above the
level required. This is discussed in greater detail in the section that follows
titled "New Jersey Private Passenger Automobile".


<PAGE>

     The Gramm-Leach-Bliley Act, or Financial Services Modernization Act of 1999
(the "Act"), was enacted in 1999 and significantly affects the financial
services industry, including insurance companies, banks and securities firms.
The Act modifies federal law to permit the creation of financial holding
companies ("FHCs"), which, as regulated by the Act, can maintain cross-holdings
in insurance companies, banks and securities firms to an extent not previously
allowed. The Act also permits or facilitates certain types of combinations or
affiliations for FHCs. The Act establishes a functional regulatory scheme under
which state insurance departments will maintain primary regulation over
insurance activities, subject to provisions for certain federal preemptions.

     Important provisions of the Act involve requirements for adoption of (i)
multi-state agents' licensing reforms and uniformity requirements and (ii)
privacy protections, giving the states the ability to enact these laws in the
first instance or be preempted. The NAIC adopted a model regulation on privacy,
and a model law on agents' licensing, which have been enacted or are currently
being considered by various state legislatures and insurance departments. It is
presently not anticipated that the insurance regulatory aspects of the Act will
have a material effect on our operations.

New Jersey Private Passenger Automobile

     The New Jersey PPA market has historically been subject to regulatory and
legislative volatility which has, at times, adversely affected the profitability
of this line of business,


<PAGE>

despite New Jersey having among the highest average premium rates in the United
States. New Jersey insurance law presently requires insurers to write all
eligible PPA coverage presented to them from drivers with eight points or less
on their driving record. This is commonly referred to as "take-all-comers".

     The New Jersey Department of Banking and Insurance ("NJ DOBI") may grant an
insurer relief, by written notification, from writing new PPA business pursuant
to the take-all-comers provisions of New Jersey law if a showing finds that the
insurer's premium to surplus ("leverage") ratio exceeds 3 to 1. Motor Club's
present applicable leverage ratio for the year ended December 31, 2000 is 3.18
to 1. The impact of Motor Club's PPA results on this and other key ratios is
discussed further below.

     In June 1997, the State of New Jersey enacted PPA legislation, which
principally: (1) repealed the annual "flex" rate increase available to insurers,
which was required by law to be no less than 3%, and replaced it with an
expedited prior approval rate filing process for rate increase requests up to 3%
on an overall basis. Subsequent to the enactment of this legislation, the
Commissioner of the NJ DOBI froze all PPA insurance rates until March 1998, but
still has not yet promulgated the regulations required for insurers to file for
an expedited rate increase and thus has denied all such requests; (2) restricted
the ability of insurers to non-renew at their discretion up to 2% of their
policies; (3) repealed the ability of insurers to non-renew one policy for every
two new policies written in each rating territory; and (4) replaced the rating
system which assessed surcharges to insureds'


<PAGE>

policies for specific driving violations and accidents with a broader-based
tiered rating system. Motor Club's tier rating system was approved by the NJ
DOBI and was implemented on all PPA policies with effective dates on and after
November 1, 1998.

     Additional PPA legislation (the Automobile Insurance Cost Reduction Act or
"AICRA") was enacted in 1998 which: 1) allows insureds to reduce levels of
compulsory coverages, including the option to reduce their coverage for PIP to
as low as $15,000, from the presently required $250,000; 2) revises the PIP
policy form to set forth the medical treatments and services, valid diagnostic
tests and appropriate health care protocols which are eligible to be paid; 3)
seeks to limit lawsuits by claimants by redefining the type of injury which
would be grounds for litigation; 4) replaces the present PIP arbitration system
which utilizes part-time arbitrators who render only oral decisions without
consulting medical professionals with one using full-time dispute resolution
professionals who may refer questions of medical necessity or diagnosis to
medical review organizations and who must render written decisions; 5) appoints
a special fraud prosecutor to increase enforcement of fraudulent acts committed
against insurance companies; 6) removes the system of territorial rating caps
which have been in place since 1983, enabling insurers to modify (as
appropriate) rates charged in various rating territories, which will be
redefined; and 7) requires up to a 15% reduction in rates on all PPA policies.

      Implementation of most of the provisions of AICRA (with one


<PAGE>

exception) commenced with new policies issued on March 22, 1999. The only
exception is the redefinition of the territories and removal of the territorial
rating caps, which was scheduled to be implemented by January 1, 2000. It now
appears that it will be sometime in 2002 before those regulations become
effective.

     To date, we have believed that AICRA ultimately will have only a modest net
negative effect on Motor Club's PPA operations and profitability, because the
mandated rate reductions do not appear to be completely cost justified (based on
information presently available) by the cost savings in the legislation. While
we have not changed our ultimate outlook for the effect of AICRA, it is clear
based on the impact to date, combined with the inaction of the NJ DOBI as to
implementing several key provisions of AICRA and the 1997 reform legislation,
that this may take longer to occur and that the near-term effects of AICRA may
continue to be more negative than originally forecast before improvement begins.

     Presently, as previously indicated, as a result of AICRA, Motor Club's
premium to surplus ratio is in excess of 3 to 1. In addition, Motor Club's
liabilities in relation to its statutory surplus are at a level whereby adverse
development of claims, particularly as a result of the impact of AICRA, could
further reduce its surplus, thus decreasing its RBC ratios, possibly to a level
which would require action as prescribed by law. To date, the NJ DOBI has
generally not been responsive to requests for rate increases or other regulatory
relief based upon the impact of AICRA to companies, nor as noted has it
implemented certain key aspects of the recent reforms which would provide relief
to insurers such as



<PAGE>

Motor Club.

     Accordingly, considering these elements, combined with New Jersey's
regulatory and legislative history, the enacted legislation, current judicial
decisions, current rate freeze and ongoing volatility, we believe there are
significant uncertainties with regard to our ongoing NJ PPA operations which
could adversely affect us. Consistent with our long-stated goal to increase
our identification as a provider of small commercial lines insurance and expand
and diversify our operations outside the State of New Jersey, we continue to
review strategies to improve the profitability of our PPA business and to
otherwise add more value to our shareholders.

     The State of New Jersey also maintains an excess profits law which provides
that PPA insurers whose profits exceed a statutorily computed maximum over a
three year period will be required to pay such excess to its policyholders.
Motor Club has never reported any excess profits under this law and we believe
that in 2001 none will be reported.

Employees

     At December 31, 2000, the Motor Club of America Group had approximately 185
employees.

Item 2. Properties

     Motor Club of America and its subsidiaries lease office space suitable to
conduct its operations, including its home office in Paramus, New Jersey. In
addition, office facilities in Albany, New York, Bedford, New Hampshire and
Scarborough, Maine are leased under varying terms and expiration dates.

Item 3.  Legal Proceedings


<PAGE>

     The Insurance Companies are a party to numerous lawsuits arising in the
ordinary course of their insurance business. We believe that the resolution of
these lawsuits will not have a material adverse effect on its results of
operations, financial condition, or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders in the fourth quarter
of 2000.

Item  Pursuant to Instruction 3 to Paragraph (b) of Item  401  of
Regulation S-K. Executive Officers of the Registrant.

      At December 31, 2000, the executive officers of the Registrant and their
offices with the Registrant and principal occupations were as follows:

<TABLE>
<CAPTION>
                                                                       Years in
                                                                     Which Officer
                                                                      Has Served
                                  Office and Principal                    as
     Name               Age            Occupation                       Such(3)
----------------------  ---     ----------------------------         -------------
<S>                     <C>     <C>                                  <C>
Archer McWhorter (1)     79     Chairman of the Board of
                                Directors and Director of
                                the Registrant and Companies
                                in the Motor Club of America
                                Group                                  1986-2000

Stephen A. Gilbert (2)   61     President, Chief Executive
                                Officer, General Counsel and
                                Director of the Registrant and
                                Companies in the Motor Club of
                                America Group; Chairman of the
                                Board, Chief Executive Officer
                                and Director of North East
                                Insurance Company                      1975-2000

Patrick J. Haveron (2)   39     Executive Vice President, Chief
                                Executive Officer, Chief
                                Financial Officer and
                                Director of the Registrant and
                                Companies in the Motor Club of
                                America Group; Treasurer of
                                the Insurance Companies                1988-2000

Peter K. Barbano         50     Vice President, Secretary
                                and Associate General Counsel          1993-2000

Myron Rogow              57     Vice President                         1987-2000

G. Bruce Patterson       56     Vice President                         1989-2000

Charles J. Pelosi        55     Vice President                         1983-2000

Norma Rodriguez          51     Treasurer                              1984-2000
</TABLE>


<PAGE>

(1)  Chairman of the Board of Directors of Companies in the Motor Club of
     America Group; from 1996 to March 1997, Director of National Car Rental
     Systems, Inc. and affiliated corporations, a car rental enterprise ("NCR");
     from 1996 to February 1997, one-third owner of Santa Ana Holdings, Inc.,
     which exchanged its 90% stock interest in NCR for stock in Republic
     Industries, Inc.; from February 1997 to February 1998, consultant to NCR;
     President (to January 1996) of Acceptance Inc., a finance company.

(2)  Member of Finance Committee.

(3)  Includes years during any portion of which the officer served as such. All
     terms of office are until the date of the 2001 Annual Meetings of
     Stockholders and Directors.

      Except for Archer McWhorter, each of the officers devoted substantially
all of their business time to the affairs of the Registrant or one or more other
companies in the Motor Club of


<PAGE>

America Group.

                                     PART II

Item  5.   Market for the Registrant's Common Equity and Related Stockholder
Matters

      The Registrant's Common Stock trades on the NASDAQ Stock Market under the
symbol MOTR. The following are the high and the low selling prices for each
quarter of 2000 and 1999, as reported by the NASDAQ:

<TABLE>
<CAPTION>
          2000
          Quarter                                High      Low
         -------                               ------   ---------
<S>                                            <C>       <C>
          I    ..............................    8 3/4    6
          II   ..............................    8 1/2    6 15/16
          III  ..............................    9 1/4    7 1/4
          IV   ..............................   10        7 1/2

          1999
          Quarter                                High      Low
          -------                               ------   --------
          I    ..............................   14 7/8   13
          II   ..............................   14       12
          III  ..............................   13 1/2   10
          IV   ..............................   10 7/8    7 1/2
</TABLE>


     There were approximately 437 holders of record of the Common Stock of the
Registrant as of December 31, 2000. The Registrant paid no dividends in 1999 and
2000.

Item 6.  Selected Financial Data


<PAGE>

<TABLE>
<CAPTION>
                                             Years ended December 31,
                               2000(1)  1999(2)(3)  1998(3)    1997(3)     1996(3)
                             ---------- ----------  --------  --------     -------
                                  (in thousands, except as to per share data)
<S>                          <C>         <C>        <C>       <C>          <C>
Operating Results:
Revenues from operations     $   83,631  $ 55,951   $ 53,347   $51,102     $46,525
Realized gains on sale
  of investments                     83        36         28         -           5
Realized gain on sale of
  subsidiary                          -         -          -         -         702
Net investment income             6,413     5,081      4,305     3,595       3,087
                             ----------  --------   --------   -------     -------
Total revenues               $   90,127  $ 61,068   $ 57,680   $54,697     $50,319
                             ==========  ========   ========   =======     =======
Income before
  federal income taxes       $    3,000  $    102   $  5,719   $ 4,630     $ 3,297
                             ----------  --------   --------   -------     -------
Net income                   $    1,960  $     91   $  3,778   $ 3,357     $ 5,330
                             ==========  ========   ========   =======     =======

Financial Condition:
Total assets                 $  208,889  $156,588   $130,999  $102,761     $97,128
Convertible subordinated
  debentures                 $   10,000  $ 10,000          -         -           -
Note payable                 $   11,500         -      3,000         -           -
Shareholders' equity         $   29,992  $ 26,909   $ 28,814   $24,415     $20,381

Per Common Share:
Net income - Basic           $      .92  $    .04   $   1.79   $  1.62     $  2.61
Net income - Diluted         $      .91  $    .04   $   1.78   $  1.60     $  2.56
Book Value                   $    14.12  $  12.67   $  13.56   $ 11.66     $  9.95

Weighted average number of
  shares outstanding:
  Basic                       2,124,387 2,117,912  2,108,722 2,074,473   2,045,590
  Diluted                     2,770,075 2,121,697  2,121,366 2,102,395   2,081,080

Significant Insurance Indicators:
Net premiums written            $89,204  $ 54,508    $64,303   $51,680     $47,337

Loss and loss expense ratio        66.7%     72.8%      68.6%     65.1%       64.5%
Expense ratio                      35.3%     36.4%      29.1%     33.3%       37.9%
                             ----------  --------   --------   -------     -------
Combined  ratio                   102.0%    109.2%      97.7%     98.4%      102.4%
                             ==========  ========   ========    ======     =======
</TABLE>

(1) Includes Mountain Valley's balance sheet as of December 31, 2000 and results
    of operations for the ten months ended December 31, 2000.

(2) Includes North East's balance sheet as of December 31, 1999 and results of
    operations for the three months ended December 31, 1999.

(3) The financial data as of and for the years ended December 31, 1996, 1997,
    1998 and 1999 have been restated as described in Note V in the Notes to the
    Consolidated Financial Statements.

Item   7.    Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview of Business Operations

     We own and operate five regionally focused property and casualty insurance
companies, including companies that


<PAGE>

specialize in small and mid-sized commercial insurance through the Preserver
Insurance Group.

     The Preserver Insurance Group consists of Preserver, which writes small
commercial and homeowners insurance in New Jersey, and Mountain Valley, which
writes small and mid-sized commercial insurance in New England and New York. The
Preserver Insurance Group is rated B++ (Very Good) by A.M. Best Company
("Best"). American Colonial plans to commence operations in New York in 2001,
writing commercial lines in tandem with Mountain Valley.

     Motor Club writes private passenger automobile insurance ("PPA") in New
Jersey and is rated B+ (Very Good) by Best. North East writes PPA and small
commercial lines insurance in the State of Maine and is rated B (Fair) by Best.

     We are pursuing a strategy to: (1) increase our identification as a
provider of small and mid-sized commercial lines insurance and have continued to
expand our product lines in support of this objective; and (2) expand and
diversify our insurance operations outside the State of New Jersey. We believe
that both of these objectives can be attained through the acquisition of other
insurance companies that present opportunities to write these product lines in
different geographic areas. We expect to continue to follow this strategy
although we do not anticipate any additional acquisition activity in 2001.

     Mountain Valley was acquired on March 1, 2000; North East was acquired on
September 24, 1999. We believe that these acquisitions fully establish us as a
regional commercial lines


<PAGE>

company in the New England and Mid-Atlantic regions. As evidence of this, only
44% of our consolidated revenues emanated from NJ PPA in 2000, the lowest in our
history. This percentage is expected to continue to decline in the future.

     Historically, the Insurance Companies' results of operations have been
influenced by factors affecting the property and casualty insurance industry in
general and the NJ PPA market in particular. The operating results of the U.S.
property and casualty insurance industry have generally been subject to
significant variations due to competition, weather, catastrophic events,
regulation, general economic conditions, judicial trends, fluctuations in
interest rates and other changes in the investment environment.

Results of Operations

      In March 2001, the Company's management determined that certain tax
benefits should not have been recognized and that certain deferred tax
liabilities had not been recorded. These tax matters, relate to the tax effects
of temporary differences arising from MCAIC, which was de-consolidated for
financial reporting purposes due to its insolvency in 1992(see Note J in the
Notes to the Consolidated Financial Statements). These tax matters have no
impact on the operations, cash flow or capital and surplus of the Company's
active insurance subsidiaries or on consolidated income before Federal income
taxes for the periods presented, nor is the Company subject to penalties and
interest on the recording of the deferred tax liabilities.

     As a result, the 1998 and 1999 Consolidated Financial Statements have been
restated from amounts previously reported. The principal effects of these items
on the accompanying financial statements are presented in Note V in the Notes to
Consolidated Financial Statements.

     In addition, retained earnings and thus shareholders' equity at December
31, 1997 was reduced by $126,303, representing the cumulative effect from
revising the tax accrual on prior periods' results of operations after Federal
income taxes. Finally, deferred tax assets were not recorded for the tax effects
of the minimum pension liability that is presented as a component of other
comprehensive income. Shareholders' equity at December 31, 1997 increased by
$1,539,894, representing the cumulative effect on prior periods' results of
revising the tax accrual. The net effect of these prior period adjustments
increased shareholders' equity by $1,413,591 at December 31, 1997.

     The consolidated results of operations include, using the purchase method
of accounting, the results of operations of North East and Mountain Valley, from
their respective dates of acquisition.


<PAGE>

     Net income in 2000 improved as a result of improved income before Federal
income taxes from the Insurance Companies. The Insurance Companies improvement
of $3,748,000 in 2000 was the result of improved loss ratios at our Preserver
segment, economies of scale gained from our acquisitions that enabled Motor Club
to improve its expense ratio and sharply lower expenses at North East. Mountain
Valley's results were largely as anticipated. In 1999, Motor Club and Preserver
had incurred $638,000 in losses and expenses related to Hurricane Floyd, which
struck New Jersey in September 1999.

     These improved underwriting results also offset a $1,419,000 increase in
interest expense related to the Convertible Subordinated Debentures and
Promissory Notes issued in 1999 and 2000, respectively, related to our
acquisitions. Non-recurring expenses related to our acquisitions declined, from
$800,000 in 1999 to $354,000 in 2000.

     Significantly higher NJ PPA losses occurring in 1999, specifically PIP
first party medical claims, had caused 1999 net income to decline. Income before
federal income taxes declined $3,813,000 as compared to 1998. This was due to
the impact of AICRA on Motor Club. AICRA had been designed to reduce both
premiums and losses in NJ PPA.

     Our book value increased to $14.12 per share at December 31, 2000 from
$12.67 per share at December 31, 1999.

     The principal sources of the net increase were: (1) net income of
$1,960,000 or $.92 per share; (2)


<PAGE>

$1,993,000 or $.94 per share (net of applicable deferred taxes) due to an
increase in the fair value of fixed maturity investments accounted for as
available-for-sale securities under SFAS No. 115 ("Accounting for Certain
Investments in Debt and Equity Securities"); offset by (3) $870,000 or $.41 per
share (net of applicable deferred taxes) due to an increase in the minimum
required pension liability for the Company sponsored defined benefit pension
plan ("Pension Plan") as a result of asset losses and lower interest rates.

     Our book value decreased to $12.67 per share at December 31, 1999 from
$13.56 per share at December 31, 1998.

     The principal sources of the net decrease were: (1) net income of $91,000
or $.04 per share; (2) $938,000 or $.44 per share (net of applicable deferred
taxes) due to a decrease in the minimum required pension liability for the
Pension Plan as a result of asset gains and higher interest rates; offset by (3)
a decrease of $3,007,000 or $1.42 per share (net of applicable deferred taxes)
in the fair value of fixed maturity investments accounted for as
available-for-sale securities under SFAS No. 115.

     Book value in 1999 was also reduced by the dilutive effects ($.09 per
share) of the issuance of 7,958 shares of common stock upon the acquisition of
North East.

Segments

     We are organized into four segments - Preserver, Motor Club, North East and
Mountain Valley, along with a corporate segment. See Note T to the Notes to
Consolidated Financial


<PAGE>

Statements for further details.

Preserver

     The following table summarizes the income before Federal income taxes for
this segment before the effects of the intercompany pooling agreement with
Mountain Valley:

<TABLE>
<CAPTION>
                                              %Change                    % Change
                                 2000      2000 vs. 1999     1999      1999 vs 1998     1998
                             -----------   -------------  -----------  ------------  -----------
<S>                         <C>              <C>         <C>           <C>          <C>
Insurance premiums           $15,601,866       12.9%      $13,819,638     3.9%       $13,303,402
Net investment income          1,808,893       16.4%        1,554,266    24.4%         1,249,505
Realized investment gains         10,781          NM            4,917       NM            12,635

     Total revenues           17,421,540       13.3%       15,378,821     5.6%        14,565,542

Losses and loss
  expenses incurred            8,025,885      -12.9%        9,214,764    16.3%         7,923,218

Acquisitions costs and
  other operating expenses     4,694,870       15.4%        4,066,894    -9.0%         4,468,622

     Total expenses           12,720,755       -4.2%       13,281,658     7.2%        12,391,840

Income before Federal
  income taxes               $ 4,700,785      124.1%      $ 2,097,163    -3.5%       $ 2,173,702
</TABLE>


NM= Not Meaningful

     Preserver continues to produce superior results, driven by excellent
growth, lower loss ratios and stable underwriting expenses. The following table
presents the underwriting ratios for this segment for each of the three years
ended December 31:

<TABLE>
<CAPTION>
                            2000       1999     1998
                            ----       ----     ----
<S>                         <C>        <C>      <C>
     Loss ratio             51.4%      66.7%    59.6%
     Expense ratio          30.1%      29.4%    33.6%
     Combined ratio         81.5%      96.1%    93.2%
</TABLE>


     The  13% growth in insurance premiums was led by Preserver's


<PAGE>

Commercial Lines business, which grew 20% in 2000, consistent with our
overall growth strategy. Commercial lines policy count grew 10%, and the average
premium continued to increase as Preserver wrote larger accounts by virtue of
its higher Best rating, complete product line offering and competitive pricing.
In addition, Preserver was able to increase premiums on certain renewed
accounts, as market circumstances were more favorable to do so. We anticipate
that such premium increases will continue to be available to Preserver on a
selective basis in 2001, without adversely impacting retention.

     The 3% growth in Preserver's Personal Property insurance premiums continues
to reflect modest amounts of new business written, along with adjustments in the
values of properties insured, offset by a continuing slightly higher attrition
rate on existing policies in 2000 as compared to 1999. Personal property policy
count declined 4% in 2000 as compared 1999.

     In 1999, the increase in Commercial Lines insurance premiums of 7% was
reflective of the increased number of policies that Preserver wrote during 1999
as compared to 1998. The unchanged amount of Personal Property insurance
premiums written by Preserver reflects modest amounts of new business written
offset by a slightly higher attrition rate on existing policies in 1999 as
compared to 1998; policy count declined by 2%.

     Net investment income in 2000 reflects the strong operations and $3 million
surplus contributions we made in March 2000. Invested assets continued to grow
strongly in all years.

     Overall losses and LAE incurred for Preserver declined


<PAGE>

$1,189,000 or 13% in 2000 as compared to 1999. This combined with the 13%
increase in insurance premiums reduced the net loss ratio by 23%. Most of the
changes in Preserver's net loss ratios in recent years were caused by
fluctuations in recoveries from its reinsurance coverage. Preserver's direct
loss ratios have steadily improved in recent years as its book matures,
retentions improve and pricing in Commercial Lines becomes more favorable, as
the following table shows.

<TABLE>
<CAPTION>
                             2000     1999     1998
                             ----     ----     ----
<S>                          <C>      <C>     <C>
     Direct Loss Ratio       54.0%    56.7%    69.2%
     Ceded Loss Ratio        62.7%    16.7%   117.2%
     Net Loss Ratio          51.4%    66.7%    59.6%
</TABLE>

     In 1999, Hurricane Floyd increased Preserver's net losses by approximately
$228,000 or 1.6 loss ratio points. Thus the direct loss ratio declined slightly
in 2000 as compared to 1999 (as adjusted). In addition, with Preserver's
reinsurance rates essentially unchanged over the last three years, the remainder
of the decrease in the 2000 net loss ratio was attributable to an increased
number of severe losses that had reinsurance recoveries, as compared to 1999.
This also contributed to the lower loss ratio in 1998.

     Given the relatively small size of the Preserver book of business, a
limited number of severe losses can cause relatively wide fluctuations in
Preserver's net loss ratio results, depending on whether these losses were
severe enough to generate a reinsurance recovery. There have been no trends or
indications in


<PAGE>

the last three years that Preserver's reinsurance programs have been ineffective
or that loss experience was adverse. We believe the continuing stability and
profitable levels of Preserver's direct loss ratio remains a positive indicator
of the quality of its book of business. Expenses reflect the continuing growth
of Preserver's business and are discussed in more detail in the Corporate
segment.

Motor Club

     The following table summarizes the income (loss) before Federal income
taxes for this segment:

<TABLE>
<CAPTION>
                                             %Change                  % Change
                                2000      2000 vs. 1999      1999     1999 vs 1998      1998
                            -----------   -------------  -----------  ------------  -----------
<S>                         <C>               <C>        <C>          <C>           <C>
Insurance premiums          $36,574,189       -3.3%      $37,802,937     -5.2%      $39,872,261
Net investment income         2,934,494       -5.9%        3,119,752      9.4%        2,852,673
Realized investment gains        13,764         NM              (260)     NM             15,988
Other income                     32,454         NM                 -      NM                  -
     Total revenues          39,554,901       -3.3%       40,922,429     -4.3%       42,740,922
Losses and loss
  expenses incurred          27,085,861       -6.7%       29,043,044      1.7%       28,556,373
Acquisitions costs and
  other operating expenses   12,200,930       -5.3%       12,882,192     15.0%       11,200,514
     Total expenses          39,286,791       -6.3%       41,925,236      5.5%       39,756,887
Income (loss) before Federal
  income taxes              $   268,110         NM       $(1,002,807)     NM        $ 2,984,035
</TABLE>


<PAGE>

NM= Not Meaningful

     Motor Club results improved in 1999, largely due to economies of scale it
gained in expenses as a result of the acquisition of Mountain Valley and North
East. Higher loss ratios largely due to the impact of AICRA continued to make
profitability in this segment difficult in 2000. The following table presents
the underwriting ratios for each of the three years ended December 31:

<TABLE>
<CAPTION>
                             2000     1999     1998
                             ----     ----     ----
<S>                         <C>      <C>       <C>
     Loss Ratio              74.1%    76.8%    71.6%
     Expense Ratio           33.4%    34.1%    28.1%
     Combined Ratio         107.4%   110.9%    99.7%
</TABLE>

     Despite a small increase in policy count due to increased submissions of
PPA business, Motor Club's PPA insurance premiums declined due to the residual
effect of the statutorily mandated 1999 rate rollback. No rate increases were
received in 2000 and none is presently anticipated in 2001.

     The decline in insurance premiums in 1999 as compared to 1998 was also due
principally to the rate rollback provisions of AICRA which were implemented
commencing in 1999, and not a significant change in the number of policies
written during the year.


<PAGE>

     Net investment income declined due to lower invested assets as a result of
AICRA's impact on the segment, both in the form of higher paid losses and lower
premiums. It had continued to increase in 1999 before AICRA's impact was felt.

     Overall losses and LAE incurred for Motor Club declined $1,957,000 or 7% in
2000 as compared to 1999. This contributed to the lower loss ratio but was
offset by declines in insurance premiums discussed previously. In 1999,
Hurricane Floyd increased Motor Club's net losses by $294,000 or 0.8 loss ratio
points.

     The slight improvement in the Motor Club calendar year 2000 loss ratio was
due to lower Bodily Injury ("BI") liability loss ratios, primarily in Accident
Year 2000, including reduced litigation. We believe this is due to the impact of
the AICRA reforms on this coverage and this is consistent with the stated
objectives of the AICRA reforms. However, we do think it remains premature to
conclude that such favorable BI development will continue in future Accident
Years, or that Accident Year 2000 may not adversely develop. This is due to the
volatile nature of New Jersey PPA, including the regulatory, judicial and
legislative environments.

     First party medical or PIP claims continued to produce poorer results in
Accident Year 2000, consistent with those experienced in Accident Year 1999
after the AICRA rate rollback and related reforms were implemented. The
provision for Accident Year PPA claims was $1,723,000 higher in 1999 as compared
to 1998, accounting for 75% of the consolidated increase that year. These losses
did not increase until after the rate rollback and


<PAGE>

other provisions of AICRA were implemented and were discussed previously.

     As stated, we believe that claimants filing more severe PIP claims on an
accelerated basis than previously continues to cause this increase. We further
believe that this acceleration is being caused by the implementation of
regulations tightening the fee schedule, allowing pre-certification
methodologies and permitting a revised arbitration system, all of which should
serve ultimately to reduce PIP claim costs.

     While this acceleration increased the level of reported PIP losses incurred
by Motor Club in Accident Years 2000 and 1999, we have reserved for their
projected ultimate losses for Accident Years 2000 and 1999, generally using
historical loss development patterns which indicate longer development patterns
than those that may occur in Accident Years 2000 and 1999.

     We will continue to monitor loss development patterns in 2001 and
beyond closely, to ensure that the level of reserves carried for PPA is adequate
and appropriate as dictated by actual loss development.

     To date, we have believed that AICRA ultimately will have only a modest net
negative effect on Motor Club's PPA operations and profitability, because the
mandated rate reductions do not appear to be completely cost justified (based on
information presently available) by the cost savings in the legislation. While
we have not changed our ultimate outlook for the effect of AICRA, it is clear
based on the impact to date, combined with the inaction of the NJ DOBI in
implementing several key


<PAGE>

legislative provisions of AICRA and other legislative reforms, that this may
take longer to occur and that the near-term effects of AICRA may continue to be
more negative than originally forecast before improvement begins.

     As a result, Motor Club's premium to surplus ratio is in excess of
3 to 1. In addition, Motor Club's liabilities in relation to its statutory
surplus are at a level whereby adverse development of claims, particularly as a
result of the impact of AICRA, could further reduce its surplus, thus decreasing
its RBC ratios, possibly to a level which would require action as prescribed by
law. To date, the NJ DOBI has generally not been responsive to requests for rate
increases or other regulatory relief based upon the impact of AICRA to
companies, nor as noted has it implemented certain key aspects of AICRA which
would provide relief to insurers such as Motor Club.

     Accordingly, considering these elements, combined with New Jersey's
regulatory and legislative history, the enacted legislation, current judicial
decisions, current rate freeze and ongoing volatility, we believe there are
significant uncertainties with regard to our ongoing NJ PPA operations, which
could adversely affect the Company. Consistent with our long-stated goal to
increase our identification as a provider of small commercial lines insurance
and expand and diversify our operations outside the State of New Jersey, we
continue to review strategies to improve the profitability of our NJ PPA
business and otherwise to add more value to our shareholders.

     Motor Club's expense ratio declined in 2000 as compared to 1999 as a result
of lower expenses. In large part the decline in expenses is due to the economies
of scale gained from the


<PAGE>

acquisition of Mountain Valley and North East. We allocated approximately $1.3
million in costs previously attributable to Motor Club to Mountain Valley and
North East in 2000 without any significant increase in overall expenditures
other than those noted below. This accounts for most of the improvement.

North East

     Since its acquisition, the following table summarizes the income (loss)
before Federal income taxes for this segment:

<TABLE>
<CAPTION>
                                              %Change        Pro Forma         Actual
                                 2000      2000 vs. 1999      1999(1)          1999(2)
                             -----------   -------------     ---------      ----------
<S>                          <C>             <C>           <C>              <C>
Insurance  premiums          $18,310,615        27.3%       $14,380,072     $4,184,755
Net  investment income         1,016,148        18.9%           854,630        246,204
Realized  investment gains        14,849       -72.4%            53,880         31,382
      Total revenues          19,341,612        26.5%        15,288,582      4,462,341
Losses and loss
   expenses incurred          11,761,626        28.7%         9,140,615      2,373,245
Acquisitions costs and
   other operating expenses    6,684,225       -13.6%         7,735,258      1,838,804
      Total expenses          18,445,851         9.3%        16,875,873      4,212,049
Income (loss) before
   Federal income taxes      $   895,761          NM        ($1,587,291)    $  250,292
</TABLE>

(1)  Pro Forma results for the twelve months ended December 31, 1999
(2)  For the three months ended December 31, 1999
NM = Not Meaningful

     The following table presents North East's underwriting


<PAGE>

ratios for 2000 and 1999:

<TABLE>
<CAPTION>
                                    Pro Forma     Actual
                            2000     1999(1)      1999(2)
                           -----    ---------     -----
<S>                        <C>     <C>            <C>
     Loss ratio             64.2%     63.6%        56.7%
     Expense ratio          36.5%     53.8%        43.9%
     Combined ratio        100.7%    117.4%       100.6%
</TABLE>

(1) Pro Forma results for the twelve months ended December 31, 1999
(2) For the three months ended December 31, 1999.

     Because North East was only included from September 24, 1999, its date of
acquisition, for purposes of comparability, the following discussion of this
segment is compared with North East's full year of operation in 1999.

     North East's income before Federal income taxes represents a significant
improvement from the $1,587,000 which North East lost in 1999.

     The loss ratio in 2000 was 64.2% as compared to 63.6% in 1999.
Significantly lower reinsurance costs were offset by an increase in a limited
number of severe losses that occurred in 2000.

     The expense ratio declined to 36.5% in 2000 from 53.8% in 1999 and is
primarily attributable to significantly lower expenses, particularly reinsurance
costs, salaries and $1,157,000 in non-recurring expenses in 1999, primarily
severance and expenses incurred in conjunction with our acquisition of North
East. Despite a $1,163,000 or 7% growth in direct premiums written in 2000 as
compared to 1999, reinsurance costs declined $1.3 million or 72% over the same
period, as we renegotiated North East's reinsurance programs.

     An additional contributing factor to the improved ratios is insurance
premiums growth of $3,931,000 or 27%, which in part is affected by the
aforementioned reductions in reinsurance costs, combined with premium growth,
primarily in North East's commercial lines


<PAGE>

products. In the third quarter of 2000, North East introduced a commercial
package product in the State of Maine similar to that offered by Preserver.

Mountain Valley

     Since its acquisition, the following table summarizes the loss before
Federal income taxes for this segment before the effects of the intercompany
pooling agreement with Preserver:

<TABLE>
<CAPTION>
                                 2000(1)
                             -----------
<S>                          <C>
Insurance premiums           $12,980,811
Net investment income            542,760
Realized investment gains         43,354
      Total revenues          13,566,925
Losses and loss
   expenses incurred           8,834,681
Acquisitions costs and
   other operating expenses    5,503,983
      Total expenses          14,338,664
Loss before Federal
   income taxes              $  (771,739)
</TABLE>

(1)  For the ten months ending December 31, 2000


<PAGE>

     Mountain Valley is included from March 1, 2000, its date of acquisition.
Because Mountain Valley had no net operations prior to our acquisition of it,
other than net investment income, no comparison is made with prior years.

     The following table presents Mountain Valley's underwriting ratios for
2000:

<TABLE>
<CAPTION>
                           2000(1)
                           -------
<S>                        <C>
     Loss ratio             68.1%
     Expense ratio          42.4%
     Combined ratio        110.5%
</TABLE>

(1) For the ten months ended December 31, 2000

     The bulk of Mountain Valley's loss before income taxes of $772,000 in 2000
is the result of investment income being generated from positive cash flow,
offset by approximately $1,167,000 in expenses allocated from us for technology
and home office support during 2000. These results were in line with our
expectations and reflect significant expense ratio improvement from prior to the
acquisition, which we expect to continue in 2001.

     As described previously, Mountain Valley has terminated the 100% quota
share it maintained. As noted: 1) there is no loss development, adverse or
favorable, net of third party reinsurance, that we retain on loss occurrences
prior to March 1, 2000; and 2) only Mountain Valley loss occurrences on or after
March 1, 2000 will be retained, net of reinsurance, by us. Based on the short
period of time that we have owned Mountain Valley, no meaningful loss trends on
Accident Year 2000 have been discerned.


<PAGE>

     Because Mountain Valley has a limited amount of loss experience, ultimate
losses and reserves are being provided for based upon reviews of Mountain
Valley's historical loss development patterns, prior to application of the quota
share, combined with reviews of Preserver's and general industry loss
development patterns.

     Given the quota share reinsurance protection that Mountain Valley has, loss
payments are presently very low in relation to losses incurred and therefore
Mountain Valley is generating positive cash flow, with $1,544,000 in cash
flow from operations in the period from acquisition through December 31, 2000.
These assets are being invested in a manner that reflects the ultimate liability
payment patterns anticipated by Mountain Valley and applying an investment
philosophy similar to our other insurance units.

     For comparison purposes, Mountain Valley's recurring direct premiums
written have grown $7,233,000 or 44% in 2000 as compared to 1999. Approximately
$1,955,000 of that growth is attributable to premium with policy terms greater
than twelve months, which we believe will help improve Mountain Valley's
retention. The majority of Mountain Valley's premium written growth is being
experienced in the States of New York, Massachusetts and Maine. Growth has been
fairly uniform in its distribution among the various commercial package,
commercial auto and supporting commercial lines products that Mountain Valley
offers.

     As Accident Year 2000 and subsequent years' losses become more prevalent in
relation to older accident years, Mountain


<PAGE>

Valley's net results should begin to reflect its underwriting operations, in
addition to the expenses related to the deployment of technology platforms
described in the Liquidity and Capital Resources section.

Other Revenues and Expenses

     The following table sets forth other revenues and expenses of the Company
for each of the three years ended December 31:

<TABLE>
<CAPTION>
                                        %Change                    % Change
                              2000    2000 vs. 1999      1999     1999 vs 1998      1998
                          ----------  -------------   ----------  ------------   ----------
<S>                       <C>            <C>          <C>           <C>          <C>
Merger-related expenses   $  354,097      -55.7%      $  800,000      NM         $        -
Interest expense           1,867,085      316.7%         448,117     727.4%          54,146
Amortization of
   goodwill                   84,695      300.0%          21,174      NM                  -
Federal income tax         1,039,758        NM            10,810      NM          1,941,022
</TABLE>

NM = Not Meaningful

     The merger expenses are for Mountain Valley in 2000 and North East in 1999.
While we do not rule out the possibility of additional acquisitions, another
transaction is unlikely in 2001, and thus these expenditures should decline
further in 2001.

     The  increase in interest expense reflects the issuance of

<PAGE>

$11.5 million in Debt in February 2000 and $10 million in Convertible
Subordinated Debentures issued in September 1999. Both are related to our
acquisitions of Mountain Valley and North East, respectively, and are discussed
in further detail in the section entitled "Financing Activities".

     The increase in the amortization of goodwill in 2000 compared to 1999 is
due to a full year's charge for North East, acquired on September 24, 1999. The
increase in 1999 was for a partial charge of the same item.

     Our income tax expense is largely a function of the Company's income before
federal taxes. However, the Company and its subsidiaries (including MCA
Insurance Company in Liquidation and its subsidiaries ("MCAIC"), former
affiliates) file a consolidated Federal income tax return, and participate in a
Tax Sharing Agreement.

     Despite being declared insolvent in 1992, MCAIC is required to continue to
be included in the Company's consolidated tax return filed with the Internal
Revenue Service. Since that time, MCAIC has generally continued to generate
taxable losses included in the consolidated tax return.

     Under the applicable rules, the Company is entitled to, and has taken
current tax benefits for net operating losses that MCAIC and its subsidiaries
have generated since 1992. However, to the extent that the Company does not have
positive basis (as defined by the Internal Revenue Code), it may also be
required to pay future tax liabilities (which may offset the current tax
benefit) subject to certain events which may trigger such payments. Accordingly,
when such current tax benefits are recognized, a corresponding deferred tax
liability is recorded.

     As noted previously, in March 2001, the Company's management determined
that certain tax benefits should not have been recognized and that and that
certain deferred tax liabilities had not been recorded. As a result, the 1998
and 1999 Consolidated Financial Statements have been restated from amounts
previously reported and are discussed in Note V in the Notes to Consolidated
Financial Statements.

     At the time of its insolvency, MCAIC realized approximately $150 million in
losses, which generated a net operating loss ("NOL") that could not be utilized
at that time by either the Company or MCAIC under applicable IRS regulations and
which expire in 2006. Additional net operating losses have been experienced by
MCAIC since 1992, some of which were utilized by the Company at a time when it
had no tax basis in MCAIC, thus creating a deferred tax liability represented by
the $1,917,405 "Excess Loss Account" item (for the year ended December 31, 2000)
as shown in Note J of the Notes to the Consolidated Financial Statements. The
$150 million of NOL's generated in 1992 will likely increase the Company's
excess loss account at the time they expire in 2006.

     An excess loss account in a subsidiary generally creates taxable income at
the time of the sale, liquidation or other disposition of the subsidiary.

     Management expects that the liquidation or other disposition of MCAIC will
take place prior to the expiration of these NOL's in 2006 and prior to the
corresponding increase in the Company's excess loss account. As the control of
the liquidation process rests with the Insurance Department of the State of
Oklahoma (the "Receiver") and not with management, there is a potential risk
that such tax liability could be incurred by the Company after 2006 when the
1992 generated NOLs will have been converted into the Company's excess loss
account. Management believes it is unlikely that such risk will occur, as the
liquidation of MCAIC is probable before the expiration of the NOL. However, the
tax effects of these transactions are subject to the circumstances of the
liquidation process itself and tax-planning strategies exist which could
mitigate the impact of such a tax exposure.

     With respect to the Company's excess loss account created by the Company's
utilization of MCAIC's post 1992 NOL's, these excess losses will likely result
in the Company recognizing taxable income in the year MCAIC is liquidated or
otherwise disposed of. The effect of the deferred taxes attributable to such
income has been reflected on Consolidated Financial Statements accompanying this
Report.


<PAGE>

Liquidity and Capital Resources

     Liquidity is a measure of the ability to generate sufficient cash to meet
cash obligations as they come due. Cash outflows can be variable because of
uncertainties regarding settlement dates for liabilities for unpaid losses and
because of the potential for large losses either individually or in the
aggregate.

     As a holding company, the Company derives cash from its subsidiaries in the
form of dividends, tax payments and management fees. The Company uses cash to
pay debt service, Federal income taxes and operating expenses. We also may
provide capital to our subsidiaries. Maximum amounts of dividends that can be
taken without regulatory approval are prescribed by statute (See Note K of Notes
to Consolidated Financial Statements).


<PAGE>

     Deferred tax liabilities related to MCAIC (captioned as "Excess Loss
Account" in the schedule of net deferred tax assets in Note J in the Notes to
Consolidated Financial Statements) will likely be payable on the final
liquidation of MCAIC by its Receiver, which the Company does not control. It is
not presently known when MCAIC's final liquidation will occur, although the
Company does anticipate that it will have approximately one year notice before
this event occurs and that this should occur prior to 2006. Accordingly, the
Company may be required to seek financing depending on the timing and magnitude
of this liability.

     Tax payments and management fees from the insurance subsidiaries are made
under agreements that generally are subject to approval by state insurance
departments.

     The Insurance Companies are highly liquid, receiving substantial cash from
premiums, investment income, service fees and proceeds from sales and maturities
of portfolio investments. The principal outflows of cash are payments of claims,
taxes, interest, operating expenses and dividends. Accordingly, the Insurance
Companies maintain investment and reinsurance programs generally intended to
provide adequate funds to pay claims without forced sales of investments. The
Insurance Companies model their exposure to catastrophes and generally have the
ability to pay claims without selling securities. Even in years of greater
catastrophe frequency, the Insurance Companies have been able to pay claims
without liquidating any investments. The Insurance Companies' policy with
respect to fixed maturity investments is to purchase only those that are of
investment grade quality.

     See Note K of the Notes to Consolidated Financial Statements for additional
discussion of the NAIC risk-based capital standards and Codification of
Statutory Accounting Principles with an effective


<PAGE>

date of January 1, 2001.

     As a company with insurance subsidiaries that invests substantial sums in
fixed income securities, we are accustomed to fluctuations in the value of our
fixed income investments. We have identified one hundred percent of those
investments as available for sale pursuant to SFAS 115. Accordingly, changes in
the value of those investments are recorded as other comprehensive income.
Because our investment portfolios are composed completely of securities which
are generally highly liquid (i.e., U.S. government securities and investment
grade corporate bonds), and that our credit reviews have not indicated any
downgrades, there are no grounds to believe that the unrealized gains (in 2000)
or losses incurred (in 1999) are other than temporary. In addition, the
combination of the duration of the portfolio being sufficiently short
(approximately 3.46 and 3.60 years at December 31, 2000 and 1999, respectively),
combined with the highly liquid nature of those securities and our proclivity to
hold those bonds to maturity (although they are classified as
available-for-sale), the par value of those bonds should be fully realized at
maturity, resulting in those unrealized gains and losses being temporary.

     In addition, we generally believe that the longer-term trend for future
movements in interest rates is toward lower interest rates, which has occurred
and has positively affected the value of fixed income investments and has
converted those unrealized losses to unrealized gains. We believe the
combination of

<PAGE>

economic circumstances, which is resulting in slower overall economic growth,
modest inflation and real long-term interest rates that remain historically
high, all combines to result in lower longer-term interest rate trends.

Operating and Investing Activities

     Net cash provided by operating activities was $7,580,000, $910,000 and
$10,547,000 in 2000, 1999 and 1998, respectively. The increased amount in 2000
is due to the premium growth and profitable operations of the Insurance
Companies. The lower amount for 1999 is attributable to the reduction in
insurance premiums in 1999 as a result of the statutorily mandated NJ PPA rate
rollback and increased payment of PIP losses for the 1999 Accident Year.

     Net cash utilized in investing activities was $15,917,000, $10,239,000 and
$11,054,000 in 2000, 1999 and 1998, respectively. The amounts used in each year
reflect the investment of cash provided by operating and finance activities.

     To date, we have only increased staffing nominally to provide home office
support to our acquisitions. In 2001, we expect to increase staffing further to
support our expanded enterprise and this may increase the expense ratio. We are
also making certain capital improvements, particularly with regard to technology
platforms at Mountain Valley and Preserver. These capital outlays are
anticipated to total at least $1 million in 2001, with additional similar
investments also anticipated in 2002 and beyond.

     The depreciation expense for these


<PAGE>

improvements, along with associated implementation and conversion costs, are
expected to cause additional increases in our expenses and expense ratio in
future periods. We do expect however, that these improvements will enable
Mountain Valley and Preserver to grow efficiently in the future and will
ultimately result in cost savings in 2001 and beyond. Therefore, any increase in
expenses and expense ratio is expected to be temporary, and should result in a
lower expense ratio in the future.

     Aside from the changes in operating expenditures noted previously,
particularly the investments in technology and expenditures associated with the
acquisition of Mountain Valley and North East, no unusual or nonrecurring
operating expenditures have been incurred over this period.

     The payout ratio of losses, other than PIP in NJ PPA, has not fluctuated
substantially over this period. Our cash flow from operations is expected to
increase as we increase our revenue through additional premium writings,
specifically commercial lines and continue to reduce our expenses and expense
ratio. This will be offset somewhat by the development and payment of losses on
the new PPA which Motor Club is writing.

Financing Activities

     We did not pay dividends on our common stock in 2000, 1999 and 1998.

     In connection with our acquisition of Mountain Valley, on February 29, 2000
we borrowed $11.5 million ("Debt") from our three Executive Committee members.
For more information on the Debt, please refer to Note H in the Notes to
Consolidated

<PAGE>

Financial Statements.

     In connection with our acquisition of North East, we issued $10 million of
Convertible Subordinated Debentures ("Debentures"), on September 23, 1999, in
one series, under a plan previously approved by our shareholders. For more
information on the Debentures, please refer to Note I in the Notes to
Consolidated Financial Statements.

     On December 27, 1999, we repaid the $3 million borrowed from Dresdner Bank,
AG in September 1998.

Recent Accounting Pronouncements

     During 1999, the Financial Accounting Standards Board ("FASB") issued FASB
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB 133, and Amendment of FASB 133" which extended the
effective date of FASB 133 to January 1, 2001. FASB 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments. This statement will not have a
material impact on the Company's results of operations or financial condition.

     In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, a replacement of FASB Statement No. 125".
This statement will not have a material impact on the Company's results of
operations


<PAGE>

or financial condition.

Item 8.  Financial Statements and Supplementary Data

     See Item 14 (a).

Item 9. Disagreements With Accountants On Accounting and Financial Disclosures

     None

                                    PART III

     Items 10, 11, 12 and 13 are omitted from this Report on Form 10-K; the
Registrant shall file a definitive proxy statement pursuant to Regulation 14A
not later than April 30, 2001, which is 120 days after the close of the fiscal
year of the Registrant.

                                     PART IV

Item 14.  Exhibits, Financial Statements Schedules and Reports on Form 8-K

(a)       (1)  The following financial statements are included in
          Part II, Item 8:

<TABLE>
<CAPTION>
                                                Page(s)
                                                -------
<S>                                              <C>
Report of Independent Accountants                F-1
Consolidated Balance Sheets at December 31,
   2000 and 1999                                 F-2
Consolidated Statements of Operations for
  the years ended December 31, 2000, 1999
  and 1998                                       F-3
Consolidated Statements of Shareholders'
  Equity for the years ended December 31,
  2000, 1999 and 1998                            F-4
Consolidated Statements of Cash Flows
 for the years ended December 31, 2000,
 1999 and 1998                                   F-5 to F-6
Notes to Consolidated Financial Statements       F-7 to F-48

          (2) The following financial statement schedules for the years 2000,
          1999 and 1998 (pursuant Rule 5-04 of Regulation S-X) are presented
          herewith:

Schedule I -  Summary of Investments- Other than
               Investments in Related Parties*   F-49
Schedule II - Condensed Financial Information
                of  Registrant                   F-50  to F-52
Schedule IV - Reinsurance*                       F-53
Schedule V -  Valuation and Qualifying
               Accounts and Reserves             F-54
Schedule VI - Supplemental Information
              Concerning Property/Casualty
              Insurance Operations*              F-55
</TABLE>

*Presented pursuant to Rule 7-05 of Regulation S-X.

<PAGE>

Schedules other than those mentioned above are omitted because the conditions
requiring their filing do not exist, or because the information is given in the
financial statements filed herewith, including the notes thereto.

         (b)  Exhibits:

<TABLE>
<CAPTION>
Exhibit No.           Description                      Reference
----------- ----------------------------------  ----------------------------
<S>         <C>                                 <C>
 2-a        Agreement and Plan of Merger        Exhibit 2 to Motor Club
            between Motor Club of America and   of America's Form 8-K
            North East Insurance Company,       dated March 17, 1999
            dated as of March 16, 1999

 3-a        Restated and Amended Certificate    Exhibit 1(i) to Motor
            of Incorporation of Motor Club of   Club of America's
            America, dated June 12, 1972        Annual Report on Form
                                                10-K for fiscal year
                                                ended December 31, 1972

 3-b        By-Laws of Motor Club of America,   Exhibit 3-l to Motor
            effective March 15, 1989            Club of America's
                                                Annual Report on Form
                                                10-K for fiscal year
                                                ended December 31, 1988

 3-c        By-law Amendment of Motor           Exhibit 3-m to Motor
            Club of America, effective          Club of America's
            August 3, 1994                      Form 8-K dated
                                                July 21, 1994

 4-a        Specimen Certificate                Exhibit 4 to File
            representing Common Stock,          No. 2-39996 on
            $.50 par value                      Form S-1

10-a        Motor Club of America 1987 Stock    Exhibit 10-o to Motor
            Option Plan                         Club of America's
                                                Annual Report on Form
                                                10-K for fiscal year
                                                ended December 31,
                                                1987

10-b        Specimen copy of Motor Club of      Exhibit 10-p to Motor
            America 1987 Stock Option           Club of America's
            Agreement                           Annual Report on Form
                                                10-K for fiscal year
                                                ended December 31, 1987

10-c        Motor Club of America 1992          Exhibit A to Motor
            Stock Option Plan                   Club of America's
                                                Proxy Statement for
                                                fiscal year ended
                                                December 31, 1991


10-d        Motor Club of America 1999          Exhibit A to Motor
            Stock Option Plan                   Club of America's
                                                Proxy Statement for
                                                the fiscal year ended
                                                December 31, 1998

10-e        Specimen copy Motor Club of         Exhibit 10-r to
            America 1992 Stock Option           Motor Club of
            Plan Agreement                      America's Annual
                                                Report on Form 10-K
                                                for fiscal year
                                                ended December 31, 1992

10-f        Settlement Agreement between        Exhibit 99 to Motor
            Motor Club of America et als.       Club of America's
            and Receiver of MCA Insurance       Form 8-K dated
            Company in Liquidation et als.      December 20, 1994
            and related documents

10-g        Order dated December 30, 1994       Exhibit 99-C to Motor
            Approving Settlement between        Club of America's
            Motor Club of America et als and    Form 8-K dated
            Receiver of MCA Insurance           December 30, 1994
            Company in Liquidation et als
            and related conformed documents

10-h        Stock Purchase Agreement            Exhibit 99-F to Motor
            between Motor Club of America       Club of America's
            and JVL Holding Properties, Inc     Form 8-K dated
                                                December 2, 1996

10-i        Agreement dated December 2, 1996    Exhibit 99-G to Motor
            between Motor Club of America       Club of America's
            and Motor Club of America           Form 8-K dated
            Enterprises, Inc                    December 2, 1996

10-j        $3 Million Senior Unsecured         Exhibit 10-i to Motor
            Revolving Credit Facility between   Club of America's Annual
            Motor Club of America and Dresdner  Report on Form 10-K
            Bank, AG and related documents      for fiscal year ended
                                                December 31, 1998

10-k        Purchase Agreement dated as of      Exhibit 10.1 to Motor
            December 16, 1999 between Valley    Club of America's Form
            Insurance Company and Motor Club    8-K dated December 16,
            of America                          1999

10-l        Specimen copy of Form of            Exhibit 1 to Form 13D of
            Convertible Subordinated            Archer McWhorter dated
            Debentures                          September 23, 1999

10-m        Specimen copy of Promissory Note    Exhibit 10-m to Motor Club of
                                                America's Annual Report on Form
                                                10-K for fiscal year ended
                                                December 31, 1999

22          Subsidiaries of Motor Club of
            America                             Page 78
</TABLE>


<PAGE>

     Pursuant to the requirements of Section 13 or 15(d) 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.

                              MOTOR CLUB OF AMERICA
                                   (Registrant)




Dated:  April 16, 2001        By  s/Stephen A. Gilbert
                              -------------------------------
                              Stephen A. Gilbert
                              President, Chief Executive
                              Officer, General Counsel
                              and Director

Dated:  April 16, 2001        By  s/Patrick J. Haveron
                              -------------------------------
                              Patrick J. Haveron
                              Executive Vice President,
                              Chief Executive Officer, Chief
                              Financial Officer and Chief
                              Accounting Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Dated:  April 16, 2001        By  s/Archer McWhorter
                              -------------------------------
                              Archer McWhorter
                              Chairman of the Board
                              and Director

Dated:  April 16, 2001        By  s/Alvin E. Swanner
                              -------------------------------
                              Alvin E. Swanner
                              Director

Dated:  April 16, 2001        By  s/William E. Lobeck, Jr.
                              -------------------------------
                              William E. Lobeck, Jr.
                              Director

Dated:  April 16, 2001        By  s/Robert S. Fried
                              -------------------------------
                              Robert S. Fried
                              Director

Dated:  April 16, 2001        By  s/Malcolm Galatin
                              -------------------------------
                              Malcolm Galatin
                              Director


<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

         TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
         OF MOTOR CLUB OF AMERICA:

         In our opinion, the consolidated financial statements listed in the
         index appearing under Item 14(a)(1) present fairly, in all material
         respects, the financial position of Motor Club of America and its
         subsidiaries at December 31, 2000 and 1999, and the results of their
         operations and their cash flows for each of the three years in the
         period ended December 31, 2000 in conformity with accounting principles
         generally accepted in the United States of America. In addition, in our
         opinion, the financial statement schedules listed in the index
         appearing under Item 14 (a)(2) present fairly, in all material
         respects, the information set forth therein when read in conjunction
         with the related consolidated financial statements. These financial
         statements and financial statement schedules are the responsibility of
         the Company's management; our responsibility is to express an opinion
         on these financial statements and financial statement schedules based
         on our audits. We conducted our audits of these statements in
         accordance with auditing standards generally accepted in the United
         States of America, which require that we plan and perform the audit to
         obtain reasonable assurance about whether the financial statements are
         free of material misstatement. An audit includes examining, on a test
         basis, evidence supporting the amounts and disclosures in the financial
         statements, assessing the accounting principles used and significant
         estimates made by management, and evaluating the overall financial
         statement presentation. We believe that our audits provide a reasonable
         basis for our opinion.

         As discussed in Note V, the Company has restated its December 31, 1999
         and 1998 financial statements for certain tax matters.

         PricewaterhouseCoopers LLP
         New York, New York

         April 16, 2001


                                      F-1
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                           ----------
<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                 --------------------
                                                 2000            1999
                                                 ----            ----
                                                             (Restated)
<S>                                        <C>             <C>
         ASSETS
Investments:
 Fixed maturity securities, available-
   for-sale, at fair value (amortized
   cost $97,571,094 -2000 and
   $80,854,764 -1999)                      $ 98,074,324    $ 78,242,322
 Equity securities, at fair value
   (cost $34,659-2000 and $43,346-1999)          47,604          57,053
 Mortgage loans on real estate - at the
   unpaid principal amount                      110,160         153,616
 Short-term investments, at fair value
   which approximates cost                    6,760,341       8,528,858
                                           ------------     -----------
          Total investments                 104,992,429      86,981,849
Cash and cash equivalents                     3,607,076         443,733
Premiums receivable                          39,749,090      27,132,246
Reinsurance recoverable on paid
 and unpaid losses and loss expenses         32,883,564      21,163,574
Notes and accounts receivable                   124,111         212,598
Deferred policy acquisition costs            14,505,569      10,560,763
Fixed assets - at cost, less accumulated
  depreciation                                2,993,229       1,858,621
Federal income tax recoverable                   12,413          47,100
Prepaid reinsurance premiums                  4,324,915       1,485,450
Deferred tax asset                            1,828,706       3,637,551
Goodwill, less accumulated amortization       1,509,152       1,593,801
Other assets                                  2,080,821       1,470,744
                                           ------------    ------------
          Total Assets                     $208,889,242    $156,588,030
                                           ============    ============
         LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Losses and loss expenses                   $ 90,392,486    $ 70,983,383
Unearned premiums                            53,409,659      38,698,028
Commissions payable                           4,573,912       2,802,516
Accounts payable                              2,246,702       1,397,263
Accrued expenses                              4,032,807       3,112,157
Drafts outstanding                            2,741,249       2,685,423
Note payable                                 11,500,000          -
Convertible subordinated debentures          10,000,000      10,000,000
                                           ------------    ------------
    Total liabilities                       178,896,815     129,678,770
                                           ------------    ------------
Shareholders' Equity:
Common Stock, par value $.50 per share:
 Authorized - 10,000,000 shares;
 issued and outstanding shares 2,124,387      1,062,194       1,062,194
Paid in additional capital                    2,066,089       2,066,089
Accumulated other comprehensive loss         (2,774,148)     (3,897,396)
Retained earnings                            29,638,292      27,678,373
                                           ------------    ------------
    Total Shareholders' Equity               29,992,427      26,909,260
                                           ------------    ------------
    Total Liabilities and
      Shareholders' Equity                 $208,889,242    $156,588,030
                                           ============    ============
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-2
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   ----------

<TABLE>
<CAPTION>
                                      FOR THE YEARS ENDED DECEMBER 31,
                                      ---------------------------------
                                      2000           1999          1998
                                      ----           ----          ----
                                                  (Restated)    (Restated)
<S>                               <C>           <C>            <C>
  REVENUES
Insurance premiums (net of
 premiums ceded totaling
 $13,161,053, $8,358,946
 and $6,776,174)                  $83,467,481    $55,807,330   $53,175,663
Net investment income               6,412,884      5,080,939     4,304,507
Realized gains on
 sales of investments (net)            82,949         36,040        28,545
Other revenues                        163,833        143,410       171,171
                                  -----------   ------------  ------------
     Total revenues                90,127,147     61,067,719    57,679,886
                                  -----------   ------------  ------------

  LOSSES AND EXPENSES
Losses and loss expenses
  incurred (net of reinsurance
  recoveries totaling $11,428,275,
  $1,544,026 and $4,736,671)       55,708,052     40,631,053    36,479,591
Amortization of deferred
  policy acquisition costs         25,135,714     14,305,501    13,375,221
Other operating expenses            3,977,827      4,759,728     2,051,522
Merger-related expenses               354,097        800,000       -
Amortization of goodwill               84,695         21,174       -
Interest expense                    1,867,085        448,117        54,146
                                  -----------   ------------  ------------
     Total losses and expenses     87,127,470     60,965,573    51,960,480
                                  -----------   ------------  ------------
Income before Federal income
  taxes                             2,999,677        102,146     5,719,406
Benefit (provision) for Federal
  income taxes: current               (44,797)        28,331      (179,661)
                deferred             (994,961)       (39,141)   (1,761,361)
                                  ------------  ------------  ------------
Total Federal income tax           (1,039,758)       (10,810)   (1,941,022)
                                  -----------   ------------  ------------

Net income                        $ 1,959,919   $     91,336  $  3,778,384
                                  ===========   ============  ============

NET INCOME PER COMMON SHARE:
Basic                                   $ .92          $ .04         $1.79
                                        =====          =====         =====
Diluted                                 $ .91          $ .04         $1.78
                                        =====          =====         =====
<CAPTION>

WEIGHTED AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:

<S>                                 <C>            <C>           <C>
Basic                               2,124,387      2,117,912     2,108,722
                                  ===========   ============  ============
Diluted                             2,770,075      2,121,697     2,121,366
                                  ===========   ============  ============
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-3
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                    --------

<TABLE>
<CAPTION>
                                        Common Stock (a)
                                      --------------------    Paid-In       Accumulated Other
                                    Shares                   Additional       Comprehensive       Retained
                                    Issued       Amount       Capital        Income (Loss)(b)     Earnings        Total
                                    ------       ------       ----------------------------------  ---------       -----
                                                                               (Restated)        (Restated)     (Restated)
<S>                                 <C>           <C>            <C>            <C>             <C>            <C>
   Balance at December 31, 1997     2,094,429     $1,047,215     $1,950,204     $(3,931,342)    $23,934,956    $23,001,033
Prior period adjustment                                                           1,539,894        (126,303)     1,413,591
Net income                                                                                        3,778,384      3,778,384
Other comprehensive income, net
 of tax:
Unrealized investment gains, net
  of reclassification adjustment                                                    668,309                        668,309
Minimum pension liability
  adjustment                                                                       (105,204)                      (105,204)
                                                                                                               -----------
Comprehensive income                                                                                             4,341,489
                                                                                                               -----------
Common stock issued                     22,000        11,000         46,750                                         57,750
                                     ---------     ---------      ---------       ---------     -----------    -----------
   Balance at December 31, 1998      2,116,429     1,058,215      1,996,954      (1,828,343)     27,587,037     28,813,863

Net income                                                                                           91,336         91,336
Other comprehensive income, net
 of tax:
Unrealized investment losses, net
  of reclassification adjustment                                                 (3,006,583)                    (3,006,583)
Minimum pension liability
  adjustment                                                                        937,530                        937,530
                                                                                                              ------------
Comprehensive loss                                                                                              (1,977,717)
                                                                                                              ------------
Common stock issued                      7,958         3,979         69,135                                         73,114
                                     ---------     ---------      ---------       ---------     -----------    -----------
   Balance at December 31, 1999      2,124,387     1,062,194      2,066,089      (3,897,396)     27,678,373     26,909,260

Net income                                                                                        1,959,919      1,959,919
Other comprehensive income, net
 of tax:
Unrealized investment gains, net
  of reclassification adjustment                                                  1,992,930                      1,992,930
Minimum pension liability
  adjustment                                                                       (869,682)                      (869,682)
                                                                                                               -----------
Comprehensive income                                                                                             3,083,167
                                     ---------     ---------      ---------       ---------     -----------    -----------
Balance at Decembe 31, 2000          2,124,387    $1,062,194     $2,066,089     $(2,774,148)    $29,638,292    $29,992,427
                                     =========    ==========     ==========     ===========     ===========    ===========
</TABLE>

(a)      PAR VALUE $.50 PER SHARE; AUTHORIZED - 10,000,000 SHARES.
(b)      NET OF DEFERRED TAXES.


                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
                    THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-4
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   ----------

<TABLE>
<CAPTION>
                                              FOR THE YEARS ENDED DECEMBER 31,
                                          ------------------------------------
                                           2000           1999          1998
                                           ----           ----          -----
                                                       (Restated)    (Restated)
<S>                                  <C>            <C>           <C>
Net income                            $ 1,959,919    $    91,336   $ 3,778,384

Adjustments to reconcile net income
  to cash provided by
  operating activities:
  Depreciation expense                    924,900        639,119       527,644
  Amortization of bond
    premium and discount                  122,655         50,336        35,375
  Amortization of goodwill                 84,695         21,174        -
  Gain on sale of investments             (82,949)       (36,040)      (28,545)
  Deferred tax provision                  994,961         39,141     1,761,361

Changes in assets and liabilities
excluding effects of acquisitions:
  Premiums receivable                  (6,583,131)       575,790   (12,591,502)
  Notes and accounts receivable            88,487        (87,154)         (775)
  Deferred policy acquisition costs    (2,521,953)       434,040    (2,849,679)
  Federal income tax - current           (259,787)       (24,526)      (53,035)
  Reinsurance recoverable on paid and
    unpaid losses and loss expenses       980,120      1,071,741      (568,211)
  Prepaid reinsurance premiums          1,535,665        353,015      (320,336)
  Other assets                           (358,537)        57,273       116,941
  Losses and loss expenses              6,663,991      1,435,399     8,088,365
  Unearned premiums                     4,201,301     (1,652,130)   11,447,387
  Commissions payable                   1,708,996        (32,892)    1,512,739
  Accounts payable                        680,438        521,936       312,874
  Accrued expenses                     (2,615,424)    (3,544,396)     (914,385)
  Drafts outstanding                       55,826        996,588       292,620
                                      -----------    -----------  ------------
Total cash provided by
  operating activities                  7,580,173        909,750    10,547,222
                                      -----------    -----------  ------------
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-5
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                                                        ----------

<TABLE>
<CAPTION>
                                           FOR THE YEARS ENDED DECEMBER 31,
                                       ---------------------------------------
                                          2000             1999          1998
                                          ----             ----          ----
                                                      (Restated)    (Restated)
<S>                                 <C>            <C>           <C>
Investing activities:
Proceeds from:
  Maturities of fixed maturities      14,551,267      8,074,333    17,444,834
  Sales of fixed maturities            7,689,638      1,205,824     2,000,000
  Sale of equity securities                8,687        630,612       -
  Payments received on mortgage
    loan principal                        43,455        207,422       161,517
  Sale or maturities of short-
    term investments                 126,600,687     89,390,755   245,390,264
Purchase of:
  Fixed maturities                   (34,191,912)    (9,343,352)  (31,304,235)
  Short-term investments            (124,698,557)   (89,656,130) (244,133,789)
  Mountain Valley (2000) and
    North East (1999), net
    of cash acquired                  (3,962,753)   (10,127,839)      -
  Fixed assets                        (1,957,342)      (621,069)     (612,897)
                                     -----------   ------------  ------------
Total cash utilized in
 investing activities                (15,916,830)   (10,239,444)  (11,054,306)
                                     -----------   ------------  ------------
Financing activities:
  Convertible subordinated
   debentures                             -          10,000,000       -
  Note payable                        11,500,000     (3,000,000)   3,000,000
  Common stock issued                     -              -             57,750
                                     -----------   ------------  ------------
Total cash provided by financing
  activities                          11,500,000      7,000,000     3,057,750
                                     -----------   ------------  ------------
Net increase (decrease) in cash        3,163,343     (2,329,694)    2,550,666
Cash and cash equivalents
  at beginning of year                   443,733      2,773,427       222,761
                                     -----------   ------------  ------------
Cash and cash equivalents
  at end of year                     $ 3,607,076   $    443,733  $  2,773,427
                                     ===========   ============  ============
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

      (1)      Total interest paid was $1,774,808 (2000), $448,782 (1999) and
               $60,389 (1998).
      (2)      Total Federal income taxes paid was $0 (2000 and 1999)
               and $212,738 (1998).
      (3)      The Company purchased all of the common stock of Mountain Valley
               (2000) and North East (1999). Cash acquired in connection with
               the purchase of Mountain Valley (2000) and North East (1999) was
               $3,537,247 and $208,725, respectively. In conjunction with the
               acquisition, liabilities were assumed as follows:

<TABLE>
<CAPTION>
                                                        2000           1999
                                                   -----------     -----------
<S>                                                <C>             <C>
               Fair value of assets acquired       $14,944,762     $32,858,750
               Cash paid for the capital stock       7,500,000      10,409,682
               Equity paid for the capital stock        -               73,114
                                                   -----------     -----------
               Liabilities assumed                 $ 7,444,762     $23,375,954
                                                   ===========     ===========
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-6
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies:

                  (a)      Basis of Presentation and Principles of
                           Consolidation:

                           The consolidated financial statements of Motor Club
                           of America (the "Company") include its accounts and
                           those of its directly or indirectly wholly-owned
                           subsidiary companies. The financial statements have
                           been prepared on the basis of generally accepted
                           accounting principles ("GAAP"). The preparation of
                           financial statements in conformity with these
                           practices requires management to make estimates and
                           assumptions that affect the reported amounts of
                           assets and liabilities and disclosure of contingent
                           assets and liabilities at the date of the financial
                           statements and the reported amounts of revenues and
                           expenses during the period. Actual results could
                           differ from those estimates.

                           The Company's insurance subsidiaries, Motor Club of
                           America Insurance Company ("Motor Club"), Preserver
                           Insurance Company ("Preserver"), Mountain Valley
                           Indemnity Company ("Mountain Valley"), North East
                           Insurance Company ("North East") and its subsidiary
                           American Colonial Insurance Company ("American
                           Colonial") are collectively referred to as the
                           "Insurance Companies".

                           All material intercompany items and transactions have
                           been eliminated in consolidation. Certain amounts in
                           prior years have been reclassified to conform to the
                           current presentation.

                  (b)      Nature of Operations:

                           The Company is a New Jersey corporation which owns
                           the Insurance Companies. The Company acquired North
                           East and its subsidiaries on September 24, 1999 and
                           Mountain Valley on March 1, 2000; see Note B
                           and C for more information on these transactions,
                           respectively. The Insurance Companies engage in


                                   (Continued)

                                      F-7
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies
                     (Continued):

                           property and casualty insurance, principally small
                           commercial, private passenger automobile and
                           homeowners insurance, produced by independent agents.
                           The Company generates substantially all of its
                           revenues from its insurance operations.

                           Motor Club and Preserver's operations are in the
                           State of New Jersey. Mountain Valley's operations are
                           in New England (except for Connecticut) and New York.
                           North East's operations are in the State of Maine.
                           American Colonial, which has not written any business
                           since March 1990, plans to recommence operations in
                           the State of New York in 2001.

                  (c)      Insurance Premiums:

                           Insurance premiums are credited to income by the
                           monthly pro rata method over the terms of the
                           contracts. Beginning July 1, 1998, Motor Club began
                           converting its contracts for private passenger
                           automobile insurance from six month to twelve month
                           policies ("Policy Term Conversion"). While the Policy
                           Term Conversion temporarily increased, for a one year
                           period commencing July 1, 1998, the amount of
                           premiums written by Motor Club, it did not affect the
                           amount of premiums earned. Insurance contracts for
                           policies are for terms of one to three years.

                  (d)      Investments:

                           All of the Company's fixed maturity and equity
                           securities are classified as available-for-sale
                           securities, and are therefore reported at fair value,
                           with unrealized gains and losses excluded from
                           earnings and reported as a separate component of
                           shareholders' equity, net of applicable deferred
                           taxes.


                                   (Continued)

                                      F-8
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies
                      (Continued):

                           The Company does not invest in, hold or issue any
                           derivative financial instruments.

                           Premium and discount amounts are amortized into
                           income based on the stated contractual life of the
                           securities. The Company recognizes income for the
                           mortgage-backed and asset-backed bond portion of its
                           fixed maturity securities portfolio using the
                           constant effective yield method.

                           When actual prepayments differ from this assumption,
                           the effective yield is recalculated to reflect actual
                           payments to date. The net investment in the security
                           is adjusted to the amount that would have existed had
                           the new effective yield been applied since the
                           acquisition of the security. That adjustment is
                           included in net investment income.

                           Gains and losses on investments are recognized when
                           investments are sold or redeemed on a specific
                           identification basis.

                  (e)      Other Revenues:

                           Other revenues consist principally of interest on
                           mortgage loans and servicing fees from motor club
                           membership fees, which are earned when services are
                           fulfilled.

                  (f)      Losses and Loss Expenses:

                           The estimated liability for losses is based on (1)
                           the accumulation of cost estimates for unpaid losses
                           reported prior to the close of the accounting period;
                           and (2) estimates of incurred but not reported losses
                           based upon past experience; less (3) estimates of
                           anticipated salvage and subrogation recoveries. In
                           the normal course of business, the Company seeks to
                           reduce the loss that


                                   (Continued)

                                      F-9
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies
                      (Continued):

                           may arise from catastrophes or other events that
                           cause unfavorable underwriting results by
                           reinsuring certain levels of risk in various areas of
                           exposure with other insurance enterprises or
                           reinsurers.

                           Changes to the estimated liabilities are reflected in
                           the results of operations currently.

                           The liability for loss expenses is based on estimates
                           of expenses to be incurred in the settlement of
                           claims.

                  (g)      Deferred Policy Acquisition Costs:

                           Deferred policy acquisition costs are costs that vary
                           with and are primarily related to the production of
                           new and renewal business. Such costs include
                           commissions, premium taxes and certain underwriting
                           and policy issuance costs which are deferred when
                           incurred and amortized to income as the related
                           written premiums are earned.

                           Investment income is anticipated in determining the
                           recoverability of deferred policy acquisition costs.

                  (h)      Fixed Assets:

                           Depreciation on leasehold improvements is computed by
                           the straight-line method over the remaining lease
                           term. Depreciation on furniture and fixtures,
                           technology investments and other equipment, is
                           computed by the straight-line method over the
                           estimated useful lives, ranging from three to twenty
                           years.


                                   (Continued)

                                      F-10
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies
                      (Continued):

                           Expenditures for major renewals and betterments are
                           capitalized, and expenditures for maintenance and
                           repairs are charged to income as incurred. When fixed
                           assets are retired, or otherwise disposed of, the
                           cost thereof and related accumulated depreciation are
                           eliminated from the accounts. Any gain or loss on
                           disposal is credited or charged to operations.

                  (i)      Federal Income Taxes:

                           Deferred Federal income taxes are provided for
                           temporary differences between the financial statement
                           and tax basis of assets and liabilities using enacted
                           tax rates expected to apply in the years in which the
                           differences are expected to reverse.

                  (j)      Goodwill:

                           Under the purchase method of accounting for business
                           combinations, the total purchase price is allocated
                           to the acquired assets and liabilities based on their
                           fair values. Any differences between the excess of
                           the cost of the transaction and the fair value of net
                           assets acquired is recorded as goodwill, which will
                           be amortized on a straight-line basis over twenty
                           years.

                  (k)      Statement of Cash Flows:

                           For purposes of the statement of cash flows, the
                           Company considers demand deposits held with financial
                           institutions and money market mutual fund holdings to
                           be cash equivalents.


                                   (Continued)

                                      F-11
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note A - Summary of Significant Accounting Policies
                      (Continued):

                  (l)      Per Share Data:

                           Basic earnings per share are computed based upon the
                           weighted average number of common shares outstanding
                           during each year. Diluted earnings per share are
                           computed based upon the weighted average number of
                           common shares outstanding including outstanding stock
                           options. See Note Q for more information on
                           outstanding stock options and Note S for more
                           information on the computation of Earnings per Share.

                  (m)      Comprehensive Income (Loss):

                           Comprehensive income (loss) consists of net income,
                           the unfunded accumulated benefit obligation in excess
                           of plan assets ("minimum pension liability") and net
                           unrealized investment gains or losses on
                           available-for-sale securities and is presented
                           separately in Note P. These amounts are reported net
                           of deferred Federal income taxes.

                  (n)      Fair Value of Financial Instruments

                           The carrying amounts reported in the Consolidated
                           Balance Sheets for cash and cash equivalents, premium
                           receivables, accounts payable and notes payable
                           approximate those assets and liabilities fair values
                           due to the short term nature of the instruments. The
                           fair value of investments and convertible
                           subordinated debentures are addressed in the related
                           footnotes.

         Note B - Acquisition of North East:

                  On September 24, 1999, the Company acquired North East,
                  headquartered in Scarborough, Maine, through a merger of a
                  wholly-owned subsidiary of the Company with and into North
                  East.

                  Under the terms of the merger, certain North East shareholders
                  elected and received 7,958 shares of the Company's common
                  stock representing 41,781 shares of North East common stock;
                  the remaining shareholders and holders of North East stock
                  options were paid $10,409,682 in cash. The aggregate purchase
                  price for the transaction was $10,482,796.


                                   (Continued)

                                      F-12
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note B - Acquisition of North East (Continued):

                  The acquisition has been accounted for using the purchase
                  method of accounting and, the excess purchase price over the
                  fair value of the net assets acquired of $1,614,957 was
                  allocated to goodwill. The goodwill is being amortized on a
                  straight-line basis over twenty years. The 1999 consolidated
                  results of operations include the results of operations of
                  North East for the three months ended December 31, 1999. The
                  amount of goodwill amortization expense recorded in 2000 and
                  1999 was $84,695 and $21,174, respectively.

                  The following unaudited pro forma consolidated results of
                  operation for the years ended December 31, 1999 and 1998
                  assume the North East acquisition occurred as of January 1,
                  1998:

<TABLE>
<CAPTION>
                                                     1999        1998
                                                     ----        ----
                                                  (Restated)   (Restated)
<S>                                              <C>          <C>
                  Insurance premiums             $66,002,646  $65,756,095
                  Net investment income            5,695,332    5,175,055
                  Realized gains on sales of
                   investments (net)                   3,102       82,817
                  Other revenue                      143,410      171,171
                                                 -----------  -----------
                  Total revenues                  71,844,490   71,185,138
                                                 -----------  -----------
                  Losses and loss expenses
                   incurred                       47,398,423   44,837,264
                  Other operating expenses        25,860,049   21,339,295
                                                 -----------  -----------
                  Total losses and expenses       73,258,472   66,176,559
                                                 -----------  -----------
                  Income (loss) before federal
                    income taxes                  (1,413,982)   5,008,579
                  Benefit (provision) for
                    federal income taxes             488,475   (1,687,859)
                                                 -----------  -----------
                  Net income (loss)              $  (925,507) $ 3,320,720
                                                 ===========  ===========
                  Per share:
                  Basic                          $      (.44) $      1.57
                                                 ===========  ===========
                  Diluted                        $      (.44) $      1.40
                                                 ===========  ===========
</TABLE>


                                   (Continued)

                                      F-13
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note C - Acquisition of Mountain Valley:

                  On March 1, 2000 the Company completed its acquisition of
                  Mountain Valley, formerly known as White Mountains Insurance
                  Company, from Unitrin, Inc. for $7.5 million in cash. Mountain
                  Valley is based in Bedford, New Hampshire.

                  The fair value of Mountain Valley's net assets at March 1,
                  2000 was $7,775,687. The acquisition has been accounted for
                  using the purchase method of accounting and thus based on the
                  fair value of the net assets acquired at March 1, 2000, the
                  Company recorded $275,687 of the difference between the excess
                  which represented the fair value of net assets acquired and
                  the cost of the transaction as a reduction of deferred policy
                  acquisition costs, which is being amortized on a straight-line
                  basis over the terms of the underlying insurance contracts
                  associated with those costs.

                  Under the terms of the purchase, Mountain Valley terminated
                  its former 100% intercompany quota share reinsurance
                  agreement; at closing there were no net loss and loss expense
                  reserves for claims occurring prior to closing, including
                  those which develop subsequently. Mountain Valley assumed
                  $6,135,200 of unearned premium and other liabilities of
                  $1,309,562 at closing (subject to certain adjustments).

                  Because of the 100% quota share, Mountain Valley had no net
                  underwriting operations prior to March 1, 2000 and thus no pro
                  forma effects of the acquisition are presented.

         Note D - Investments:

         (a)      The amortized cost and estimated fair value of investments in
                  fixed maturity securities at December 31, 2000 were as
                  follows:


                                   (Continued)

                                      F-14
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note D - Investments (Continued):

<TABLE>
<CAPTION>
                                            Gross        Gross
                              Amortized   Unrealized   Unrealized      Fair
                                 Cost       Gains        Losses        Value
                            -----------   ----------  -----------  ----------

<S>                         <C>          <C>           <C>         <C>
         U.S. Government
          securities        $25,283,857  $  969,621    $ (29,541)  $26,223,937
         Mortgage-backed
          securities         22,842,939     115,961      (38,022)   22,920,878
         Asset-backed
          securities         12,303,741      32,086      (20,351)   12,315,476
         Corporate
          securities         37,140,557     202,337     (728,861)   36,614,033
                            -----------  ----------    ---------   -----------
          Total             $97,571,094  $1,320,005    $(816,775)  $98,074,324
                            ===========  ==========    =========   ===========
</TABLE>

                  The amortized cost and estimated fair value of investments in
                  fixed maturity securities at December 31, 1999 were as
                  follows:

<TABLE>
<CAPTION>
                                            Gross        Gross
                              Amortized   Unrealized   Unrealized      Fair
                                 Cost       Gains        Losses        Value
                            -----------   ----------  -----------  ----------

<S>                         <C>          <C>         <C>           <C>
         U.S. Government
          securities        $20,031,827  $128,984     $ (239,128)  $19,921,683
         Mortgage-backed
          securities         10,678,363    29,476       (301,482)   10,406,357
         Asset-backed
          securities         10,454,886     -           (216,034)   10,238,852
         Corporate
          securities         39,689,688     9,436     (2,023,694)   37,675,430
                            -----------  --------    -----------   -----------
          Total             $80,854,764  $167,896    $(2,780,338)  $78,242,322
                            ===========  ========    ===========   ===========
</TABLE>

                  The amortized cost and fair value of investments in fixed
                  maturity securities at December 31, 2000, by contractual
                  maturity, were as follows:

<TABLE>
<CAPTION>
                                           Amortized        Fair
                                             Cost          Value
                                          -----------    -----------
<S>                                       <C>            <C>
         Due in one year or less          $ 6,095,794    $ 6,124,940
         Due after one year through
           five years                      26,531,826     26,873,336
         Due after five years through
           ten years                       30,311,345     30,272,020
         Due after ten years               34,632,129     34,804,028
                                          -----------    -----------
                                          $97,571,094    $98,074,324
                                          ===========    ===========
</TABLE>


                                   (Continued)

                                      F-15
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note D - Investments (Continued):

                  The above maturity tables include $35,236,354 (at fair value)
                  of mortgage-backed and asset-backed securities, which were
                  classified based on the contractual life of the securities.

                  Expected maturities may differ from contractual maturities
                  because borrowers have the right to call or prepay obligations
                  with or without call or prepayment penalties. Gross gains of
                  $157,992, $6,213 and $50,099 were realized on proceeds of
                  $9,304,811, $546,789 and $10,434,411 in 2000, 1999 and 1998,
                  respectively, on those sales and calls. Gross losses of
                  $75,243, $595 and $21,554 were realized on proceeds of
                  $4,738,160, $250,000 and $5,391,130 in 2000, 1999 and 1998,
                  respectively, on those sales and calls.

         (b)      Net investment income by category of investments consisted of
                  the following:

<TABLE>
<CAPTION>
       CATEGORY               2000        1999         1998
       --------               ----        ----         ----

<S>                       <C>          <C>          <C>
    Fixed maturities      $5,664,918   $4,665,066   $3,950,500
    Other, principally
     short-term
     investments           1,021,032      593,366      498,253
                          ----------   ----------   ----------
      Total investment
        income             6,685,950    5,258,432    4,448,753
    Investment
     expenses                273,066      177,493      144,246
                          ----------   ----------   ----------
      Net investment
        income            $6,412,884   $5,080,939   $4,304,507
                          ==========   ==========   ==========
</TABLE>

         (c)      At December 31, 2000 and 1999, fixed maturity investments (at
                  fair value) deposited with the various states where the
                  Insurance Companies conduct business amounted to $7,407,918
                  and $2,986,560, respectively.

         (d)      There were no investments in any persons and its affiliates in
                  excess of ten  percent  of shareholders' equity.


                                   (Continued)

                                      F-16
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note D - Investments (Continued):

         (e)      The change in net unrealized gains (losses) on
                  investments are as follows:

<TABLE>
<CAPTION>
                              YEARS ENDED DECEMBER 31,
                         ------------------------------------
                             2000          1999        1998
                             ----          ----        ----
<S>                      <C>          <C>           <C>
         Fixed
        maturities       $3,115,672   $(4,517,228)  $1,012,666
                         ==========   ============  ==========
</TABLE>

         (f)      In the opinion of management there has been no other than
                  temporary impairments in the carrying amount of investments.

         Note E - Unpaid Losses and Loss Expenses:

         (a)      The following table provides a reconciliation of the beginning
                  and ending balances for unpaid losses and loss expenses for
                  2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                    2000         1999        1998
                                    ----         ----        ----
<S>                             <C>          <C>          <C>
         Balance at January 1   $70,983,383  $58,335,143  $50,246,778
         Less: Reinsurance
          recoverables           18,453,650   18,520,866   17,363,319
                                -----------  -----------  -----------
         Net balance at
          January 1              52,529,733   39,814,277   32,883,459
         Acquired in 1999           -          8,820,265      -
         Incurred losses and
          loss expenses:
          Provision for current
           year claims           55,542,028   37,271,781   32,598,287
          Increase in provision
           for prior years'
           claims                   166,024    3,359,272    3,881,304
                                -----------  -----------  -----------
         Total incurred losses
           and loss expenses     55,708,052   40,631,053   36,479,591
                                -----------  -----------  -----------
         Payment for losses and
          loss expenses:
          Payment on current
           year claims           24,501,115   16,447,458   12,038,000
          Payment on prior
             years' claims       23,540,843   20,288,404   17,510,773
                                -----------  -----------  -----------
</TABLE>


                                   (Continued)

                                      F-17
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------


         Note E - Unpaid Losses and Loss Expenses (Continued):

<TABLE>
<CAPTION>
                                        2000         1999        1998
                                        ----         ----        ----
<S>                                <C>          <C>          <C>
         Total payments for
           losses and loss
           expenses                 48,041,958   36,735,862   29,548,773
                                   -----------  -----------  -----------
         Net balance at
           December 31              60,195,827   52,529,733   39,814,277
         Plus: Reinsurance
          recoverables              30,196,659   18,453,650   18,520,866
                                   -----------  -----------  -----------
         Balance at December 31    $90,392,486  $70,983,383  $58,335,143
                                   ===========  ===========  ===========
</TABLE>

                  The Company recognized unfavorable development in the
                  provision for insured events of prior years of $166,024,
                  $3,359,272 and $3,881,304 in 2000, 1999 and 1998,
                  respectively. The small 2000 development reflects generally
                  neutral net development in each of the Insurance Companies.
                  Motor Club did experience favorable development of private
                  passenger automobile ("PPA") losses occurring in 1999 offset
                  by unfavorable development of losses occurring from 1996 to
                  1998. The 1999 and 1998 development reflects the initial
                  adverse development of Motor Club's reserves for PPA losses
                  occurring in those years.

                  In establishing the liability for unpaid losses and loss
                  settlement expenses, management considers facts currently
                  known and the current state of the law and coverage
                  litigation. Liabilities are recognized for known losses
                  (including the cost of related litigation) when sufficient
                  information has been developed to indicate the involvement of
                  a specific insurance policy, and management can reasonably
                  estimate its liability. In addition, liabilities have been
                  established to cover additional exposures on both known and
                  unasserted losses. Estimates of the liabilities are reviewed
                  and updated continually.


                                   (Continued)

                                      F-18
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note E - Unpaid Losses and Loss Expenses (Continued):

         (b)      Losses incurred are reduced by salvage and subrogation
                  approximating $4,249,190, $3,144,175 and $2,661,000 for the
                  years ended December 31, 2000, 1999 and 1998, respectively.

         Note F - Fixed Assets:

                  Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                            2000          1999
                                            ----          ----
<S>                                     <C>           <C>
      Leasehold improvements            $  266,041    $  202,275
      Office furniture, fixtures and
       data processing equipment         6,300,978     3,984,231
                                        ----------    ----------
                                         6,567,019     4,186,506
          Less accumulated depre-
           ciation                       3,573,790     2,327,885
                                        ----------    ----------
       Balance at December 31           $2,993,229    $1,858,621
                                        ==========    ==========
</TABLE>

         Note G - Reinsurance:

         (a)      Unearned premiums and unpaid loss and loss expenses are
                  stated gross of the effects of reinsurance.

         (b)      Ceded premiums are recognized in a manner consistent with the
                  coverage provided. Amounts recoverable from reinsurers are
                  estimated in a manner consistent with the claims liabilities
                  associated with the reinsurance.

         (c)      Reinsurance contracts do not relieve the Insurance Companies
                  from their obligations to policyholders. Failure of reinsurers
                  to honor their obligations could result in losses to the
                  Insurance Companies. Generally, for Motor Club and Preserver
                  all risks in excess of $200,000 for 2000 and $150,000 for 1999
                  and prior for liability lines and $100,000 for property
                  lines are reinsured.

                  North East's principal reinsurance protection is provided
                  through a combined per risk excess of loss treaty. Prior to
                  2000, this reinsurance afforded recovery to $1 million in
                  excess of a retention of $50,000. On January 1, 2000, this
                  retention was increased to $150,000.


                                   (Continued)

                                      F-19
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note G - Reinsurance (Continued):

                  Prior to March 1, 2000, the date the Company acquired Mountain
                  Valley, Mountain Valley ceded 100% of its premiums, losses and
                  expenses under a quota share treaty to Trinity Universal
                  Insurance Company ("Trinity"), a subsidiary of Unitrin, Inc.,
                  ("Trinity Quota Share"). All cessions under the Trinity Quota
                  Share are after the application of all third party reinsurance
                  that Mountain Valley maintains.

                  Effective March 1, 2000, the Trinity Quota Share was
                  terminated on a cut-off basis. Under the terms of the cut-off,
                  Mountain Valley will continue to cede 100% of losses and
                  expenses incurred before March 1, 2000, including subsequent
                  development of those losses and expenses. In addition, Trinity
                  retained the premiums, losses and expenses on certain policies
                  in the State of New York until Mountain Valley renewed,
                  canceled or non-renewed those policies at (or prior to) their
                  expiration dates.

                  Accordingly, as of March 1, 2000, Mountain Valley had and will
                  continue to have no net unpaid loss and loss expense reserves
                  for losses incurred before March 1, 2000. Reinsurance
                  recoverables on unpaid loss and loss expenses due under the
                  Trinity Quote Share were $10,723,263 at December 31, 2000.
                  Mountain Valley is subject to credit risk should Trinity not
                  be able to pay its obligations under the Trinity Quota Share.
                  However, Trinity is presently rated A+ (Superior) by A.M. Best
                  and has $846 million in statutory surplus as regards
                  policyholders as of December 31, 2000. Thus, management
                  believes that such credit risk is not material at this time.

                  Third party reinsurance for property and casualty losses of
                  Mountain Valley are principally maintained under a combined
                  per risk excess of loss treaty affording recovery to $5
                  million in excess of a retention of $250,000.


                                   (Continued)

                                      F-20
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note G - Reinsurance (Continued):

                  The Insurance Companies also maintain additional reinsurance
                  contracts for boiler and machinery coverages, commercial
                  umbrella and workers' compensation policies, catastrophe
                  events and for certain risks that it underwrites which it does
                  not believe are appropriate for coverage by its third party
                  treaty reinsurance.

                  The Insurance Companies evaluate the financial condition of
                  their reinsurers and monitor concentrations of credit risk
                  arising from activities or economic characteristics of the
                  reinsurers to minimize their exposure to significant losses
                  from reinsurer insolvencies.

                  As referred to in Note A, Motor Club and Preserver's
                  operations are presently located in the State of New Jersey,
                  the laws of which require participation in certain reinsurance
                  funds.

                  Reinsurance recoverable on paid and unpaid loss and loss
                  expenses include amounts recoverable from the Unsatisfied
                  Claim and Judgment Fund ("UCJF") of the State of New Jersey,
                  which pertains to New Jersey Personal Injury Protection claims
                  in excess of Motor Club's statutory retention limit of
                  $75,000. Reinsurance recoverable from the UCJF was $7,858,373
                  and $8,672,127 as of December 31, 2000 and 1999, respectively.

                  Motor Club is required to participate in the New Jersey
                  Automobile Insurance Risk Exchange ("NJ AIRE"). NJ AIRE is
                  designed to balance differences between Motor Club's bodily
                  injury exposures and loss payments as compared to industry
                  exposures and loss payments under New Jersey's dual tort
                  threshold system.


                                   (Continued)

                                      F-21
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note G - Reinsurance (Continued):

                  Assessments paid to NJ AIRE based on subject bodily injury
                  exposures are accounted for as ceded premiums written and
                  totaled $723,851, $1,805,185 and $1,113,756 in 2000, 1999 and
                  1998, respectively. Reimbursements from NJ AIRE based on
                  subject claim payment experience are accounted for as ceded
                  losses incurred and totaled $1,027,146, $1,347,565 and
                  $548,415 in 2000, 1999 and 1998, respectively.

                  Prepaid reinsurance premiums of $4,324,915 and $1,485,450 as
                  of December 31, 2000 and 1999, respectively, are mainly
                  attributable to Preserver's and Mountain Valley's workers'
                  compensation program and excess of loss reinsurance treaties.

                  The effect of reinsurance on premiums written and earned is as
                  follows:

<TABLE>
<CAPTION>
                           2000                        1999                        1998
                          -----                        ----                        ----
                  WRITTEN        EARNED       WRITTEN        EARNED       WRITTEN        EARNED
                  ---------------------       ---------------------       ---------------------
<S>           <C>           <C>           <C>           <C>           <C>          <C>
    Direct    $100,846,838  $96,615,156   $62,467,203   $64,151,936   $71,399,224  $59,951,837
    Assumed        (17,003)      13,380        46,946        14,340       -            -
    Ceded      (11,625,394) (13,161,055)   (8,005,934)   (8,358,946)   (7,096,511)  (6,776,174)
              ------------  -----------   -----------   -----------   -----------  -----------
    Net       $ 89,204,441  $83,467,481   $54,508,215   $55,807,330   $64,302,713  $53,175,663
              ============  ===========   ===========   ===========   ===========  ===========
</TABLE>

         Note H - Note Payable:

                  On September 14, 1998, the Company entered into a $3 million
                  revolving credit facility with Dresdner Bank (the "Loan") and
                  drew on the entire amount of the Loan on September 30, 1998.
                  The Loan was repaid in full on December 27, 1999. The
                  weighted-average effective rate of interest on the Loan was
                  7.28% and 7.0625% in 1999 and 1998, respectively. Interest
                  paid on the loan in 1999 and 1998 was $216,017 and $54,146,
                  respectively.

                  In connection with the acquisition of Mountain Valley, three
                  of the Company's directors ("Ownership Group") extended
                  unsecured debt financing ("Notes") in the amount of $11.5
                  million to finance the transaction and to provide additional
                  working capital to the Company. The Notes mature on February
                  28, 2002 and pays interest quarterly at a rate of 10.605%. The
                  Company is pursuing longer-term financing options to replace
                  the Notes. At the Company's election, if acceptable financing
                  is not identified by Motor Club during the two-year period,
                  the Notes can be extended for up to five years utilizing
                  successive one-year renewals, in exchange for an increased
                  interest rate on the Notes. Interest paid on the Notes was
                  $914,681 in 2000.

         Note I - Convertible Subordinated Debentures:

                  In connection with its acquisition of North East, on September
                  23, 1999, the Company issued $10 million of Convertible
                  Subordinated Debentures ("Debentures"), in one series, under a
                  plan previously approved by its shareholders.


                                   (Continued)

                                      F-22
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note I - Convertible Subordinated Debentures (Continued):

                  The Debentures are due on September 23, 2009 and bear an
                  interest rate of 8.44%, which was 2.5% over the London
                  Interbank Offered Rate, fixed as of September 23, 1999, the
                  date the series was issued.

                  At each holder's option, the Debentures are convertible at any
                  time, in whole or in part, into 645,578 of the Company's
                  common shares ($10 million divided by 130% of the average
                  trading price of the Company's common stock over the twenty
                  day period immediately prior to September 23, 1999
                  ("Conversion Price")). The applicable Conversion Price is
                  $15.49.

                  The Ownership Group purchased $9,253,785 of the $10 million in
                  Debentures issued. If the members of the Ownership Group
                  convert those Debentures, their percentage ownership in the
                  Company's common stock will substantially increase. Based on
                  the Company's common shares outstanding as of December 31,
                  2000, the Ownership Group could increase its collective
                  percentage stock ownership from the current 47.1% to 57.7%.

                  Interest paid on the Debentures was $844,000 and $232,100 in
                  2000 and 1999, respectively. The fair value of the Debentures
                  was estimated to be $11,950,282 and $12,648,876 at December
                  31, 2000 and 1999, respectively. Fair value for the Debentures
                  are estimated using a model that considers both the debt and
                  equity components of the security. As to the debt component,
                  fair value was estimated by considering the Debentures
                  estimated credit quality, similar instruments and its
                  remaining average life. As to the equity component, fair value
                  was estimated using the Black-Scholes option pricing model
                  based on the following assumptions for 2000 and 1999:
                  risk-free interest rate of 5.19% and 6.44%; volatility of
                  47.6% and 50.5%; and expected life of 9.75 years and 8.75
                  years. The Company does not pay a dividend on its common
                  stock.


                                   (Continued)

                                      F-23
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note J - Taxes:

         (a)      The Company and its subsidiaries (including MCA Insurance
                  Company in Liquidation and its subsidiaries ("MCAIC"), former
                  affiliates) file a consolidated Federal income tax return, and
                  participate in a Tax Sharing Agreement.

                  Despite being declared insolvent in 1992, MCAIC is required to
                  continue to be included in the Company's consolidated tax
                  return filed with the Internal Revenue Service. Since that
                  time, MCAIC has generally continued to generate taxable losses
                  included in the consolidated tax return.

                  Under the applicable rules, the Company is entitled to, and
                  has taken current tax benefits for net operating losses that
                  MCAIC and its subsidiaries have generated since 1992. However,
                  to the extent that the Company does not have positive basis
                  (as defined by the Internal Revenue Code), it may also be
                  required to pay future tax liabilities (which may offset the
                  current tax benefit) subject to certain events which may
                  trigger such payments. Accordingly, when such current tax
                  benefits are recognized, a corresponding deferred tax
                  liability is recorded.


                                   (Continued)

                                      F-24
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note J - Taxes (Continued):

                  In March 2001, the Company's management determined that
                  certain tax benefits should not have been recognized and that
                  certain deferred tax liabilities had not been recorded. In
                  addition, deferred tax assets were not recorded that should
                  have been for the tax effects of the minimum pension liability
                  that is presented as a component of other comprehensive
                  income. As a result, the 1998 and 1999 Consolidated Financial
                  Statements have been restated from amounts previously reported
                  and are discussed in Note V.

                  At the time of its insolvency, MCAIC realized approximately
                  $150 million in losses, which generated a net operating loss
                  ("NOL") that could not be utilized at that time by either the
                  Company or MCAIC under applicable IRS regulations and which
                  expire in 2006. Additional net operating losses have been
                  experienced by MCAIC since 1992, some of which were utilized
                  by the Company at a time when it had no tax basis in MCAIC,
                  thus creating a deferred tax liability represented by the
                  $1,917,405 "Excess Loss Account" item (for the year ended
                  December 31, 2000) as shown in the deferred tax reconciliation
                  of this Note. The $150 million of NOL's generated in 1992 will
                  likely increase the Company's excess loss account at the time
                  they expire in 2006.

                  An excess loss account in a subsidiary generally creates
                  taxable income at the time of the sale, liquidation or other
                  disposition of the subsidiary.

                  Management expects that the liquidation or other disposition
                  of MCAIC will take place prior to the expiration of these
                  NOL's in 2006 and prior to the corresponding increase in the
                  Company's excess loss account. As the control of the
                  liquidation process rests with the Insurance Department of the
                  State of Oklahoma (the "Receiver") and not with management,
                  there is a potential risk that such tax liability could be
                  incurred by the Company after 2006 when the 1992 generated
                  NOLs will have been converted into the Company's excess loss
                  account. Management believes it is unlikely that such risk
                  will occur, as the liquidation of MCAIC is probable before the
                  expiration of the NOL. However, the tax effects of these
                  transactions are subject to the circumstances of the
                  liquidation process itself and tax-planning strategies exist
                  which could mitigate the impact of such a tax exposure.

                  With respect to the Company's excess loss account created by
                  the Company's utilization of MCAIC's post 1992 NOL's, these
                  excess losses will likely result in the Company recognizing
                  taxable income in the year MCAIC is liquidated or otherwise
                  disposed of. The effect of the deferred taxes attributable to
                  such income has been reflected in the Consolidated Financial
                  Statements.

                  (b) The tax effects of temporary differences that give rise to
                  significant portions of the deferred tax assets and
                  liabilities were as follows:

<TABLE>
<CAPTION>
                                                December 31,
                                              2000          1999
                                           ----------    ---------
                                                         (Restated)
<S>                                        <C>           <C>
          Deferred tax assets:
            Net operating loss ("NOL")
             carryforward                  $2,997,500    $2,969,144
            Unpaid losses and loss
             expenses                       2,448,971     2,046,251
            Unearned premium                3,337,694     2,530,457
            Unrealized loss on
             securities                        -            888,230
            Minimum pension liability       1,559,138     1,111,120
            Alternative minimum tax and
             general business credit carry-
             forwards                         345,408       300,611
            Other deferred tax assets         227,349       313,353
                                           ----------    ----------
          Total deferred tax assets        10,916,060    10,159,166
                                           ----------    ----------
          Deferred tax liabilities:
            Deferred acquisition costs     (4,931,893)   (3,590,659)
            Excess loss account            (1,917,405)     (910,664)
            Unrealized gain on
             securities                      (171,098)        -
            Prepaid pension cost           (1,313,026)   (1,181,989)
            Other deferred tax liabilities   (169,490)     (223,447)
                                           ----------    ----------
          Total deferred tax liabilities   (8,502,912)   (5,906,759)
                                           ----------    ----------
          Less: valuation allowance for
            deferred tax assets              (584,442)     (614,856)
                                           ----------    ----------
          Net deferred tax
            asset                          $1,828,706    $3,637,551
                                           ==========    ===========
</TABLE>


                                   (Continued)

                                      F-25
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note J - Taxes (Continued):

                  The NOL carryforward of $8,816,176 expires beginning in 2009.
                  The NOL carryforward includes $6,327,667 of NOL's attributable
                  to North East, which expire in 2014. Under the prevailing tax
                  laws, these losses must be used to offset taxable income of
                  North East only, are not available to offset taxable income of
                  other operations and are subject to an annual limitation of
                  $587,000.

                  The Company believes it is more likely than not that it will
                  generate future taxable income to realize the benefits of the
                  net deferred tax asset, including those net deferred tax
                  assets attributable to North East only. The ultimate amounts
                  realized, however, could be reduced if actual amounts of
                  future taxable income differ from projected future taxable
                  income. A valuation allowance has been provided for NOL's
                  relating to MCAIC that have not been utilized as well as for
                  capital loss carryforwards generated from North East that
                  management believes may not be utilized within the
                  carryforward period.


         (c)      The provision for Federal income taxes resulted in effective
                  tax rates that differ from the statutory Federal income tax
                  rates, as follows:

<TABLE>
<CAPTION>
                                  2000          1999         1998
                                  ----          ----         ----
                                             (Restated)    (Restated)
<S>                           <C>           <C>           <C>
Tax provision
 computed at statutory
 federal income tax rates     ($1,019,890)  ($   34,730)  ($1,944,598)
Goodwill                          (28,798)       (7,199)        -
Other                               8,930        31,119         3,576
                              -----------   -----------   -----------
Provision                     $(1,039,758)  $   (10,810)  $(1,941,022)
                              ===========   ===========   ===========
</TABLE>

         (d)      The Consolidated Statements of operations for the years ended
                  December 31, 2000, 1999 and 1998 include state taxes based on
                  insurance premiums of $884,052, $230,606, and $189,346,
                  respectively.


                                   (Continued)

                                      F-26
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note K - Shareholders' Equity:

         (a)      The Insurance Companies prepare their statutory financial
                  statements in accordance with accounting practices prescribed
                  or permitted by the respective Departments of Insurance in
                  which they are domiciled ("SAP").

                  Prescribed statutory accounting practices include a variety of
                  publications of the National Association of Insurance
                  Commissioners ("NAIC"), as well as state laws, regulations and
                  general administrative rules. Permitted statutory accounting
                  practices encompass all accounting practices not so
                  prescribed.

                  The Insurance Companies are required by law to maintain
                  certain minimum surplus on a statutory basis, and are subject
                  to risk-based capital requirements and to regulations under
                  which payment of a dividend from statutory surplus is
                  restricted and may require prior approval of regulatory
                  authorities. Applying the current regulatory restrictions as
                  of December 31, 2000, and to the extent that statutorily
                  defined surplus is available, $3,329,000 would be available
                  for distribution during 2001 without prior approval.

                  As a result of PPA reforms in New Jersey, which include a
                  reduction of premium due to a rate rollback, Motor Club's
                  liabilities for unpaid losses and loss expenses in relation to
                  its statutory surplus are at a level whereby adverse
                  development of claims, particularly as a result of the impact
                  of these reforms, could further reduce its surplus, thus
                  decreasing its risk-based capital ratios, possibly to a level
                  which would require action as prescribed by law. To date, the
                  New Jersey Department of Banking and Insurance has generally
                  not been responsive to request for rate increases or other
                  regulatory relief based upon the impact of these reforms to
                  companies, nor as noted has it implemented certain key aspects
                  of these reforms which would provide relief to insurers such
                  as Motor Club.


                                   (Continued)

                                      F-27
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note K - Shareholders' Equity (Continued):

                  The NAIC has adopted the Codification of Statutory Accounting
                  Principles with an effective date of January 1, 2001. The
                  codified principles are intended to provide a basis of
                  accounting recognized and adhered to in the absence of
                  conflict with, or silence of, state statutes and regulations.
                  The impact of the codified principles on the statutory capital
                  and surplus of the Insurance Companies is still being
                  determined and is currently not expected to decrease statutory
                  capital and surplus as of January 1, 2001.

         (b)      The consolidated financial statements of the Company's
                  insurance subsidiaries have been prepared in accordance with
                  GAAP, which differ in certain respects from SAP.

                  The principal differences relate to (1) acquisition costs
                  incurred in connection with acquiring new business which are
                  charged to expense under SAP but under GAAP are deferred and
                  amortized as the related premiums are earned; (2) anticipated
                  salvage and subrogation recoveries which have not been
                  credited to losses incurred for SAP; (3) net deferred tax
                  assets created by the tax effects of temporary differences;
                  (4) unpaid losses, unpaid loss adjustment expenses and
                  unearned premium reserves are presented gross of reinsurance
                  with a corresponding asset recorded; and (5) fixed maturity
                  portfolios that qualify as available for sale are carried at
                  fair value and changes in fair value are reflected directly in
                  unassigned surplus, net of related deferred taxes.
                  The consolidated capital and surplus, shareholders' equity and
                  income of the Insurance Companies on a statutory and GAAP
                  basis were as follows:

<TABLE>
<CAPTION>
                                             DECEMBER 31,
                                         -----------------
                                         2000         1999
                                         ----         ----
<S>                                   <C>          <C>
             Capital and surplus -
              Statutory basis         $39,423,591  $30,211,579
             Shareholders' equity -
              GAAP basis              $65,415,583  $47,647,953
</TABLE>


                                   (Continued)

                                      F-28
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note K - Shareholders' Equity (Continued):

<TABLE>
<CAPTION>
                                       YEARS ENDED DECEMBER 31,
                                   -----------------------------
                                   2000       1999         1998
                                   ----       ----        ------
<S>                             <C>         <C>         <C>
            Net income (loss):
            Statutory basis     $ (125,807) $  204,073  $ (762,471)
            GAAP basis          $4,896,742  $1,265,286  $5,157,732
</TABLE>

                  Distribution by the Insurance Companies of the excess of GAAP
                  shareholders' equity over statutory capital and surplus to the
                  Company is prohibited by law.

         Note L - Contingencies:

                  The Company and its subsidiaries are parties to various legal
                  actions and administrative proceedings and subject to various
                  claims arising in the ordinary course of business. The Company
                  believes that the disposition of these matters will not have a
                  material adverse effect on the financial position, the results
                  of operations or cash flows of the Company.

         Note M - Pensions:

         (a)      The Company has a non-contributory defined benefit plan (the
                  "Plan"). Eligible salaried and hourly employees of the Company
                  participate in the Plan after twelve months of continuous
                  employment with the Company when age 21 has been attained.
                  Retirement benefits are based on each participant's average
                  compensation and years of service. Vesting of benefits begins
                  after five years of service commencing from the minimum age of
                  21 or date of hire, if later.

                  The Company's contributions are designed to fund the Plan's
                  normal costs on a current basis and to fund the unfunded prior
                  service costs, including accrued benefits arising from
                  qualifying employee service occurring prior to the
                  establishment of the Plan, over 40 years.

                  On January 15, 1992, the Company suspended the accrual of
                  benefits arising from participant service. The Company
                  continues to fund the Plan for benefits earned through January
                  31, 1992.


                                   (Continued)

                                      F-29
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note M - Pensions (Continued):

                  The Plan maintained a significant amount of assets in group
                  annuity contracts with Mutual Benefit Life Insurance Company
                  ("Mutual"), which was placed in rehabilitation by the NJ DOBI
                  on July 16, 1991.

                  In October 1994, MBL Life Assurance Corporation ("MBLLAC")
                  approved and subsequently paid a "hardship withdrawal" of
                  $2,666,204 (net of an administrative charge of $470,507) to
                  the Plan.

                  The Plan also received $91,938 and $183,876 in distributions
                  from MBLLAC and Mutual in 1999 and 1998, respectively, under
                  provisions of the Plan of Rehabilitation.

                  On June 1, 1999, $3,424,869 was received from MBLLAC and an
                  additional $14,670 was received on August 27, 1999. The
                  restructured contract has how been paid in full and the Plan
                  no longer has any assets with MBLLAC.

         (b)      Net periodic pension cost for 2000, 1999 and 1998 included the
                  following components:
<TABLE>
<CAPTION>
                                      2000       1999        1998
                                      ----       ----        ----
<S>                              <C>         <C>          <C>
            Interest cost        $  815,300  $  784,400   $813,900
            Expected return on
             plan assets         (1,076,700) (1,032,700)  (946,800)
            Recognized loss         268,700     342,100    312,500
                                  ---------  ----------   --------
             Net periodic cost    $   7,300  $   93,800   $179,600
                                  =========  ==========   ========
</TABLE>

                  Measurement of the Company's benefit obligation and pension
                  expense as of December 31 of each year used the following
                  assumptions:

<TABLE>
<CAPTION>
                                                 2000      1999    1998
                                                 ----      ----    ----
<S>                                            <C>        <C>     <C>
                       Discount rate            7.50%      7.75%   6.75%
                       Expected return on plan
                         assets                10.00%     10.00%  10.00%
                       Rate of compensation
                         increase                N/A        N/A     N/A
</TABLE>


                                   (Continued)

                                      F-30
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------
         Note M - Pensions (Continued):

         (c)      A reconciliation of the changes in the Plan's benefit
                  obligations and fair value of assets during 2000 and 1999 and
                  a statement of the funded status of the Plan as of December 31
                  of each year is as follows:

<TABLE>
<CAPTION>
                                          2000          1999
                                          ----          ----
<S>                                    <C>           <C>
       Change in benefit obligation:
         Benefit obligation at
          January 1                    $10,844,900   $11,968,900
         Service cost                        -             -
         Interest Cost                     815,300       784,400
         Actuarial (gain)/loss             378,300      (886,400)
         Benefits paid                  (1,033,200)   (1,022,000)
                                       -----------   -----------
         Benefit obligation at
          December 31                  $11,005,300   $10,844,900
                                       ===========   ===========
      Change in plan assets:
        Fair value of plan assets at
          January 1                    $11,061,300   $10,618,700
        Actual return on plan assets       (19,100)    1,325,700
        Employer contribution              384,800       239,900
        Benefits paid                   (1,033,200)   (1,022,000)
        Other                             (112,300)     (101,000)
                                       -----------  ------------
        Fair value of plan assets at
          December 31                  $10,281,500   $11,061,300
                                      ============  ============
        Funded Status at December 31   $  (723,800)  $   216,400
        Unrecognized loss                4,585,700     3,268,000
                                      ------------  ------------
        Net amount recognized at
          December 31                  $ 3,861,900   $ 3,484,400
                                      ============  ============
</TABLE>

                  Following are the amounts recognized in the statement of
                  financial position as of December 31 of each year:

<TABLE>
<S>                                            <C>          <C>
             Prepaid benefit cost              $3,861,900   $ 3,484,400
             Accrued benefit liability         (4,585,700)   (3,268,000)
             Accumulated other comprehensive
              income                            3,026,600     2,156,900
             Deferred tax benefit, as restated  1,559,100     1,111,100
                                              -----------   -----------
             Net amount recognized             $3,861,900    $3,484,400
                                              ===========   ===========
</TABLE>

                  The adjustment required to recognize the minimum liability is
                  reflected as a component of accumulated comprehensive income
                  (loss) as of December 31, 2000 and 1999, respectively.


                                   (Continued)

                                      F-31
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note M - Pensions (Continued):

         (d)      The Company maintains a defined contribution plan for
                  substantially all employees. Employer contributions of a
                  discretionary amount are made by the Company and its
                  subsidiaries. Employer contributions in the amount of
                  $169,554, $124,458 and $116,329 were made by the Company in
                  2000, 1999 and 1998, respectively, for its employees and
                  charged to expense.

         (e)      In 1997, the Company established a non-qualified deferred
                  compensation plan for certain executive employees. Employer
                  contributions of a discretionary amount are made by the
                  Company. Contributions during 2000 and 1999 were immaterial.

         Note N - Post-retirement Benefits:

         (a)      The Company currently provides certain life and health
                  benefits to retired employees who had twenty-five or more
                  years of service, subject to certain eligibility restrictions.
                  These benefits consist of the payment of medical, life and
                  dental premiums for the retired employees. The Company's
                  funding policy is to pay for the premiums currently; any
                  future increases in the cost of these benefits will be borne
                  by the retirees and not the Company.

         (b)      Net periodic post-retirement benefit cost for 2000, 1999 and
                  1998 included the following components:

<TABLE>
<CAPTION>
                                        2000       1999      1998
                                        ----       ----      ----
<S>                                  <C>          <C>       <C>
            Service cost              $   900     $ 2,700   $ 2,500
            Interest cost              77,600      30,100    36,000
            Amortization of
             transition obligation     28,000      28,000    28,000
            Amortization of net
             loss                      97,100      22,600    21,800
                                     --------     -------   -------
            Net postretirement
             expense                 $203,600     $83,400   $88,300
                                     ========     =======   =======
</TABLE>


                                   (Continued)

                                      F-32
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

        Note N - Post-retirement Benefits (Continued):

                  Measurement of the Company's benefit obligation and
                  post-retirement benefit expense as of December 31 of each year
                  used the following assumptions:

<TABLE>
<CAPTION>
                                   2000       1999     1998
                                   ----       ----     ----
<S>                                <C>        <C>      <C>
                Discount Rate      7.50%      7.75%    6.75%
                Expected return
                 on assets          N/A        N/A      N/A
                Average rate of
                 increase in
                 compensation       N/A        N/A      N/A
</TABLE>

         (c)      A reconciliation of the changes in the benefit obligations and
                  fair value of assets during 2000 and 1999 and a statement of
                  the funded status as of December 31 of each year is as
                  follows:

<TABLE>
<CAPTION>
                                               2000        1999
                                               ----        ----
<S>                                        <C>           <C>
      Change in Accumulated Postretirement
       Benefit Obligation
        Benefit Obligation at January 1    $  375,300    $502,600
        Service Cost                              900       2,700
        Interest Cost                          77,600      30,100
        Employee Contributions                 52,400      45,700
        Benefit Paid                         (162,400)   (157,900)
        Actuarial (gain) loss                 696,900     (47,900)
                                           ----------   ---------
        Benefit Obligation at December 31  $1,040,700    $375,300
                                           ==========   =========

      Change in Plan Assets
        Fair Value of Plan Assets at
         January 1                         $     -       $  -
        Company Contributions                 110,000     112,200
        Employee Contributions                 52,400      45,700
        Benefits Paid                        (162,400)   (157,900)
                                          -----------   ---------
        Fair Value of Plan Assets at
         December 31                       $    -        $  -
                                          ===========   =========
      Funded Status of the Plan
        Benefit obligation less than plan
         assets                           ($1,040,700)  ($375,300)
        Unamortized transition obligation     333,000     361,000
        Unamortized net loss                  786,900     187,100
                                           ----------   ---------
        Net prepaid asset                  $   79,200    $172,800
                                           ==========   =========
</TABLE>


                                   (Continued)

                                      F-33
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note N - Post-retirement Benefits (Continued):

                  The following are the amounts recognized in the statement of
                  financial position as of December 31 of each year:

<TABLE>
<CAPTION>
                                                    2000       1999
                                                    ----       ----
<S>                                                <C>       <C>
           Prepaid benefit cost                    $79,200   $172,800
           Accumulated other comprehensive income     -          -
                                                  --------   --------
           Net amount recognized                   $79,200   $172,800
                                                   =======   ========
</TABLE>

         (d)      It is the policy of the Company that any future increase in
                  life and health care benefits will be borne by the retirees
                  and not the Company; as a result, there will be no increase in
                  either the accumulated post-retirement benefit obligation or
                  the service and interest cost components of net periodic
                  post-retirement benefit cost related to a 1% increase in the
                  health care trend rate.

         Note O - Selected Quarterly Financial Data (Unaudited):

         (a)      The Company is restating its tax provision (benefit) and net
                  income for the three month periods in 2000 and 1999. Please
                  refer to Note V for further information.


         (b)  Year ended December 31, 2000:
<TABLE>
<CAPTION>
                       1st            2nd          3rd           4th
                     Quarter*       Quarter      Quarter       Quarter
<S>                <C>            <C>           <C>          <C>
       Revenues    $19,698,432    $22,453,506   $24,645,495  $23,329,714
                   ===========    ===========   ===========  ===========
       Losses and
         expenses  $19,420,712    $21,460,858   $23,562,625  $22,683,275
                   ===========    ===========   ===========  ===========
       Net income
         (loss)    $   181,546    $   648,573   $   707,522  $   422,368
                   ===========    ===========   ===========  ===========
</TABLE>

                  * Includes Mountain Valley for one month

           Net income (loss) per common share:
<TABLE>
<S>                <C>            <C>           <C>          <C>
       Basic       $       .09    $       .31   $       .33  $       .20
                   ===========    ===========   ===========  ===========
       Diluted     $       .09    $       .28   $       .31  $       .20
                   ===========    ===========   ===========  ===========
</TABLE>

     Reconciliation of previously reported to restated net income and per
share information:

<TABLE>
<CAPTION>
                            1st            2nd             3rd
                          Quarter*       Quarter         Quarter
<S>                       <C>            <C>           <C>
Net income:
Previously reported       $249,512       $639,511      $1,544,397
Effect of tax adjustment   (68,056)         9,062        (836,875)
                          --------       --------      ----------
As restated               $181,456       $648,573      $  707,522
                          ========       ========      ==========

Per share information:
Basic:
Previously reported       $   0.12       $   0.30      $     0.73
Effect of tax adjustment     (0.03)          0.01           (0.40)
                          --------       --------      ----------
As restated               $   0.09       $   0.31      $     0.33
                          ========       ========      ==========
Diluted:
Previously reported       $   0.12       $   0.28      $     0.71
Effect of tax adjustment     (0.03)          0.00           (0.40)
                          --------       --------      ----------
As restated               $   0.09       $   0.28      $     0.31
                          ========       ========      ==========
</TABLE>

                  * Includes Mountain Valley for one month


                                   (Continued)

                                      F-34
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note O - Selected Quarterly Financial Data (Unaudited) (Continued):

         (c)  Year ended December 31, 1999:

<TABLE>
<CAPTION>
                       1st            2nd          3rd           4th
                     Quarter        Quarter      Quarter       Quarter*
<S>               <C>            <C>           <C>          <C>
      Revenues    $14,314,773    $14,417,053   $14,627,084  $17,708,809
                  ===========    ===========   ===========  ============
      Losses and
        expenses  $13,106,674    $13,173,443   $15,465,552  $19,219,904
                  ===========    ===========   ===========  ============
      Net income
        (loss)    $ 1,080,247    $ 1,112,000   $  (749,734) $(1,351,177)
                  ===========    ===========   ===========  ===========
</TABLE>

                  * Includes North East and subsidiaries

     Net income (loss) per common share:
<TABLE>
<S>               <C>            <C>           <C>          <C>
      Basic       $       .51    $       .53   $      (.35) $      (.64)
                  ===========    ===========   ===========  ===========
      Diluted     $       .51    $       .52   $      (.35) $      (.64)
                  ===========    ===========   ===========  ===========
</TABLE>

     Reconciliation of previously reported to restated net income and per
share information:

<TABLE>
<CAPTION>
                               1st            2nd          3rd           4th
                             Quarter        Quarter      Quarter       Quarter*
<S>                       <C>            <C>           <C>           <C>
Net income (loss):
Previously reported       $   985,621    $ 1,011,433   $   129,745   $  (849,866)
Effect of tax adjustment       94,626        100,567      (879,479)     (501,311)
                          -----------    -----------   -----------   -----------
As restated               $ 1,080,247    $ 1,112,000   $  (749,734)  $(1,351,177)
                          ===========    ===========   ===========   ===========

Per share information:
Basic:
Previously reported       $      0.47    $      0.48   $      0.06   $     (0.40)
Effect of tax adjustment         0.04           0.05         (0.41)        (0.24)
                          -----------    -----------   -----------   -----------
As restated               $      0.51    $      0.53   $     (0.35)  $     (0.64)
                          ===========    ===========   ===========   ===========
Diluted:
Previously reported       $      0.46    $      0.48   $      0.06   $     (0.40)
Effect of tax adjustment         0.05           0.04         (0.41)        (0.24)
                          -----------    -----------   -----------   -----------
As restated               $      0.51    $      0.52   $     (0.35)  $     (0.64)
                          ===========    ===========   ===========   ===========
</TABLE>

                  * Includes North East and subsidiaries

         Note P - Comprehensive Income:

                  Comprehensive income consisted of the following:

<TABLE>
<CAPTION>
                                            2000         1999          1998
                                            ----         ----          ----
                                                      (Restated)    (Restated)
<S>                                     <C>          <C>           <C>
  Net income                            $ 1,959,919  $    91,336   $3,778,384
  Other comprehensive income (loss):
    Unrealized gains (losses) on
     securities:
     Unrealized gains (losses) during
      period (net of taxes of
      ($1,122,747), $1,536,862 and
      ($354,012))                         2,047,676   (2,982,797)     687,149
     Less: Reclassification
      adjustment for gains included
      in net income (net of taxes of
      $28,203, $12,254 and $9,705)          (54,746)     (23,786)     (18,840)
                                        -----------  -----------   ----------
    Net unrealized gains (losses)         1,992,930   (3,006,583)     668,309
                                        -----------  -----------   ----------
    Minimum pension liability
     adjustment (net of taxes
     $(448,018), $482,970
     and ($54,196))                        (869,682)     937,530     (105,204)
                                        -----------  -----------   ----------
  Other comprehensive income (loss)       1,123,248   (2,069,053)     563,105
                                        -----------  -----------   ----------
  Comprehensive income (loss)           $ 3,083,167  $(1,977,717)  $4,341,489
                                        ===========  ===========   ==========
</TABLE>


                                   (Continued)

                                      F-35
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note Q - Stock Option Plans:

                  The Motor Club of America 1987, 1992 and 1999 Stock Option
                  Plans ("1987 Option Plan", "1992 Option Plan" and "1999 Option
                  Plan", respectively) provide for the issuance of options to
                  purchase 100,000 common shares, respectively, by key
                  executives at the market price at date of grant.

                  Options under all Option Plans are exercisable for a five year
                  period in twenty-five percent increments each year, commencing
                  one year from the date of grant. As of December 31, 2000: (1)
                  5,125 shares under the 1987 Option Plan are available for
                  grant; 57,000 shares were exercisable and 37,875 shares had
                  been exercised; (2) 1,950 shares under the 1992 Option Plan
                  are available for grant; 62,500 shares were exercisable and
                  35,550 shares had been exercised; and (3) 64,000 shares
                  under the 1999 Option Plan are available for grant, and 36,000
                  shares were exercisable as of that date.

                  Transactions during 1998, 1999 and 2000 relating to the 1987
                  Option Plan are as follows:

<TABLE>
<CAPTION>
                                                                  Weighted
                                                    Exercise       Average
                                        Number of   Price per    Aggregate
                                         Shares       Share        Amount
                                         ------       -----        ------
<S>                                      <C>         <C>         <C>
            Options outstanding at
             December 31, 1997            84,000     $10.098      848,250
            Options exercised in 1998    (22,000)    $ 2.625      (57,750)
            Options lapsed in 1998        (5,000)    $12.75       (63,750)
                                         -------     -------     --------
            Options outstanding at
             December 31, 1998,
              1999 and 2000               57,000     $12.75      $726,750
                                         =======     =======     ========
</TABLE>


                                   (Continued)

                                      F-36
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

         Note Q - Stock Option Plans (Continued):

                  Transactions during 1998, 1999 and 2000 relating to the 1992
                  Option Plan are as follows:

<TABLE>
<CAPTION>
                                                             Weighted
                                                 Exercise     Average
                                    Number of   Price per   Aggregate
                                      Shares      Share       Amount
                                    ---------   ---------   ---------
<S>                                 <C>         <C>         <C>
          Options outstanding at
           December 31, 1997           3,000     $12.75      $ 38,250
          Options granted in 1998     28,500     $11.75       334,875
                                     -------     ------      --------
          Options outstanding at
           December 31, 1998          31,500     $11.845      373,125
          Options granted in 1999     31,000     $12.875      399,125
                                     -------     -------     --------
          Options outstanding at
           December 31, 1999
            and 2000                  62,500     $12.36      $772,250
                                     =======     =======     ========
</TABLE>

                  There were no transactions during 1999 relating to the 1999
                  Option Plan. Transactions during 2000 related to the 1999
                  Option Plan are as follows:

<TABLE>
<CAPTION>
                                                             Weighted
                                                 Exercise     Average
                                     Number of   Price per   Aggregate
                                      Shares      Share       Amount
                                      ------      -----       ------
<S>                                  <C>         <C>         <C>
          Options outstanding at
           December 31, 1999             -       $   -       $    -
          Options granted in 2000     36,000     $ 8.125      292,500
                                     -------     -------     --------
          Options outstanding at
           December 31, 2000          36,000     $ 8.125     $292,500
                                     =======     =======     ========
</TABLE>


                                   (Continued)

                                      F-37
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

          Note Q - Stock Option Plans (Continued):

                  The Company has adopted the provision of SFAS No. 123
                  ("Accounting for Stock-Based Compensation"), which calls for
                  companies to measure employee stock compensation expense based
                  on the fair value method of accounting. However, as allowed by
                  SFAS No. 123, the Company has elected the continued use of APB
                  Opinion No. 25 ("Accounting for Stock Issued to Employees"),
                  with pro forma disclosures of net income and earnings per
                  share determined as if the fair value method had been applied
                  in measuring compensation cost.

                  These calculations only take into consideration options issued
                  since January 1, 1995. In 2000, 1999 and 1998, had the fair
                  value method been applied, net income would have been reduced
                  by $126,300, $70,900 and $21,100, $.06, $.03 and $.01 basic
                  net earnings per share, respectively.

                  The average fair value of options granted during 2000, 1999
                  and 1998 was $3.69, $6.34 and $5.79, respectively. The fair
                  value was estimated using the Black-Scholes option pricing
                  model based on the following assumptions for 2000, 1999 and
                  1998: risk-free interest rate of 4.99%, 6.55% and 4.66%;
                  volatility of 47.6%, 50.5% and 52.3%; and expected life of 4.5
                  years (in 2000 and 1999) and 4.75 years (in 1998). The Company
                  does not
                  pay a dividend on its common stock. The following table
                  summarizes options outstanding and exercisable at December 31,
                  2000:

<TABLE>
<CAPTION>
                Options Outstanding                   Options Exercisable
                -------------------                   -------------------
                                                                        Average
              Exercise              Average      Exercise               Exercise
               Price     Options   Life(a)        Price    Options        Price
              --------   -------   -------      --------   -------     ---------
<S>                       <C>       <C>         <C>         <C>          <C>
            $ 8.125       36,000    4.50        $ 8.125          0          -
            $11.750       28,500    2.75        $11.750     14,250       $11.750
            $12.750       60,000    1.25        $12.750     45,000        12.750
            $12.875       31,000    3.50        $12.875      7,750        12.875
                         -------    ----        -------     ------       -------
             Total       155,500    2.73        $11.520     67,000       $12.550
                         =======    ====        =======     ======       =======
</TABLE>

                  (a)      Average contractual life remaining years.


                                   (Continued)

                                      F-38
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                    --------

         Note R - Lease Obligations:

                  The Company and its subsidiaries lease office space suitable
                  to conduct its operations, including its home office in
                  Paramus, New Jersey. In addition, office facilities in Albany,
                  New York, Bedford, New Hampshire and Scarborough, Maine are
                  leased under varying terms and expiration dates. These leases
                  are considered operating leases for financial reporting
                  purposes. Some of these leases have options to extend the
                  length of the leases and contain clauses for cost of living,
                  operating expense and real estate tax adjustments. Rental
                  expense was $599,927 in 2000 and $410,000 in 1999 and 1998,
                  respectively. Future minimum lease payments (without
                  provisions for sublease income) are $714,112 in 2001; $716,147
                  in 2002; $716,147 in 2003; $716,147 in 2004; and $1,431,227
                  thereafter.

        Note S - Earnings per Share ("EPS"):

                  Basic earnings per share are based on weighted average basic
                  shares outstanding. Diluted earnings per share are based on
                  weighted average diluted shares outstanding, which is
                  calculated by adding shares contingently issuable under stock
                  options and shares contingently issuable under the Debentures
                  (if dilutive) to the average basic shares outstanding. In 2000
                  and 1999, the Debentures were not dilutive. The
                  calculations of average basic and diluted common shares
                  outstanding and net income per common share are as follows:


                                   (Continued)

                                      F-39
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                    --------

        Note S - Earnings per Share ("EPS") (Continued):

<TABLE>
<CAPTION>
                                    2000         1999         1998
                                    ----         ----         ----
                                               (Restated)  (Restated)
<S>                              <C>           <C>         <C>
     Numerator for basic
      earnings per share - net
      income                     $1,959,919    $   91,336  $3,778,384

     Plus: Interest expense on
      Debentures, net of tax        557,040           -           -
                                 -----------   ----------  ----------
     Numerator for diluted
      earnings per share         $2,516,959    $   91,336  $3,778,384
                                 ==========    ==========  ==========
     Weighted average basic
      common shares outstanding
      (denominator)               2,124,387     2,117,912   2,108,722

      Shares contingently
       issuable under stock
       option plans                     110         3,785      12,644

      Shares contingently
       issuable under Debentures    645,578           -           -
                                 ----------    ----------  ----------
     Average diluted common
       shares outstanding
       (denominator)              2,770,075     2,121,697   2,121,366
                                 ==========    ==========  ==========
     Net income per common share:

      Basic                           $0.92        $0.04       $1.79
                                      =====        =====       =====
      Diluted                         $0.91        $0.04       $1.78
                                      =====        =====       =====
</TABLE>

        Note T - Reportable Segments:

                  The Company's operations are presently conducted through four
                  basic segments using independent agents: Motor Club;
                  Preserver; Mountain Valley; and North East. The Motor Club
                  segment consists of New Jersey private passenger automobile.
                  The Preserver segment consists of small commercial insurance
                  featuring package, automobile and workers' compensation
                  coverage, along with personal property and liability coverage
                  in the State of New Jersey. Mountain Valley provides small and
                  medium sized commercial insurance in New England and New York.
                  The North East segment consists of private passenger
                  automobile and small commercial insurance in the State of
                  Maine and the results of its inactive subsidiary, American
                  Colonial.

                  The accounting policies of the segments are the same as those
                  described in the summary of significant accounting policies.
                  Summary financial information about


                                   (Continued)

                                      F-40
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                    --------

        Note T - Reportable Segments (Continued):

                  the Company's operating segments is presented in the following
                  table. Income before income taxes by segment consists of
                  revenues less expense related to the respective segment's
                  operations. These amounts include realized gains (losses)
                  where applicable. Assets are not allocated to the individual
                  segments, and are reviewed in total by management for purposes
                  of decision making. The Company operates only in the United
                  States, and no single customer or agent provides ten percent
                  or more of revenues. Financial data by segment is as follows:


<TABLE>
<CAPTION>
                                                      MOTOR        NORTH        MOUNTAIN
YEAR ENDED  DECEMBER 31, 2000       PRESERVER         CLUB          EAST         VALLEY         TOTAL
-----------------------------      -----------     -----------   -----------   -----------   -----------
<S>                                <C>             <C>           <C>           <C>           <C>
Insurance premiums                 $15,601,866     $36,574,189   $18,310,615   $12,980,811   $83,467,481
Net investment income                1,808,893       2,934,494     1,016,148       542,760     6,302,295
Realized investment gains               10,781          13,764        14,849        43,354        82,748
Other income                             -              32,454         -             -            32,454
                                   -----------     -----------   -----------   -----------   -----------
Total revenues                      17,421,540      39,554,901    19,341,612    13,566,925    89,884,978
                                   -----------     -----------   -----------   -----------   -----------

Loss and loss expenses incurred      8,025,885      27,085,861    11,761,626     8,834,681    55,708,053
Acquisitions costs and other
  operating expenses                 4,694,870      12,200,930     6,684,225     5,503,983    29,084,008
                                   -----------     -----------   -----------   -----------   -----------
Total expenses                      12,720,755      39,286,791    18,445,851    14,338,664    84,792,061
                                   -----------     -----------   -----------   -----------   -----------

Income (loss) before Federal
 income taxes                      $ 4,700,785     $   268,110   $   895,761   $  (771,739)  $ 5,092,917
Other corporate, net                                                                             212,637
Interest expense                                                                              (1,867,085)
Merger-related expenses                                                                         (354,097)
Amortization of goodwill                                                                         (84,695)
Income tax expense                                                                            (1,039,758)
                                                                                             -----------
Net income                                                                                   $ 1,959,919
                                                                                             ===========
</TABLE>

<TABLE>
<CAPTION>
                                                      MOTOR        NORTH        MOUNTAIN
YEAR ENDED  DECEMBER 31, 1999       PRESERVER         CLUB          EAST         VALLEY         TOTAL
-----------------------------      -----------     -----------   -----------   -----------   -----------
<S>                                <C>             <C>           <C>           <C>           <C>
Insurance premiums                 $13,819,638     $37,802,937   $ 4,184,755   $     -       $55,807,330
Net investment income                1,554,266       3,119,752       246,204         -         4,920,222
Realized investment gains                4,917            (260)       31,382         -            36,039
                                   -----------     -----------   -----------   -----------   -----------
Total revenues                      15,378,821      40,922,429     4,462,341         -        60,763,591
                                   -----------     -----------   -----------   -----------   -----------

Loss and loss expenses incurred      9,214,764      29,043,044     2,373,245         -        40,631,053
Acquisitions costs and other
  operating expenses                 4,066,894      12,882,192     1,838,804         -        18,787,890
                                   -----------     -----------   -----------   -----------   -----------
Total expenses                      13,281,658      41,925,236     4,212,049         -        59,418,943
                                   -----------     -----------   -----------   -----------   -----------

Income (loss) before Federal
 income taxes                      $ 2,097,163     $(1,002,807)  $   250,292   $     -       $ 1,344,648
Other corporate, net                                                                              26,789
Interest expense                                                                                (448,117)
Merger-related expenses                                                                         (800,000)
Amortization of goodwill                                                                         (21,174)
Income tax expense                                                                               (10,810)
                                                                                             -----------
Net income                                                                                   $    91,336
                                                                                             ===========
</TABLE>


                                   (Continued)

                                      F-41
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                    --------

         Note T - Reportable Segments (Continued):

<TABLE>
<CAPTION>
                                                      MOTOR        NORTH        MOUNTAIN
YEAR ENDED  DECEMBER 31, 1998       PRESERVER         CLUB          EAST         VALLEY         TOTAL
-----------------------------      -----------     -----------   -----------   -----------   -----------
<S>                                <C>             <C>           <C>           <C>           <C>
Insurance premiums                 $13,303,402     $39,872,261   $    -        $     -       $53,175,663
Net investment income                1,249,505       2,852,673        -              -         4,102,178
Realized investment gains               12,635          15,988        -              -            28,623
                                   -----------     -----------   -----------   -----------   ------------
Total revenues                      14,565,542      42,740,922        -              -        57,306,464
                                   -----------     -----------   -----------   -----------   ------------

Loss and loss expenses incurred      7,923,218      28,556,373        -              -        36,479,591
Acquisitions costs and operating
  other expenses                     4,468,622      11,200,514        -              -        15,669,136
                                   -----------     -----------   -----------   -----------   ------------
Total expenses                      12,391,840      39,756,887        -              -        52,148,727
                                   -----------     -----------   -----------   -----------   ------------

Income before Federal income taxes $ 2,173,702     $ 2,984,035   $    -        $     -       $ 5,157,737
Other corporate, net                                                                             615,815
Interest expense                                                                                 (54,146)
Income tax expense                                                                            (1,941,022)
                                                                                             -----------
Net income                                                                                   $ 3,778,384
                                                                                             ============
</TABLE>

         Note U - Related Party Transactions:

                  The Ownership Group owns 47.1% of the outstanding common stock
                  of the Company at December 31, 2000. The Company paid
                  directors fees' of $192,500 in 2000 and $180,000 during 1999
                  and 1998 to the Ownership Group.

                  As noted, the Ownership Group's participation in the
                  Debentures could potentially increase their share ownership of
                  the Company from its present 47.1% to 57.7%. During 2000 and
                  1999, the Ownership Group received $776,680 and $214,780 in
                  interest payments on the Debentures, respectively, and
                  $914,681 in interest payments on the Notes in 2000. See Notes
                  H and I for further information on the Notes and Debentures,
                  respectively.

         Note V - Restatement:

                  In March 2001, the Company's management determined that
                  certain tax benefits should not have been recognized and that
                  certain deferred tax liabilities had not been recorded. These
                  tax matters, which are discussed in Note J, relate to the tax
                  effects of temporary differences arising from a subsidiary
                  that was de-consolidated for financial reporting purposes due
                  to its insolvency in 1992.

                  As a result, the 1998 and 1999 Consolidated Financial
                  Statements have been restated from amounts previously
                  reported. In addition, retained earnings and thus
                  shareholders' equity at December 31, 1997 was reduced by
                  $126,303, representing the cumulative effect from revising the
                  tax accrual on prior periods' results of operations after
                  Federal income taxes. In connection with this adjustment,
                  goodwill arising from the acquisition of North East in 1999
                  was increased by $152,047.

                  Finally, deferred tax assets were not recorded that should
                  have been for the tax effects of the minimum pension liability
                  that is presented as a component of other comprehensive
                  income. Shareholders' equity at December 31, 1997 increased by
                  $1,539,894, representing the cumulative effect on prior
                  periods' results of revising the tax accrual.

                  The net effect of these prior period adjustments increased
                  shareholders' equity by $1,413,591 at December 31, 1997.

                  These tax matters have no impact on the operations, cash flow
                  or capital and surplus of the Company's active insurance
                  subsidiaries or on consolidated income before Federal income
                  taxes for the periods presented, nor is the Company subject to
                  penalties and interest on the recording of the deferred tax
                  liabilities. The effects of these tax items on the
                  accompanying financial statements are set forth below:


                                   (continued)

                                      F-42
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note V - Restatement (continued):

<TABLE>
<CAPTION>
                                            CONSOLIDATED BALANCE SHEET
                                             AS OF DECEMBER 31, 1999
                                           ----------------------------
                                           AS PREVIOUSLY        AS
                                              REPORTED       RESTATED
                                           -------------     --------
<S>                                        <C>             <C>
                 ASSETS

Investments:
Fixed maturity securities                  $ 78,242,322    $ 78,242,322
Equity securities                                57,053          57,053
Mortgage loans on real estate                   153,616         153,616
Short term investments                        8,528,858       8,528,858
                                           ------------     -----------
Total investments                            86,981,849      86,981,849
Cash & cash equivalents                         443,733         443,733
Premiums receivable                          27,132,246      27,132,246
Reinsurance recoverable                      21,163,574      21,163,574
Notes & accounts receivable                     212,598         212,598
Deferred policy acquisition costs            10,560,763      10,560,763
Fixed assets                                  1,858,621       1,858,621
Federal income tax recoverable                   54,026          47,100
Prepaid Reinsurance Premiums                  1,485,450       1,485,450
Deferred tax asset                            4,128,766       3,637,551
Goodwill                                      1,745,848       1,593,801
Other assets                                  1,470,744       1,470,744
                                           ------------    ------------
Total Assets                               $157,238,218    $156,588,030
                                           ============    ============

    LIABILITIES &
 SHAREHOLDERS' EQUITY

Liabilities & Shareholders' Equity:
Losses and loss expenses                   $ 70,983,383    $ 70,983,383
Unearned premiums                            38,698,028      38,698,028
Commissions payable                           2,802,516       2,802,516
Accounts payable                              1,397,263       1,397,263
Accrued expenses                              3,112,157       3,112,157
Drafts outstanding                            2,685,423       2,685,423
Convertible subordinated debentures          10,000,000      10,000,000
                                           ------------    ------------
Total Liabilities                           129,678,770     129,678,770
                                           ------------    ------------

Shareholders' Equity:
Common Stock                                  1,062,194       1,062,194
Paid in Capital                               2,066,089       2,066,089
Accumulated other comprehensive income       (5,036,515)     (3,897,396)
Retained earnings                            29,467,680      27,678,373
                                           ------------    ------------
Total Shareholders' Equity                   27,559,448      26,909,260
                                           ------------    ------------
Total Liabilities & Shareholders' Equity   $157,238,218    $156,588,030
                                           ============    ============
</TABLE>

<TABLE>
<CAPTION>
                               CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
                               ---------------------------------------------------------------
                                            1999                           1998
                               ----------------------------   --------------------------------
                                 AS PREVIOUSLY        AS      AS PREVIOUSLY        AS
                                    REPORTED       RESTATED      REPORTED       RESTATED
                                 -------------     --------   -------------     --------
<S>                               <C>           <C>           <C>             <C>
Income before Federal
   income taxes                   $   102,146   $    102,146  $  5,719,406    $  5,719,406
Benefit (provision) for
   Federal income taxes:
      current                          21,865         28,331      (193,121)       (179,661)
      deferred                      1,152,922        (39,141)   (1,270,494)     (1,761,361)
                                  -----------   ------------  ------------    ------------
Total Federal income tax            1,174,787        (10,810)   (1,463,615)     (1,941,022)
                                  -----------   ------------  ------------    ------------
Net income                        $ 1,276,933   $     91,336  $  4,255,791    $  3,778,384
                                  ===========   ============  ============    ============

Net income per common share:
Basic                             $       .60   $        .04  $       2.02    $       1.79
                                  ===========   ============  ============    ============
Diluted                           $       .60   $        .04  $       2.01    $       1.78
                                  ===========   ============  ============    ============
</TABLE>

                                      F-43
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                       SCHEDULE I. SUMMARY OF INVESTMENTS-
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                              AT DECEMBER 31, 2000

                                   ----------

<TABLE>
<CAPTION>
     Column A               Column B      Column C     Column D
     --------               --------      --------     --------
                                                       Amount at
                                                      which shown
                                                        in the
                             Cost(a)       Market    balance sheet
                             -------       ------    -------------
<S>                       <C>           <C>          <C>
Type of Investment
------------------

Fixed maturity securities
 available-for-sale:
United States Government
 and government agencies
 and authorities           $48,126,796   $49,144,815  $49,144,815
Industrial and
 miscellaneous              45,201,651    44,812,674   44,812,674
Public utilities             4,242,647     4,116,835    4,116,835
                          ------------                -----------

Total fixed maturities      97,571,084                 98,074,324
Equity securities:
 Common stock                   34,659        47,604       47,604
Mortgage loans on real
 estate                        110,160                    110,160
Short-term investments,
 available-for-sale          6,760,341     6,760,341    6,760,341
                          ------------   -----------  -----------
Total investments         $104,476,254               $104,992,429
                          ============               ============
</TABLE>

Note: (a)         Represents original cost of investments reduced by repayment
                  and as to fixed maturities, adjusted for amortization of
                  premiums or accrual of discounts.


                                   (Continued)

                                      F-44
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                  SCHEDULE II. CONDENSED FINANCIAL INFORMATION
                         OF REGISTRANT (PARENT COMPANY)

                                   ----------

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                         -----------------------
                                          2000            1999
                                          ----            ----
                                                       (Restated)
<S>                                   <C>             <C>
ASSETS:
  Investments in subsidiaries         $62,642,578     $46,399,026
  Insurance premiums receivable        24,608,881      18,896,067
  Deferred tax asset                      354,887       1,274,804
  Other assets                          4,865,594       3,506,906
                                      -----------     -----------
         Total assets                 $92,471,940     $70,076,803
                                      ===========     ===========

LIABILITIES AND SHAREHOLDERS' EQUITY:
  Payable to subsidiaries             $32,651,439     $28,276,495
  Convertible subordinated debentures  10,000,000      10,000,000
  Note payable                         11,500,000          -
  Other liabilities                     8,264,570       4,891,048
                                      -----------     -----------
         Total liabilities             62,416,009      43,167,543
  Shareholders' equity                 30,055,931      26,909,260
                                      -----------     -----------
         Total liabilities and
           shareholders' equity       $92,471,940     $70,076,803
                                      ===========     ===========
</TABLE>

                                NOTES TO SCHEDULE
                                -----------------
         The Notes to Consolidated Financial Statements of Motor Club
         of America and Subsidiaries are incorporated by reference to this
         schedule.

         The Statements of Shareholders' Equity are the same as those presented
         for Motor Club of America and Subsidiaries.


                                   (Continued)

                                      F-45
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                  SCHEDULE II. CONDENSED FINANCIAL INFORMATION
                         OF REGISTRANT (PARENT COMPANY)

                                   ----------

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                   For the years ended December 31,
                                   --------------------------------
                                     2000        1999         1998
                                     ----        ----         ----
                                              (Restated)   (Restated)
<S>                              <C>          <C>          <C>
REVENUES:

  Membership servicing fees      $  112,905   $  118,924   $  133,531
  Interest on mortgage loans         12,255       16,974       35,251
  Other income                      117,009      168,222      204,640
                                 ----------   ----------   ----------
       Total revenues               242,169      304,120      373,422
                                 ----------   ----------   ----------

EXPENSES:

  Merger expenses                   354,097      800,000          -
  Interest expense                1,867,085      448,117       60,389
  Amortization of goodwill           84,695       21,174          -
  General and administrative,
   expenses (1)                      17,383      277,340     (248,636)
                                 ----------   ----------   ----------
       Total expenses             2,323,260    1,546,631     (188,247)
                                 ----------   ----------   ----------
Income (loss) before
   Federal income taxes          (2,081,091)  (1,242,511)     561,669
Benefit (provision) for
   Federal income taxes:
     current                        (44,797)      28,331    1,384,611
     deferred                      (994,961)      40,230   (1,761,361)
                                  ---------   ----------   ----------
Total Federal income tax         (1,039,758)      68,561     (376,750)
                                  ---------   ----------   ----------
Income (loss) before item
   shown below                   (3,120,849)  (1,173,950)     184,919
Equity in net income
 of subsidiaries                  5,080,768    1,265,286    3,593,465
                                 ----------   ----------   ----------
       Net income                $1,959,919   $   91,336   $3,778,384
                                 ==========   ==========   ==========
</TABLE>


(1)      Amount is net of $316,814 (2000), $285,762 (1999) and $296,810 (1998)
         of management fees charged to subsidiaries.


                                   (Continued)

                                      F-46
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                  SCHEDULE II. CONDENSED FINANCIAL INFORMATION
                         OF REGISTRANT (PARENT COMPANY)

                                   ----------

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                              For the years ended December 31,
                                     ----------------------------------------------
                                         2000               1999             1998
                                      -----------      -------------     -----------
<S>                                   <C>                <C>             <C>
Net income                             $1,959,919            $91,336      $3,778,384
Adjustments to reconcile net
  income to net cash provided by
  operating activities:
  Depreciation expense                    645,963            499,503         426,703
  Deferred tax provision (benefit)        994,961            (40,230)      1,761,361

Changes in assets and liabilities
excluding effects of acquisitions:
  Premiums receivable                  (5,712,814)           691,841     (12,221,216)
  Investments in subsidiaries          (6,602,421)           340,204     (10,818,776)
  Other assets                           (148,204)            (7,716)        125,831
  Other liabilities                     2,044,745          1,065,629         451,011
  Payable to subsidiaries               4,374,944          1,778,038      11,857,053
                                       ----------        -----------      ----------
Net cash provided by (utilized in)
  operating activities                 (2,442,907)         4,418,605      (4,639,649)
                                       ----------        -----------      ----------

Investing activities:
  Proceeds from:
    Disposal of short-term
      investments                      14,935,000            -            28,900,000
    Payments received on mortgage
      loan principal                       43,456            207,422         161,517
  Purchase of:
    Short-term investments            (14,935,000)           -           (25,750,000)
    Fixed assets                       (1,600,549)          (454,875)       (491,088)
    Acquisition of Mountain Valley
      (2000) and North East (1999)     (7,500,000)       (10,409,682)         -
                                      -----------         ----------     ------------
Net cash provided by (utilized in)
  investing activities                 (9,057,093)       (10,657,135)      2,820,429
                                       ----------        -----------     ------------
Financing activities:
   Convertible subordinated debentures      -             10,000,000            -
   Note payable                        11,500,000         (3,000,000)      3,000,000
   Capital contribution to subsidiary       -              2,000,000            -
   Common stock issued                      -                -                57,750
                                      -----------        -----------     -----------
Net cash provided by
  financing activities                 11,500,000          5,000,000       3,057,750
                                      -----------        -----------     -----------
Increase (decrease) in cash and
  cash equivalents                          -             (1,238,530)      1,238,530
Cash and cash equivalents at
  beginning of year                         -              1,238,530            -
                                      -----------        -----------     -----------
Cash and cash equivalent at end of
  year                                $     -            $   -           $ 1,238,530
                                      ===========        ===========     ===========
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------

(1)      Total interest paid was $1,753,604 (2000), $448,782 (1999) and
         $60,389 (1998)

(2)      Total federal income taxes paid was $0 (2000 and 1999) and
         $212,738 (1998).


                                   (Continued)

                                      F-47
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                            SCHEDULE IV. REINSURANCE
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                                   ----------

<TABLE>
<CAPTION>
        Column A                  Column B      Column C      Column D     Column E    Column F
        --------                  --------      --------      --------     --------    --------
                                                                                         % of
                                                Ceded to     Assumed from               Amount
                                                  other         other                   Assumed
                                 Gross Amount   Companies     Companies    Net Amount   to Net
                                 ------------   ---------    ------------  ----------   -------
<S>                              <C>            <C>          <C>           <C>          <C>
December 31, 2000:

  Total property and casualty
   insurance premiums earned     $96,615,156    $13,161,055  $   13,380    $83,467,481    0.02%
                                 ===========    ===========  ==========    ===========   =====

December 31, 1999:

  Total property and casualty
   insurance premiums earned     $64,151,936    $ 8,358,946  $   14,340    $55,807,330    0.03%
                                 ===========    ===========  ==========    ===========   =====

December 31, 1998:

  Total property and casualty
   insurance premiums earned     $59,951,837    $ 6,776,174  $   -         $53,175,663    0.00%
                                 ===========    ===========  ==========    ===========   =====
</TABLE>


                                   (Continued)

                                      F-48
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                      SCHEDULE V. VALUATION AND QUALIFYING
                              ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                                   ----------

<TABLE>
<CAPTION>
 Column A              Column B            Column C            Column D       Column E
 --------              --------            --------            --------       ---------
                                          Additions
                       Balance at   Charged to   Charged to                  Balance
                       Beginning     Cost and      Other                     at end
 Description           of Period     Expenses     Accounts    Deductions     of Period
-------------         -----------   ----------   ----------  ------------   -----------
<S>                    <C>          <C>          <C>         <C>            <C>
Allowance for
 doubtful
 receivables:

December 31, 2000      $   68,091   $   -        $   -       $    -         $  68,091
                       ==========   ==========   ==========  ==========     =========

December 31, 1999      $   68,091   $   -        $   -       $    -         $  68,091
                       ==========   ==========   ==========  ==========     =========

December 31, 1998      $   68,091   $   -        $   -       $    -         $  68,091
                       ==========   ==========   ==========  ==========     =========

Valuation allowance
 for deferred taxes:

December 31, 2000      $  267,032   $   -        $    -      $  117,116     $ 149,916
                       ==========   ==========   ==========  ==========     =========

December 31, 1999      $   95,230   $  171,802   $    -      $    -         $ 267,032
                       ==========   ==========   ==========  ==========     =========

December 31, 1998      $1,916,202   $    -       $    -      $1,820,972     $  95,230
                       ==========   ==========   ==========  ==========     =========
</TABLE>


                                   (Continued)

                                      F-49
<PAGE>

                     MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING
                     PROPERTY/CASUALTY INSURANCE OPERATIONS

                                   ----------

              For the years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
COLUMN     A            COLUMN     B          COLUMN     C     COLUMN     D     COLUMN    E    COLUMN    F    COLUMN    G
------------            ------------          ------------     ------------     -----------    -----------    -----------
                                                                                                                 CLAIMS AND CLAIM
                                 RESERVES FOR                                                           ADJUSTMENT    EXPENSES
                      DEFERRED   UNPAID CLAIMS   DISCOUNT,                                               INCURRED    RELATED TO
                       POLICY     AND CLAIM       IF ANY,                                   NET             (1)          (2)
                    ACQUISITION   ADJUSTMENT    DEDUCTED IN    UNEARNED      EARNED      INVESTMENT       CURRENT       PRIOR
                       COSTS      EXPENSES       COLUMN C      PREMIUMS     PREMIUMS      INCOME (A)       YEAR         YEARS
                    ------------ ------------- ------------   ----------    --------     -----------     ----------------------
<S>                 <C>           <C>               <C>      <C>           <C>           <C>            <C>          <C>
Year ended
December 31, 2000   $14,505,569   $90,392,486        -       $53,409,659   $83,467,481   $6,302,094     $55,542,028    $166,024

Year ended
December 31, 1999   $10,560,763   $70,983,383        -       $38,698,028   $55,807,330   $4,920,229     $37,271,781  $3,359,272

Year ended
December 31, 1998   $ 8,708,329   $58,335,143        -       $30,733,144   $53,175,663   $4,102,255     $32,598,287  $3,881,304

<CAPTION>
                   COLUMN    H                            COLUMN    I    COLUMN    J    COLUMN    K
                   -----------                            -----------    -----------    -----------
                     AMORTIZATION     PAID
                     OF DEFERRED     CLAIMS
                       POLICY      AND CLAIM
                     ACQUISITION    ADJUSTMENT     PREMIUM
                        COSTS        EXPENSES      WRITTEN
                     ------------   ----------     -------
<S>                   <C>           <C>          <C>
Year ended
December 31, 2000     $25,135,714   $48,041,958  $89,204,441

Year ended
December 31, 1999     $14,305,501   $36,735,862  $54,508,215

Year ended
December 31, 1998     $13,375,221   $29,548,773  $64,302,713
</TABLE>


Note: (a) Excludes non-insurance subsidiaries' investment income and realized
investment gains.


                                      F-50