<PAGE>


                                      FORM 10-Q
                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549



    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 
    
    For the quarter ended: SEPTEMBER 30, 1996
                                            or
    [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 
    
    For the transition period from _________ to __________
    
                            Commission file number: 0-9628
                                            
                          ANCHOR PACIFIC UNDERWRITERS, INC.
                (Exact name of registrant as specified in its charter)
                                            
    Delaware                                    94-1687187
    (State or other jurisdiction                (I.R.S.Employer Identification
    incorporation or organization)               No.)
    
    1800 Sutter Street, Suite 400, 
    Concord, California, 94520                   510/682-7707
    (Address of principal executive offices      (Registrant's telephone number 
    and Zip Code)                                including area code)



     Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or 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.       [X] Yes    [ ]  No

                                           
                        APPLICABLE ONLY TO CORPORATE ISSUERS:
                                           
     Indicate the number of shares outstanding of each of the issuer's 
classes of common stock, as of the latest practicable date.

              Class                      Outstanding as of September 30, 1996

Common Stock, par value $.02 per share              3,729,540 shares

                      This document is comprised of 70 pages. 

<PAGE>


                          ANCHOR PACIFIC UNDERWRITERS, INC.
                                        INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements:

        Consolidated Balance Sheets, September 30,
        1996 (unaudited) and December 31, 1995...........................  1

        Consolidated Statements of Operations for the nine months and 
        quarters ended September 30, 1996 and 1995 (unaudited)............  3
                                          
        Consolidated Statements of Shareholders' Equity for the nine 
        months ended September 30, 1996 (unaudited) and year ended 
        December 31, 1995.................................................  4

        Consolidated Statements of Cash Flows for the nine months ended 
        September 30, 1996 and 1995 (unaudited)...........................  5

        Notes to Consolidated Financial Statements........................  7

ITEM 2. Management's Discussion and Analysis of Financial 
        Condition and Results of Operations..............................  10

PART II.  OTHER INFORMATION 

ITEM 1. Legal Proceedings................................................  18

ITEM 2. Changes in Securities............................................  18

ITEM 3. Defaults Upon Senior Securities..................................  18

ITEM 4. Submission of Matters to a Vote of Security Holders..............  18

ITEM 5. Other Information................................................  18

ITEM 6. Exhibits and Reports on Form 8-K.................................  18


<PAGE>


PART I - FINANCIAL INFORMATION


                  ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS


                                                 September 30,    December 31,
                                                     1996            1995
                                                 ------------    ------------
                                                  (unaudited)

ASSETS
Current Assets:
  Cash and cash equivalents - corporate funds    $   320,909      $  904,781
  Cash and cash equivalents - brokerage 
   fiduciary funds                                 1,333,844       1,529,524
  Cash and cash equivalents - third-party
   administration fiduciary funds                  3,128,761       4,010,606
  Accounts receivable (less allowance for
   doubtful accounts of $36,622 in 1996 and 
   $49,560 in 1995)                                1,326,306       1,255,335
  Prepaid expenses and other current assets          275,584         295,537
                                                 -----------      ----------
Total current assets                               6,385,404       7,995,783


Property and equipment                             2,965,153       2,892,462

Less accumulated depreciation and amortization    (2,052,150)     (1,835,530) 
                                                 -----------      ----------
                                                     913,003       1,056,932

Other assets:
 Goodwill, net                                      2,026,433       2,128,452
 Intangible assets, net                             1,263,696       1,128,740
 Deferred compensation                                257,784         361,344
 Other                                                 62,855          61,182
                                                 ------------     -----------
                                                    3,610,768       3,679,718
                                          
Total assets                                      $10,909,175     $12,732,433
                                                 ------------     -----------
                                                 ------------     -----------
                                       1

<PAGE>


                  ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                           


                                                 September 30,    December 31,
                                                     1996            1995
                                                 ------------    ------------
                                                  (unaudited)


LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Cash and cash equivalents - third-party
   administration fiduciary funds                 $ 3,128,761    $ 4,010,606
  Net premiums payable - insurance companies        2,347,614      2,510,983
  Accounts payable and accrued expenses               361,973        404,801
  Short-term debt                                   1,320,000      1,175,000
  Current portion of long-term debt                    81,415        156,622
  Current portion of long-term liabilities            669,358        498,537
                                                  -----------    -----------
Total current liabilities                           7,909,121      8,756,549


Long-term liabilities                                 841,878      1,034,895

Long-term debt, including $960,000 in 1996 and 
    $790,000 in 1995, owed to related parties       1,362,366      1,266,635



Deferred tax liability                                111,322        111,322

Shareholders' equity:
  Common stock  - $.02 par value; 8,000,000
    shares authorized; 3,729,540 and 3,674,501
    shares issued as of 9/30/96 and 12/31/95 
    respectively                                       74,591         73,490
  Additional paid-in capital                        3,083,173      2,989,275
  Retained earnings (deficit)                      (2,473,276)    (1,499,733)
                                                  -----------    -----------
Total shareholders' equity                            684,488      1,563,032
                                                  -----------    -----------
Total liabilities and shareholders' equity        $10,909,175    $12,732,433
                                                  -----------    -----------
                                                  -----------    -----------



SEE ACCOMPANYING NOTES.

                                       2

<PAGE>
                  ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                                           
<TABLE>
<CAPTION>
                                                 NINE MONTHS                  QUARTERS
                                             ENDED SEPTEMBER 30,          ENDED SEPTEMBER 30,
                                           ------------------------   --------------------------
                                              1996         1995          1996            1995
                                           (unaudited)  (unaudited)   (unaudited)    (unaudited)
<S>                                        <C>          <C>           <C>            <C>
Revenues:
  Commissions, fees & other income         $5,990,112   $6,620,790    $1,903,701     $2,182,458
  Interest Income                              81,194      103,883        21,815         42,146
                                           ----------   ----------    ----------     ----------
Total revenue                               6,071,306    6,724,673     1,925,516      2,224,604

Operating expenses:
  Salaries, commissions & employee
    benefits                                4,094,131    4,468,034     1,331,075      1,454,431
  Selling, general & administrative
    expenses                                2,438,242    2,307,208       831,125        785,044
                                           ----------   ----------    ----------     ----------
Total operating expenses                    6,532,373    6,775,242     2,162,200      2,239,475
                                           ----------   ----------    ----------     ----------
                                             (461,067)     (50,569)     (236,684)       (14,871)
Other income (expense):
  Amortization of goodwill &
    intangible assets                        (282,061)    (300,465)      (95,160)       (97,086)
  Interest                                   (279,124)    (113,677)      (76,931)       (39,876)
  Other                                        53,509      129,893        16,065        (28,652)
  Nonrecurring merger expenses                      -     (204,209)            -              -
                                           ----------   ----------    ----------     ----------
Total other income (expense)                 (507,676)    (488,458)     (156,026)      (165,614)
                                           ----------   ----------    ----------     ----------
Loss before income taxes                     (968,743)    (539,027)     (392,710)      (180,485)
Income tax expense                              4,800        4,800             -              -
                                           ----------   ----------    ----------     ----------
Net loss                                   $ (973,543)  $ (543,827)   $ (392,710)    $ (180,485)
                                           ----------   ----------    ----------     ----------
                                           ----------   ----------    ----------     ----------
Net loss per common & 
  common equivalent share                  $    (0.26)  $    (0.15)   $    (0.11)    $    (0.05)
                                           ----------   ----------    ----------     ----------
                                           ----------   ----------    ----------     ----------
Weighted average number of 
  common & common equivalent
  shares outstanding                        3,692,750    3,674,559     3,692,750      3,674,559
                                           ----------   ----------    ----------     ----------
                                           ----------   ----------    ----------     ----------
SEE ACCOMPANYING NOTES
</TABLE>
                                       3
<PAGE>
                          ANCHOR PACIFIC UNDERWRITERS, INC.
                                           
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                           
<TABLE>
<CAPTION>
                                                           Additional      Retained
                                       Common Stock          Paid-In       Earnings
                                   Shares        Amount      Capital       (Deficit)      Total
                                  ----------------------------------------------------------------
<S>                               <C>            <C>        <C>          <C>            <C>
Balance at December 31,
 1994 (Restated)                  3,923,258      $78,465    $3,294,702   $  (632,704)   $2,740,463
  Stock issued for 
   warrants exercised                   163            3           486             -           489
  Canceled stock:
   Acquisition related
    adjustment                     (248,710)      (4,974)     (305,917)            -      (310,891)
   Fractional shares                   (210)          (4)            4             -             -
  Net Loss                                -            -             -      (867,029)     (867,029)
                                  ----------------------------------------------------------------
Balance at December 31,
 1995                             3,674,501      $73,490    $2,989,275   $(1,499,733)   $1,563,032
   Convertible debentures            11,111          222        14,778             -        15,000
   Purchase agreements               43,928          879        79,120             -        79,999 
   Net loss                               -            -             -      (973,543)     (973,543)
                                  ----------------------------------------------------------------
Balance at September 30,
 1996 (Unaudited)                 3,729,540      $74,591    $3,083,173   $(2,473,276)   $  684,488
                                  ----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES 
                                       4
<PAGE>

              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                            Nine Months
                                                        Ended September 30,
                                                     -------------------------
                                                        1996           1995
                                                     (unaudited)    (unaudited)

OPERATING ACTIVITIES
Net loss                                             $(973,543)     $(543,827)
Adjustments to reconcile net loss to cash
 provided by (used in) operating activities:
  Depreciation and amortization                        216,620        159,330
  Amortization of goodwill, and other
   intangibles                                         282,061        300,465
  Deferred tax liability                                     -          5,135

Changes in operating assets and liabilities,
 net of effect of purchases of subsidiaries:
  Cash and cash equivalents - brokerage
   fiduciary funds                                     195,680       (288,992)
  Accounts receivable                                  (70,971)        55,917
  Prepaid expenses and other current assets             14,536         91,559
  Other assets                                          (1,673)        24,937
  Deferred compensation                                103,560        103,560
  Net premiums payable - insurance companies          (163,369)       347,014
  Accounts payable and accrued expenses                (42,828)       (28,013)
  Other liabilities                                    (32,430)       (10,072)
                                                     ---------      ---------

Net cash (used in) provided by operating activities   (472,357)       217,013

INVESTING ACTIVITIES
Notes receivable, net                                   (2,028)       (78,169)
Purchases of property and equipment                    (72,691)      (157,878)
Purchases of customer list                            (314,999)       (63,366)
                                                     ---------      ---------

Net cash used in investing activities                 (389,718)      (299,413)

                                       5

<PAGE>

              ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


                                                            Nine Months
                                                        Ended September 30,
                                                     -------------------------
                                                        1996           1995
                                                     (unaudited)    (unaudited)

FINANCING ACTIVITIES
Common stock - warrants exercised                            -             33
Debt:
 Borrowings                                            325,000        907,697
 Repayment                                            (202,819)      (878,271)
 Capital lease payments                                      -        (46,610)
Net payments on amounts due on acquisitions            156,022         62,976
                                                     ---------      ---------
Net cash provided by financing activities              278,203         45,825
                                                     ---------      ---------

Net (decrease) in cash                                (583,872)       (36,575)
Cash and cash equivalents - corporate funds at
 beginning of period                                   904,781        384,102
                                                     ---------      ---------
Cash and cash equivalents - corporate funds at
 end of period                                       $ 320,909      $ 347,527
                                                     ---------      ---------

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
 Interest                                            $ 279,124      $ 113,677
                                                     ---------      ---------
 Income taxes                                        $       -      $   5,600
                                                     ---------      ---------

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING &
 FINANCING ACTIVITIES
Increase in goodwill and liabilities as a result
 of purchase price adjustments related to the
 PKW merger                                          $       -      $ 104,542
                                                     ---------      ---------

Decrease in goodwill and shareholders' equity
 related to cancellation of stock issued in
 conjunction with PKW merger                         $       -      $ 310,890
                                                     ---------      ---------

Increase in intangible assets and notes payable,
 related to the purchase of customer list            $       -      $ 140,395
                                                     ---------      ---------

Common stock - convertible debentures exercised      $  15,000      $       -
                                                     ---------      ---------

Common stock - issued per purchase agreements        $  79,999      $       -
                                                     ---------      ---------

SEE ACCOMPANYING NOTES

                                       6

<PAGE>

               ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


                              SEPTEMBER 30, 1996


NOTE 1 - BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of 
Anchor Pacific Underwriters, Inc. and its subsidiaries ("Anchor") have been 
prepared in accordance with generally accepted accounting principles for 
interim financial information and with the instructions to Form 10-Q and 
Article 10 of Regulation S-X.  Accordingly, they do not include all 
information and footnotes required by generally accepted accounting 
principles for complete financial statements.  In the opinion of management, 
all adjustments, consisting of normal recurring accruals, considered 
necessary for a fair presentation have been included. Operating results for 
the nine month period ended September 30, 1996 are not necessarily indicative 
of the results that may be expected for the year ending December 31, 1996.  
For further information, refer to the consolidated financial statements and 
footnotes thereto included in Anchor's Form 10-K for the year ended December 
31, 1995.

         The financial statements have been prepared on the going concern 
basis.  Anchor has reported net losses during the past three years.  The 
increase in net loss in 1995 and 1994 relates to expenses incurred in 
connection with acquisitions and a merger.  These events are further 
discussed in the footnotes of the audited financials included in the 1995 
Form 10-K.  Anchor's business is not capital intensive and Anchor 
historically has had sufficient capital to meet its operating needs.  
Continued operating losses, however, have negatively impacted Anchor's 
working capital position.  To remedy this situation and supplement working 
capital, Anchor is seeking to raise at least $500,000 from members of the 
Board of Directors and other qualified investors through the sale of  10% 
Subordinated Bridge Notes ("Bridge Notes").  As of November 7, 1996 Anchor 
had received $180,000 in proceeds from the sale of Bridge Notes with 
additional funds anticipated by the end of the year.  Anchor plans to 
continue making acquisitions and, in order to fund these acquisitions, it has 
sought financing from third party sources.  Anchor is presently seeking 
short-term financing to fund a portion of  one significant transaction; and, 
has engaged an investment banking firm to explore the possibility of raising 
up to $10 million from institutional investors.

         Management's plan to achieve and sustain profitability includes a 
strategy to strengthen its core health insurance and property and casualty 
insurance businesses by:  (a) continuing to develop specialized affiliated 
business units that target selected insurance market segments defined by 
industry type, geographic location and consumer demographics; (b) 
establishing new products and services; (c) strengthening management, sales 
and marketing staff; and (d) seeking to acquire and integrate compatible 
insurance brokerage and administration businesses in the Western United 
States.  In conjunction with such acquisition strategies, management intends 
to realize efficiencies and reduce expenses through the integration and 
centralization of certain services with its existing infrastructure.

RECLASSIFICATION

         Certain prior year balances have been reclassified to conform with 
the current year presentation.

NOTE 2 - ACQUISITIONS

         On January 6, 1995 Anchor merged with System Industries, Inc. 
("System").  For accounting purposes, the merger has been treated as a 
recapitalization of Anchor with Anchor as the acquirer (reverse acquisition). 
The historical financial statements prior to January 6, 1995 are those of 
Anchor.  These historical financial statements have been restated to give 
effect to this recapitalization.  Upon consummation of this merger, 
shareholders of System received one share of Anchor Common Stock and one 
Warrant to purchase one share of Anchor Common Stock for every 42.3291 shares 
of issued and outstanding System Common Stock.  As a result of

                                       7

<PAGE>

the merger, Anchor became a public company. In February 1995, Anchor acquired 
certain third-party administration accounts from a company located in 
Stockton, California at a purchase price of approximately $204,000 (which 
reflects a $50,000 cash payment and a discounted future income stream) with 
an additional $55,000 of Anchor's Common Stock which was issued on July 29, 
1996 at an agreed per share value of $1.75 per share (31,428 shares).  On 
March 1, 1996 Anchor purchased the R.L. Ferguson Insurance Agency ("RLF"), at 
a purchase price of approximately $260,000 (which reflects a $95,000 cash 
payment and a discounted future income stream) with an additional $25,000 of 
Anchor's Common Stock which was issued on August 29, 1996 at an agreed per 
share value of $2.00 per share (12,500 shares).  On April 1, 1996 Anchor 
acquired certain property and casualty accounts from Norman I. Robins 
("Robins") at a purchase price equal to 30% of the net commission revenues to 
be paid over a period of 60 consecutive months.  On May 1, 1996 Anchor and 
Putnam, Knudsen & Wieking, Inc. ("PKW") acquired certain property and 
casualty accounts from John R. McPherson ("McPherson") at a purchase price 
equal to 20% of the net commission revenues to be paid over a period of 48 
consecutive months.

         The results of operations from these acquisitions are included in 
Anchor's consolidated financial statements from the date of purchase.

         Although Anchor is engaged in discussions with third parties 
regarding potential acquisitions, as of November 7, 1996 it did not have any 
binding agreements with respect to acquisitions.  However, Anchor has 
released three Letters of Intent to potential acquisition prospects with whom 
due diligence is currently ongoing.  No assurances can be given with respect 
to the likelihood, or financial or business effect, of any possible future 
acquisition.

NOTE 3 - CONTINGENCIES

         Anchor is subject to certain legal proceedings and claims arising in 
connection with its business.  It is management's opinion that the resolution 
of these claims will not have a material effect on Anchor's consolidated 
financial position.

NOTE 4 - CONVERTIBLE PREFERRED STOCK

         Anchor has engaged an investment banking firm to explore the 
possibility of raising up to $10 million in long-term financing through the 
private sale of Series A Convertible Preferred Stock to one or more 
institutional investors.  The proceeds of this offering would be used for 
debt consolidation, working capital and to fund future acquisitions.  
Although representatives of Anchor and the investment banking firm have met 
with potential investors such discussions are only in the preliminary stages. 
Consequently, there can be no assurances as to when or whether Anchor will 
raise additional capital or what the final terms and conditions would be for 
such capital.

NOTE 5 - ADJUSTABLE BRIDGE NOTES AND WARRANT

         Anchor was seeking to raise up to $3 million in short-term financing 
through the proposed issuance of Adjustable Bridge Notes and Warrant to 
Purchase Shares of Anchor Common Stock ("Adjustable Notes").  Anchor intended 
to utilize a substantial portion of the proceeds to acquire all of the issued 
and outstanding shares in a potential acquisition of an insurance specialty 
managing general agency located in Scottsdale, Arizona.  This short-term 
financing is no longer being pursued by Anchor due to other financing 
alternatives that have been developed over the last several months (see Note 
6 below).

NOTE 6 - BANK LINE OF CREDIT AND WARRANT

         Anchor is currently in negotiations with a regional San Francisco 
Bay Area bank to fund a $1,000,000 credit line for the purpose of acquiring 
all of the issued and outstanding shares in a potential acquisition of an 
insurance specialty managing general agency located in Scottsdale, Arizona.  
This line of credit would be treated as senior to all indebtedness and 
obligations of Anchor, except for any obligation of Anchor under existing 
bank lines of credit.  As of November 7, 1996 the terms and conditions of 
said line of credit have not been finalized.   There can be no assurances as 
to when or whether Anchor will raise this additional line of credit or what 
the final terms and conditions would be for such line of credit.

                                       8

<PAGE>

NOTE 7 - 10% SUBORDINATED BRIDGE NOTES AND WARRANT

         During the second half of fiscal 1996 Anchor began to raise 
additional funds from members of the Board of Directors and other qualified 
investors through an issuance of 10% Subordinated Bridge Notes and Warrant to 
Purchase Shares of Anchor Common Stock ("Bridge Notes").  As of November 7, 
1996 Anchor has received $180,000 from said investors with additional 
commitments outstanding to purchase approximately $200,000 of the Bridge 
Notes before the end of the year.  Anchor intends to utilize a substantial 
portion of the proceeds from the Bridge Notes to support current and future 
working capital needs of Anchor.  Terms of the Bridge Notes provide 10% 
interest paid annually in arrears with a one year maturity from date of 
issuance.  For every $10,000 of principal invested the purchaser would 
receive a five year warrant to acquire 1,000 shares of Anchor Common Stock.  
The warrant provides for a purchase price of $1.75 per share and includes 
antidilution protection for stock splits, stock dividends, recapitalizations 
and reorganizations.  The Bridge Notes are junior to all indebtedness and 
obligations of Anchor, except that the Bridge Notes are equal in status to 
the Subordinated Convertible Debentures issued during 1995 which become due 
in 1997. 

NOTE 8 - 10% CONVERTIBLE SUBORDINATED DEBENTURES

         During 1995, Anchor raised $370,000 to supplement its working 
capital and capital expenditure requirements by selling 10% Convertible 
Subordinated Debentures (the "Debentures").  The basic terms of the 
Debentures were: (a) 10% interest per annum; (b) two year maturity; (c) 
conversion price of $1.35 in the first year and $1.65 in the second year; (d) 
"piggyback" registration rights for three years; (e) subordination provisions 
that subordinated the Debentures to Anchor's "Senior Debt" (as defined in the 
Debentures); and (f) provisions that permitted Anchor to redeem the 
Debentures at par at any time.  Purchasers of the Debentures included seven 
members of the Board of Directors and a limited number of other sophisticated 
investors.

         An additional $600,000 was raised in the fourth quarter of 1995 to 
supplement Anchor's working capital and capital expenditure requirements by 
selling a 10% Convertible Subordinated Debenture, Series A (the "Series A 
Debenture") to Guarantee Life Company ("Guarantee").  The basic terms of the 
Series A Debenture were: (a) 10% interest per annum; (b) two year maturity; 
(c) conversion price of $1.50; (d) "piggyback" registration rights for three 
years; (e) subordination provisions that subordinated the Series A Debenture 
to Anchor's "Senior Debt" (as defined in the Series A Debenture); and (f) 
provisions that permitted Anchor to redeem the Series A Debenture at par at 
any time.

         In November 1996, Guarantee agreed to convert all $600,000 of the 
Series A Debenture into 444,444 shares of Anchor's Common Stock at $1.35 per 
share.  In November 1996, investors holding $220,000 of the Debentures, 
including members of the Board of Directors, agreed to convert their 
Debentures into 162,963 shares of Anchor's Common Stock at $1.35 per share.  
When completed, the conversion will save Anchor approximately $80,000 in 
interest payments, reduce outstanding indebtedness by $820,000 and increase 
shareholders' equity by $820,000.

NOTE 9 - COMMITMENTS

         On June 27, 1996 Anchor entered into an Engagement Letter with 
Gerbsman Partners ("Gerbsman"), a business and investment banking firm, to 
assist Anchor in developing a strategy to access short-term debt financing 
sources for future acquisitions.  This Engagement Letter was canceled on July 
31, 1996 per the terms of the contract, as Gerbsman was unsuccessful in 
assisting Anchor in raising short-term debt financing. 

         The Engagement Letter provided  for a $25,000 retainer fee which is 
due and payable on January 4, 1997 plus reasonable business expenses through 
July 31, 1996.  However, inasmuch as  Gerbsman was unable to raise the 
short-term debt financing, there are no additional retainer fees or 
options/warrants due under said contract.

                                       9

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

BACKGROUND

         Anchor was organized in 1986 as a California general partnership for 
the specific purpose of acquiring Harden & Company ("Harden"), a third-party 
employee benefits administrator.  Anchor was reorganized as a private 
California corporation in March 1987, and became a public reporting Delaware 
corporation on January 6, 1995 when it merged with System.  

         Since its inception, Anchor has expanded its insurance and financial 
service capabilities through internal growth and a series of acquisitions.  
In August 1994, Harden acquired Benefit Resources, Inc. ("BRI"), a 
third-party employee benefits administrator located in Scottsdale, Arizona; 
in October 1994, Anchor acquired Putnam, Knudsen & Wieking, Inc. ("PKW"), a 
property and casualty insurance brokerage company located in Oakland, 
California; in March 1996, Anchor acquired RLF, a property and casualty 
insurance brokerage company located in Walnut Creek, California; in April 
1996, Anchor acquired certain property and casualty accounts from Robins; and 
in May 1996, Anchor and PKW acquired certain property and casualty accounts 
from McPherson.  The RLF, Robins and McPherson acquisitions are not 
significant to Anchor.  These acquisitions were accounted for using the 
purchase method of accounting.  Anchor expects to continue to expand its 
insurance brokerage and administration businesses and to explore other 
complementary expansion opportunities.

         Historically, Anchor derived a majority of its revenues from 
third-party administration services.  In light of its acquisition of PKW in 
October 1994; the March 1, 1996 acquisition of RLF; the April 1, 1996 
acquisition of accounts from Robins; and, the May 1, 1996 acquisition of 
accounts from McPherson, Anchor expects to significantly increase the 
percentage of its revenues that are derived from property and casualty 
insurance brokerage activities.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

GENERAL

         Anchor derives a substantial portion of its revenues from 
commissions, which generally are based on a percentage of premiums produced 
by Anchor, contingent commissions, which generally are based on underwriting 
profits derived over a given period of time by the insurance carrier, and 
fees received for claims administration (including underwriting and risk 
analysis) services, which generally are based on a percentage of premiums 
collected, or on a per capita basis.  Anchor does not assume any underwriting 
risk in connection with its business.

         Fluctuations in premiums charged by insurance companies may 
materially affect commission revenues.  During the last eight years, the 
property and casualty insurance industry has experienced a "soft market" 
where the underwriting capacity of insurance companies expanded, stimulating 
an increase in competition and a decrease in premium rates, thereby reducing 
related commissions and fees.  In addition to the soft market for property 
and casualty insurance, workers' compensation reform in California has had 
the effect of reducing workers' compensation insurance premiums and, 
consequently, reducing commissions generated by the sale of related insurance 
products.  Although some sources in the insurance industry have predicted 
future premium increases, the likelihood of rate increases in the near future 
remains uncertain.  Anchor believes that revenues generated from anticipated 
future growth and continued diversification of its business will offset 
weaknesses in the property and casualty market and any loss of revenues that 
may result from workers' compensation reform.

         Inflation may also impact commission revenues by, among other 
things, increasing property replacement costs and workers' compensation and 
liability claims, thereby causing some clients to seek higher levels of 
insurance coverage and pay higher premiums.  During the past several years, 
the United States has experienced very low rates of inflation along with 
gradual business expansion. Because the United States has recently 
experienced limited inflationary pressures, inflation has had minimal impact 
on insurance prices.

                                      10

<PAGE>

         Other factors, such as client uncertainty about the effect of health 
care reform, could also affect Anchor's business.  Anchor believes, however, 
that its expertise in two major areas that are the targets of health care 
reform proposals (managed care and managed competition), combined with its 
strategy of serving middle market clients, makes it well positioned to 
operate effectively in a managed care and managed competition environment.  
Anchor also believes that in the current political environment, the United 
States will experience incremental, rather than comprehensive, changes in 
health care regulations.  It is not possible at this time to predict the 
effect that any future health care legislation will have on Anchor's business 
condition or operations.

         Anchor is unaware of any current regulatory proposals that could 
have a material effect on its liquidity, capital resources or operations.  

         Anchor has taken steps to strengthen the sales management at both 
PKW and BRI by hiring seasoned sales and marketing executives to take over 
marketing responsibilities.  Product development and new product sales 
continue to be a top priority as does geographical diversification into other 
states and marketing territories.  Marketing for new business on the release 
of a new product by Harden and BRI's new insurance carrier began on April 1, 
1996. Market reaction to these changes has been encouraging and the increase 
in new revenue is beginning to match prior periods of production.  
Furthermore, Harden and BRI have been successful in securing an alternative 
insurance carrier to strengthen and broaden their product offerings in the 
small group market; as well as facilitate geographic diversification.   This 
new insurance carrier has negotiated a multi-year, exclusive contract with 
Harden and BRI which management believes will materially enhance sales 
opportunities in California and Arizona. Initial market reaction to this 
change is encouraging.

REVENUES

         TOTAL REVENUES.  Total revenues for the nine months ended September 
30, 1996 were $6,071,306, a decrease of $653,367 or 9.7% compared to 
$6,724,673 of revenues for the nine months ended September 30, 1995.  The 
decrease in revenues in this nine month period resulted from net lost 
business due primarily to a change in the underwriting insurance carrier for 
Harden as discussed below. Anchor's revenues vary from quarter to quarter as 
a result of the timing of policy renewals and net new/lost business 
production, whereas expenses are fairly uniform throughout the year. 

         Commissions and fees make up substantially all of Anchor's revenues. 
The following table sets forth the percentages of Anchor's revenues 
attributable to insurance brokerage services (for which commissions are 
generated), and third-party administration and underwriting and risk analysis 
services (for which fees are generated), for the nine months ended September 
30, 1996, 1995 and 1994.  Also included is the percentage of revenues 
generated from premium finance activities.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
  NINE MONTHS ENDED SEPTEMBER 30,            1996       1995       1994
-------------------------------------------------------------------------------
  Insurance Brokerage Commissions             44%        40%        21%
-------------------------------------------------------------------------------
  Third-Party Administration Fees             56%        59%        78%
-------------------------------------------------------------------------------
  Premium Financing                            -          1%         1%
-------------------------------------------------------------------------------
     Total                                   100%       100%       100%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

         Historically, Anchor derived a majority of its revenues from 
third-party administration services.  In light of its acquisitions of PKW in 
October 1994; RLF in March 1996; and the account acquisitions of Robins in 
April 1996, and McPherson in May 1996, Anchor expects to continue to 
experience an increase in the percentage of its revenues that are derived 
from insurance brokerage activities. 

                                      11

<PAGE>

         COMMISSIONS.  Commissions from insurance brokerage services are 
reported net of sub-broker commissions and generally are recognized as of the 
effective date of the insurance policy except for commissions on installment 
premiums which are recognized periodically as billed. Commissions for the 
first nine months of 1996 were $2,602,842 a decrease of $67,728 or 2.5% 
compared to $2,670,570 of commissions for the first nine months of 1995.  The 
decrease resulted from net lost business for the nine month period ended 
September 30, 1996 largely due to the continuing soft property and casualty 
market and the effects of open-rating in workers' compensation.

         Anchor expects that commission revenues generated from sales of 
workers' compensation insurance, which accounted for approximately 15% of 
commission revenues to PKW (or 7% of Anchor's total revenues) for the first 
nine months of 1996, may begin to stabilize as a result of workers' 
compensation reform in California. Anchor believes that revenues generated 
from anticipated growth and continued diversification of its business will 
substantially offset and rebuild lost revenues that resulted from workers' 
compensation reform.  

         FEES.  Fees from Anchor's third-party administration (including 
underwriting and risk analysis) services for the nine months ended September 
30, 1996 were $3,386,054 a decrease of $555,845 or 14.1% compared to 
$3,941,899 in fees for the same period in 1995.  This loss of fees income is 
the direct result of changes in the underwriting insurance carriers for 
Harden and BRI and is discussed below.

         Revenues generated from fees by Anchor in the first nine months of 
1996 from third-party administration services consist of revenues generated 
by both Harden and BRI.  A significant portion of the Harden and BRI fee 
revenues generated from new clients relate to an insurance product 
underwritten by one insurance carrier, which currently is an A+ (Superior) 
rated insurance carrier.

         Harden's third-party administration revenues are substantially 
derived from: (a) an insurance product currently underwritten by two 
insurance carriers, which are rated A+ (Superior) and A (Excellent); and (b) 
the administration of insurance programs underwritten by various insurance 
carriers for a number of self-insured employers.  The insurance product 
referred to in (a) above, accounted for approximately 60.6% of Harden's 
revenues (or approximately 25.1% of Anchor's total revenues) in 1995, and 
revenues related to the administration of self-insured benefit plans 
described in (b) above, accounted for 38.0% of Harden's revenues in such 
period.  Self-insurance is a benefit plan in which a client assumes a 
manageable portion of its insurance risks, usually placing the less 
predictable and larger loss exposure with an excess loss insurance carrier.

         The insurance company which offered the product that accounted for 
65% of Harden's 1994 third-party administration revenues informed Harden in 
the first quarter of 1995 that as a result of changes in its business 
strategy it would discontinue offering such an insurance product by the end 
of 1995.  On July 20, 1995, Harden obtained a binding commitment from an A+ 
(Superior) rated insurance carrier to underwrite the risk and provide a 
replacement product as of October 1, 1995.  The transition to the new 
insurance carrier has caused several clients to reevaluate their insurance 
needs.  In conjunction with this transition process, existing clients are 
required to satisfy the new carrier's underwriting standards. During the 
first quarter in 1996, one client who represented approximately 9% of 
Harden's 1995 revenues, (or 3.7% of Anchor's consolidated revenues) was 
advised by the new insurance carrier that it would not be accepted as a 
client because it did not meet its underwriting standards. As a result of the 
transition to the new insurance carrier, Harden has experienced a near term 
loss of business accounts and revenues.  Management expects an improvement as 
new clients are added over the next six to twelve month period.  

         The insurance company, an A+ (Superior) rated insurance carrier, 
which provided the replacement product as of October 1, 1995 informed Harden 
in the third quarter of 1996, that as a result of changes in its business 
strategy, it would discontinue offering such an insurance product by the end 
of February 1997.  This product currently represents 51% of Harden and BRI's 
revenue and 27% of Anchor's total revenue.

         As of October 31, 1996, Harden obtained a commitment from an 
A-(Excellent) rated insurance carrier to underwrite the risk and provide a 
replacement product as of December 1, 1996.  Management believes that the 
transition to the new insurance carrier will be less intrusive on Harden and 
BRI's clients because the replacement insurance carrier will fully assume all 
policies in California and the majority of policies in Arizona thereby 
avoiding the loss of accounts which Harden and BRI experienced earlier.  The 
impact on Harden and BRI's revenue is expected to be minimal.

                                      12

<PAGE>
       The new replacement insurance carrier is a subsidiary of the largest 
HMO in Nevada.  Management believes that the new insurance carrier will 
enable Anchor to provide the small group medical insurance market with 
stronger managed care components.  The replacement insurance carrier's 
business strategy is to aggressively market group health products in a 
multi-state distribution system through an exclusive multi-year contract with 
Harden and BRI.  The initial reaction of the Harden and BRI distributors has 
been very favorable.  At the end of October 1996 Harden and BRI had received 
commitments for in excess of $5 million of new business premiums.  Revenues 
from this new business would begin in January 1997.

       INTEREST INCOME.  Interest income consists of interest earned on 
insurance premiums and other funds held in fiduciary accounts and interest 
earned on investments.  Interest income was $81,194 and $103,883 for the nine 
months ended September 30, 1996 and 1995, respectively.  The decrease in 
interest income in 1996, as compared to 1995, was primarily caused by reduced 
insurance premiums and other funds being held in fiduciary accounts which is 
directly related to business lost due to the change of primary insurance 
carriers referred to above.

EXPENSES

       TOTAL EXPENSES.  Total operating expenses for the nine months ended 
September 30, 1996 were $6,532,373 a decrease of $242,869 or 3.6% as compared 
to the operating expenses of $6,775,242 for the same period in 1995.  As 
discussed below, the decrease in total expenses resulted from a decrease in 
employee compensation and benefits offset, in part, by an increase in 
selling, general and administrative expenses.

       Anchor continues to monitor expenses closely as Harden and BRI 
transition from one insurance carrier to another for their major indemnity 
product.  Anchor is also monitoring staffing levels as well as outside 
professional services.  Management expects to achieve further cost reductions 
in connection with the recent termination of an outside vendor supplying 
systems support.

       EMPLOYEE COMPENSATION AND BENEFITS.  Employee compensation and 
benefits for the nine months ended September 30, 1996 were $4,094,131 a 
decrease of $373,903 or 8.4% as compared to $4,468,034 for the same period in 
1995. Starting in 1996, PKW went to a compensation system for all sales 
personnel based upon  commission only versus the prior practice of paying 
commission plus salary.  The change in 1996 was made in order to record 
commissions to properly match with earned revenues.  In addition, this 
overall decrease was also attributed to normal attrition and selective 
downsizing at PKW, Harden and BRI, and a reclassification of certain items to 
selling, general and administrative expenses.

       SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses were $2,438,242 and $2,307,208 for the nine months 
ended September 30, 1996 and 1995, respectively.  The $131,034, or 5.7% 
increase in 1996, as compared to 1995, resulted primarily from reclassification
of certain items previously classified as employee compensation and benefits. 
General and administrative expenses include rent, travel, insurance, postage, 
telephone, supplies and other miscellaneous expenses.

       INTEREST EXPENSE.  Interest expense totaled $279,124 and $113,677 for 
the nine months ended September 30, 1996 and 1995, respectively.  The 
increase in interest expense of $165,447 in the first nine months of 1996, as 
compared to the same period in 1995, resulted primarily from an increase in 
outstanding borrowings on Anchor's existing lines of credit, and $85,000 of 
expense related to the Convertible Preferred Stock Offering. The successful 
completion of the Convertible Preferred Stock Offering and subsequent debt 
consolidation could materially lower interest expense.  There can be no 
assurances as to when or whether Anchor will raise this additional capital or 
what the final terms and conditions will be for such capital.

       AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES.  Goodwill represents 
the excess of the cost of acquisitions over the fair value of net assets 
acquired.  Other intangibles include covenants not to compete, customer lists 
and other contractual rights.  Amortization of goodwill and other intangibles 
was $282,061 and $300,465 for the nine months ended September 30, 1996 and 
1995, respectively.  The decrease in amortization of goodwill and other 
intangibles is a result of an adjustment to goodwill in the fourth quarter of 
1995 due to the subsequent adjustment of the PKW purchase price.  For further 
information, refer to Adjustment to PKW Purchase Price, page 15, in Anchor's 
Annual Report on Form 10-K for the year ended December 31, 1995.

                                       13
<PAGE>

INCOME TAXES

       Anchor's expense for income taxes was $4,800 for both nine month 
periods ended September 30, 1996 and 1995.  This $4,800 expense represents 
the minimum annual required tax payment due.

RESULTS OF OPERATIONS - QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995

     REVENUES

       TOTAL REVENUES.  Total revenues for the three months ended September 
30, 1996 were $1,925,516, a decrease of $299,088, or 13.4%, as compared to 
1995 third quarter revenues.  The decrease in revenue resulted primarily from 
the insurance carrier change at Harden and BRI.

       COMMISSIONS.  Commissions for the third quarter of 1996 were $851,973, 
a decrease of $21,245, or 2.4%, as compared to $873,218 of commissions for 
the third quarter of 1995.  The net loss of business revenue at PKW accounted 
for substantially all of the decrease.

       FEES.  Fees from Anchor's third-party administration (including 
underwriting and analysis)  services for the three months ended September 30, 
1996 were $1,051,095, a decrease of $256,975, or 19.6% as compared to 
$1,308,070 in fees for the same period in 1995.  The insurance carrier change 
at Harden and BRI accounted for substantially all of the revenue decrease.

       INTEREST INCOME.  Interest income was $21,815 and $42,146 for the 
three months ended September 30, 1996 and 1995, respectively.  The decrease 
in interest income in the third quarter of 1996, as compared to 1995, 
resulted primarily from reduced insurance premiums and other funds held in 
fiduciary accounts.

     EXPENSES

       TOTAL EXPENSES.  Total operating expenses for the three months ended 
September 30, 1996 were $2,162,200, a decrease of $77,275, or 3.5%, as 
compared to the operating expenses for the same period in 1995.  The decrease 
resulted primarily from a decrease in employee compensation and benefits 
offset, in part, by the increase in selling, general and administrative 
expenses.

       EMPLOYEE COMPENSATION AND BENEFITS.  Employee compensation and 
benefits for the three months ended September 30, 1996 were $1,331,075, a 
decrease of $123,356, or 8.5%, over the same period in 1995.  The decrease 
related primarily to normal attrition and selective downsizing at PKW, Harden 
and BRI.

       SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses were $831,125 and $785,044 for the three months ended 
September 30, 1996 and 1995, respectively.  The $46,081, or 5.9%, increase in 
the third quarter of 1996, as compared to the same period in 1995, resulted 
primarily from reclassification of certain items previously classified as 
employee compensation and benefits.  General and administrative expenses 
include rent, travel, insurance, postage, telephone, supplies and other 
miscellaneous expenses.

       INTEREST EXPENSE.  Interest expense was $76,931 and $39,876 for the 
three months ended September 30, 1996 and 1995, respectively.  The increase 
in interest expense in 1996, as compared to 1995, resulted primarily from an 
increase in outstanding borrowings on Anchor's existing lines of credit, and 
expenses related to the Convertible Preferred Stock Offering. The successful 
completion of the Convertible Preferred Stock Offering and subsequent debt 
consolidation could materially lower interest expense.  There can be no 
assurances as to when or whether Anchor will raise this additional capital or 
what the final terms and conditions will be for such capital.

       AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES.  Goodwill represents 
the excess of the cost of acquisitions over the fair value of net assets 
acquired.  Other intangibles include covenants not to compete, customer lists 
and other contractual rights.  Amortization of goodwill and other intangibles 
was $95,160 and $97,086 for the three months ended September 30, 1996 and 
1995, respectively.

                                       14

<PAGE>

INCOME TAXES

       Anchor's minimum annual required tax payment due was reported during 
the first quarter of 1996 and 1995.  Therefore, there was no income tax 
expense reported for the three month periods ended September 30, 1996 and 
1995.

LIQUIDITY AND CAPITAL RESOURCES

       Anchor's business is not capital intensive and Anchor historically has 
had sufficient capital to meet its operating needs.  Anchor reported net cash 
flows (used in) operations of $(472,357) for the nine months ended September 
30, 1996 compared to net cash flows provided by operations of $217,013 for 
the nine months ended September 30, 1995.  During 1996, Anchor expects to 
meet its operating and capital needs from cash flow derived from operations, 
borrowing under its existing credit agreements and use of the proceeds from 
the Bridge Notes.   As of September 30, 1996 Anchor had approximately 
$105,000 available on its existing lines of credit.  Anchor is seeking to 
raise at least $500,000 from the members of the Board of Directors and other 
qualified investors through a Bridge Notes to supplement working capital.  As 
of November 7, 1996 Anchor had received $180,000 in proceeds from the sale of 
Bridge Notes with additional funds anticipated by the end of the year. To 
further supplement current funding sources, Anchor is presently seeking 
alternative bank lines and, as described below, is seeking to raise up to $10 
million from institutional investors. Liquidity would be impaired if cash 
flow from operations were reduced or if existing credit lines and proceeds 
from other debt financing were insufficient.

       During late 1995, Anchor engaged the services of an investment banker 
to assist in raising approximately $10 million from institutional investors 
through the proposed issuance of Series A Convertible Preferred Stock. 
Marketing of this private placement to institutional investors began in June 
1996.  The proceeds of this offering would be used for debt consolidation, 
working capital and to fund future acquisitions. At the present time, Anchor 
expects to offer investors preferred stock that will be convertible into 
shares of common stock.  Anchor is continuing to have discussions with 
various potential investors, but has not yet obtained any commitments with 
respect to such financing.  Consequently, there can be no assurance as to 
when or whether Anchor will raise additional capital or what the terms and 
conditions would be for such capital.

       In June 1996, Anchor engaged the services of a business consultant and 
investment banker to assist in raising approximately $3 million from private 
investors through the proposed issuance of Adjustable Notes.  This engagement 
was canceled on July 31, 1996 as the business consultant and investment 
banker was unsuccessful in raising said funds.

       Anchor is currently in final negotiations with a regional San 
Francisco Bay Area bank to fund a $1,000,000 line of credit.  The proceeds of 
this line of credit will be used to acquire all of the issued and outstanding 
shares in a potential acquisition of an insurance specialty managing general 
agency located in Scottsdale, Arizona.  As of November 7, 1996 the proposed 
terms of the line of credit have not been finalized.  There can be no 
assurances as to when or whether Anchor will obtain this line of credit or 
what the final terms and conditions would be for such line of credit.

       Anchor continues to raise additional funds from members of the Board 
of Directors and other qualified investors through the offer and sale of 
Bridge Notes.  As of November 7, 1996 Anchor had received $180,000 with 
additional commitments outstanding to purchase approximately $200,000 by the 
end of the year. The proceeds would be used to support current and future 
working capital needs.  There can, however, be no assurance as to when or 
whether Anchor will raise additional working capital or what the terms and 
conditions would be for such capital.

       Capital and certain acquisition related expenditures were $387,690 and 
$221,244 for the nine months ended September 30, 1996 and 1995, respectively. 
During the first quarter of 1996, RLF, an insurance agency located in Walnut 
Creek, California was acquired and merged into Anchor's insurance brokerage 
subsidiary, PKW, located in Concord, California.  In addition, during the 
second quarter of 1996 certain property and casualty accounts of Robins and 
McPherson were acquired and merged into PKW.  During the first quarter of 
1995 certain third-party administration accounts from a company located in 
Stockton, California were acquired and merged in Anchor's third-party 
administration subsidiary, Harden, located in Concord, California.

                                       15

<PAGE>

       Short-term debt, current portion of long-term debt and current portion 
of long-term liabilities at September 30, 1996 totaling in the aggregate 
$2,070,773 (as compared to $1,830,159 at December 31, 1995) consisted of:  
(a) $975,000 outstanding under a $1,000,000 revolving line of credit 
maintained by Anchor with a regional San Francisco Bay Area bank;  (b) 
$345,000 outstanding under a $500,000 unsecured line of credit maintained by 
Anchor with another regional San Francisco Bay Area bank;  (c) approximately 
$228,750 of future fixed payments under a consulting agreement entered into 
with a company affiliated with the former shareholders of BRI;  (d) $150,000 
representing the current portion of obligations with regard to certain real 
property leased by PKW prior to its acquisition by Anchor and relocation to 
Anchor's executive offices; and  (e) $372,023 for certain other current 
liabilities.

       On September 8, 1996 the $1,000,000 line of credit expired.  The bank 
has notified Anchor that it no longer will continue to extend credit to 
Anchor because Anchor's performance has not met the bank's expectations.  The 
bank has given Anchor 120 days, or until January 7, 1997 to make arrangements 
to replace the credit facility.  Anchor will work with the bank to move the 
credit facility to another bank or use proceeds from the Convertible 
Preferred Stock Offering (Note 4) to satisfy the obligation. The interest 
rate on the $1,000,000 line of credit is at the lending bank's prime rate.  
The line of credit requires Anchor to maintain shareholders' equity of at 
least $800,000.  Anchor's shareholders' equity as of September 30, 1996 was 
$684,488.  However, in November 1996, Anchor received commitments to convert  
the $600,000 Series A Debenture and $220,000 of Debentures into 607,407 
shares of Anchor's Common Stock at $1.35 per share. When completed, the 
conversion will reduce Anchor's outstanding indebtedness by $820,000 and 
increase shareholders' equity by $820,000 (see Note 8 above).   

       In 1995 the bank that provided Anchor with the $1,000,000 line of 
credit also provided Anchor with equipment financing loans of $125,000 and 
$62,000 for equipment purchased with operating capital.  The proceeds from 
the $125,000 equipment financing loan were then used to reduce the 
outstanding balance on said $1,000,000 line of credit. 

       The $500,000 unsecured line of credit expired on July 30, 1996.  The 
credit line has been renewed with the bank in the amount of $450,000 for 
twelve months and matures on October 20, 1997.   The interest rate on the 
$450,000 line of credit has an interest rate equal to the lending bank's 
prime rate plus 1.5%.

       At September 30, 1996 long-term liabilities, less the current portion 
discussed above, totaled $2,315,566 (as compared to $2,412,852 at December 
31, 1995) and primarily consisted of:  (a)  convertible debentures in the 
total amount of $955,000; (b) approximately $282,000 of future fixed payments 
under the consulting agreement mentioned above with a company affiliated with 
the former shareholders of BRI;  (c) approximately $280,000 representing the 
long-term portion of obligations with regard to certain real property leased 
by PKW prior to its acquisition by Anchor and relocation to Anchor's 
executive offices; (d) approximately $281,00 represents deferred rent with 
regard to certain real property currently leased by Anchor; (e) subordinated 
bridge notes of $180,000; and (f) approximately $337,566 for certain other 
long-term liabilities.  In May 1995, PKW entered into a sublease with respect 
to 82% of PKW's prior office space.  The sublease expires on September 30, 
1997 (unless  extended by the subtenant through November 30, 1999, the date 
on which the term of the master lease expires) and requires PKW to provide a 
multi-year rent subsidy.  In December 1995, PKW entered into a sublease with 
respect to an additional 10% of PKW's prior office space.  The sublease 
expires on November 30, 1999 and requires PKW to provide a multi-year rent 
subsidy.  The amounts classified as short and long-term liability with 
respect to the PKW leases reflect such subsidy and are based upon the 
assumptions that:  (a) the subtenant of the May 1995, sublease will exercise 
its option to extend the lease through 1999; and (b) the remaining 8% of such 
office space will be subleased in 1997.

       Anchor has not paid cash dividends in the past and does not expect to 
pay cash dividends in the foreseeable future.

                                       16

<PAGE>

STRATEGY

       Anchor's strategy is to strengthen its core health insurance and 
property and casualty (including workers' compensation) insurance businesses 
by: (a) continuing to develop specialized affiliated business units that 
target selected insurance industry market segments defined by industry type, 
geographic location and consumer demographics; (b) establishing new products 
and services; (c) strengthening management, sales and marketing staff; and 
(d) seeking to acquire and integrate compatible insurance brokerage and 
administration businesses in the Western United States.  In connection with 
this strategy, Anchor regularly considers acquisition opportunities.  To 
date, acquisitions by Anchor have involved both relatively small acquisitions 
of insurance brokerage and administration accounts as well as larger 
acquisitions of insurance brokerage companies, such as PKW, and third-party 
administrators, such as BRI. Anchor expects to continue to pursue appropriate 
acquisition opportunities, and believes that its status as a public company 
enhances its ability to make acquisitions and continue its expansion 
strategy.  Although Anchor is engaged in discussions with third parties 
regarding potential acquisitions, as of November 7, 1996 it did not have any 
binding agreements with respect to acquisitions.  No assurances can be given 
with respect to the likelihood, or financial or business effect, of any 
possible future acquisition.

       As part of Anchor's strategy to create the premier regional publicly 
traded insurance brokerage/administrator in the Western United States, it 
expects to obtain additional momentum by using its larger operating base to 
attract public and private financing.  Such funding would be available to 
Anchor for future acquisition, expansion, and consolidation of its insurance 
operations.

                                       17

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

       Anchor and its subsidiaries are parties from time to time to various 
lawsuits  that have arisen in the normal course of business.  Management is 
not aware of any lawsuits to which Anchor or its subsidiaries is currently a 
party or to which any property of Anchor or any of its subsidiaries is 
subject, which might materially adversely affect the financial condition or 
results of operations of Anchor.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

  4.6     Form of 10% Subordinated Bridge Note.

  4.6a    Form of Warrant to Purchase Shares of Common Stock of Anchor 
          Pacific Underwriters, Inc.

 10.22    Industrial Real Estate Lease (Multi-Tenant Facility) dated 
          September 12, 1996 between Palo Cristi Airpark II, L.L.C., and Benefit
          Resources, Inc.

 27.0     Financial Data Schedule

B.  Reports on Form 8-K

     None


                                       18

<PAGE>

                                      SIGNATURES

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

                              ANCHOR PACIFIC UNDERWRITERS, INC.




Date: November 7, 1996        /s/ James R. Dunathan                
     --------------------     -------------------------------------
                              James R. Dunathan                    
                              President and Chief Executive Officer



Date: November 7, 1996        /s/ Earl Wiklund
     --------------------     -------------------------------------
                              Earl Wiklund                                     
                              Senior Vice President and Chief Financial Officer



                                       19