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, 1998                           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 26, 1999 was
$15,895,456 based on the closing selling price.

2,116,429 shares of Common Stock were outstanding as of March 26,
1999.

Documents Incorporated by Reference:  Portions of the registrant's
definitive proxy statement issued in conjunction with the June 9,
1999 Annual Meeting of Shareholders (Part III).


                      MOTOR CLUB OF AMERICA
                    ANNUAL REPORT ON FORM 10-K
                        DECEMBER 31, 1998


          PART I                                   PAGE
          ------                                   ----
ITEM 1.   BUSINESS                                      4
ITEM 2.   PROPERTIES                                   40
ITEM 3.   LEGAL PROCEEDINGS                            41
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
          SECURITY HOLDERS                             41   

          PART II
          -------   
ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS              42
ITEM 6.   SELECTED FINANCIAL DATA                      43
ITEM 7.   MANAGEMENT'S DISCUSSION AND                  44
          ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS                    
ITEM 8.   FINANCIAL STATEMENTS AND                     60
          SUPPLEMENTARY DATA                           
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH            60
          ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE                         

          PART III
          --------
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF          60
          THE REGISTRANT                               
ITEM 11.  EXECUTIVE COMPENSATION                       60
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN                60
          BENEFICIAL OWNERS AND MANAGEMENT               
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED            60
          TRANSACTIONS                                        

          PART IV
          -------
ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS               61
          SCHEDULES AND REPORTS ON FORM 8-K           

CAUTINARY STATEMENT
-------------------

          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, economic, market
or regulatory conditions as well as risks associated with Motor
Club of America's entry into new markets;  Motor Club of America's
pending merger with North East Insurance Company; diversification;
catastrophic events; and state regulatory and legislative actions
which can affect the profitability of certain lines of business and
impede Motor Club of America's ability to charge adequate rates. 
Accordingly, Motor Club of America's premium growth and
underwriting results have been and will continue to be potentially
materially affected by these factors.



                              PART I
                              ------
Item 1. Business
----------------

 (a) GENERAL DEVELOPMENT OF BUSINESS

          Motor Club of America (the "Registrant") and a group of
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.

          The Registrant has two subsidiaries which write property
and casualty insurance, Motor Club of America Insurance Company
("Motor Club") and Preserver Insurance Company ("Preserver"). 
Motor Club writes private passenger automobile ("PPA")  business.
Preserver writes small commercial, homeowners and ancillary
coverages.  Motor Club and Preserver are collectively referred to
as the "Insurance Companies".  The Insurance Companies are
domiciled in the State of New Jersey.

          The Registrant is pursuing a strategy to: (1) increase
its identification as a provider of small commercial lines
insurance and has continued to expand its product line in support
of this objective; and (2) expand and diversify its insurance
operations outside the State of New Jersey.  The Registrant
believes 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.  The Registrant expects to continue to pursue these
objectives during 1999 and beyond.

          On March 16, 1999, the Registrant signed a definitive
Agreement and Plan of Merger ("Merger Agreement") to acquire North
East Insurance Company ("North East") through a merger of a wholly-owned
subsidiary of the Registrant with and into North East ("Merger"). 
North East is a NASDAQ listed property and casualty insurance company, 
headquartered in Scarborough, Maine and trading under the symbol NEIC.  
Under the terms of the Merger Agreement, North East shareholders will receive,
at their individual election, (a) $3.30 per share of North East common stock, 
(b) one share of the Registrant's common stock for each 5.25 shares
of North East common stock, or (c) a combination thereof.  If the North East
shareholders in the aggregate elect to exchange more than 50% of
their shares for the Registrant's stock, the aggregate percentage
will be ratably reduced to 50%. 

          Consummation of the Merger is subject to the satisfaction
of certain conditions set forth in the merger agreement, including
approval from the shareholders of the Registrant and North East and
authorization by state insurance regulators.  Both the Registrant
and North East expect that these conditions will be satisfied in
due course.

(b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

          The Registrant does not have any reportable industry
segments for the three fiscal years reported in this Form 10-K.

(c)  NARRATIVE DESCRIPTION OF BUSINESS

          See Items 1 (a) and 7.

FIRE AND CASUALTY INSURANCE OPERTIONS
-------------------------------------
GENERAL

          The Insurance Companies distribute insurance policies and
generate premium revenue through approximately 160 independent
producers in New Jersey.

          The Registrant anticipates continuing its emphasis of the
small commercial and ancillary coverages written by Preserver in
the State of New Jersey.  Commencing in 1998, Preserver began to
offer workers' compensation insurance as part of its commercial
lines product offerings, along with product offerings in boiler and
machinery and umbrella coverages which were enhanced in 1997.  New
PPA writings by Motor Club are expected to continue as well.

          Preserver has sought to increase its identity as a
commercial lines market through these product improvements as well
as a new corporate identification program, specifically, its
"Preserver - The Business Advantage" logo.  The Registrant believes
these improvements, combined with Preserver's existing product
line, enable Preserver to offer a broad, competitive product line
which will grow steadily in the future.

          As of December 31, 1998, the Insurance Companies had a
pooled rating of B+ (Very Good) by A.M. Best Company, Inc.
("Best").  See Item 1(c) "Narrative Description of Business - Fire
and Casualty Insurance Operations - Pooling Arrangement". 

          In January 1999, Preserver and Motor Club received
separate ratings of B+ (Very Good) from Best.  Best ratings are
based upon factors relevant to policyholders and are not directed
toward the protection of investors.  Management believes that the
Best rating is an important factor in marketing the Insurance
Companies' products, and in particular Preserver's, to their agents
and customers.

          From January 1, 1996 to December 31, 1997, Preserver and
Motor Club participated in an intercompany pooling agreement
("Pooling") under which their property and casualty business was
combined.  See Item 1(c) "Narrative Description of Business - Fire
and Casualty Insurance Operations - Pooling Arrangement" for
further details. In each of Accident Years 1996 and 1997,
Preserver's participation in the Pooling was 30% and Motor Club's
was 70%.

          Effective July 1, 1998, Motor Club began converting its
existing policies with six month terms to twelve month policy terms
(the "Policy Term Conversion").  Management believes this measure
will further improve the Registrant's operating efficiency and
service levels, and reduce expenses.  While the Policy Term
Conversion will, for a one year period commencing July 1, 1998,
temporarily increase the amount of premiums written by Motor Club,
it will not effect the amount of premiums earned.

          The table which follows reflects the increase in premium
written as a result of the Policy Term Conversion and sets forth
the direct premiums written, by line of insurance, for the
Insurance Companies for the last five years:
<TABLE>
<CAPTION>
                            Direct Written Premiums
             (Amounts in Thousands - Exclusive of Service Charges)
<S>                 <C>     <C>        <C>       <C>         <C>      <C>        <C>      <C>         <C>      <C>

                       1998                 1997                  1996                1995                1994
                 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
--------        ------------------   ------------------   ------------------  --------------------
Private Passenger
 Automobile       $54,254   76.7%    $43,238     74.7%     $41,055    76.0%    $32,100    73.1%    
$27,636    74.4%
Commercial Lines    9,672   13.7%      8,019     13.9%       6,744    12.5%      5,828    13.3%      
4,431    12.0%
Personal Property   6,833    9.6%      6,596     11.4%       6,216    11.5%      5,972    13.6%      
5,056    13.6%
                  -------  -----     -------    -----      -------   -----     -------   -----
   Total          $70,759  100.0%    $57,853    100.0%     $54,015   100.0%    $43,900   100.0%    
$37,123   100.0%
                  =======  =====     =======    =====      =======   =====     =======   ===== 
</TABLE>

          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 premium.

<TABLE>
<CAPTION>
  <S>                                       <C>         <C>        <C>
                                                     December 31,       
                                            ---------------------------
                                            1998        1997       1996
                                            ----        ----       ----
GAAP operating ratios:
  Loss ratio                                68.6%       65.1%      64.5%
  Expense ratio                             29.1%       33.3%      37.9%
                                            ----        ----      -----
  Combined ratio                            97.7%       98.4%     102.4%
                                            ====        ====      =====
Statutory operating ratios:
  Loss ratio                                69.9%       66.3%      66.6%
  Expense ratio                             28.8%       32.4%      37.5%
                                            ----        ----      -----
  Combined ratio                            98.7%       98.7%     104.1%
                                            ====        ====      =====
</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.  The Registrant's operating income
is a function of both underwriting results and investment income.
POOLING ARRANGEMENT

          From January 1, 1996 to December 31, 1997, the Insurance
Companies participated in an intercompany pooling arrangement
("Pooling") with each other.  Since the inception of the Pooling,
it was the Registrant's intention to maintain the Pooling only
until Preserver could secure a separate Best rating equal to or
greater than the pooled Best rating of B+ (Very Good).

          On December 17, 1998, the New Jersey Department of Banking and 
Insurance ("NJ DOBI") approved the termination of the pooling agreement 
on a run-off basis  effective January 1, 1998, which means that losses
on the years covered by the Pooling will still be pooled until they are
completely settled.  Pursuant to the approved Pooling termination,
the Insurance Companies have no further liability to each other
under the pooling agreement as to losses occurring after December
31, 1997.  As noted previously, Preserver received a separate
rating of B+ (Very Good) from Best in January 1999.

          The Pooling enabled Preserver, which commenced operations
in 1993, to attain a Best rating it would not otherwise have been
able to achieve due to its relatively insufficient operating
experience.  The Pooling was intended to permit a more uniform and
stable underwriting result from year to year for the Insurance
Companies in the Pooling than they would experience individually
and to reduce the risk of either of the Pooling participants by
spreading the risk of loss of either of the pool participants.  The
Insurance Companies therefore had at their 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 existed 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.

          Pursuant to the terms of the Pooling, Preserver ceded to
Motor Club 100% of its net premiums on all of its business as of
January 1, 1996 and between that date and December 31, 1997, and
100% of its net losses and expenses on all of its business
occurring between January 1, 1996 and December 31, 1997. All of
Motor Club's net  premiums, losses and expenses during these same
periods, as applicable, were included in the pooled business. 
Motor Club then retroceded to Preserver 30% of the premiums, losses
and expenses subject to the Pooling, and retained the remaining
70%.  The Pooling does  not legally discharge the Insurance
Companies from their primary liability for the full amount of the
policies ceded.

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.

          The liabilities are adjusted accordingly with such
adjustments being reflected in the current year operations.  No
trends that are considered abnormal have been identified as of the
most recent evaluation date, December 31, 1998.

          The Insurance Companies generally reinsure all risks in
excess of $100,000 for property lines (increased from $75,000 for
losses incurred before July 1, 1997) and $150,000 for casualty
lines.

          The following table presents a reconciliation of
beginning and ending liability balances for 1998, 1997 and 1996,
reported under GAAP:
<TABLE>
<CAPTION>

       RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS EXPENSES
 <S>                                                      <C>       <C>       <C>

                                                           1998     1997      1996
                                                           ----     ----      ----
                                                           (Thousands of Dollars)
Liability for losses and loss expenses, net of
  reinsurance recoverables, at January 1                 $32,884   $28,114   $23,409 
Incurred losses and loss expenses
 Provision for current year claims                        32,598    29,369    28,244 
 Increase in provision for prior years'
  claims                                                   3,881     3,773       904 
                                                         -------   -------   ------- 
 Total incurred losses and loss expenses                  36,479    33,142    29,148 
                                                         -------   -------   -------
Payments for losses and loss expenses
 Payments on current year claims                          12,038    12,169    13,029 
 Payments on prior years' claims                          17,511    16,203    11,414 
                                                         -------   -------   -------
 Total payments for losses and loss expenses              29,549    28,372    24,443 
                                                         -------   -------   ------- 
Liability  for losses and loss expenses, net
  of reinsurance recoverables, at December 31             39,814    32,884    28,114 
Reinsurance recoverables on unpaid losses 
  and loss expenses, at December 31                       18,521    17,363    19,553 
                                                         -------   -------   -------
Liability for losses and loss expenses,
  gross of reinsurance recoverables,
  at December 31                                         $58,335   $50,247   $47,667 
                                                         =======   =======   =======
</TABLE>

          The reconciliation shows a 1998 deficiency of $3,881,000
in the liability recorded at December 31, 1997.  The deficiency is
primarily the result of; (1) initial net adverse development of
reserves at December 31, 1997 which is consistent with the
Registrant's loss development history; and (2) continuing adverse
development of losses incurred in 1996. 

          The Registrant believes that its 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.

          The Registrant believes 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.  The Registrant believes 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.  The
Registrant also believes that the Initial Development referred to
is generally consistent and identifiable in the table on page 16.

          The Registrant also believes that the 1996 adverse
development is attributable principally to losses which occurred in
1996, primarily in Motor Club's PPA book of business.  During 1996,
Motor Club's new PPA book of business was in its first twelve
months of development.  As is consistent with applicable New Jersey
statutes, no 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 improved.  Given the adverse development of this particular
year, it is possible that the Net Cumulative Deficiency for 1996
may not develop consistently with the other years described above,
but the Registrant does not believe that this is indicative of
prospective loss development for years after 1996.

          The differences between the liability for unpaid losses
and loss expenses reported in the Registrant's 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:
<TABLE>
<CAPTION>
  <S>                                     <C>          <C>        <C>

                                                    December 31,
                                           ----------------------------         
                                           1998         1997       1996
                                           ----         ----       ---- 
                                               (thousands of dollars)
Liability for unpaid losses and 
  loss expenses on a SAP basis
  (net of reinsurance recoverables
  on unpaid losses and loss expenses)     $43,111      $35,900    $30,686 
Reinsurance recoverables on unpaid
  losses and loss expenses                 18,521       17,363     19,553 
Anticipated salvage and subrogation
 recoveries                                (3,297)      (3,016)    (2,572)
                                          -------      -------    -------
Liability for unpaid losses and loss
  expenses, as reported in the
  Registrant's GAAP basis financial
  statements                              $58,335      $50,247    $47,667 
                                          =======      =======    =======
</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 16 presents the development of the GAAP
balance sheet liabilities for 1992 through 1998; data is presented
for those years in which the Insurance Companies had operations.

          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
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 1997, but incurred in 1993, will be included in
the cumulative deficiency for the 1997 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. 
<TABLE>
<CAPTION>

LOSS AND LOSS EXPENSE DEVELOPMENT (In Thousands)
<S>                                    <C>       <C>       <C>       <C>        <C>       <C>       <C>

Year ended December 31                  1992      1993      1994      1995       1996      1997      1998

Liability for unpaid
   losses and loss expenses, net
   of reinsurance recoverables        $28,469    $25,334   $22,356   $23,409    $28,114  $32,884  
$39,814
Net Liability Re-estimated as of:
One year later                         27,145     26,253    23,468    24,313     31,887   36,765      -   
Two years later                        28,563     26,766    23,813    25,759     33,848     -         -   
Three years later                      28,454     26,819    24,181    25,680       -        -         -   
Four years later                       28,702     26,572    23,759      -          -        -         -   
Five years later                       28,662     26,066      -         -          -        -         -   
Six years later                        28,516       -         -         -          -        -         -   

Net Cumulative Deficiency            ($    47)  ($   732) ($ 1,403) ($ 2,271)  ($ 5,734)($ 3,881)  $  - 
  
                                     ========   ========  ========  ========   ========
========   ======
Cumulative Amount of Liability Paid Through:

One year later                         12,314     12,311    11,106    11,414     16,203   17,511      -    
Two years later                        20,270     18,992    17,231    18,357     24,830     -         -    
Three years later                      24,546     23,032    20,821    22,164       -        -         -    
Four years later                       26,878     24,882    22,488      -          -        -         -    
Five years later                       27,642     25,373      -         -          -        -         -    
Six years later                        27,810       -         -         -

Net liability - December 31           $28,469    $25,334  $22,356    $23,409    $28,114  $32,884   
39,814 
Reinsurance recoverables               21,698     20,484   19,309     16,415     19,553   17,363   
18,521 
                                      -------    -------  -------    -------    -------  -------   ------- 
Gross liability - December 31         $50,167    $45,818  $41,665    $39,824    $47,667  $50,247  
$58,335 
                                      =======    =======  =======    =======    =======  =======  
======= 
</TABLE>

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 program permits greater
diversification of business and the ability to write larger
policies while limiting  maximum net losses; in addition, the
reinsurance program is designed to protect against catastrophic
losses.  Reinsurance does not legally discharge an insurer from its
primary liability for the full amount of the policies, 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
premiums and recoveries have been, and during the run-off period,
are being allocated to the participants in the Pooling according to
their respective participation percentages.

          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.  This
retention had been $75,000 until July 1, 1997.  In addition, the
Insurance Companies' catastrophe reinsurance program presently
covers substantially all of the losses in excess of $500,000 up to
$42.5 million.  The Company also maintains a 100% quota share
treaty for boiler and machinery coverage.

          Casualty reinsurance is currently maintained under an
excess of loss treaty affording recovery up to $3 million, in
excess of a retention of $150,000.  The Insurance Companies also
maintain 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.

          Effective January 1, 1999, Preserver purchased aggregate
stop  loss reinsurance for all of its lines of business which will
provide $3 million coverage in excess of a loss ratio of 67.5% (in
1999) after the application of all other reinsurance.  The treaty
is subject to experience adjustments over a three-year period and
pays Preserver for the time use of premiums paid to the reinsurer,
net of losses paid.  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.

          The Insurance Companies also maintained an 80% quota
share reinsurance agreement for their non-automobile policies
issued prior to February 19, 1994, until their expiration dates.

          The Insurance Companies considers numerous factors in selecting
reinsurers, the most important of which is the financial stability
of the reinsurer.  The Insurance Companies have not experienced any
collectibility problems for its reinsurance recoverables.

COMPETITION

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

          There are numerous companies competing for the coverages
which Preserver offers in New Jersey, many of which are
substantially larger and have considerably greater resources than
Preserver.  In addition, because Preserver's insurance products are
marketed exclusively through independent insurance agencies, most
of which represent more than one insurance company, Preserver faces
competition within each agency. 

          While Motor Club distributes its personal auto policies
similarly and thus faces the same issues as Preserver 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
also substantially restricts the ability of an insurer to terminate
its agencies, limiting Motor Club's ability to manage its agency
force for PPA.  Management believes 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

          Management has maintained, in its opinion, a conservative
investing philosophy.  The Registrant manages its 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, the Registrant's 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 the Registrant's investment policy were: (1) to reduce
the amount of interest risk in the portfolio; and (2) enhance
portfolio yield without unreasonably increasing credit risk.  The
Registrant believes these objectives have been accomplished.

          The Registrant does not invest in or hold any derivative
financial instruments.

          Tax exempt securities have not been acquired.  Management
believes that the current tax position of the Registrant, which
includes net operating loss 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 the financial instruments of the Registrant
relate to the investment portfolio, which exposes the Registrant to
risks related to interest rates, and to a lesser extent, credit
quality and prepayment.  The Registrant does 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.  The Registrant views
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 the
Registrant's fixed income investment portfolio after consideration
of these liabilities and other factors, which the Registrant
believes mitigates the overall effect of its exposure to interest
rate risk.

          At December 31, 1998 and 1997, the Registrant's
investment portfolio was comprised of the following types of
securities:
<TABLE>
<CAPTION>
<S>                           <C>           <C>     <C>          <C>

                               December 31, 1998     December 31, 1997 
                               -----------------     -----------------
                               Market                Market
                               Value       Percent   Value      Percent
                              -----------  -------  ----------- ----- 
Taxable Fixed Maturities      $69,594,904   91.6%   $56,831,444  88.1%
Short Term Investments          5,995,299    7.9%     7,150,000  11.1%
Mortgage Loans                    361,038    0.5%       522,555   0.8%
                              -----------  -----    ----------- ----- 
  Total Investment Portfolio  $75,951,241  100.0%   $64,503,999 100.0%
                              ===========  =====    =========== =====
</TABLE>

          At December 31, 1998 and 1997, the taxable fixed maturity
portfolio consisted of the following types of securities:
<TABLE>
<CAPTION>
  <S>                              <C>          <C>     <C>          <C>

                                    December 31, 1998    December 31, 1997
                                    -----------------    -----------------
                                    Market               Market   
                                    Value       Percent  Value       Percent
                                    ----------- ------- -----------  -------
  United States Treasuries         $18,669,055  26.8%   $29,205,469  51.3%
  United States Government
   Agencies                          4,476,576   6.5%     5,495,828   9.7%
  Mortgage-Backed Securities        11,213,589  16.1%    10,096,820  17.8%
  Asset-Backed Securities           10,805,970  15.5%        -        -   
  Corporate Bonds                   24,429,714  35.1%    12,033,327  21.2%
                                   ----------- -----    ----------- -----
    Total                          $69,594,904 100.0%   $56,831,444 100.0%
                                   =========== =====    =========== =====
</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, 1998 consist primarily of home equity loans.

          The taxable fixed maturity portfolio duration at December
31, 1998 and 1997 was 3.69 and 3.74 years, respectively.

          United States Treasuries are weighted towards maturities
of five years or less, to reduce interest rate risk and match the
Insurance Companies' claims payout ratio; 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 C in the Notes to Consolidated
Financial Statements ("Notes") for statistics regarding portfolio
maturity composition.

          The Registrant has not acquired, nor are there plans to
acquire, below investment grade or "junk" bonds.  Ninety-seven
percent of the fixed maturity portfolio as of December 31, 1998 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, 1998 and 1997, the Registrant's taxable
fixed maturity investment portfolio at market value by Moody's
rating was:
<TABLE>
<CAPTION>
   <S>                             <C>          <C>       <C>          <C>

                                  December 31, 1998      December 31, 1997
                                  -----------------      -----------------
                                    Market                Market 
                                    Value       Percent   Value       Percent
                                  ------------  -------   ----------- -------
  United States Government
   Securities                      $34,359,229  49.4%     $44,798,117  78.9%
  Aaa                               11,311,103  16.2%         500,000   0.9%
  Aa                                 7,504,082  10.8%       2,797,273   4.9%
  A                                 13,388,045  19.2%       7,078,067  12.4%
  Baa                                3,032,445   4.4%       1,657,987   2.9%
                                   ----------- -----      ----------- -----
    Total                          $69,594,904 100.0%     $56,831,444 100.0%
                                   =========== =====      =========== =====
</TABLE>

          The following table provides information about the
Registrant's taxable fixed maturity portfolio at December 31, 1998
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.
<TABLE>
<CAPTION>

             EXPECTED CASH FLOWS OF PRINCIPAL AMOUNTS
 <S>                   <C>          <C>          <C>          <C>         <C>    <C>            <C>        <C>

                                                                                                         TOTAL             
                                                                                         ---------------------------------- 
                         1999      2000         2001        2002      2003         Thereafter      COST       
VALUE 
                         ----      ----         ----        ----      ----         ----------      ----        ------
Taxable-- Other than
 mortgage- backed 
 securities          $5,587,108  $2,906,843  $4,648,076  $3,798,001 $1,912,271   $27,072,074 
$45,924,373 $47,575,345
   Average interest
    rate                    6.9%        6.7%        7.1%        6.6%        6.4%         6.4%         6.6%            
Mortgage- backed
 securities           1,613,735   1,198,588   1,035,728     847,843   1,111,715    5,246,077  
11,053,686  11,213,589
   Average interest
    rate                    7.1%        7.0%        7.0%        6.9%        6.6%         6.6%         6.8%            
Asset-backed
 securities             203,704   1,802,700   1,311,088   2,547,807   1,194,550    3,638,503  
10,698,352  10,805,970
   Average interest
    rate                    6.1%        6.3%        6.3%        6.4%        6.4%         6.5%         6.4%            
                     ----------  ----------  ----------  ----------  ----------  -----------  ----------- -----------   
Total                $7,404,547  $5,908,131  $6,994,892  $7,193,651  $4,218,536  $35,956,654 
$67,676,411 $69,594,904
                     ==========  ==========  ==========  ==========  ========== 
===========   ===========  ===========
</TABLE>

          Management anticipates continuing this minimum risk
approach to investing for the foreseeable future.  Management
believes that the mix of investments in both type and maturity
length is appropriate in order to preserve capital, take advantage
of investment opportunities as they are presented, and provide the
Registrant and its subsidiaries with sufficient liquidity to react
to economic and business circumstances as they evolve.

          The Registrant's investment portfolio yielded 6.30%,
6.41% and 6.25% in 1998, 1997 and 1996, respectively. Including
realized gains and losses, the investment portfolio yielded 6.34%,
6.41% and 6.26% in 1998, 1997 and 1996, respectively.

REGULATION

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

          New Jersey 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 or through reinsurance) for insureds who cannot obtain
insurance in the voluntary market.  The legislation creating these
programs 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 $254,000
and $191,000 were paid in 1998 and 1997, 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 to the Registrant.

          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 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 New Jersey as to the amount of dividends they may pay to
the Registrant without prior approval of the Commissioner of
Banking and Insurance.  To the extent that statutorily defined
surplus is available, the maximum dividend that may be paid by
either Motor Club or Preserver during any year without prior
regulatory approval is limited to the greater of 10% of that
Company's statutory surplus as of the prior December 31, or
adjusted net income of that Company, for the preceding year. 
Applying current regulatory restrictions as of December 31, 1998,
approximately $1.4 and $1.1 million in dividends would be available
for distribution by Motor Club and Preserver, respectively, to the
Registrant without prior regulatory approval during 1999.  During
1998, Motor Club paid $1 million in dividends to the Registrant. 
No dividends were paid in 1997 or 1996 by the Insurance Companies.

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 State of New Jersey.  The NAIC has codified SAP to afford
preparers and users of statutory basis financial statements a more
uniform application of SAP by insurers in differing states of
domicile.  It is not known whether regulatory authorities in the
State of New Jersey will recognize SAP as codified by the NAIC as
the approved basis of financial statement preparation for insurers
domiciled in the State.

          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 1998,
Motor Club did return two unusual values as a result of the Policy
Term Conversion which are not expected to recur.

          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
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 State of
New Jersey is 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 each
Insurance Company are in excess of that required, therefore
requiring no action.

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,
despite New Jersey having among the highest average premium rate 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 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, 1998 is 3.46 to 1.  However, this ratio is temporarily
elevated due to the aforementioned Policy Term Conversion.  It
appears that Motor Club's leverage ratio adjusted for the Policy
Term Conversion was below 3 to 1 at December 31, 1998.

          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 has not yet promulgated the regulations required
for insurers to file for an expedited rate increase; (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' 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 has been
implemented on all PPA policies with effective dates on and after
November 1, 1998.

          Additional PPA legislation was enacted in 1998 which: 1)
allows insureds to reduce levels of compulsory coverages, including
the option to reduce their coverage for Personal Injury Protection
("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 of 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 the 1998
legislation (with one exception) will start 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 will be implemented in 2000.  The Registrant believes that
the legislation will have 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.

          Consistent with New Jersey's regulatory and legislative
history, the enacted and proposed legislation, current rate freeze
and ongoing volatility could adversely affect the Registrant's
long-term profitability in the PPA line of business.

          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.  It would appear
that presently Motor Club does not have such excess profits.

          The Insurance Companies were subject to certain
assessments in the State of New Jersey, the most substantial of
which had been the FAIR Act surtaxes and assessments commencing in
1990; the surtaxes expired after 1992 and the assessments expired
after 1997.  FAIR Act assessments totaled $971,000 and $962,000 in
1997 and 1996, respectively.

MOTOR CLUB OPERATIONS
---------------------
          On December 2, 1996, the Registrant sold Motor Club of
America Enterprises, Inc. ("Enterprises") to JVL Holding
Properties, Inc. ("JVL"), a non-affiliated Oklahoma corporation,
for $1,125,000, resulting in a gain of $702,000.

          Pursuant to an additional agreement entered into
concurrent with the sale of Enterprises, the Registrant provides
certain services to Enterprises' members whose memberships are
written with PPA policies written by Motor Club.  In exchange, the
Registrant receives a servicing fee from JVL.  The Registrant also
receives certain fees for other memberships written by Enterprises,
as defined by this additional agreement.  The Registrant earned
$134,000 and $143,000 in fees from this agreement in 1998 and 1997,
respectively.

YEAR 2000
---------
          The Registrant has been addressing the issues resulting
from computer programs which use two digits, rather than four
digits to define a year and which may be affected by the use of
dates after January 1, 2000 ("Y2K Issue"). The Registrant has
divided the Y2K Issue into the following three areas: (1) Internal 
Technology; (2) External Technology; and (3) Insurance Issues.

          The Internal Technology section pertains to the
Registrant's internal technology systems, including hardware,
operating and applications software, telecommunications systems and
other technology controlled or developed by the Registrant
("Business Critical Internal Technology"). These systems include
the Insurance Companies' rating and policy processing, billing,
claims, management reporting and supporting applications. Internal
Technology also includes the Registrant's financial, administrative
and telecommunications technology systems ("Other Internal
Technology").

          The Registrant utilizes an AS/400 computer platform along
with various Local Area Networks ("LAN's") and personal computers
("PC's") to operate its Internal Technology.  The operating
software for the AS/400 is currently Y2K compliant.  LAN's and PC's
will be certified as Y2K compliant no later than July 1, 1999. 
Implementation of operating software has and will include testing
systems operating together using aged data and critical future
dates.

          As of December 31, 1998, the Registrant had completed
conversion of and had placed in production versions of the Policy
Management Systems Corporation Point ("PMSC Point") system which
was Y2K compliant for its billing, claims and certain management
reporting systems which the Registrant utilizes. Implementation of
the PMSC Point software applications included testing production
systems operating together using aged data and critical future
dates.

          As of December 31, 1998, the Registrant had completed
conversion of and had placed in production versions of its rating
and policy processing systems which were Y2K compliant for all of
the Insurance Companies' business.  Implementation of these
software applications included testing production systems operating
together using aged data and critical future dates.

          The Registrant is currently converting the remainder of
its management reporting not emanating from the PMSC Point system
to Y2K compliant versions and expects to be completed by July 1,
1999; this process is presently 95% complete. The Registrant is
also presently converting its Other Internal Technology to Y2K
compliant versions and expects to be completed by July 1, 1999.
Implementation of these software applications will include testing
production systems operating together using aged data and critical
future dates as applicable.

          The Registrant has been able to continue to design, test
and implement other projects related to its Internal Technology
while addressing the Y2K Issue.

          The Registrant has been assessing its External Technology
exposure to the Y2K Issue during 1998 and continues to do so in
1999. This ongoing assessment includes: (1) inventorying all
operating systems and processes which are not related to its
Internal Technology and rely on embedded technology not controlled
by or developed by the Registrant and provided by a third-party
vendor, supplier or business partner ("Business Partners"); and (2)
communicating in  detail with the Business Partners as to their
individual Y2K readiness. The Registrant has received responses
from all such Business Partners. The Registrant will continue to
identify and communicate with Business Partners as it conducts
business up to, through and beyond the Year 2000 as to the Business
Partners' Y2K readiness.

          The Registrant has also been assessing what action, if
any, is required to limit and or eliminate the Registrant's
exposure to Y2K Issues emanating from Insurance Issues. These
issues primarily relate to coverage questions which may emerge from
insurance policies issued by the Insurance Companies. It is the
position of the Registrant that most of the claims for losses
related to the Y2K Issue are not covered by insurance policies
issued by the Insurance Companies. This position is consistent with
that taken by insurance companies regarding coverage and Y2K
Issues. Exposure to the Y2K Issue primarily relates to commercial
insurance policies issued by Preserver. 

          Preserver is also taking the following steps related to
Insurance Issues: 1) it has notified its commercial insureds that
they may have Y2K Issues which they need to address which are not
covered by their commercial insurance policies; 2) it has notified
its agents of these exposures their insureds may have and provided
them with the notice being sent to insureds; and 3) commercial
insurance policies (not including automobile) effective on and
after December 31, 1998, will include policy language which
specifically excludes coverages related to Y2K Issues.

          The Registrant has expended less than $250,000 to address
Y2K Issues, almost all of it in 1998, consisting primarily of costs
of internal resources. Estimated costs to complete work related to
the Y2K Issue are currently less than $250,000.  The Registrant has
combined Y2K conversion efforts to its Internal Technology with
required enhancements not related to Y2K to the Insurance
Companies' rating and policy processing, billing, claims and
management reporting applications, thereby minimizing the cost of
Y2K conversion.

          The Registrant believes that it has provided adequate
time and resources to correct problems related to Internal
Technology, and is continually assessing the most reasonably likely
worst case Y2K scenario, which is currently believed to be if
Business Critical Internal Technology reveals problems which were
not identified in testing and implementation of Y2K compliant
versions of  Business Critical Internal Technology. Under such a
scenario, the contingency plan is to devote more internal resources
to solving such problems in a timely manner so that delays in
processing transactions are avoided or minimized.

          The Registrant does have risk that External Technology
will suffer Y2K problems. Responses to the Registrant's Y2K
communications to date with its Business Partners have not revealed
any Y2K readiness issues; however, the Registrant will continue to
communicate with its Business Partners during 1999 and will develop
contingency plans as appropriate. 

          The Registrant does have risk that its coverage positions
regarding Insurance Issues will be challenged in court, or that
court decisions regarding coverage involving other insurers will be
applied to the Insurance Companies' policies. 

          The risks associated with the Registrant's Internal
Technology, External Technology and Insurance Issues with regard to
the Y2K Issue could result in an interruption in, or a failure of,
certain normal business activities or operations, in addition to
increased amounts of losses and loss expenses incurred. This could
materially and adversely affect the Registrant's results of
operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K Issue, the Registrant is unable to
determine at this time whether the consequences of Y2K failures
will have a material impact on the Registrant's results of
operations, liquidity and financial condition. The Registrant's
efforts to address the Y2K Issue are expected to significantly
reduce its level of uncertainty about the Y2K Issue. The Registrant
believes that, with the steps described herein, the possibility of
significant interruptions of normal operations should be reduced. 

          This disclosure regarding the Y2K Issue contains
statements which are forward looking and that involve risks and
uncertainties and qualify for the statutory safe harbor under the
Private Securities Litigation Reform Act of  1995.  Future
activities related to the Y2K Issue may not adhere to the
anticipated schedule and cost estimates because the Registrant may
encounter : (1) more problems than anticipated in bringing its
Internal Technology in compliance with the Y2K Issue and not be
able to provide adequate resources to address those problems; (2)
unexpected problems with External Technology due to Business
Partners who are not able to be in compliance with the Y2K Issues
despite their communications with the Registrant to the contrary;
and (3) public policy decisions related to Insurance Issues which
adversely affect the Registrant's operations.

EMPLOYEES
---------
          At December 31, 1998, the Motor Club of America Group had
approximately 95 employees.

Item 2. Properties
------------------
          Effective January 1, 1996, the Registrant entered into a
lease at 95 Route 17 South, Paramus, New Jersey.  The Registrant's
home office is located at this facility.  The lease expires on
December 31, 2005.  The Registrant has an option to terminate the
lease after six years, and an option to extend the lease for an
additional five years after the initial lease term expires. 

Item 3.  Legal Proceedings
--------------------------
          The Insurance Companies are a party to numerous lawsuits
arising in the ordinary course of their insurance business.  The
Registrant believes 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 1998.

Item Pursuant to Instruction 3 to Paragraph (b) of Item 401 of
-------------------------------------------------------------
Regulation S-K. Executive Officers of the Registrant.
-----------------------------------------------------
          At December 31, 1998, the executive officers of the
Registrant and their offices with the Registrant and principal
occupations were as follows:
<TABLE>
<CAPTION>
<S>              <C>     <C>    <C>                         <C>

                                                                Years in
                                                             Which Officer
                                                               Has Served
                                 Office and Principal             as
     Name               Age           Occupation                 Such(3)  
     -----              ---      --------------------        -------------
Archer McWhorter (1)     77     Chairman of the Board of
                                Directors and Director of 
                                the Registrant and Companies
                                in the Motor Club of America
                                Group                          1986-1998

Stephen A. Gilbert (2)   59     President, Chief Executive 
                                Officer, General Counsel and
                                Director of the Registrant and
                                Companies in the Motor Club of 
                                America Group                  1975-1998

Patrick J. Haveron (2)   37     Executive Vice President, Chief
                                Financial Officer and
                                Director of the Registrant and
                                Companies in the Motor Club of 
                                America Group; Treasurer of 
                                Motor Club of America Insurance
                                Company and Preserver Insurance
                                Company                        1988-1998

Peter K. Barbano         48     Vice President, Secretary
                                and Associate General Counsel  1993-1998

Myron Rogow              55     Vice President                 1987-1998 

G. Bruce Patterson       54     Vice President                 1989-1998 

Charles J. Pelosi        53     Vice President                 1983-1998 

Norma Rodriguez          49     Treasurer                      1984-1998 
</TABLE>


(l)  Chairman of the Board of Directors of Companies in the
     Motor Club of America Group; from 1995 to March 1997,
     Director of National Car Rental Systems, Inc. and
     affiliated corporations, a car rental enterprise ("NCR");
     from 1995 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 1999 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
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 1997 and 1998, as reported
by the NASDAQ:
<TABLE>
<CAPTION>
          <S>  <C>                              <C>      <C>

          1997
          Quarter                               High     Low
          I    ..............................   11 5/8   9 1/2
          II   ..............................   14 1/2   9 7/8
          III  ..............................   14 1/2   11 7/8
          IV   ..............................   14 1/2   12 1/4 

          1998
          Quarter                               High     Low
          I    ..............................   17 1/2   13 5/8
          II   ..............................   17 5/8   15    
          III  ..............................   15 3/4   10    
          IV   ..............................   15 1/4   11 1/2

</TABLE>

          There were approximately 483 holders of record of the
Common Stock of the Registrant as of December 31, 1998.  The
Registrant paid no dividends in 1997 and 1998.
<TABLE>
<CAPTION>

<S>                                  <C>       <C>         <C>       <C>        <C>

Item 6.  Selected Financial Data
--------------------------------
                                                    Years ended December 31,
                                       ----------------------------------------------- 
                                       1998       1997        1996       1995     1994 
                                          (in thousands, except as to per share data)
Operating Results:
Revenues from operations             $ 53,347  $ 51,102    $46,525   $36,703    $29,471
Realized gains (losses) on sale
 of investments                            28       -            5        57        (43)
Realized gain on sale of
 subsidiary                               -         -          702       -          -   
Net investment income                   4,305     3,595      3,087     2,764      2,730 
                                     --------  --------    -------   -------    -------   
Total revenues                       $ 57,680  $ 54,697    $50,319   $39,524    $32,158 
                                     --------  --------    -------   -------    -------
Income before
  federal income taxes               $  5,719  $  4,630    $ 3,297   $ 2,455    $ 5,039 
                                     --------  --------    -------   -------    -------
Net income                           $  4,256  $  3,403    $ 5,330   $ 2,417    $ 5,035 
                                     ========  ========    =======   =======    =======
Financial Condition:

Total assets                         $131,013  $101,347    $95,533   $81,959    $79,172 
Shareholders' equity                 $ 27,824  $ 23,001    $18,786   $14,081    $10,546 

Per Common Share:

Net income - Basic                   $  2.02   $   1.68    $  2.61   $  1.18    $  2.46  
Net income - Diluted                 $  2.01   $   1.66    $  2.56   $  1.17    $  2.46 
Book Value                           $ 13.15   $  10.98    $  9.17   $  6.89    $  5.16 

Weighted average number of
  shares outstanding:
  Basic                            2,108,722  2,074,473  2,045,590 2,043,197  2,043,004 
  Diluted                          2,121,366  2,102,395  2,081,080 2,061,791  2,043,004

Significant Insurance Indicators: 

Net premiums written                 $64,303   $ 51,680    $47,337   $38,073    $31,797 
Loss and loss expense ratio            68.6%       65.1%      64.5%     58.7%      54.8% 
Expense ratio                          29.1%       33.3%      37.9%     43.9%      39.3% 
                                       ----        ----      -----     -----
Combined ratio                         97.7%       98.4%     102.4%    102.6%      94.1% 
                                       ====        ====      =====     =====
</TABLE>


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

OVERVIEW OF BUSINESS OPERTIONS
------------------------------

          The Registrant and a group of affiliated corporations
provide property and casualty insurance related services.  The
Registrant also operated until December 1, 1996 a motor club
through Enterprises.  One hundred percent of the Registrant's
insurance operations are presently in the State of New Jersey. 

          The Registrant has two subsidiaries which write property
and casualty insurance, Motor Club and Preserver.  Motor Club
writes PPA business; Preserver writes small commercial, homeowners
and ancillary coverages.  The Insurance Companies are domiciled in
the State of New Jersey.

          The Registrant seeks to: (1) increase its identification
as a provider of small commercial lines insurance; and (2) expand
and diversify its insurance operations outside the State of New
Jersey.  The Registrant believes 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.  The Registrant expects to continue to
pursue these objectives during 1999 and beyond.

          On March 16, 1999, the Registrant signed a definitive
Agreement and Plan of Merger ("Merger Agreement") to acquire North
East through a merger of a wholly-owned subsidiary of the
Registrant with and into North East ("Merger").  North East is a
NASDAQ listed property and casualty insurance company,
headquartered in Scarborough, Maine and trading under the symbol
NEIC.

          Under the terms of the Merger Agreement, North East
shareholders will receive, at their individual election, (a) $3.30
per share of North East common stock, (b) one share of the
Registrant's common stock for each 5.25 shares of North East common
stock, or (c) a combination thereof.  If the North East
shareholders in the aggregate elect to exchange more than 50% of
their shares for the Registrant's stock, the aggregate percentage
will be ratably reduced to 50%.  

          Consummation of the Merger is subject to the satisfaction
of certain conditions set forth in the merger agreement, including
approval from the shareholders of the Registrant and North East and
authorization by state insurance regulators.  Both the Registrant
and North East expect that these conditions will be satisfied in
due course.

          The Registrant anticipates continuing revenue growth in
the State of New Jersey through small commercial and ancillary
coverages written by Preserver as well as through new PPA writings
by Motor Club.

          The Registrant also anticipates continued reductions in
its operating expenses, namely through the implementation of
operating efficiencies which should reduce other overhead
expenditures.

          Historically, the Insurance Companies' results of
operations have been influenced by factors affecting the property
and casualty insurance industry in general and the New Jersey PPA
market in particular.  The operating results of the U.S. property
and casualty insurance industry have 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
---------------------

          The table below reconciles operating net income to
reported net income for 1996 with adjustments for certain
unusual and non-recurring items (all per share amounts shown
are basic):
<TABLE>
<CAPTION>
<S>                                 <C>            <C>     <C>            <C>      <C>            <C>

                                            1998                   1997                    1996
                                           -----                  -----                    ----
                                      Amount    Per Share    Amount    Per Share     Amount    Per Share
                                      ------    ---------    ------    ---------     ------    ---------
                                                                                   
Operating net income                $4,255,791     $2.02   $3,482,702     $1.68    $3,436,343     $1.69
Lease termination charge (1)             -           -          -           -        (359,077)    (0.18)
Non-recurring tenancy and
  relocation charges (2)                 -           -          -           -        (327,916)    (0.16)
Reinsurance settlement (3)               -           -          -           -        (197,196)    (0.10)
Sale of Enterprises (4)                  -           -          -           -         702,419      0.34
Deferred tax asset recognition (5)       -           -          -           -       2,075,535      1.02
                                    ----------     -----   ----------     -----    ----------     -----
Net income                          $4,255,791     $2.02   $3,482,702     $1.68    $5,330,108     $2.61
                                    ==========     =====   ==========     =====    ==========    
=====
</TABLE>

(1)  This non-recurring charge was incurred in connection with the
     termination of the lease of the office building in which the
     Registrant and its subsidiaries formerly operated.

(2)  These non-recurring charges were incurred in connection with
     the Registrant's tenancy at its former office building and its
     subsequent relocation.

(3)  This non-recurring charge was incurred in connection with the
     settlement of a previously reported dispute with a reinsurer
     of Motor Club.

(4)  This is a non-recurring gain.

(5)  The Registrant believed that it was more likely than not that
     it will generate future taxable income to realize the benefits
     of the net deferred tax asset, which consists primarily of net
     operating loss carryforwards.  The Registrant accordingly
     eliminated the valuation allowance on its net deferred tax
     asset in 1996, resulting in a benefit to net income.  The
     ultimate amounts realized, however, could be reduced if actual
     amounts of future taxable income differ from projected future
     taxable income.

1998 COMPARED to 1997

          The 22% increase in net income was largely due to the
elimination of FAIR Act assessments paid through 1997, when
$971,000 in expenses were incurred for this assessment.  Absent the
FAIR Act assessments in 1997, pre-tax income increased $118,000 or
2% in 1998 as compared to 1997, due to continuing improvements in
the combined ratio and higher revenues for Preserver, higher
investment income, offset by higher combined ratios for Motor Club
due to the increasing effects of the new PPA business which it has
written.

          Insurance premiums increased by $2,298,000 or 5% during
the year, due primarily to commercial lines premiums written by
Preserver and savings on reinsurance programs. The following table
details the increases in Insurance Premiums:
<TABLE>
<CAPTION>
            <S>                           <C>        <C>
                                           Increase in 
                                          Net
            Class of Business           Premium    Percent
            ----------------            --------   -------
            Private Passenger
              Automobile               $  659,000     2%
            Commercial Lines              951,000    14%
            Personal Property             688,000    14%
                                       ----------    --
                 Total                 $2,298,000     5%
                                       ==========    ==
</TABLE>

          The Registrant continues to write new amounts of personal
lines business, both PPA by Motor Club and Homeowners by Preserver. 
However, the growth in these respective lines of business is at  a
slower rate than the Commercial Lines business written by
Preserver, which is expected to continue in 1999 and beyond.

          Net investment income increased $710,000 or 20% resulting
from an increase in invested assets. Average invested assets (at
amortized cost) were $68,374,000 during 1998 as compared to
$56,239,000 during 1997. The increase in insurance premiums noted
above, combined with the Note Payable discussed in Liquidity and
Capital Resources, provided the increase in invested assets. Other
revenues decreased $53,000 or 24%, due to declines in mortgage loan
revenue, servicing fee income and other miscellaneous income items.

          Losses and loss expenses incurred increased by $3,338,000
or 10%, which produced the following loss and loss expense ratios:
<TABLE>
<CAPTION>
               <S>                  <C>         <C>

                                    1998        1997
                                    ----        ----
               Motor Club           71.6%       66.8%
               Preserver            59.6%       59.7%
                    Total           68.6%       65.1%
</TABLE>

          Despite the higher loss and loss expense ratio on a
comparative basis, no significant adverse trends were experienced
or identified during 1998.

          The increase in Motor Club's PPA loss and loss expense
ratio is largely due to the new business written by Motor Club
since January 1995 which constituted 53% of Motor Club's total PPA
business as of December 31, 1998. The Registrant has reserved the
ultimate development of this new business at a loss and loss
expense ratio of approximately 78%; the underlying loss development
to date for each accident year on this new business has supported
the ultimate development selected, with the exception of Accident
Year 1996, which has developed approximately 25% worse than
anticipated.  This has been the primary cause of some initial
deficient development in the Registrant's loss reserves in 1997 and
1998.  However, the Registrant believes that the 1996 Accident Year
experience is not indicative of the overall book of business and
subsequent accident year development continues to support the
ultimate loss ratios utilized.

          As the Registrant continues to write additional new PPA
business, PPA loss and loss expense ratios should generally
continue to trend higher, although within levels that should remain
profitable. However, the effects of the 1997 and 1998 PPA reforms
continue to be uncertain as to their ultimate outcome.  As noted
previously, the Registrant believes that the collective effect of
these reforms to be a modest net negative.  During 1999 however,
PPA revenue may decline on a per policy basis and its combined
ratio may increase as a result of the reforms.

          Preserver continues to experience stable loss and loss
expenses and loss ratios.  During September 1998, severe storms
struck New Jersey, resulting in $217,000 in losses to Preserver
which increased its loss ratio by 2 points during 1998.  Frequency
of losses remains at acceptable levels for all lines of Preserver's
business.

          More than half of the $1,787,000 or 12% decrease in
acquisition costs is attributable to the 1998 elimination of the
FAIR Act assessments previously paid, which totaled $971,000 in
1997. The remainder of the decrease is attributable to the
temporary effects of the Policy Term Conversion, which has resulted
in additional expenses being deferred to reflect the increase in
unearned premiums through December 31, 1998.  This circumstance is
temporary as noted, and the amount of expense amortized in 1999
related to acquisition expenses may rise in conjunction with the
completion of the Policy Term Conversion.

          The $343,000 or 20% increase in other operating expenses
is due to increased expenditures related to the Registrant's merger
and acquisition efforts along with expenditures to comply with the
PPA reforms being implemented in New Jersey.

          This decrease in net expenses is the realization of the
Registrant's previously stated strategy to increase its revenue while 
decreasing its overhead expenditures and has resulted in a decrease in the
expense ratio to 29.1% in 1998 as compared to 31.4% in 1997 (as
adjusted for the FAIR Act assessments described above).

          The Registrant expects to reduce its expenses and expense
ratio further in the long-term by pursuing further automation of
its policy processing functions, particularly as relates to data
provided by and to its independent agents.  During 1997, the
Registrant converted its information systems to a smaller, more
contemporary computing platform which will allow for more efficient
operations and lower maintenance costs.  The Registrant expects to
continue the efforts made previously to reduce all unnecessary
overhead expenditures.

          However, during 1999, the aforementioned completion of
the Policy Term Conversion, in conjunction with the rate rollback
required under the 1998 PPA reforms, may increase the Registrant's
expense ratio.  Although the Registrant anticipates that the net
impact of these reforms will be a modest net negative, the impact
of these reforms on premiums, losses, expenses or related financial
ratios cannot be completely quantified.

          The Registrant's book value increased to $13.15 per share
at December 31, 1998 from $10.98 per share at December 31, 1997. 
The principal sources of the net increase were:  (1) net income of
$4,256,000 or $2.02 per share described previously; (2) $159,400 or
$.08 decrease per share due to the increase of the minimum required
pension liability for the defined benefit pension plan sponsored by
the Registrant; and (3) $668,400 or $.32 per share increase due to
the increase (net of applicable deferred taxes) in the fair value
of the fixed maturity investments accounted for as available-for-sale
securities under SFAS No. 115 ("Accounting for Certain Investments in 
Debt and Equity Securities"). 

          These increases in book value were offset by the dilutive
effects ($.09 per share) of the issuance of 22,000 shares of common
stock upon exercise of employee stock options granted under the
1987 and 1992 Stock Option plans.  See Note O of the Notes for
additional information regarding the Registrant's stock option
plans.

          The increase in the minimum pension liability was the
result of a decrease in the discount rate used to compute Plan
liabilities to 6.75% at December 31, 1998, from 7.25% at December
31, 1997, offset by the performance of the Plan assets in excess of
the expected return on these assets. See Note K of the Notes for
additional information regarding the Registrant's minimum pension
liability.

1997 COMPARED TO 1996

          In 1997, increased Federal tax expense reduced operating
net income by $1,105,000 as a result of utilization of the deferred
tax asset recognized in 1996 as noted in the table. Operating net
income was also reduced in 1996 by the effects of winter storms,
which increased losses by $635,000. Excluding these items, the
increase in operating net income of $517,000 or 13% was due to
continuing revenue growth and a stable combined ratio. The combined
ratio was 98.4% in 1997 as compared to 99.1% in 1996 (adjusted for
the non-recurring items noted).  Insurance premiums increased by
$5,684,000 or 13% during the year, due primarily to increased
earnings of personal auto premiums written by Motor Club. The
following table details the increases in Insurance Premiums:
<TABLE>
<CAPTION>
              <S>                      <C>           <C>

                                           Increase in 
                                          Net
            Class of Business           Premium    Percent
            Private Passenger
              Automobile               $4,040,000    12%
            Commercial Lines            1,175,000    21%
            Personal Property             469,000    11%
                 Total                 $5,684,000    13%
          
          The increases in Commercial Lines and Personal Property
premium were enhanced by $331,000 in savings on reinsurance
programs which principally affected Preserver and were implemented
effective July 1, 1997. Preserver also increased its retention for
property excess of loss reinsurance at that date from $75,000 to
$100,000, which contributed to the reduction in rate. 

          Net investment income increased $507,000 or 16% resulting
from an increase in invested assets. The increase in insurance
premiums noted above provided the increase in invested assets.
Other revenues increased $110,000 or 95%, primarily as a result of
servicing fees earned by the Registrant in 1997 on the Motor Club
membership program after the sale of Enterprises in December 1996.

          Losses and loss expenses incurred increased by $3,993,000
or 14%, which produced the following loss and loss expense ratios:
                                    1997        1996
               Motor Club           66.8%       61.4%
               Preserver            59.7%       75.5%
                    Total           65.1%       64.5%
</TABLE>

          Despite the higher loss and loss expense ratio on a
comparative basis, no significant adverse trends were experienced
or identified during 1997.

          The increase in Motor Club's PPA loss and loss expense
ratio is largely due to the new business written by Motor Club
since January 1995.  The Registrant reserved the ultimate
development of this new business at a loss and loss expense ratio
of 78%. 

          During 1996, winter storm losses of $635,000 increased
Preserver's loss ratio from 69.2% to 75.5%.  The remaining
improvement in Preserver's loss ratio during 1997 was attributable
to reduced amounts of losses, particularly large losses greater
than $35,000. Frequency of losses remains at acceptable levels for
all lines of Preserver's business.

          The increase in acquisition costs of $1,483,000 or 11%
generally corresponds with the increase in insurance premiums noted
above, although the rate of increase was slightly lower due to
savings on net commissions realized in 1997. During 1998, the FAIR
Act assessments previously paid were eliminated. These assessments
totaled $971,000 and $962,000 in 1997 and 1996, respectively.

          Excluding the non-recurring items in 1996 noted in the
table, which includes the lease termination charge, other operating
expenses declined $1,282,000 or 42%, due to lower overhead
expenditures.

          The decrease in expenses allowed for a decrease in the
expense ratio (as adjusted for the non-recurring charges described
above) to 33.3% as compared to 36.0%.  

          The Registrant's book value increased to $10.98 per share
at December 31, 1997 from $9.17 per share at December 31, 1996. 
The principal sources of the net increase were:  (1) net income of
$3,483,000 or $1.68 per share described previously; (2) $161,800 or
$.08 increase per share due to the reduction of the minimum
required pension liability for the defined benefit pension plan
sponsored by the Registrant; and (3) $327,700 or $.16 per share
increase due to the increase (net of applicable deferred taxes) in
the fair value of the fixed maturity investments accounted for as
available-for-sale securities under SFAS No. 115 ("Accounting for
Certain Investments in Debt and Equity Securities"). 

          These increases in book value were offset by the dilutive
effects ($.11 per share) of the issuance of 46,925 shares of common
stock upon exercise of employee stock options granted under the
1987 and 1992 Stock Option plans.  See Note O of the Notes for
additional information regarding the Registrant's stock option
plans.

          The reduction in the minimum pension liability was the
result of the performance of the Plan assets in excess of the
expected return on these assets, offset by a decrease in the
discount rate used to compute Plan liabilities to 7.25% at December
31, 1997, from 7.50% at December 31, 1996.  See Note K of the Notes
for additional information regarding the Registrant's minimum
pension liability.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
          The Insurance Companies' need for liquidity arises
primarily from the obligation to pay claims.  The primary sources
of liquidity are premiums received, collections from reinsurers and
proceeds from investments.

          Reserving assumptions (except as noted in Loss Reserves)
and payment patterns of the Insurance Companies did not materially
change from the prior year and there were no unusually large
retained losses resulting from claim activity.  Unpaid losses are
not discounted.

OPERATING AND INVESTING ACTIVITIES

          Net cash provided by operating activities was
$10,547,000, $10,389,000 and $6,851,000 in 1998, 1997 and 1996,
respectively.  The higher amounts in these years are attributable
to the growth in premium revenue combined with the reduction in
overhead expenses described previously. 

          Net cash utilized in investing activities was
$11,054,000, $13,886,000 and $6,015,000 in 1998, 1997 and 1996,
respectively.  The amounts used reflect the investment of cash
provided by operating activities; the amounts used in 1996 were
offset by the $1,125,000 proceeds from the sale of Enterprises
described previously.  

          Aside from the changes in operating expenditures noted
previously, particularly the State mandated assessments related to
the FAIR Act, no unusual or nonrecurring operating expenditures
have been incurred over this period.

          The Registrant's cash and cash equivalents at year end
1996 were enhanced by the proceeds of the sale of Enterprises.  As
part of its strategy to expand and diversify its insurance
operations, the Registrant seeks to increase the level of cash and
cash equivalents available to enable the execution of this
strategy.

          The payout ratio of losses has not fluctuated
substantially over this period.  Cash flow from operations is
expected to continue to increase as the Registrant increases its
revenue through additional premium writings, specifically
commercial lines and PPA, and continues to reduce its 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

          The Registrant paid no dividend on its common stock in
1998, 1997 and 1996.   

          On September 30, 1998, the Registrant borrowed $3 million
from Dresdner Bank, AG (the "Loan").  The Loan assisted the
Registrant with certain internal restructuring of its organization,
in order to improve the prospects of Preserver to attain its own
separate rating from Best, which was achieved in January 1999.
Please refer to Note G in the Notes to Consolidated Financial
Statements for further information on the Loan.

          In connection with its announced acquisition of North
East, the Registrant may borrow up to $10 million additional funds
in either the public or private securities markets. While such a
borrowing is not expected to have a material effect on the
Registrant's financial condition or results of operations, credit
terms have not been agreed upon.  The cost of the any such
borrowing is subject to rising interest rates and economic
downturns. The Registrant has no other material outstanding capital
commitments which would require additional financing.

RECENT ACCOUNTING PRONOUNCEMENTS
 
          In June 1998, Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued and established standards for accounting
and reporting of derivative instruments and hedging activities. 
The Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.  The Registrant is in the process of
determining the effect, if any, of this Statement on its financial
statements.

          In December 1997, the Accounting Standards Executive
Committee of the American Institute of the American Institute of
Certified Public Accountants ("AcSEC") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance Related Assessments."  This Statement provides guidance
for the recording of a liability for insurance related assessments. 
The Statement requires that a liability be recognized in certain
defined circumstances. The Registrant believes that the impact of
this Statement on its results of operations, financial condition or
liquidity will not be significant.  This Statement is effective for
the year commencing January 1, 1999.  

          In October 1998, AcSEC issued SOP 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That
Do Not Transfer Insurance Risk."  This Statement identifies several
methods of deposit accounting and provides guidance on the
application of each method.  This Statement classifies insurance
and reinsurance contracts for which the deposit method is
appropriate as contracts that (i) transfer only significant timing
risk, (ii) transfer only significant underwriting risk, (iii)
transfer neither significant timing nor underwriting risk, and (iv)
have an indeterminate risk. This Statement is effective for
financial statements for the year commencing January 1, 2000. 
Restatement of previously issued financial statements is not
permitted.  The Registrant does not believe the Insurance
Companies' reinsurance contracts would require the deposit method
of accounting.

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, 1998, 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:
                                                                       
                                                 Page (s)
                                                 --------
Report of Independent Accountants                 F-1
Consolidated Balance Sheets at December 31,
   1998 and 1997                                  F-2
Consolidated Statements of Operations for
  the years ended December 31, 1998, 1997
  and 1996                                        F-3
Consolidated Statements of Shareholders'
  Equity for the years ended December 31,
  1998, 1997 and 1996                             F-4  
Consolidated Statements of Cash Flows
 for the years ended December 31, 1998,
 1997 and 1996                                    F-5 to F-6 
Notes to Consolidated Financial Statements        F-7 to F-36

     (2)  The following financial statement schedules for the years
          1998, 1997 and 1996 (pursuant Rule 5-04 of Regulation S-X) are
          presented herewith: 

Schedule I -   Summary of Investments- Other than 
               Investments in Related Parties*    F-37
Schedule II -  Condensed Financial Information
               of Registrant                      F-38 to F-40
Schedule IV -  Reinsurance*                       F-41
Schedule V -   Valuation and Qualifying 
               Accounts and Reserves              F-42
Schedule VI -  Supplemental Information 
               Concerning Property/
               Casualty Insurance 
               Operations*                        F-43

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

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.
<TABLE>
<CAPTION>

 <S>        <C>                                  <C>  
         (b)  Exhibits:

Exhibit No.             Description                  Reference

 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 Club      Exhibit 3-m to Motor
            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        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-e        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-f        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-g       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-h        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-i        $3 Million Senior Unsecured         Page 65 to Page 124
            Revolving Credit Facility between   
            Motor Club of America and Dresdner
            Bank, AG and related documents
                                                
22          Subsidiaries of Motor Club of
            America                             Page 125
</TABLE>

          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:  March 30, 1999             By  s/Stephen A. Gilbert
                                        Stephen A. Gilbert
                                        President, Chief Executive
                                        Officer, General Counsel
                                        and Director

Dated:  March 30, 1999             By  s/Patrick J. Haveron
                                        Patrick J. Haveron
                                        Executive Vice President,
                                        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:  March 30, 1999             By  s/Archer McWhorter        
                                    Archer McWhorter
                                    Chairman of the Board
                                    and Director


Dated:  March 30, 1999             By  s/Alvin E. Swanner        
                                    Alvin E. Swanner
                                    Director 


Dated:  March 30, 1999             By  s/William E. Lobeck,Jr.  
                                    William E. Lobeck, Jr.
                                    Director




                      MOTOR CLUB OF AMERICA

     Exhibit (22) Subsidiaries of the Registrant.

     The following are the subsidiaries of the Registrant as of
March 26, 1999:
                                                  State of
          Name                                  Organization

     Motor Club of America Insurance Company      New Jersey

     Preserver Insurance Company                  New Jersey
 




                      REPORT OF INDEPENDENT ACCOUNTANTS
                      ---------------------------------


To the Board of Directors of
Motor Club of America:



In our opinion, the consolidated financial statements listed
in the index appearing under Item 14(a)(1) on page 61 present
fairly, in all material respects, the financial position of
Motor Club of America and Subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting
principles.  In addition, in our opinion, the financial
statement schedules listed in the index appearing under Item
14(a)(2) on page 61 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
generally accepted auditing standards 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 the opinion
expressed above.



                                PricewaterhouseCoopers LLP



New York, New York
March 1, 1999.
<TABLE>
<CAPTION>

           MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                 CONSOLIDATED BALANCE SHEETS
                         __________
     
     <S>                                           <C>             <C>
                                                       December 31,      
                                                 ---------------------------- 
                                                  1998            1997      
                                                  ----            ----
          ASSETS
     Investments:
      Fixed maturity securities, available-
        for-sale, at fair value (amortized
        cost $67,676,411 -1998 and
        $55,925,617 -1997)                      $ 69,594,904    $ 56,831,444
      Mortgage loans on real estate - at the
        unpaid principal amount                      361,038         522,555 
      Short-term investments, at fair value
        which approximates cost                    5,995,299       7,150,000 
                                                 -----------     -----------
               Total investments                  75,951,241      64,503,999 
     Cash and cash equivalents                     2,773,427         222,761 
     Premiums receivable                          20,401,069       7,809,567 
     Reinsurance recoverable on paid
      and unpaid losses and loss expenses         19,234,277      18,666,066 
     Notes and accounts receivable                   125,444         124,669 
     Deferred policy acquisition costs             8,708,329       5,858,650 
     Fixed assets - at cost, less accumulated
       depreciation                                1,671,902       1,586,649 
     Federal income tax recoverable                   26,724         -       
     Prepaid reinsurance premiums                  1,015,581         695,245 
     Deferred tax asset                              -               657,362 
     Other assets                                  1,104,782       1,221,723 
                                                ------------    ------------
               Total assets                     $131,012,776    $101,346,691 
                                                ============    ============

          LIABILITIES AND SHAREHOLDERS' EQUITY
     Liabilities:
     Losses and loss expenses                    $58,335,143     $50,246,778 
     Unearned premiums                            30,733,144      19,285,757 
     Commissions payable                           2,835,408       1,322,669 
     Accounts payable                                875,327         562,453 
     Accrued expenses                              4,763,950       5,518,935 
     Drafts outstanding                            1,688,835       1,396,215 
     Note payable                                  3,000,000         -       
     Deferred tax liability                          957,440         -       
     Federal income taxes payable - current          -                12,851 
                                                ------------     ----------- 
               Total liabilities                 103,189,247      78,345,658 
                                                ------------     -----------
     Shareholders' Equity:
     Common Stock, par value $.50 per share:
      Authorized - 10,000,000 shares;
      issued and outstanding shares 2,116,429
      - 1998 and 2,094,429 - 1997                  1,058,215       1,047,215 
     Paid in additional capital                    1,996,954       1,950,204 
     Accumulated other comprehensive loss         (3,422,387)     (3,931,342)
     Retained earnings                            28,190,747      23,934,956 
                                                 -----------     -----------
         Total Shareholders' Equity               27,823,529      23,001,033 
                                                 -----------     -----------
         Total Liabilities and
           Shareholders' Equity                 $131,012,776    $101,346,691 
                                                ============    ============ 
     
</TABLE>

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

           MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS
                              __________
<TABLE>
<CAPTION>
   <S>                                       <C>            <C>           <C>
   
                                               For the years ended December 31, 
                                               --------------------------------
                                               1998           1997          1996 
                                               ----           ----          ----
     REVENUES
   
   Insurance premiums (net of premiums
    ceded totaling $6,776,174, $7,151,204
    and $7,273,083)                        $53,175,663    $50,877,890   $45,194,073 
   Net investment income                     4,304,507      3,594,509     3,087,112 
   Realized gains on
    sales of investments (net)                  28,545          -             5,485 
   Realized gain on sale of subsidiary           -              -           702,419 
   Motor club membership fees                    -              -         1,215,039 
   Other revenues                              171,171        224,271       114,512 
                                           -----------    -----------   -----------
        Total revenues                      57,679,886     54,696,670    50,318,640 
                                           ===========    ===========   ===========  
     LOSSES AND EXPENSES
   
   Losses and loss expenses
     incurred (net of reinsurance
     recoveries totaling $4,736,671,
     $3,650,474 and $6,840,459)             36,479,591     33,141,691    29,148,280 
   Amortization of deferred
     policy acquisition costs               13,375,221     15,162,320    13,678,710 
   Other operating expenses                  2,105,668      1,762,192     3,569,564 
   Lease termination charge                      -              -           359,077 
   Motor Club benefits                           -              -           266,112 
                                           -----------    -----------   -----------   
        Total losses and expenses           51,960,480     50,066,203    47,021,743 
                                           ===========    ===========   ===========
   Income before Federal income
     taxes                                   5,719,406      4,630,467     3,296,897 
   Benefit (provision) for Federal
     income taxes: current                    (193,121)       (37,573)      (42,324)
                   deferred                 (1,270,494)    (1,110,192)    2,075,535 
                                           -----------    -----------    ----------
   Total Federal income tax                 (1,463,615)    (1,147,765)    2,033,211 
                                           -----------    -----------    ----------
   Net income                              $ 4,255,791   $  3,482,702   $ 5,330,108 
                                           ===========   ============   ===========
   Net Income per common share:
   Basic                                         $2.02          $1.68         $2.61 
                                                 =====          =====         =====
   Diluted                                       $2.01          $1.66         $2.56 
                                                 =====          =====         =====
   Weighted average common and potential common shares outstanding:
   
   Basic                                     2,108,722      2,074,473     2,045,590 
                                             =========      =========     ========= 
   Diluted                                   2,121,366      2,102,395     2,081,080 
                                             =========      =========     =========
   
</TABLE>
   
     
            The accompanying notes are an integral part of
               these consolidated financial statements.
<TABLE>
<CAPTION>
   
                      MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                        ________
   <S>                             <C>         <C>           <C>              <C>              <C>            <C>

                                                                              
                                    Common Stock (a)        Paid-In       Accumulated Other
                                  ------------------
                                  Shares                   Additional       Comprehensive     Retained
                                  Issued        Amount      Capital        Income (Loss)(b)   Earnings         Total 
   
                                  -------       ------     ----------      ----------------   ---------        ------
   Balance at December 31, 1995  2,043,754   $1,021,876    $1,722,539       ($3,785,485)    
$15,122,146    $14,081,076 

Net income                                                                                     5,330,108      5,330,108 
Other comprehensive income, net
 of tax:
Unrealized investment losses net
  of reclassification adjustment                                               (1,122,378)                   (1,122,378)
Minimum pension liability
  adjustment                                                                      487,000                       487,000 
Comprehensive income                                                                                          4,694,730
Common stock issued                  3,750        1,876         7,969                                             9,845 

   Balance at December 31, 1996  2,047,504    1,023,752     1,730,508        (4,420,863)     
20,452,254     18,785,651 

Net income                                                                                     3,482,702      3,482,702 
Other comprehensive income, net
 of tax:
Unrealized investment gains, net
  of reclassification adjustment                                                327,721                         327,721 
Minimum pension liability
  adjustment                                                                    161,800                         161,800 
Comprehensive income                                                                                          3,972,223 
Common stock issued                 46,925       23,463       219,696                                          
243,159 
   Balance at December 31, 1997  2,094,429    1,047,215     1,950,204        (3,931,342)     
23,934,956     23,001,033 

Net income                                                                                     4,255,791      4,255,791 
Other comprehensive income, net
 of tax:
Unrealized investment gains, net
  of reclassification adjustment                                                668,355                         668,355 
Minimum pension liability
  adjustment                                                                   (159,400)                       (159,400)
Comprehensive income                                                                                          4,764,746 
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       ($3,422,387)    
$28,190,747    $27,823,529

</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.

<TABLE>
<CAPTION>
                    MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  __________
  <S>                                       <C>              <C>             <C>
                                                    For the years ended December 31,  
                                                ------------------------------------ 
                                                1998             1997           1996  
                                                ----             ----           ----
  Net income                                $ 4,255,791      $ 3,482,702     $ 5,330,108 

  Adjustments to reconcile net income
    to cash provided by
    operating activities:
    Depreciation expense                        527,644          461,845         379,453 
    Amortization of bond
      premium - net                              35,375          103,308          98,738 
    Gain on sale of subsidiary                   -                -             (702,419)
    Gain on sale of investments                 (28,545)          -               (5,485)
    Write-off of leasehold improvements
      (net) due to lease termination             -                -              227,077 
    Deferred tax provision (benefit)          1,270,494        1,110,192      (2,075,535)

  Changes in:
    Net assets of Motor Club of America
      Enterprises, Inc.                          -                -             (422,581)
    Premiums receivable                     (12,591,502)          (7,984)       (666,352)
    Notes and accounts receivable                  (775)         124,206         (38,922)
    Deferred policy acquisition costs        (2,849,679)         (97,154)       (692,274)
    Federal income tax - current                (39,575)         (13,118)         39,649 
    Reinsurance recoverable on paid and
      unpaid losses and loss expenses          (568,211)       3,101,263      (4,128,475)
    Prepaid reinsurance premiums               (320,336)         450,699          47,154 
    Other assets                                116,941         (100,563)        129,820 
    Losses and loss expenses                  8,088,365        2,579,922       7,843,304 
    Unearned premiums                        11,447,387          351,557       1,571,169 
    Commissions payable                       1,512,739         (121,991)         86,908 
    Accounts payable                            312,874          (33,332)        292,994 
    Accrued expenses                           (914,385)      (1,089,809)       (415,706)
    Drafts outstanding                          292,620           86,778         (47,878)
                                            -----------      -----------      ---------- 
  Total cash provided by
    operating activities                     10,547,222       10,388,521       6,850,747 
                                            -----------      -----------      ----------
</TABLE>
<TABLE>
<CAPTION>
                    MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (CONTINUED)

                                  __________
    <S>                                      <C>               <C>             <C>

                                                    For the years ended December 31,   
                                                ------------------------------------
                                                1998             1997           1996  
                                                ----             ----           ----
  Investing activities:
  Proceeds from:
    Maturities of fixed maturities           17,444,834        4,852,707       4,442,716 
    Sales of fixed maturities                 2,000,000        2,700,000       1,396,522 
    Sale of subsidiary                          -                -             1,125,000 
    Payments received on mortgage
      loan principal                            161,517          111,937         131,609 
    Sale or maturities of short-
      term investments                      245,390,264       86,804,893         200,000 
    Sale of fixed assets                         -               -                13,400 
  Purchase of:
    Fixed maturities                        (31,304,235)     (15,927,470)    (10,350,787)
    Short-term investments                 (244,133,789)     (92,206,193)     (1,745,455)
    Fixed assets                               (612,897)        (221,741)     (1,227,558)
                                           ------------      -----------     -----------
  Total cash utilized in
   investing activities                     (11,054,306)     (13,885,867)     (6,014,553)
                                           ------------      -----------     ----------- 
  Financing activities:
    Note payable                              3,000,000          -                -      
    Common stock issued                          57,750          243,159           9,845 
                                           ------------      -----------     -----------
  Total cash provided by financing
    activities                                3,057,750          243,159           9,845 
                                           ------------      -----------     -----------
  Net increase (decrease) in cash             2,550,666       (3,254,187)        846,039 
  Cash and cash equivalents
    at beginning of year                        222,761        3,476,948       2,630,909 
                                            -----------     ------------    ------------
  Cash and cash equivalents
    at end of year                          $ 2,773,427     $    222,761    $  3,476,948 
                                            ===========     ============    ============
</TABLE>
Supplemental Disclosures of Cash Flow Information

     (1)  Total interest paid was $60,389 (1998), $8,890 (1997) and $8,166 
          (1996).
     (2)  Total Federal income taxes paid was $212,738(1998), $50,691
          (1997) and $38,462 (1996).

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

              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 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") and Preserver
          Insurance Company ("Preserver") are collectively referred
          to as the "Insurance Companies".  All material
          intercompany items and transactions have been eliminated
          in consolidation.

     (b)  Nature of Operations:

          The Company is a New Jersey corporation which owns the
          Insurance Companies. The Company's finance subsidiary,
          Motor Club of America Finance Company, was merged into
          the Company on December 9, 1997.  The Company's
          subsidiary, Motor Club of America Enterprises, Inc.
          ("Enterprises"),  was sold on December 2, 1996 (see Note
          B, Sale of Subsidiary for further details).  Enterprises
          operated a motor club.  The Insurance Companies engage in
          property and casualty insurance, principally private
          passenger automobile, small commercial and homeowners
          insurance, produced by independent agents; at the present
          time, one hundred percent of the Insurance Companies'
          operations are conducted in the State of New Jersey.  The
          Company generates substantially all of its revenues from
          its insurance operations.  

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note A - Summary of Significant Accounting Policies (Continued):
          
     (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 will, for
          a one year period commencing July 1, 1998, temporarily
          increase the amount of premiums written by Motor Club, it
          will not effect the amount of premiums earned. Insurance
          contracts for policies other than private passenger
          automobile are for terms of twelve months.

     (d)  Motor Club Operations:

          Through December 2, 1996 (See Note B) Motor club
          membership fees were credited to income by the
          straight-line method over the terms of the contracts. 
          Commission expense was deferred and amortized in the same
          manner as the related unearned membership fees.  Other
          related costs were charged to expense as incurred.

     (e)  Investments:

          All of the Company's fixed maturity 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.
  
          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. 
                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

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

          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
          certificate basis.  

     (f)  Other Revenues:

          Other revenues consist principally of interest on
          mortgage loans and in 1997 and 1998, servicing fees from
          motor club membership fees written by Enterprises.

     (g)  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
          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.

          Amounts recoverable from reinsurers are estimated in a
          manner consistent with the claim liability associated
          with the reinsured policy.  The liability for loss
          expenses is based on estimates of expenses to be 
          incurred in the settlement of claims.


                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

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

     (h)  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, certain State mandated assessments and
          certain underwriting and policy issuance costs which are
          deferred when incurred (subject to a maximum) and 
          amortized to income as the related written premiums are
          earned.  Investment income is anticipated in determining
          whether a premium deficiency relating to these costs
          exists.

     (i)  Fixed Assets:

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

          Expenditures for major renewals and betterments are
          capitalized, and expenditures for maintenance and repairs
          are charged to income as incurred.  When property units
          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.

     (j)  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.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

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

     (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.

     (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 O for more information on outstanding stock
          options and Note R for more information on the
          computation of Earnings per Share.

     (m)  Comprehensive Income: 

          In 1998, the Company adopted SFAS No. 130 ("Comprehensive
          Income"), which established standards for the reporting
          and disclosure of comprehensive income and its
          components.  Comprehensive income consists of net income,
          the unfunded accumulated benefit obligation in excess of
          plan assets and net unrealized investment gains or losses
          and is presented separately.  The adoption of SFAS No.
          130 had no impact on shareholders' equity.  Prior year
          financial statements have been reclassified to conform to
          these requirements.

Note B - Sale of Subsidiary: 

          On December 2, 1996, the Company sold Enterprises to JVL
          Holding Properties, Inc., ("JVL") a non-affiliated
          Oklahoma corporation, for $1,125,000.  As a result of
          this transaction, the Company recorded a gain of
          $702,419.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note B - Sale of Subsidiary (Continued):

          Pursuant to an additional agreement entered into
          concurrent with the sale, the Company provides certain
          services to members whose memberships are written with
          private passenger automobile ("PPA") policies written by
          Motor Club.  In exchange the Company receives a servicing
          fee from JVL.  The Company also receives certain fees for
          other memberships written by Enterprises, as defined by
          this additional agreement.  During 1998, 1997 and 1996,
          these fees collectively totaled $134,000, $143,000 and
          $11,000, respectively.

Note C - Investments: 

     (a)  The amortized cost and estimated fair value of
          investments in fixed maturity securities at December 31,
          1998 were as follows:
<TABLE>
<CAPTION>
      <S>               <C>          <C>          <C>          <C>

                                         Gross        Gross
                          Amortized   Unrealized   Unrealized      Fair
                             Cost       Gains        Losses        Value   
                        ------------  -----------  ----------  -----------
     U.S. Government
      securities        $22,027,700  $1,128,251   ($ 10,320)   $23,145,631
     Mortgage-backed
      securities         11,053,686     165,978      (6,075)    11,213,589
     Asset-backed
      securities         10,698,352     107,618        -        10,805,970
     Corporate
      securities         23,896,673     558,555     (25,514)    24,429,714
                        -----------  ----------   ---------    ----------- 
      Total             $67,676,411  $1,960,402   ($ 41,909)   $69,594,904
                        ===========  ==========   =========    ===========
</TABLE>
     
<TABLE>
<CAPTION>

          The amortized cost and estimated fair value of
          investments in fixed maturity securities at December 31,
          1997 were as follows:
      <S>             <C>            <C>         <C>         <C>

                                    Gross        Gross
                       Amortized  Unrealized   Unrealized      Fair 
                          Cost      Gains        Losses        Value   
                     -----------  ----------   ----------   -----------
     U.S. Government
      securities     $33,950,152 $   768,123   ($ 16,978)   $34,701,297
     GNMA Mortgage-
      backed
      securities      10,015,258     131,866     (50,304)    10,096,820
     Corporate
      securities      11,960,207     108,689     (35,569)    12,033,327
                     -----------  ----------   ---------    -----------
      Total          $55,925,617  $1,008,678   ($102,851)   $56,831,444
                     ===========  ==========   =========    ===========
</TABLE>
                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note C - Investments (Continued):

          The amortized cost and fair value of investments in fixed
          maturity securities at December 31, 1998, by contractual
          maturity, were as follows:
<TABLE>
<CAPTION>
       <S>                             <C>            <C>
     
                                       Amortized        Fair
                                          Cost          Value    
                                      -----------    -----------                        
     Due in one year or less          $ 5,293,385    $ 5,359,253
     Due after one year through
       five years                      12,090,697     12,625,197
     Due after five years through
       ten years                       25,327,919     26,183,629
     Due after ten years               24,964,410     25,426,825
                                      $67,676,411    $69,594,904
</TABLE>
    
          The above maturity tables include $22,019,559 (at fair
          value) of mortgage-backed and asset-backed securities,
          which were classified as due after ten years based on the
          contractual life of the securities.

          Expected maturities may differ from contractual
          maturities because borrowers may have the right to call
          or prepay obligations with or without call or prepayment
          penalties.  Gross gains of $50,099 and $5,485 were
          realized on proceeds of $10,434,411 and $264,795 in 1998
          and 1996, respectively, on those sales and calls.  Gross
          losses of $21,554 were realized on proceeds of $5,391,130
          in 1998 on those sales and calls.  There were no gross
          gains or gross losses in 1997 and no gross losses in
          1996.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note C - Investments (Continued):

     (b)  Net investment income by category of investments
          consisted of the following:
<TABLE>
<CAPTION>
    <S>                   <C>          <C>          <C>

       Category               1998        1997         1996
       --------            ---------   ----------   ----------
    Fixed maturities      $3,950,500   $3,387,140   $3,093,534
    Other, principally
     short-term
     investments             498,253      431,932      196,457
                          ----------   ----------   ----------
      Total investment
        income             4,448,753    3,819,072    3,289,991
    Investment
     expenses                144,246      224,563      197,394
                          ----------   ----------   ---------- 
      Net investment
        income            $4,304,507   $3,594,509   $3,092,597
                          ==========   ==========   ==========
</TABLE>

     (c)  At December 31, 1998 and 1997, fixed maturity investments
          (at fair value) deposited with the New Jersey Department
          of Banking and Insurance ("NJ DOBI") amounted to $222,784
          and $220,859, respectively.

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

     (e)  The change in net unrealized gains (losses) on
          investments are as follows:
<TABLE>
<CAPTION>
        <S>              <C>          <C>       <C>

                              Years Ended December 31,  
                         ----------------------------------        
                             1998       1997        1996
         Fixed
        maturities       $1,012,666   $635,790  ($1,122,378)
                         ==========   ========  ============
</TABLE>

     (f)  In the opinion of management there has been no
          permanent impairment in the carrying amount of
          investments.

                         (Continued)

           MOTOR CLUB OF AMERICA AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         __________

Note D - 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 1998, 1997 and 1996: 
<TABLE>
<CAPTION>
       <S>                    <C>          <C>          <C>

                                  1998         1997         1996
                                  ----         ----         ----
       Balance at January 1   $50,246,778  $47,666,856  $39,823,552
       Less: Reinsurance
        recoverables           17,363,319   19,553,223   16,414,610 
                              -----------  -----------  -----------
       Net balance at
        January 1              32,883,459   28,113,633   23,408,942
       Incurred losses and
        loss expenses:
        Provision for current
         year claims           32,598,287   29,368,738   28,244,599
        Increase in provision
         for prior years' 
         claims                 3,881,304    3,772,953      903,681
                              -----------  -----------  -----------  
       Total incurred losses
         and loss expenses     36,479,591   33,141,691   29,148,280
                              -----------  -----------  -----------
       Payment for losses and
        loss expenses:
        Payment on current
         year claims           12,038,000   12,169,000   13,029,214
        Payment on prior
           years' claims       17,510,773   16,202,865   11,414,375
                              -----------  -----------  -----------
       Total payments for losses
         and loss expenses     29,548,773   28,371,865   24,443,589
                              -----------  -----------  ----------- 
       Net balance at
         December 31           39,814,277   32,883,459   28,113,633
       Plus: Reinsurance recover-
        ables                  18,520,866   17,363,319   19,553,223
                              -----------  -----------  -----------
       Balance at December 31 $58,335,143  $50,246,778  $47,666,856
                              ===========  ===========  ===========
</TABLE>

               The reconciliation shows a 1998 deficiency of $3,881,304
               in the liability recorded at December 31, 1997.  The
               deficiency is primarily the result of: (1) initial
               adverse development of reserves at December 31, 1997
               which is consistent with the Company's loss development
               history; and (2) continuing adverse development of losses
               incurred in 1996.

     (b)       Losses incurred are reduced by salvage and subrogation
               approximating $2,661,000, $2,801,000 and $2,188,000 for
               the years ended December 31, 1998, 1997 and 1996,
               respectively.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note E - Fixed Assets:

          Fixed assets consist of the following:

                                        1998          1997
                                        ----          ----
      Leasehold improvements         $  191,937    $  191,937
      Office furniture, fixtures and
       data processing equipment      3,287,546     3,155,739
                                     ----------    ----------
                                      3,479,483     3,347,676
          Less accumulated depre-
           ciation                    1,807,581     1,761,027
                                     ----------    ----------  
                                     $1,671,902    $1,586,649
                                     ==========    ==========
Note F - Reinsurance:

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

     (b)  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,
          all risks in excess of $150,000 for liability lines and
          $100,000 for property lines are reinsured.  Prior to July
          1, 1997 the property retention was $75,000.

          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, one hundred percent of the
          Company's insurance operations are presently located in
          the State of New Jersey, the laws of which require
          participation in certain reinsurance funds.  

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note F - Reinsurance (Continued):

          Reinsurance recoverable on paid and unpaid loss and loss
          expenses are principally attributable to the amounts of
          reinsurance 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
          $9,139,160 and $10,552,385 as of December 31, 1998 and
          1997, 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.  

          Assessments paid to NJ AIRE based on subject bodily
          injury exposures are accounted for as ceded premiums
          written and totaled $1,113,756, $1,728,341 and $1,613,095
          in 1998, 1997 and 1996, respectively.  Reimbursements
          from NJ AIRE based on subject claim payment experience
          are accounted for as ceded losses incurred and totaled
          $548,415, $500,657 and $482,105 in 1998, 1997 and 1996,
          respectively.

          Prepaid reinsurance premiums of $1,015,581 and $695,245
          as of December 31, 1998 and 1997, respectively, are
          mainly attributable to, in 1998, Preserver's workers'
          compensation program and in both years, the Insurance
          Companies' excess of loss reinsurance treaties which are
          with one reinsurer.

          The effect of reinsurance on premiums written and earned
          is as follows:
<TABLE>
<CAPTION>
    <S>         <C>           <C>           <C>           <C>           <C>           <C>

                            1998                        1997                        1996
                            ----                        ----                        ---- 
                    Written        Earned       Written        Earned       Written        Earned
                --------------------------  -------------------------   --------------------------
    Direct      $71,399,224   $59,951,837   $58,380,651   $58,029,094   $54,563,224  
$52,467,156 
    Ceded        (7,096,511)   (6,776,174)   (6,700,505)   (7,151,204)   (7,225,929)   (7,273,083)
                -----------   -----------   -----------   -----------   -----------   -----------
    Net         $64,302,713   $53,175,663   $51,680,146   $50,877,890   $47,337,295   $45,194,073 
                ===========   ===========   ===========   ===========   ===========  
</TABLE>
                             (Continued)
  
            MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note F- Reinsurance (Continued):

     (c)  During 1993, Motor Club was notified by one of its
          reinsurers of a dispute.  The reinsurer did not deny the
          validity of coverage; rather, the reinsurer indicated
          that it believed that a right of set-off existed for the
          reinsurance which Motor Club had ceded to the reinsurer
          for accident years 1973 to 1975 against reinsurance which
          MCA Insurance Company ("MCAIC") had assumed from the
          reinsurer between 1968 and 1976.  Motor Club assumed the
          ceded reinsurance from MCAIC in 1991.  The reinsurer had
          indicated that payments to Motor Club would be held in
          abeyance pending resolution of the dispute.  Motor Club
          had recorded a liability of $1,695,774 at December 31,
          1995.

          On November 6, 1996, Motor Club and the reinsurer settled
          the dispute.  Motor Club paid the reinsurer $1,950,000,
          in three installments prior to December 31, 1996.  In
          return, the reinsurer agreed to: (1) pay Motor Club all
          past amounts due under the reinsurance agreement
          applicable to accident years 1973 to 1975, totaling
          $640,698 as of June 30, 1996; and (2) to pay  Motor Club
          future amounts which may be recoverable from the
          reinsurer under the terms of the same reinsurance
          agreement.

          The Consolidated Statement of Operations includes in
          other operating expenses $254,226 for this matter in
          1996. 

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note G - Note Payable:

          On September 14, 1998, the Company entered into a $3
          million revolving credit facility (the "Loan") and drew
          on the entire amount of the Loan on September 30, 1998. 
          The Loan has a three-year term and bears interest payable
          in varying periods depending on the interest period, not
          to exceed three months, at rates selected by the Company
          under the terms of Loan, including a Base Rate (which is
          the lender's prime rate) or the Eurodollar Rate plus
          applicable margin of 2%.  At December 31, 1998, the
          interest rate under the Loan was 7.0625%.  Interest paid
          on the loan in 1998 was $54,146.  

          The Loan requires compliance with certain financial and
          operating covenants which require certain financial
          ratios and limit, among other things, the incurrence of
          additional indebtedness by the Company and the Insurance
          Companies, investments by the Company, sales of assets
          and changes in control, along with maintenance by the
          Insurance Companies of their ratings by A.M. Best.  At
          December 31, 1998, the Company was in compliance with
          these covenants.  The commitment fee for any unborrowed
          portion of the Loan is 0.35%.

Note H - Taxes:

     (a)  The Company and its subsidiaries (including MCA Insurance
          Company ("MCAIC") and its subsidiaries, former
          affiliates) file a consolidated Federal income tax
          return.  

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note H - Taxes (Continued):

          (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>
            <S>                                    <C>           <C>
                                                         December 31, 
                                                     1998          1997   
                                                  ----------    --------- 
          Deferred tax assets:
            Net operating loss ("NOL")
             carryforward                         $  606,807    $3,965,602 
            Unpaid losses and loss expenses        1,637,930     1,385,862 
            Unearned premium                       2,020,795     1,264,155 
            Alternative minimum tax and
             general business credit carry-
             forwards                                107,677        91,094 
                                                  ----------    ----------
          Total deferred tax assets                4,373,209     6,706,713 
                                                  ----------    ----------
          Deferred tax liabilities:
            Deferred acquisition costs            (2,960,832)   (1,991,942)
            Unrealized gain on debt securities      (652,288)     (307,981)
            Prepaid pension cost                  (1,370,837)     (937,880)
            Excess loss account                       -           (722,888)
            Other deferred tax liabilities          (251,462)     (172,458)
                                                  ----------    ----------
          Total deferred tax liabilities          (5,235,419)   (4,133,149)
                                                  ----------    ----------
          Less: valuation allowance for
            deferred tax assets                      (95,230)   (1,916,202)
                                                  ----------    ----------
          Net deferred tax (liability) asset      ($ 957,440)   $  657,362  
                                                  ==========    ==========
</TABLE>

          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.  The Company has
          provided a valuation allowance at December 31, 1998 for
          those deferred tax assets related to NOL carryforwards of
          MCAIC and its subsidiaries as a percentage of the total
          NOL carryforward in the Consolidated return.  The
          ultimate amounts realized, however, could be reduced if
          actual amounts of future taxable income differ from
          projected future taxable income.

          The net operating loss carryforward of $1,784,727 expires
          beginning in 2009.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note H - Taxes (Continued):

     (c)  The provision for Federal income taxes resulted in
          effective tax rates lower than the statutory Federal
          income tax rates, as follows:
<TABLE>
<CAPTION>
      <S>                       <C>           <C>          <C>
     
                                      1998         1997        1996
                                      ----         ----        ----
     Tax provision
      computed at statutory
      federal income tax rates  ($1,944,598)  ($1,574,359) ($1,120,945)
     Change in valuation
      allowance                  (1,820,972)   (1,110,192)   2,075,535 
     Effect of net operating
      loss carryforward           1,830,513     1,548,594    1,095,320 
     Other-net                      471,442       (11,808)     (16,699)
                                -----------   -----------   ----------
     Benefit (provision)        ($1,463,615)  ($1,147,765)  $2,033,211  
                                ===========   ===========   ==========
</TABLE>
  
          (d)  The Consolidated Statements of operations for the years
               ended December 31, 1998, 1997 and 1996 include state
               taxes based on insurance premiums of $189,346, $153,333
               and $143,262.

Note I - Shareholders' Equity:

     (a)  The Insurance Companies are domiciled in the State of New
          Jersey and therefore prepare their statutory financial
          statements in accordance with accounting practices
          prescribed or permitted by the NJ DOBI ("SAP").

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

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note I - Shareholders' Equity (Continued):

          The maximum amount of dividends which the Insurance
          Companies can pay to shareholders without approval of the
          Insurance Commissioner is subject to restrictions. To the
          extent that surplus as defined is available, the maximum
          amount distributable is limited to the greater of: (1)
          ten percent of statutory surplus as regards
          policyholders; or (2) net income, excluding realized
          capital gains.  Accordingly, the maximum dividend which
          may be paid without prior approval in 1999 is $1.4
          million and $1.1 million for Motor Club and Preserver,
          respectively.  Motor Club paid $1 million in dividends to
          the Company in 1998.  The Insurance Companies paid no
          dividends in 1997 or 1996.

     (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. 
                                 

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note I - Shareholders' Equity (Continued):

          The consolidated capital and surplus, shareholders'
          equity and income of Motor Club and Preserver on a
          statutory and GAAP basis were as follows:
          
<TABLE>
<CAPTION>
              <S>                     <C>          <C>

                                           December 31,       
                                      ------------------------
                                           1998        1997
                                           ----        ----
             Capital and surplus -
              Statutory basis         $24,886,388  $18,129,018 
             Shareholders' equity -
              GAAP basis              $42,143,091  $29,308,852
</TABLE>

<TABLE>
<CAPTION>
            <S>                <C>       <C>         <C>

                                       Years ended December 31, 
                                -----------------------------------
                                   1998       1997         1996  
                                   ----       ----         -----
            Net income (loss):
            Statutory basis    ($  762,471) $3,719,782  $  212,807
            GAAP basis          $5,157,732  $4,316,713  $2,737,318 

</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 J - 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 K - 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.


                           (Continued)
              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note K - Pensions (Continued):

          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. 

          The Plan maintains 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.  

          On November 10, 1993, a Plan of Rehabilitation for Mutual
          was confirmed by the Superior Court of New Jersey.  As a
          result, certain amendments were made to the Plan's
          contracts ("the restructured contract"), which is now
          transferred to the MBL Life Assurance Corporation
          ("MBLLAC"), the successor corporation of Mutual, where
          the restructured contract continues.

          The restructured contract is supported by a group of life
          insurance companies who are participating in the Plan of
          Rehabilitation.  This arrangement has the effect of
          guaranteeing the contract balances should MBLLAC not be
          able to fulfill its obligations under the contract.

          In October 1994, 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 $183,876, $183,876 and $177,517 in
          distributions from MBLLAC and Mutual in 1998, 1997 and
          1996, respectively, under provisions of the Plan of
          Rehabilitation.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note K - Pensions (Continued):

          On January 9, 1997, the Plan of Rehabilitation was
          amended.  Prior to the amendment, the payment of
          principal and interest under the restructured contract
          was to be in five installments beginning December 31,
          1999.  Under the amended Plan of Rehabilitation, such
          payments have been accelerated and will be paid in full
          on or before December 31, 1999.  

          On December 9, 1998 MBLLAC announced that this date had
          been accelerated further and that the revised maturity
          date will likely occur between April 1, 1999 and June 30,
          1999.  

     (b)  Pension expense for 1998, 1997 and 1996 included the
          following components:
<TABLE>
<CAPTION>
         <S>                              <C>          <C>          <C>

                                            1998        1997          1996
                                            ----        ----          ----
         Interest cost                    $813,900     $837,900     $831,800  
         Expected return on plan assets   (946,800)    (862,000)    (805,000) 
         Recognized loss                   312,500      277,900      320,100
                                          --------     --------     -------- 
         Net periodic benefit cost
          benefit obligation              $179,600     $253,800     $346,900  
                                          ========     ========     ========
</TABLE>

          Measurement of the Company's benefit obligation and
          pension expense as of December 31 of each year used the
          following assumptions:
<TABLE>
<CAPTION>
            <S>                                <C>          <C>          <C>
     
                                               1998        1997          1996
                                               ----        ----          ----
            Discount rate                      6.75%        7.25%        7.50%
            Expected return on plan assets    10.00%       10.00%       10.00%
            Rate of compensation increase      N/A          N/A          N/A  
     
</TABLE>

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note K - Pensions (Continued):

     (c)  A reconciliation of the changes in the Plan's benefit
          obligations and fair value of assets during 1998 and 1997
          and a statement of the funded status of the Plan as of
          December 31 of each year is as follows:

<TABLE>
<CAPTION>
                <S>                               <C>           <C>

                                                     1998       1997
                                                     ----       ----
              Change in benefit obligation:
                Benefit obligation at 
                 January 1                    $11,605,700   $11,591,100 
                Service cost                        -             -     
                Interest Cost                     813,900       837,900 
                Actuarial loss                    568,000       403,600 
                Benefits paid                  (1,018,700)   (1,226,900)
                                              -----------   ----------- 
                Benefit obligation at
                 December 31                  $11,968,900   $11,605,700
                                              ===========   ===========
             Change in plan assets:
                Fair value of plan assets at
                  January                     $ 9,340,000   $ 8,791,900 
                Actual return on plan assets    1,165,300     1,241,500 
                Employer contribution           1,254,500       625,500 
                Benefits paid                  (1,018,700)   (1,226,900)
                Other                            (122,400)      (92,000)
                                              -----------   -----------
                Fair value of plan assets at 
                 December 31                  $10,618,700   $ 9,340,000 
                                              ===========   ===========

              Funded Status at December 31   ($ 1,350,200) ($ 2,265,700)
              Unrecognized loss                 4,688,500     4,529,100 
                                             ------------  ------------
              Net amount recognized at 
               December 31                    $ 3,338,300   $ 2,263,400 
                                             ============  ============
</TABLE>

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

<TABLE>
<CAPTION>
             <S>                              <C>           <C>


             Accrued benefit liability        ($1,350,200)  ($2,265,700)
             Accumulated other comprehensive
              income                            4,688,500     4,529,100 
                                              -----------   -----------
             Net amount recognized             $3,338,300    $2,263,400 
                                              ===========   =========== 
</TABLE>

          The adjustment required to recognize the minimum
          liability is reflected as a component of accumulated
          comprehensive income (loss) as of December 31, 1998 and
          1997, respectively.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note K - Pensions (Continued):

     (d)  The Company maintains a defined contribution plan for
          substantially all employees (including those of MCAIC).
          Employer contributions of a discretionary amount are made
          by the Company and its subsidiaries.  MCAIC and its
          subsidiaries provide similar employer contributions. 
          Employer contributions in the amount of $116,329,
          $115,995 and $116,938 were made by the Company in 1998,
          1997  and 1996, respectively, for its employees and
          charged to expense.

     (e)  In 1997, the Company established a non-qualified deferred
          compensation plan for certain employees.  Employer
          contributions of a discretionary amount are made by the
          Company.

Note L - 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 1998, 1997
          and 1996 included the following components:
<TABLE>
<CAPTION>

        <S>                                    <C>         <C>       <C>

                                                1998        1997     1996
                                                ----        ----     ----
        Service cost                           $ 2,500     $ 2,300   $ 2,000 
        Interest cost                           36,000      40,200    40,000 
        Amortization of transition obligation   28,000      28,000    28,000 
        Amortization of net loss                21,800      22,400    17,000 
                                               -------     -------   -------
           Net postretirement expense          $88,300     $92,900   $87,000 
                                               =======     =======   =======  
</TABLE>


                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note L - 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>
        <S>                                <C>        <C>      <C>

                                           1998       1997     1996
                                           ----       ----     ----
        Discount Rate                      6.75%      7.25%    7.50%
        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 1998 and 1997
          and a statement of the funded status as of December 31 of
          each year is as follows:
<TABLE>
<CAPTION>
        <S>                                        <C>                <C>
                                                      1998              1997
                                                      ----              ----
      Change in Accumulated Postretirement
       Benefit Obligation
        Benefit Obligation at January 1            $552,900           $536,000 
        Service Cost                                  2,500              2,300 
        Interest Cost                                36,000             40,200 
        Employee Contributions                       12,400             11,400 
        Benefit Paid                               (125,100)          (126,900)
        Actuarial loss                               23,900             89,900 
                                                   --------           --------
        Benefit Obligation at December 31          $502,600           $552,900 
                                                   ========           ======== 
      Change in Plan Assets
        Fair Value of Plan Assets at January 1     $  -               $   -     
        Company Contributions                       112,700            115,500
        Employee Contributions                       12,400             11,400
        Benefits Paid                              (125,100)          (126,900)
                                                   --------           --------
        Fair Value of Plan Assets at 
         December 31                               $  -              $  -     
                                                   =========         =========
      Funded Status of the Plan
        Benefit obligation less than plan assets  ($502,600)         ($552,900)
        Unamortized transition obligation           389,000            417,000 
        Unamortized net loss                        257,600            255,500 
                                                   --------           --------
        Net prepaid assets                         $144,000           $119,600 
                                                   ========           ========
</TABLE>
      

               The following are the amounts recognized in the statement
               of financial position as of December 31 of each year:
<TABLE>
<CAPTION>
        <S>                                        <C>                <C>

                                                    1998                1997
                                                    ----                ----
        Prepaid benefit cost                       $144,000           $119,600
        Accumulated other comprehensive income        -                  -    
                                                   --------           --------
        Net amount recognized                      $144,000           $119,600
                                                   ========           ========
                         (Continued)
</TABLE>

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note L - Post-retirement Benefits (Continued):

     (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 

     (a)  Year ended December 31, 1998:

<TABLE>
<CAPTION>
       <S>         <C>            <C>           <C>          <C>

                       1st            2nd          3rd           4th
                     Quarter        Quarter      Quarter       Quarter

       Revenues    $14,122,238    $14,196,905   $14,481,138  $14,879,605
                   ===========    ===========   ===========  =========== 
       Losses and
         expenses  $12,689,535    $12,629,606   $13,140,836  $13,500,503
                   ===========    ===========   ===========  =========== 
       Net income  $ 1,024,531    $ 1,134,939   $ 1,015,460  $ 1,080,861
                   ===========    ===========   ===========  ===========

           Net income per common share:
 
       Basic       $       .49    $       .54   $       .48  $       .51
                   ===========    ===========   ===========  ===========
       Diluted     $       .48    $       .54   $       .48  $       .51
                   ===========    ===========   ===========  ===========
</TABLE>
<TABLE>
<CAPTION>

     (b)  Year ended December 31, 1997:
       <S>         <C>            <C>           <C>          <C>

                       1st            2nd          3rd           4th
                     Quarter        Quarter      Quarter       Quarter

       Revenues    $13,780,326    $13,624,634   $13,630,808  $13,660,902
                   ===========    ===========   ===========  ===========
       Losses and
         expenses  $12,570,194    $12,457,776   $12,532,142  $12,506,091
                   ===========    ===========   ===========  ===========
       Net income  $   921,993    $   868,540   $   844,910  $   847,259
                   ===========    ===========   ===========  =========== 
           Net income per common share:
 
       Basic       $       .45    $       .42   $       .40  $       .41
                   ===========    ===========   ===========  ===========
       Diluted     $       .44    $       .42   $       .40  $       .40
                   ===========    ===========   ===========  ===========
</TABLE>

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note N - Comprehensive Income:

          Comprehensive income consisted of the following:
<TABLE>
<CAPTION>
  <S>                                       <C>             <C>             <C>

                                               1998             1997            1996 
                                               ----             ----            ----
  Net income                                $4,255,791      $ 3,482,702     $ 5,330,108 
  Other comprehensive income
    Unrealized gains (losses) on securities:
     Unrealized gains (losses) during period
      (net of taxes of $358,732, $307,981
      and $0)                                  687,195          327,721      (1,118,758)
     Less: Reclassification adjustment
      for gains included in net income
      (net of taxes of $9,705, $0 and
      $1,865)                                  (18,840)          -               (3,620)
                                           -----------      -----------     ----------- 
    Net unrealized gains (losses)              668,355          327,721      (1,122,378)
                                           -----------      -----------     ----------- 
    Minimum pension liability adjustment
     (net of $0 taxes in all years)           (159,400)         161,800         487,000 
                                            ----------       ----------      ----------
 Other comprehensive income                    508,955          489,521        (635,378)
                                            ----------       ----------      ---------- 
 Comprehensive income                       $4,764,746       $3,972,223      $4,694,730 
                                            ==========       ==========      ========== 
</TABLE>

Note O - Stock Option Plans:

          The Motor Club of America 1987 and 1992 Stock Option
          Plans ("1987 Option Plan" and "1992 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 both  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, 1998: (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 as of
          that date; and (2) 32,950 shares under the 1992 Option
          Plan are available for grant; 31,500 shares  were
          exercisable and 35,550 shares had been exercised as of
          that date.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note O - Stock Option Plans (Continued):

          Transactions during 1996, 1997 and 1998 relating to the
          1987 Option Plan are as follows:
<TABLE>
<CAPTION>
             <C>                            <C>        <C>           <C>

                                                       Weighted
                                                        Average
                                                       Exercise
                                           Number of   Price per     Aggregate
                                            Shares       Share         Amount
                                          ----------   ---------    ----------
            Options outstanding at
             December 31, 1995              38,250     $ 2.625       $100,406  
            Options exercised in 1996       (3,750)    $ 2.625         (9,844)
                                           -------                   -------- 
            Options outstanding at
             December 31, 1996              34,500     $ 2.625         90,562 
            Options exercised in 1997      (11,375)    $ 2.625        (29,859)
            Options lapsed in 1997          (1,125)    $ 2.625         (2,953)
            Options granted in 1997         62,000     $12.75         790,500 
                                           -------                   -------- 
            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              57,000     $12.75        $726,750 
                                            ======     ======        ======== 
</TABLE>

<TABLE>
<CAPTION>

       
          Transactions during 1996, 1997 and 1998 relating to
          the 1992 Option Plan are as follows:
             <C>                          <C>        <C>           <C>

                                                       Weighted
                                                        Average
                                                        Exercise
                                            Number of    Price per     Aggregate
                                             Shares      Share         Amount 
                                            --------   ---------       ---------
            Options outstanding at
             December 31, 1996 and 1995     51,000     $ 6.00        $306,000 
            Options exercised in 1997      (35,550)    $ 6.00        (213,300)
            Options lapsed in 1997         (15,450)    $ 6.00         (92,700)
            Options granted in 1997          3,000     $12.75          38,250 
                                           -------                   --------
            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 
                                           =======     =======       ========
</TABLE>

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note O - 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.  No options were granted by
          the Company in 1996 and therefore the adoption of this
          Statement does not have any effect on that year's
          financial position or results of operations.  In 1998 and
          1997, had the fair value method been applied, net income
          would have been reduced by $21,100 and $10,200, $.01 and
          less than $.01 basic net earnings per share,
          respectively.

          The average fair value of options granted during 1998 and
          1997 was $5.79 and $6.52, respectively.  The fair value
          was estimated using the Black-Scholes option pricing
          model based on the following assumptions for 1998 and
          1997: risk-free interest rate of 4.66% and 5.65%;
          volatility of 52.3% and 54.5%; and expected life of 4.75
          and 4.5 years. The Company does not pay a dividend on its
          common stock.  The following table summarizes options
          outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
         <C>          <C>        <C>         <C>              <C>     <C>

                Options Outstanding                    Options Exercisable
                -------------------                    -------------------
                                                                    Average
          Exercise              Average      Exercise               Exercise
           Price     Options   Life(a)        Price    Options        Price 
          --------   -------   --------      --------  -------      --------
  
         $11.75       28,500     4.75        $11.75           0       $  -  
         $12.75       60,000     3.25        $12.75      15,000        12.75
                      ------     ----        ------      ------       ------
          Total       88,500     3.73        $12.42      15,000       $12.75
                      ======     ====        ======      ======       ======
</TABLE>

     
               (a)  Average contractual life remaining years.

                         (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note P - Related Party Transactions:

          Three of the Company's directors ("Ownership Group") own
          42.2% of the outstanding common stock of the Company at
          December 31, 1998.  The Company paid directors fees' of
          $180,000 during 1998, 1997 and 1996 to the Ownership
          Group.

Note Q - Lease Obligations:

          Effective January 1, 1996, the Company entered into a
          lease ("Paramus Lease") at 95 Route 17 South, Paramus,
          New Jersey.  The Paramus Lease expires on December 31,
          2005.  The Company has an option to terminate the Paramus
          Lease after six years, and an option to extend the
          Paramus Lease for an additional five years after the
          initial lease term expires. The Company will pay a base
          annual rental of $371,745 through  December 31, 2000 and
          $416,805 thereafter until the Paramus Lease expires. 
          Additional charges for electricity and escalation of
          certain operating costs apply.  In 1998, 1997  and 1996,
          rent expense paid by the Company on the Paramus Lease was
          $410,000, $410,000 and $310,000, respectively.

          Through March 31, 1996, the Company was party to a lease
          ("Newark Lease") with Fairmount Central Urban Renewal
          Corporation ("Fairmount"), a subsidiary of MCAIC, for the
          lease of the office building in which the Company and its
          subsidiaries formerly operated. Rent of $324,000 per
          year, subject to adjustment for property taxes in excess
          of $200,000, was paid by the Company, along with other
          costs as defined in the Newark Lease.

          Effective March 31, 1996, the Company entered into a
          Mutual Release Agreement (the "Release") with Fairmount,
          Property-Casualty Company of MCA and MCAIC.  Pursuant to
          the terms of the Release, the Newark Lease was terminated
          in exchange for $132,000.


                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             ________

Note Q - Lease Obligations (Continued):

          The Newark Lease was to run to December 31, 2011.  The
          Release also enabled the Company to terminate the Joint
          Service Agreement ("JSA").  Concurrent with the execution
          of the Release in 1996, the Company charged off $227,000
          in leasehold improvements at that facility.
  
          In 1996, rent expense paid by the Company (net of amounts
          paid by MCAIC) on the Newark Lease was $75,000.

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

          In 1997, the Company adopted SFAS No. 128 ("Earnings Per
          Share") specifying the computation, presentation and
          disclosure requirements for EPS. The new standard defines
          "basic" and "diluted" earnings per share.  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 to the average basic shares outstanding. 
          The calculations of average basic and diluted common
          shares outstanding and net income per common share are as
          follows:

<TABLE>
<CAPTION>
      <S>                                <C>          <C>          <C>

                                            1998        1997         1996
                                            ----        ----         ----
      Net income (numerator)             $4,255,791   $3,482,702   $5,330,108  
                                         ==========   ==========   ==========
      Weighted average basic common
       shares outstanding (denominator)   2,108,722    2,074,473    2,045,590
      Shares contingently issuable
       under Stock Option plans              12,644       27,922       35,490
                                         ----------   ----------   ---------- 
      Average diluted common shares
       outstanding (denominator)          2,121,366    2,102,395    2,081,080
                                         ==========   ==========   ==========
      Net income per common share:
      Basic                                   $2.02        $1.68        $2.61
                                              =====        =====        =====
      Diluted                                 $2.01        $1.66        $2.56
                                              =====        =====        =====
</TABLE>


                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             ________

Note S - Reportable Segments:

          In 1998, the Company adopted SFAS No. 131 ("Disclosures
          about Segments of an Enterprise and Related
          Information").  Under this Statement, the Company does
          not have any reportable segments but is required to
          disclose certain enterprise-wide information.

          The Company writes property and casualty insurance in the
          State of New Jersey only through independent producers,
          none of which generate more than 10% of the Company's
          insurance premiums.  Products include private passenger
          automobile, homeowners and ancillary coverages ("Personal
          Property"), and small commercial lines insurance,
          including commercial auto.  Insurance premiums generated
          by these products during 1998, 1997 and 1996 were as
          follows:
<TABLE>
<CAPTION>
          <S>                 <C>             <C>             <C>
       
                               1998            1997            1996
                               ----            ----            ----
          Product
          Private Passenger
           Automobile       $39,872,261     $39,213,154     $35,172,633
          Commercial Lines    7,703,054       4,912,797       5,577,301
          Personal Property   5,600,348       6,751,939       4,444,139
                            -----------     -----------     -----------
             Total          $53,175,663     $50,877,890     $45,194,073
                            ===========     ===========     ===========   

</TABLE>

Note T - Subsequent Event (Unaudited):

          On March 16, 1999, the Company signed a definitive
          Agreement and Plan of Merger ("Merger Agreement") to
          acquire North East Insurance Company ("North East")
          through a merger of a wholly-owned subsidiary of the
          Company with and into North East ("Merger").  North East
          is a NASDAQ listed property and casualty insurance
          company, headquartered in Scarborough, Maine and trading
          under the symbol NEIC.  Under the terms of the Merger
          Agreement, North East shareholders will receive, at their
          individual election, (a) $3.30 per share of North East
          common stock, (b) one share of the Company's common stock
          for each 5.25 shares of North East common stock, or (c)
          a combination thereof.  If the North East shareholders in
          the aggregate elect to exchange more than 50% of their
          shares for the Company's stock, the aggregate percentage
          will be ratably reduced to 50%.

                           (Continued)

              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            __________

Note T - Subsequent Event (Unaudited)(Continued):

          Consummation of the Merger is subject to the satisfaction
          of certain conditions set forth in the merger agreement,
          including approval from the shareholders of the Company
          and North East and authorization by state insurance
          regulators.  Both the Company and North East expect that
          these conditions will be satisfied in due course.
<TABLE>
<CAPTION>


              MOTOR CLUB OF AMERICA AND SUBSIDIARIES
               SCHEDULE I.  SUMMARY OF INVESTMENTS-
            OTHER THAN INVESTMENTS IN RELATED PARTIES
                       at December 31, 1998
                            __________
 <S>                       <C>           <C>          <C>


     Column A               Column B      Column C     Column D
     --------               --------      --------     Amount at
                                                      which shown
                                                        in the
                             Cost(a)       Market    balance sheet
                            --------      --------   -------------
 
Type of investment

Fixed maturity securities
 available-for-sale:
United States Government
 and government agencies
 and authorities           $33,081,386   $34,359,220  $34,359,220
Industrial and 
 miscellaneous              31,741,156    32,325,042   32,325,042
Public utilities             2,853,869     2,910,642    2,910,642
                           -----------                -----------
Total fixed maturities      67,676,411                 69,594,904

Mortgage loans on real 
 estate                        361,038                    361,038

Short-term investments,
 available-for-sale          5,995,299     5,995,299    5,995,299
                           -----------   -----------  -----------
Total investments          $74,032,748                $75,951,241
                           ===========                ===========
 
</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)
<TABLE>
<CAPTION>

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

                          BALANCE SHEETS
  <S>                                 <C>             <C>  
                                                December 31,   
                                          ---------------------
                                          1998             1997
                                          ----             ---- 
Assets:

  Cash and cash equivalents           $ 1,238,530     $    -     

  Investments in subsidiaries          40,707,745      28,889,766

  Insurance premiums receivable        19,587,908       7,366,692

  Deferred tax asset                       -              657,362

  Other assets                          1,991,162       5,364,125
                                      -----------     -----------
         Total assets                 $63,525,345     $42,277,945
                                      ===========     ===========

Liabilities and shareholders' equity:

  Indebtedness to subsidiaries        $26,498,457     $14,641,404

  Deferred tax liability                  957,440          -      

  Note payable                          3,000,000          -     

  Other liabilities                     5,245,919       4,635,508
                                      -----------     -----------
         Total liabilities             35,701,816      19,276,912

  Shareholders' equity                 27,823,529      23,001,033
                                      -----------     -----------
         Total liabilities and
           shareholders' equity       $63,525,345     $42,277,945
                                      ===========     ===========
</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)
<TABLE>
<CAPTION>

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

                     STATEMENTS OF OPERATIONS
  <S>                                 <C>          <C>          <C> <C>

                                          For the years ended December 31,
                                          --------------------------------
                                          1998          1997          1996
                                          ----          ----          ----
Revenues:

  Membership servicing fees           $  133,531   $  152,791   $   21,481 
  Commission income                        -            1,595        9,960 
  Realized gain on sale of
   subsidiary                              -            -          702,419 
  Interest on mortgage loans              35,251        4,973        -     
  Other income (1)                       204,640      216,161      135,704 
                                      ----------   ----------   ----------
       Total revenues                    373,422      375,520      869,564 
                                      ----------   ----------   ----------
Expenses:

  Interest expense                        60,389        8,890        8,166 
  General and administrative
   expenses (2)                         (248,636)    (512,054)     (41,111)
                                      ----------   ----------    ---------
       Total expenses                   (188,247)    (503,164)     (32,945)
                                      ----------   ----------    ---------
Income before 
   Federal income taxes                  561,669      878,684      902,509 
Benefit (provision) for
   Federal income taxes:  current      1,371,151      (37,573)     (42,324)
                                      ----------   ----------    ---------
                          deferred    (1,270,494)  (1,110,192)   2,075,535
                                      ----------   ----------    --------- 
Total Federal income tax                 100,657   (1,147,765)   2,033,211 
                                      ----------   ----------    ---------
Income before item
   shown below                           662,326     (269,081)   2,935,720 
Equity in net income 
 of subsidiaries                       3,593,465    3,751,783    2,394,388 
                                      ----------   ----------   ---------- 
       Net income                     $4,255,791   $3,482,702   $5,330,108 
                                      ==========   ==========   ==========
</TABLE>

     (1)  Amount includes $31,559 (1996) of interest due from
          Motor Club.

     (2)  Amount is net of $296,810 (1998), $535,816 (1997)
          and  $520,579 (1996) of management fees charged to
          subsidiaries.

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

                     STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S>                                             <C>                    <C>                <C>

                                                             For the years ended December 31,
                                                ---------------------------------------------- 
                                                    1998                 1997               1996
                                                ----------             ----------         ----------                               
Net income                                      $4,255,791             $3,482,702         $5,330,108 
Adjustments to reconcile net 
  income to net cash provided by
  operating activities:
  Write-off of leasehold improvement
   (net) due to lease termination                    -                     -                 227,077 
  Depreciation expense                             426,703               371,756             309,875 
  Gain on sale of subsidiary                         -                     -                (702,419)
  Accretion of bond discount                         -                     -                      10 
  Deferred tax benefit                           1,614,802             1,418,173          (2,075,535)

Changes in:
  Net assets of Motor Club of America
   Enterprises, Inc.                                 -                     -                (422,581)
  Premiums receivable                          (12,221,216)              172,024            (520,054)
  Investments in subsidiaries                  (11,149,624)           (2,947,331)         (1,663,715)
  Other assets                                     125,831               229,053            (146,637)
  Other liabilities                                451,011              (305,577)            103,409 
  Indebtedness to related parties               11,857,053              (922,446)          1,594,981 
                                               -----------             ---------           ---------
Net cash provided by (utilized in)
  operating activities                          (4,639,649)            1,498,354           2,034,519 
                                               -----------             ---------           --------- 
Investing activities:
  Proceeds from:
    Sale of subsidiary                               -                     -               1,125,000 
    Disposal of short-term
      investments                               28,900,000            47,287,674              -      
    Disposal of fixed
      maturities                                     -                     -                  15,039 
    Sale of fixed assets                             -                     -                  13,400 
    Payments received on mortgage
      loan principal                               161,517                 4,490               -    
  Purchase of:
    Fixed maturities                                 -                     -                   -     
    Short-term investments                     (25,750,000)          (48,692,219)         (1,745,455)
    Fixed assets                                  (491,088)             (168,878)         (1,097,883)
                                               -----------           -----------          ----------
  Mortgage loans from Finance Company                -                  (527,045)              -     

Net cash provide by (utilized in)
  investing activities                           2,820,429            (2,095,978)         (1,689,899)
                                                ----------           -----------          ---------- 
Financing activities:
Note payable                                     3,000,000                 -                   -     
Common stock issued                                 57,750               243,159               9,845 
                                                 ---------            ----------          ----------
Net cash provided by 
  financing activities                           3,057,750               243,159               9,845 
                                                 ---------             ---------          ----------
Increase (decrease) in cash and
  cash equivalents                               1,238,530              (354,465)            354,465 
Cash and cash equivalents at 
  beginning of year                                  -                   354,465               -     
                                               -----------            ----------          ----------
Cash and cash equivalent at end of year        $ 1,238,530            $    -              $  354,465 
                                               ===========            ==========          ==========
</TABLE>

Supplemental Disclosures of Cash Flow Information
(1)  Total interest paid was $60,389(1998), $8,890 (1997) and $8,166 (1996). 
(2)  Total federal income taxes paid was $212,738(1998), $50,691 (1997) and
     $38,462 (1996).

                                (Continued)
<TABLE>
<CAPTION>

                  MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                         SCHEDULE IV.  REINSURANCE
           FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                                __________
   <S>                           <C>            <C>          <C> <S>       <C>            <C>


        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 
                                 ------------   ---------    ------------  ----------

December 31, 1998:

  Total property and casualty
   insurance premiums earned     $59,951,837    $6,776,174   $   -         $53,175,663    0.0%
                                 ===========    ==========   =========     ===========    ===

December 31, 1997:

  Total property and casualty
   insurance premiums earned     $58,029,094    $7,151,204   $   -         $50,877,890    0.0%
                                 ===========    ==========   =========     ===========

December 31, 1996:

  Total property and casualty
   insurance premiums earned     $52,467,156    $7,273,083   $   -         $45,194,073    0.0%
                                 ===========    ==========   ==========    ===========
</TABLE>

                                (Continued)
<TABLE>
<CAPTION>

                  MOTOR CLUB OF AMERICA AND SUBSIDIARIES
                   SCHEDULE V. VALUATION AND QUALIFYING
                           ACCOUNTS AND RESERVES
           FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                                __________
<S>                <C>          <C>         <C>          <C>        <C>      

  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
------------       ----------   ----------  ---------   ----------  ---------
Allowance for
doubtful 
receivables:

December 31, 1998  $   68,091   $   -        $   -       $    -      $   68,091
                   ==========   ==========   ========    ==========  ==========
December 31, 1997  $   41,340   $   26,751   $   -       $    -      $   68,091
                   ==========   ==========   ========    ==========  ==========
December 31, 1996  $  656,083   $    -       $   -       $  614,743  $   41,340

Valuation allowance
for deferred taxes:

December 31, 1998  $1,916,202   $    -       $    -      $1,820,972  $   95,230
                   ==========   ==========   =========   ==========  ========== 
December 31, 1997  $    -       $1,916,202   $    -      $    -      $1,916,202
                   ===========  ==========   =========   ==========  ==========
December 31, 1996  $2,974,408   $    -       $  722,894  $3,697,302  $   -     
                   ==========   ==========   ==========  ==========  ==========
</TABLE>


                                (Continued)
<TABLE>
<CAPTION>

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

                  For the years ended December 31, 1998, 1997 and 1996
<C>                <C>            <C>           <C>           <C>         <C>

 
 Column A           Column B      Column C       Column D     Column E     Column F
 --------           --------      --------       --------     --------     ---------
                                 Reserves for
                    Deferred     Unpaid Claims   Discount,
                     Policy       and Claim      if any,
                   Acquisition    Adjustment    Deducted in    Unearned       Earned
                      Costs         Expenses      Column C     Premiums      Premiums
                   -----------   -------------  -----------    ---------     --------
Year ended
December 31, 1998   $ 8,708,329    $58,335,143         -       $30,733,144   $53,175,663

Year ended
December 31, 1997   $ 5,858,650    $50,246,778         -       $19,285,757   $50,877,890

Year ended
December 31, 1996   $ 5,761,496    $47,666,856         -       $18,934,200   $45,194,073

</TABLE>

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

<TABLE>
<CAPTION>

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

                           For the years ended December 31, 1998, 1997 and 1996
<C>               <C>                  <C>          <C>            <C>          <C>         <C>

 
 Column A           Column G              Column H               Column I      Column J    Column K   
 --------           ---------             --------               --------      ---------   ---------
                                        Claims and Claim
                                       Adjustment Expenses     Amortization    Paid
                                        Incurred Related to    of deferred    Claims
                      Net              (1)         (2)          policy      and Claim
                  Investment          Current     Prior        acquisition   Adjustment    Premium
                  Income (a)           Year       Years          Costs        Expenses     Written
                  ----------          ---------------------    -----------  ------------   --------

Year ended
December 31, 1998   $4,102,255     $32,598,287  $3,881,304     $13,375,221    $29,548,773 
$64,302,713

Year ended
December 31,1997    $3,384,004     $29,368,738  $3,772,953     $15,162,320    $28,371,865 
$51,680,146

Year ended
December 31, 1996   $2,998,897     $28,244,599  $  903,681     $13,678,710    $24,443,589 
$47,337,295

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


</TABLE>