<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q





                 QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
                 EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1996




                       Commission File Number :  1-11396


                        JOHN ALDEN FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)



<TABLE>
<S>                                                                              <C>
                       DELAWARE                                                               59-2840712
(State or other jurisdiction of incorporation or organization)                   (I.R.S. Employer Identification No.)

      7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA                                             33126-1208
       (Address of principal executive offices)                                               (Zip Code)
</TABLE>

                                 (305) 715-3767
              (Registrant's telephone number, 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 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.          [ X ] Yes  [   ] No

  As of November 8, 1996, 25,331,390 shares of Common Stock, par value $.01,
were outstanding.
<PAGE>   2
                        JOHN ALDEN FINANCIAL CORPORATION

                                   FORM 10-Q

                    For the Quarter Ended September 30, 1996

                                     Index
<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>
PART I.  FINANCIAL INFORMATION

Item 1.      Condensed Consolidated Financial Statements as of September 30, 1996
             (unaudited) and December 31, 1995, and for the nine and three months
             ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited)  . . . . . . . . .     1

             Notes to Condensed Consolidated Financial Statements (unaudited)   . . . . . . . . . . . .     5

Item 2.      Management's Discussion and Analysis of Financial Condition and
             Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     7

PART II. OTHER INFORMATION

Item 1.      Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    21

Item 6.      Exhibits and Reports on Form 8-K   . . . . . . . . . . . . . . . . . . . . . . . . . . . .    22
</TABLE>
<PAGE>   3

               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                                SEPTEMBER 30,
                                                                                                    1996            DECEMBER 31,
                                           ASSETS                                                (Unaudited)            1995
                                                                                                -------------       -------------
<S>                                                                                             <C>                 <C>
Debt securities:
   Held-to-maturity securities, at amortized cost (market $659,272 and $609,599).............   $    654,632         $   584,330
   Available-for-sale securities, at market (cost $3,608,739 and $3,652,408).................      3,613,924           3,811,825
   Trading account securities, at market (cost $5,438 and $5,450)............................          5,489               5,703
Equity securities, at market (cost $73,346 and $72,919)......................................         80,961              82,639
Mortgage loans...............................................................................      1,501,033           1,506,874
Investment in real estate, at cost, less accumulated depreciation of $1,684 and $1,008......          37,748              20,998
Real estate owned............................................................................          9,281              11,973
Policy loans and other notes receivable......................................................         84,911              84,079
Short-term investments.......................................................................          7,865               6,349
                                                                                                -------------        ------------
     Total invested assets...................................................................      5,995,844           6,114,770
Cash and cash equivalents....................................................................         87,914              99,606
Deferred policy acquisition costs............................................................        259,457             197,667
Investment deposits recoverable..............................................................        776,768             806,333
Property and equipment, at cost, less accumulated depreciation of $27,081 and $24,240....             68,003              52,298
Reinsurance receivables......................................................................        208,435             163,430
Other assets.................................................................................        263,657             261,926
                                                                                                -------------        ------------
       Total assets..........................................................................   $  7,660,078         $ 7,696,030
                                                                                                =============        ============
                                                                                                                     
                LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY                                          
                                                                                                                     
Liabilities:                                                                                                         
  Contract holder liabilities................................................................   $  6,889,341         $  6,867,803
  Short-term debt............................................................................         25,000              15,063
  Long-term debt.............................................................................         90,500              92,000
  Other liabilities..........................................................................        194,004             224,517
                                                                                                -------------        ------------
        Total liabilities....................................................................      7,198,845           7,199,383
                                                                                                -------------        ------------
Redeemable securities:                                                                                               
  Series A 9% cumulative preferred stock, $.01 par value;                                                            
     150,000 shares authorized, issued and outstanding;                                                              
     mandatory redemption value of $100 per share; including                                                         
     accrued dividends of $623 and $286; $104.15 and $101.91 per share.......................         15,623              15,286
  Common stock, $.01 par value; 705,956 and 850,974 shares                                                           
     authorized, issued and outstanding......................................................          3,890               4,130
                                                                                                -------------        ------------
        Total redeemable securities..........................................................         19,513              19,416
                                                                                                -------------        ------------
Stockholders' equity:                                                                                                
    Common stock, $.01 par value; 74,294,044 and 74,149,026 shares                                                   
      authorized; 25,013,169 and 24,822,322  shares issued;  24,625,434                                              
      and 24,398,139 shares outstanding......................................................            250                 248
    Paid-in capital..........................................................................        181,772             181,154
    Net unrealized gain (loss) on investments, net of income taxes...........................         (1,298)             58,041
    Retained earnings........................................................................        273,515             250,167
    Redemption value of common stock in excess of cost.......................................         (3,129)             (3,050)
    Unearned compensation....................................................................           (714)                 --
    Treasury stock, at cost; 387,735 and 424,183 shares......................................         (8,676)             (9,329)
                                                                                                -------------        ------------
         Total stockholders' equity..........................................................         441,720            477,231
                                                                                                -------------        ------------
         Total liabilities, redeemable securities and stockholders' equity...................   $   7,660,078        $ 7,696,030
                                                                                                =============       =============
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.

                                       1
<PAGE>   4

               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                       




<TABLE>
<CAPTION>
                                                                                                         NINE MONTHS ENDED       
                                                                                                           SEPTEMBER 30,         
                                                                                          ------------------------------------- 
                                                                                                   1996                1995      
                                                                                          -----------------     --------------- 
<S>                                                                                       <C>                   <C>              
Revenues:                                                                                                                        
    Gross insurance premiums and contract charges earned...............................   $      1,406,017      $    1,444,540   
    Ceded insurance premiums and contract charges earned...............................           (626,678)           (656,806)  
                                                                                          -----------------     --------------- 
         Net insurance premiums and contract charges earned............................            779,339             787,734   
    Net investment income..............................................................             34,045              38,479   
    Other income, including experience refunds and expense allowances                                                            
       on reinsurance ceded ...........................................................             47,317              49,573   
    Net realized investment gains .....................................................              1,158                 183   
                                                                                          -----------------     --------------- 
         Total revenues................................................................            861,859             875,969   
                                                                                          -----------------     --------------- 
Benefits and expenses:                                                                                                           
    Gross claims incurred on insurance products........................................          1,045,799           1,053,673   
    Ceded claims incurred on insurance products........................................           (485,640)           (501,464)  
                                                                                          -----------------     --------------- 
         Net claims incurred on insurance products.....................................            560,159             552,209   
    Universal life and investment-type contract benefits...............................             13,696              12,386   
    Increase (decrease) in life insurance reserves.....................................                270                 (80)  
    Commissions, net of commissions ceded .............................................             59,845              62,461   
    General expenses, net of expenses ceded ...........................................            187,466             217,690   
    Amortization of purchased intangibles..............................................              4,891               4,694   
    Amortization of deferred policy acquisition costs..................................             10,208               9,658   
    Interest expense...................................................................              4,951               6,366   
    Minority interest in joint venture's income (loss).................................                831              (1,693)  
                                                                                          -----------------     --------------- 
           Total benefits and expenses.................................................            842,317             863,691   
                                                                                          -----------------     --------------- 
Income (loss) from continuing operations before provision (benefit) for income taxes...             19,542              12,278   
Provision (benefit) for income taxes...................................................              8,309               4,889   
                                                                                          ------------------    --------------- 
Net income (loss) from continuing operations...........................................             11,233               7,389   
Net income (loss) from discontinued operations:                                                                                  
   Annuity Operations (net of income taxes of  $14,267, $8,814, $5,284 and $1,910).....             23,099              15,582   
   Western Diversified Group (net of income taxes of ($291), $1,337, $237 and $867)....             (1,367)              1,932   
                                                                                          -----------------     --------------- 
Net income ............................................................................   $         32,965      $       24,903   
                                                                                          =================     =============== 
                                                                                                                                 
Net income applicable to common stock..................................................   $         31,952      $       23,890   
                                                                                          =================     =============== 
                                                                                                                                 
Net income per common and common equivalent share (see Note 3):                                                                  
      Net income (loss) from continuing operations.....................................   $           0.40      $         0.25   
      Net income from discontinued operations..........................................               0.85                0.67   
                                                                                          -----------------     --------------- 
      Net income.......................................................................   $           1.25      $         0.92   
                                                                                          =================     =============== 

<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                          --------------------------------
                                                                                              1996               1995
                                                                                          -------------      -------------
<S>                                                                                       <C>                <C>
Revenues:                                                                                 
    Gross insurance premiums and contract charges earned...............................   $    451,574        $   483,448
    Ceded insurance premiums and contract charges earned...............................       (202,347)          (216,096)
                                                                                          -------------      -------------
         Net insurance premiums and contract charges earned............................        249,227            267,352
    Net investment income..............................................................         11,477             11,994
    Other income, including experience refunds and expense allowances                     
       on reinsurance ceded ...........................................................         11,272             16,868
    Net realized investment gains .....................................................            328                 42
                                                                                          -------------      -------------
         Total revenues................................................................        272,304            296,256
                                                                                          -------------      -------------
Benefits and expenses:                                                                    
    Gross claims incurred on insurance products........................................        348,416            357,116
    Ceded claims incurred on insurance products........................................       (161,891)          (163,502)
                                                                                          -------------      -------------
         Net claims incurred on insurance products.....................................        186,525            193,614
    Universal life and investment-type contract benefits...............................          4,466              3,305
    Increase (decrease) in life insurance reserves.....................................            120                107
    Commissions, net of commissions ceded .............................................         18,968             24,451
    General expenses, net of expenses ceded ...........................................         57,824             71,786
    Amortization of purchased intangibles..............................................          1,625              1,753
    Amortization of deferred policy acquisition costs..................................          3,703              2,463
    Interest expense...................................................................          1,591              2,152
    Minority interest in joint venture's income (loss).................................             56             (1,693)
                                                                                          -------------      -------------
           Total benefits and expenses.................................................        274,878            297,938
                                                                                          -------------      -------------
Income (loss) from continuing operations before provision (benefit) for income taxes...         (2,574)            (1,682)
Provision (benefit) for income taxes...................................................            (76)              (646)
                                                                                          -------------      -------------
Net income (loss) from continuing operations...........................................         (2,498)            (1,036)
Net income (loss) from discontinued operations:                                           
   Annuity Operations (net of income taxes of  $14,267, $8,814, $5,284 and $1,910).....          8,318              3,216
   Western Diversified Group (net of income taxes of ($291), $1,337, $237 and $867)....            (82)               795
                                                                                          -------------      -------------
Net income ............................................................................   $      5,738       $      2,975
                                                                                          =============      =============
                                                                                          
Net income applicable to common stock..................................................   $      5,400       $      2,637
                                                                                          =============      =============
                                                                                          
Net income per common and common equivalent share (see Note 3):                           
      Net income (loss) from continuing operations.....................................   $      (0.11)      $      (0.05)
      Net income from discontinued operations..........................................           0.33               0.15
                                                                                          -------------      -------------
      Net income.......................................................................   $       0.22       $       0.10
                                                                                          =============      =============

</TABLE>

           See Notes to Condensed Consolidated Financial Statements.



                                       2
<PAGE>   5
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED       
                                                                                        SEPTEMBER 30,          
                                                                           --------------------------------
                                                                                1996              1995         
                                                                           --------------     -------------
<S>                                                                        <C>                <C>              
Number of shares outstanding.............................................     24,625,434        24,370,127     
                                                                           ==============     =============
                                                                                                               
Common stock, beginning of period........................................  $         248      $        245     
   Stock option exercises................................................              1                 1     
   Transfer from redeemable common stock.................................              1                 2     
                                                                           --------------     -------------
Common stock, end of period..............................................  $         250      $        248     
                                                                           ==============     =============
                                                                                                               
Paid-in capital, beginning of period.....................................  $     181,154      $    180,401     
   Stock option exercises................................................            205               289     
   Transfer from redeemable common stock.................................            318               152     
   Unearned compensation - treasury stock grant..........................             95                --     
                                                                           --------------     -------------
Paid-in capital, end of period...........................................  $     181,772      $    180,842     
                                                                           ==============     =============
                                                                                                               
Net unrealized gain (loss) on investments, net of income taxes,                                               
   beginning of period...................................................  $      58,041      $    (20,348)    
   Change in net unrealized gain (loss) on investments,                                                        
   net of income taxes ..................................................        (59,339)           43,379     
                                                                           --------------     -------------
Net unrealized gain (loss) on investments, net of income taxes,                                                
   end of period.........................................................  $      (1,298)     $     23,031     
                                                                           ==============     =============
                                                                                                               
Retained earnings, beginning of period...................................  $     250,167      $    256,252     
   Net income............................................................         32,965            24,903     
   Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and                                            
       $2.25 per share) .................................................         (1,013)           (1,013)    
   Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share).....         (8,604)           (8,366)    
                                                                           --------------     -------------
Retained earnings, end of period.........................................  $     273,515      $    271,776     
                                                                           ==============     =============
                                                                                                               
Redemption value of common stock in excess of cost,                                                            
   beginning of period...................................................  $      (3,050)     $     (3,645)    
   Transfer from redeemable common stock.................................              4               870     
   Adjustment of put holder shares to market value.......................            (24)           (1,172)    
   Change in redemption value of common stock  in excess of cost                     (59)              684     
                                                                           --------------     -------------
Redemption value of common stock in excess of cost, end of period........  $      (3,129)     $     (3,263)    
                                                                           ==============     =============
                                                                                                               
Unearned compensation, beginning of period...............................  $          --      $         --     
   Unearned compensation - treasury stock grant..........................           (738)               --     
   Compensation expense recognized.......................................             24                --     
                                                                           --------------     -------------
Unearned compensation, end of period.....................................  $        (714)     $         --     
                                                                           ==============     =============
                                                                                                               
Treasury stock, beginning of period......................................  $      (9,329)     $     (6,181)    
   Unearned compensation - treasury stock grant..........................            643                --     
   Stock option exercises ...............................................             10                55     
   Treasury stock purchase...............................................             --            (3,203)    
                                                                           --------------     -------------
Treasury stock, end of period............................................  $      (8,676)     $     (9,329)    
                                                                           ==============     =============
                                                                                                               
Stockholders' equity, beginning of period................................  $     477,231      $    406,724     
   Net income............................................................         32,965            24,903     
   Change in net unrealized gain (loss) on investments,                                                        
       net of income taxes...............................................        (59,339)           43,379     
   Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and                                            
       $2.25 per share) .................................................         (1,013)           (1,013)    
   Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share).....         (8,604)           (8,366)    
   Change in redemption value of common stock in excess of cost..........            (59)              684     
   Stock option exercises................................................            216               345     
   Compensation expense recognized.......................................             24                --     
   Treasury stock purchase...............................................             --            (3,203)    
   Adjustment of put holder shares to market value.......................            (24)           (1,172)    
   Transfer from redeemable common stock.................................            323             1,024     
                                                                           --------------     -------------
Stockholders' equity, end of period......................................  $     441,720      $    463,305     
                                                                           ==============     =============

<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                       SEPTEMBER 30,
                                                                           --------------------------------
                                                                                1996               1995
                                                                           --------------     -------------
<S>                                                                        <C>                <C> 
Number of shares outstanding.............................................    24,625,434         24,370,127
                                                                           =============      =============
                                                                                              
Common stock, beginning of period........................................  $        250       $        247
   Stock option exercises................................................            --                 --
   Transfer from redeemable common stock.................................            --                  1
                                                                           -------------      -------------
Common stock, end of period..............................................  $        250       $        248
                                                                           =============      =============
                                                                                              
Paid-in capital, beginning of period.....................................  $    181,636       $    180,798
   Stock option exercises................................................            32                  8
   Transfer from redeemable common stock.................................             9                 36
   Unearned compensation - treasury stock grant..........................            95                 --
                                                                           -------------      -------------
Paid-in capital, end of period...........................................  $    181,772       $    180,842
                                                                           =============      =============
                                                                                              
Net unrealized gain (loss) on investments,  net of income taxes,                              
   beginning of period...................................................  $     (5,015)      $     25,589
   Change in net unrealized gain (loss) on investments,                                       
   net of income taxes ..................................................         3,717             (2,558)
                                                                           -------------      -------------
Net unrealized gain (loss) on investments, net of income taxes,                               
   end of period.........................................................  $     (1,298)      $     23,031
                                                                           =============      =============
                                                                                              
Retained earnings, beginning of period...................................  $    271,155       $    271,915
   Net income............................................................         5,738              2,975
   Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and                           
       $2.25 per share) .................................................          (338)              (338)
   Dividends on Common stock ($0.34,$0.33,$0.12 and $0.11 per share).....        (3,040)            (2,776)
                                                                           -------------      -------------
Retained earnings, end of period.........................................  $    273,515       $    271,776
                                                                           =============      =============
                                                                                              
Redemption value of common stock in excess of cost,                                           
   beginning of period...................................................  $     (3,382)      $     (2,762)
   Transfer from redeemable common stock.................................            --                746
   Adjustment of put holder shares to market value.......................            --               (426)
   Change in redemption value of common stock  in excess of cost                    253               (821)
                                                                           -------------      -------------
Redemption value of common stock in excess of cost, end of period........  $     (3,129)      $     (3,263)
                                                                           =============      =============
                                                                                              
Unearned compensation, beginning of period...............................  $         --       $         --
   Unearned compensation - treasury stock grant..........................          (738)                --
   Compensation expense recognized.......................................            24                 --
                                                                           -------------      -------------
Unearned compensation, end of period.....................................  $       (714)      $         --
                                                                           =============      =============
                                                                                              
Treasury stock, beginning of period......................................  $     (9,319)      $     (6,181)
   Unearned compensation - treasury stock grant..........................           643                 --
   Stock option exercises ...............................................            --                 55
   Treasury stock purchase...............................................            --             (3,203)
                                                                           -------------      -------------
Treasury stock, end of period............................................  $     (8,676)      $     (9,329)
                                                                           =============      =============
                                                                                              
Stockholders' equity, beginning of period................................  $    435,325       $    469,606
   Net income............................................................         5,738              2,975
   Change in net unrealized gain (loss) on investments,                                       
       net of income taxes...............................................         3,717             (2,558)
   Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and                           
       $2.25 per share) .................................................          (338)              (338)
   Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share).....        (3,040)            (2,776)
   Change in redemption value of common stock in excess of cost..........           253               (821)
   Stock option exercises................................................            32                 63
   Compensation expense recognized.......................................            24                 --
   Treasury stock purchase...............................................            --             (3,203)
   Adjustment of put holder shares to market value.......................            --               (426)
   Transfer from redeemable common stock.................................             9                783
                                                                           -------------      -------------
Stockholders' equity, end of period......................................  $    441,720       $    463,305
                                                                           =============      =============
</TABLE>


          See Notes to Condensed Consolidated Financial Statements.


                                      3

<PAGE>   6
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)





<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                              ------------------------------
                                                                                    1996             1995
                                                                              ------------      ------------
<S>                                                                           <C>               <C>
Net cash provided by operating activities...................................  $   225,817       $   291,152
                                                                              ------------      ------------
Cash flows from investing activities:
     Proceeds from investments sold:
            Available-for-sale..............................................      473,032           124,689
            Equity securities...............................................        1,383            61,258
            Real estate owned...............................................       10,503             7,339
      Maturities, calls and scheduled loan payments:
            Held-to-maturity................................................       52,340            58,089
            Available-for-sale..............................................      139,528            54,501
            Mortgage loans and other notes receivable.......................      241,755           129,238
       Investments purchased:
            Held-to-maturity................................................     (121,418)          (98,688)
            Available-for-sale..............................................     (561,070)         (536,208)
            Equity securities...............................................           --           (27,179)
            Mortgage loans and other notes receivable.......................     (254,080)         (256,504)
            Investment in real estate.......................................      (17,428)             (763)
     (Outflows)inflows from net sales and purchases of short-term 
       investments..........................................................       (1,758)            7,771
     Acquisitions...........................................................           --            (7,404)
     Purchases of property and equipment....................................      (18,687)          (26,981)
                                                                              ------------      ------------
   Net cash used in investing activities....................................      (55,900)         (510,842)
                                                                              ------------      ------------
Cash flows from financing activities:
     Proceeds from borrowings of short-term and long-term debt..............       26,000            20,000
     Repayments of borrowings of short-term and long-term debt..............      (17,563)          (24,689)
     Receipts from universal life and investment-type contracts.............      368,423           725,738
     Payments on universal life and investment-type contracts...............     (549,669)         (496,521)
     Purchase of  treasury stock, net.......................................           --            (3,203)
     Payment of dividends...................................................       (9,016)           (8,796)
     Stock option exercises.................................................          216               345
                                                                              ------------      ------------
   Net cash (used in) provided by financing activities......................     (181,609)          212,874
                                                                              ------------      ------------
Net decrease in cash and cash equivalents...................................      (11,692)           (6,816)
Cash and cash equivalents, beginning of period .............................       99,606            58,474
                                                                              ------------      ------------
Cash and cash equivalents, end of period ...................................  $    87,914       $    51,658
                                                                              ============      ============
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>   7
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

         The condensed consolidated financial statements of John Alden
Financial Corporation and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  The interim financial data is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations for the interim periods presented.
The results of operations for the nine and three months ended September 30,
1996 are not necessarily indicative of the results to be expected for the full
year.  As described in Note 2, the Company is anticipating disposing of certain
operations.  Certain reclassifications have been made to prior period condensed
consolidated financial statements to conform to current period presentation.

         These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended.

NOTE 2 -- DISCONTINUED OPERATIONS

         On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines.  Annuity Operations includes
substantially all of the annuity business of John Alden Life Insurance Company
("JALIC") and all of the business of John Alden Life Insurance Company of New
York ("JANY").  JANY primarily markets annuity products in the State of New
York, as well as certain individual life insurance products.  The Western
Diversified Group markets credit life and disability and retail service
warranty coverage, primarily through automobile dealers.  The Company
anticipates that the potential sales of these businesses will occur within one
year from the above date and that the formal process of disposing of these
separate segments will result in a net gain.  Such sales will be subject to
applicable regulatory approvals.  There can be no assurance that such sales
will occur.

         It is anticipated that the sale of the JALIC annuity business and
certain of the credit businesses will be accomplished through an indemnity
reinsurance transaction.  As of September 30, 1996, total contract holder
liabilities, net of reinsurance, related to such annuities were $3,868.9
million.  It is anticipated that the sales of JANY and a portion of the Western
Diversified Group will be accomplished through the sale of the common stock of
the respective subsidiaries.  As of September 30, 1996, the net assets of JANY
and the Western Diversified Group aggregated approximately  $80.1 million and
$61.0 million, respectively.  Total contract holder liabilities, net of
reinsurance, related to JANY annuities were $1,355.8 million as of September
30, 1996.

         On November 13, 1996, the Company entered into a non-binding letter of
intent with SunAmerica, Inc. relating to the sale of all the common stock of
JANY and the reinsurance of substantially all of the annuity business of
JALIC.  The Company is proceeding to finalize the definitive agreement. 

         The results of operations relating to the Annuity Operations and the
Western Diversified Group for the nine and three months ended September 30,
1996 and 1995 are reflected as discontinued operations in the accompanying
condensed consolidated statements of income.  From March 27, 1996, the date on
which management committed to the formal plan of disposition, to September 30,
1996, the Annuity Operations and the Western Diversified Group generated net
income of $15.6 million and a net loss of $1.6 million, respectively.
Operating results relating to continuing operations primarily relate to the
Company's healthcare business.  As a result of the above, beginning with the
condensed consolidated financial statements for the quarter ended March 31,
1996, the Company discontinued the reporting of segment information.

                                       5
<PAGE>   8
               JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) - (CONTINUED)

NOTE 3 -- EARNINGS PER SHARE

         Net income per common and common equivalent share was determined by
dividing net income, as adjusted below, by applicable average shares
outstanding (in thousands):

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED              THREE MONTHS ENDED
                                                               SEPTEMBER 30,                  SEPTEMBER 30,      
                                                        -------------------------      --------------------------
                                                            1996          1995             1996          1995
                                                            ----          ----             ----          ----
 <S>                                                      <C>           <C>              <C>           <C>
 Net income  . . . . . . . . . . . . . . . . . . . .      $ 32,965      $ 24,903         $  5,738      $   2,975
 Dividends on redeemable preferred stock   . . . . .        (1,013)       (1,013)            (338)          (338)
                                                          --------      --------         --------       -------- 
 Net income applicable to common stock   . . . . . .      $ 31,952      $ 23,890         $  5,400      $   2,637
                                                          ========      ========         ========      =========
 Average common and common equivalent shares
  outstanding  . . . . . . . . . . . . . . . . . . .        25,661       25,854            25,664         25,624
                                                          ========      ========         ========      =========
</TABLE>

         Average common and common equivalent shares outstanding include common
shares outstanding and common stock equivalents attributable to outstanding
stock options.  All potentially dilutive securities are considered to be common
stock equivalents.

NOTE 4 -- ACCOUNTING CHANGES

         The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" effective January 1, 1995.  SFAS No. 114 addresses the
accounting by creditors for the measurement and recognition of loan
impairments.  SFAS No. 118 amends certain provisions of SFAS No. 114.  There
was no effect on the Company's results of operations or financial position upon
adoption of these statements.

         The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" effective
January 1, 1996.  This statement addresses the recognition and measurement of
impairments of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held as well as to be disposed of.  There was no
effect on the Company's results of operations or financial position upon
adoption of this statement.

NOTE 5 -- LEGAL PROCEEDING

         During the period of April 1995 through May 1995, the Company and
certain of it officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws.
While it is not possible to determine the ultimate disposition of this
proceeding, the Company believes that the ultimate disposition will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.

                                       6
<PAGE>   9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ACCOUNTING CHANGES

         See Note 4 to the condensed consolidated financial statements for a
discussion of the impact of the adoption of new accounting pronouncements.

RESULTS OF OPERATIONS

KEY FINANCIAL DATA

CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
                                                                                                                  
                                                               PERCENTAGE                               PERCENTAGE
                                     NINE MONTHS ENDED           CHANGE         THREE MONTHS ENDED        CHANGE  
                                       SEPTEMBER 30,            POSITIVE          SEPTEMBER 30,          POSITIVE 
                                   -------------------------   (NEGATIVE)     ----------------------    (NEGATIVE)
                                      1996          1995         EFFECT         1996         1995         EFFECT
                                   -----------   -----------   -----------    ----------  ----------   --------------
 (In millions, except per share data)

 <S>                                <C>             <C>             <C>          <C>          <C>          <C>
 Gross insurance premiums and
   contract charges earned   . . .  $1,406.0        $1,444.5           (2.7)%     $451.6      $483.4          (6.6)%
 Net realized investment gains . .       1.2             0.2          500.0          0.3         --             --
                                  
 Interest expense  . . . . . . . .       5.0             6.4           21.9          1.6         2.2          27.3
 Pre-tax income (loss) from       
   continuing operations   . . . .      19.5            12.3           58.5         (2.6)       (1.7)        (52.9)
                                  
 Net income (loss) from           
   continuing operations   . . . .      11.2             7.4           51.4         (2.5)       (1.0)       (150.0)
                                  
 Operating income (loss) (1):     
   Continuing operations   . . . .       9.5             6.3           50.8         (3.0)       (1.4)       (114.3)
   Discontinued operations   . . .      26.6            22.3           19.3         10.8         6.5          66.2
                                  
     Total   . . . . . . . . . . .      36.1            28.6           26.2          7.8         5.1          52.9
 Net income  . . . . . . . . . . .      33.0            24.9           32.5          5.8         3.0          93.3
                                  
 Net income applicable to         
   common stock  . . . . . . . . .      32.0            23.9           33.9          5.4         2.6         107.7
                                  
 Operating income (loss) per      
   common share(1):                 
   Continuing operations   . . . .      0.37            0.24           54.2        (0.12)      (0.06)       (100.0)
   Discontinued operations   . . .      1.04            0.87           19.5         0.43        0.26          65.4
                                  
    Total  . . . . . . . . . . . .      1.41            1.11           27.0         0.31        0.20          55.0
 Net income per common share   . .      1.25            0.92           35.9         0.22        0.10         120.0
                                  
 Average common equivalent        
   shares outstanding  . . . . . .    25,661          25,854           (0.7)      25,664      25,624           0.2
</TABLE>

----------------------------------
 (1)     Applicable to common stock, which excludes net realized investment
         gains (losses) and is after preferred stock dividends.

Consolidated Results for the Nine Months Ended September 30, 1996 and 1995

         Operating income from continuing operations applicable to common stock
increased 50.8% to $9.5 million for the nine months ended September 30, 1996
from $6.3 million for the nine months ended September 30, 1995.  Operating
income from continuing operations for the nine months ended September 30, 1996
was reduced by $4.4 million for severance and other charges resulting from the
Company's comprehensive strategic evaluation of its non-core product lines and
increased focus on its core product lines.  Operating income from continuing
operations for the nine months ended September 30, 1995 was reduced by $14.6
million due to an increase in the medical

                                       7
<PAGE>   10

claim reserves relating to medical services provided (claims incurred) in 1994
and charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses.  Excluding these adjustments in each of the respective periods,
operating income from continuing operations decreased 33.5% to $13.9 million
for the nine months ended September 30, 1996 from $20.9 million for the nine
months ended September 30, 1995.  This decrease was primarily attributable to
an increase in the group gross medical loss ratio, excluding the adjustment
referred to above, and a decrease in the group gross insurance premiums and
contract charges earned, partially offset by a decrease in the group gross
expense ratio.  Operating income from discontinued operations was $26.6 million
for the nine months ended September 30, 1996 as compared to $22.3 million for
the nine months ended September 30, 1995.  This increase was primarily
attributable to increased spreads earned on annuity products.

         Net realized investment gains increased to $1.2 million for the nine
months ended September 30, 1996 from $0.2 million for the nine months ended
September 30, 1995.  The net increase in operating income of 26.2%, coupled
with the increase in net realized investment gains, resulted in a 33.9%
increase in net income applicable to common stock to $32.0 million for the
nine months ended September 30, 1996 from $23.9 million for the nine months
ended September 30, 1995.

         Operating income per share from continuing operations increased 54.2%
to $0.37 for the nine months ended September 30, 1996 from $0.24 for the nine
months ended September 30, 1995.  Operating income per share from discontinued
operations increased 19.5% to $1.04 for the nine months ended September 30,
1996 from $0.87 for the nine months ended September 30, 1995.  Net income per
share increased 35.9% to $1.25 for the nine months ended September 30, 1996
from $0.92 for the nine months ended September 30, 1995.

Consolidated Results for the Three Months Ended September 30, 1996 and 1995

         Operating income from continuing operations applicable to common stock
decreased 114.3% to an operating loss of $3.0 million for the three months
ended September 30, 1996 from an operating loss of $1.4 million for the three
months ended September 30, 1995.  Operating income from continuing operations
for the three months ended September 30, 1995 was reduced by $7.4 million due
to charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses.  Excluding these adjustments, operating income from continuing
operations decreased 150.0% to an operating loss of $3.0 million for the three
months ended September 30, 1996 from operating income of $6.0 million for the
three months ended September 30, 1995.  This decrease was primarily
attributable to an increase in the group gross medical loss ratio as well as a
decrease in the group gross insurance premiums and contract charges earned,
partially offset by a decrease in the group gross expense ratio.  Operating
income from discontinued operations increased 66.2% to $10.8 million for the
three months ended September 30, 1996 from $6.5 million for the three months
ended September 30, 1995.  This increase was primarily attributable to
increased spreads earned on annuity products.

         Net realized investment gains increased to $0.3 million for the three
months ended September 30, 1996 from break even for the three months ended
September 30, 1995.  The increase in operating income of 52.9%, coupled with
the increase in net realized investment gains, resulted in a 107.7% increase in
net income applicable to common stock to $5.4 million for the three months
ended September 30, 1996 from $2.6 million for the three months ended September
30, 1995.

         Operating income per share from continuing operations decreased 100.0%
to an operating loss of $0.12 for the three months ended September 30, 1996
from an operating loss of $0.06 for the three months ended September 30, 1995.
Operating income per share from discontinued operations increased 65.4% to
$0.43 for the three months ended September 30, 1996 from $0.26 for the three
months ended September 30, 1995.  Net income per share increased 120.0% to
$0.22 for the three months ended September 30, 1996 from $0.10 for the three
months ended September 30, 1995.

                                       8
<PAGE>   11

CONTINUING OPERATIONS

HEALTHCARE OPERATIONS
<TABLE>
<CAPTION>
                                                                                                                        
                                                                  PERCENTAGE                                  PERCENTAGE
                                        NINE MONTHS ENDED           CHANGE          THREE MONTHS ENDED          CHANGE  
                                          SEPTEMBER 30,            POSITIVE            SEPTEMBER 30,           POSITIVE 
                                     --------------------------   (NEGATIVE)   --------------------------     (NEGATIVE)
                                        1996          1995          EFFECT          1996         1995           EFFECT
                                     ------------   ------------  -----------  -----------   ------------     ----------
 (Dollars in millions)
 <S>                                <C>             <C>            <C>          <C>            <C>                 <C>      
 Gross insurance premiums and                                                                                               
  contract charges earned . . . . . $   1,393.7     $   1,428.3     (2.4)%      $    447.2     $    479.1           (6.7)%  
 Group insured data at end of                                                                                               
  period:                                
   Employers (1). . . . . . . . . .     197,000         239,000    (17.6)          197,000        239,000          (17.6)   
   Employee lives . . . . . . . . .     512,000         627,000    (18.3)          512,000        627,000          (18.3)   
 Group covered lives. . . . . . . .     975,000       1,203,000    (19.0)          975,000      1,203,000          (19.0)   
 HMO covered lives. . . . . . . . .      71,000          36,000     97.2            71,000         36,000           97.2    
   Total covered lives                1,046,000       1,239,000    (15.6)        1,046,000      1,239,000          (15.6)   
 Group pre-tax operating income . . $      35.6     $      34.4      3.5        $      1.9     $     13.4          (85.8)   
 Group gross data:                                                                                                          
   Insurance premiums and contract 
    charges earned. . . . . . . . .     1,165.3         1,261.4     (7.6)            365.8          416.5          (12.2)
   Insurance premiums earned per  
    group employee life 
    (in dollars). . . . . . . . . .     2,058.9         1,963.3      4.9             682.5          654.3            4.3
   Annualized persistency rates . .        65.9%           71.8%    (5.9)             63.3%          72.0%          (8.7)
   Medical loss ratio . . . . . . .        74.2            72.9     (1.3)             76.7           72.0           (4.7)   
   Expense ratio. . . . . . . . . .        23.6            25.3      1.7              23.5           25.9            2.4    
   Combined ratio . . . . . . . . .        97.8            98.2      0.4             100.2           97.9           (2.3)   
 Pre-tax income . . . . . . . . . . $      36.4     $      33.1     10.0        $      2.1     $      8.7          (75.9)   
</TABLE>

----------------------------------
(1) Includes 34,000 and 41,000 groups, each group made up of one individual, as
    of September 30, 1996 and 1995, respectively, marketed through an
    association group trust.

Healthcare Operations Results for the Nine Months Ended September 30, 1996 and
1995

         Pre-tax income for healthcare operations increased 10.0% to $36.4
million for the nine months ended September 30, 1996 from $33.1 million for the
nine months ended September 30, 1995.  Pre-tax income for the nine months ended
September 30, 1996 was reduced by $5.3 million for the healthcare operations'
portion of the charges discussed above.  Pre-tax income for the nine months
ended September 30, 1995 was reduced by $10.0 million due to an increase in
medical loss reserves relating to claims incurred in 1994 and $5.0 million due
to charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses.  Excluding these adjustments in each of the respective periods,
pre-tax income decreased 13.3% to $41.7 million for the nine months ended
September 30, 1996 from $48.1 million for the nine months ended September 30,
1995.  The group gross medical loss ratio increased to 74.2% for the nine
months ended September 30, 1996 from 72.1% for the nine months ended September
30, 1995, excluding the $10.0 million for claims incurred in 1994.  This
increase was partially offset by a decrease in the group gross expense ratio to
23.3% for the nine months ended September 30, 1996 from 25.1% for the nine
months ended September 30, 1995, excluding the adjustments referred to above.
Group gross insurance premiums and contract charges earned decreased 7.6%
during the respective periods.

         In early 1995, the Company experienced an increase in the group gross
medical loss ratio over the already heightened 1994 levels resulting primarily
from increased utilization of medical services and lack of historical
experience in pricing in an environment of healthcare reform, primarily at the
state level, pertaining to small group and individual healthcare.  The Company
believes it was among the first major participants in the small group market to
recognize the increasing medical cost trends.  The Company identified the
increase during its periodic

                                       9
<PAGE>   12

hindsight review of its estimates of unpaid claims based on its actual claims
experience.  Upon such a review completed in late March of 1995 utilizing the
most recent available submitted claims data, the Company discovered that claims
submitted in 1995 relating to medical services provided in 1994 were at higher
levels than originally estimated.  As a result of this review, the Company
increased its claim reserves as of December 31, 1994 by $15.0 million.  Upon a
hindsight review performed in April 1995, based on claims received in April
1995 for medical services provided in 1994, it became apparent that the claim
reserves for 1994 would have to be further increased to reflect an even higher
level of utilization.  Therefore, the Company recorded a pre-tax charge of
$10.0 million in the first quarter of 1995 for claims incurred in 1994.  During
the remainder of 1995, the Company continued to experience loss ratio increases
over the 1994 levels.  The group gross medical loss ratio increased to 75.0%
for the year ended December 31, 1995 from 69.7% for the year ended December 31,
1994.

         Premium rate increases are established approximately three months
prior to the quarter in which they become effective.  Subsequent to
establishing the first quarter 1996 premium rate increases in October 1995, the
Company identified several factors, in addition to increased utilization, that
contributed to the relatively high medical loss ratio during 1995. These
factors were primarily a result of small group and individual healthcare reform
legislation, primarily at the state level.  Such reform included guaranteed
issue, mandated benefits, premium rate limits (including community rating and
modified community rating), guaranteed renewability, minimum medical loss ratio
mandates, risk adjustment mechanisms which allocate losses of individual
carriers to group carriers and other reforms.  The Company also  increased its
ability to analyze claims experience by various specific characteristics.
These included, among other things, initial group size, current group size,
duration of policy, geographic location, level of deductibles and utilization
of particular benefits.  As a result, the Company identified certain blocks of
business with profit margins lower than that which the Company deems
acceptable.  These higher risk blocks of the business accounted for
approximately 30% of the total group gross insurance premiums and contract
charges earned in 1995, and incurred a 1995 "hindsighted" loss ratio of 81.6%.
Hindsighted loss ratios are calculated based on the ultimate claim payout over
time for a particular period.  On the same basis, the remaining block of
business, representing approximately 70% of 1995 group gross insurance premiums
and contract charges earned, generated a hindsighted loss ratio for 1995 of
70.4%.  As of September 30, 1996, the hindsighted loss ratio relating to gross
insurance premiums and contract charges earned in 1996 for the higher risk
block of business was less than ten percent above the hindsighted loss ratio
for the remaining block of business.  However, the performance of these blocks
of business is best measured over at least a 12-month period.

         As the first year and renewal premium rate increases that were
effective on January 1, 1996 were established in October 1995, they were
developed without benefit of this new information.  The average rate increases
for the quarter beginning on January 1, 1996 were approximately 15%.
Consistent with the Company's objective of maintaining profit margins at the
risk of reducing market share, and utilizing the new information discussed
above, the Company significantly increased rates on its new business and
increased rates on its renewal business for the second, third and fourth
quarters of 1996 by approximately 22%, 23% and 23%, respectively.  Premium rate
increases on renewal business will be increased approximately 23% for the first
quarter of 1997.  The Company has taken additional actions that it believes
will enable it to better control the future medical loss ratios on its group
business with a strong emphasis on the high risk business.  These actions
include, where appropriate or available, improving discounts from providers,
redesigning benefits, improving underwriting techniques, altering commission
structures and discontinuing portions of such business, if warranted.  While
all such actions are designed to improve margins, they may have contributed to
a decrease in group covered lives since such rate increases may have resulted
in prices above the competition.  The number of group covered lives decreased
19.0% to 975,000 at September 30, 1996 from 1,203,000 at September 30, 1995.
Total group gross insurance premiums and contract charges earned have decreased
7.6% to $1,165.3 million for the nine months ended September 30, 1996 from
$1,261.4 million for the nine months ended September 30, 1995 due to the
decrease in covered lives, partially offset by the effect of the premium rate
increases described above.  These actions may result in a continued decrease in
the total group gross insurance premiums and contract charges earned over the
next several quarters and possibly thereafter.  There can be no assurance that
these actions will restore profit margins to acceptable levels.

                                       10
<PAGE>   13

         As noted above, the group gross medical loss ratio has increased to
74.2% for the nine months ended September 30, 1996 as compared to 72.1% for the
nine months ended September 30, 1995, excluding the increase in medical loss
reserves relating to claims incurred in 1994.  The group gross medical loss
ratio for the first, second and third quarters of 1996 was 72.5%, 73.5% and
76.7%, respectively.  These increases are primarily attributable to the
increased utilization of medical services which is generally being experienced
throughout the industry.  Although the Company's medical loss ratio has
generally been higher in the fourth quarter than the other quarters of the
year, the Company has recently recognized an increase in this disparity.  The
Company cannot predict whether the increase in utilization represents a
one-time event or more permanent trend or the extent to which this disparity
may increase or decrease in the future.

         The Company has continued its strategy to strengthen its managed care
networks and products.  This strategy is designed to reduce the risks created
in its marketplace by healthcare reforms and changing patterns of behavior by
providers while offering customers attractive, high quality, affordable
products.  In this pursuit, the Company has been designing benefit plans that
are more easily understood and administered by providers and which steer
customers into selected provider networks.  The strategy has resulted in the
development of a new product which is anticipated to be introduced into the
marketplace beginning in the second quarter of 1997 and fully implemented by
the end of 1997.  The new product will be targeted to specific geographic
locations and will focus on improving the ability of providers to work with the
product.  Although there can be no assurance as to the success of this new
product in the competitive healthcare industry, it has been designed to be more
attractive to providers and customers, thereby leading to increased
demand in the marketplace and increased sales.  In addition, the Company is
enhancing provider incentives and risk-sharing programs that encourage and
reward networks for effective medical cost management.  It is anticipated that
the cost of implementing this strategy will result in an increase in the group
gross expense ratio over the next several quarters and possibly thereafter.

         During the nine months ended September 30, 1996, the Company further
centralized processing functions by closing its Sacramento, California
processing office, resulting in a charge of approximately $1.0 million.  During
this same period, the Company recorded a liability of approximately $1.9
million for the remaining lease obligation related to a computer software
system that will no longer be utilized due to the centralizing of various
functions and offices.  The combined total for these severance and other
charges aggregates approximately $2.9 million, or 0.3% of the total group gross
insurance premiums and contract charges earned in this period.

         The group gross expense ratio for the nine months ended September 30,
1996, excluding the 0.3% of severance and other charges discussed above, was
23.3% compared to 25.1% for the nine months ended September 30, 1995, excluding
the adjustments discussed above.  This decrease was primarily attributable to a
reduction in the number of employees.  Additionally, reductions in renewal
commissions were announced in late 1994 for new business sold subsequent to
that announcement, which lowered renewal commission expense for the nine months
ended September 30, 1996 compared to the nine months ended September 30, 1995.

         The Company's healthcare operations also include the healthcare
stop-loss reinsurance product lines and HMO operations.  Pre-tax income for
these product lines increased 161.5% to $0.8 million for the nine months ended
September 30, 1996 from a pre-tax loss of $1.3 million for the nine months
ended September 30, 1995.  Pre-tax income for the nine months ended September
30, 1996 and 1995 were reduced by $2.4 million and $2.8 million, respectively,
for the other healthcare operations' portion of the charges discussed above.
Excluding these charges in the respective periods, pre-tax income increased
113.3% to $3.2 million for the nine months ended September 30, 1996 from $1.5
million for the nine months ended September 30, 1995.  This increase was
primarily attributable to a reduction in losses incurred in relation to the
Company's provider excess reinsurance product line.

                                       11
<PAGE>   14

Healthcare Operations Results for the Three Months Ended September 30, 1996 and
1995

         Pre-tax income for healthcare operations decreased 75.9% to $2.1
million for the three months ended September 30, 1996 from $8.7 million for the
three months ended September 30, 1995.  Pre-tax income for the three months
ended September 30, 1995 was reduced by $6.5 million for the healthcare
operations' portion of the charges discussed above.  Excluding these charges,
pre-tax income decreased 86.2% to $2.1 million for the three months ended
September 30, 1996 from $15.2 million for the three months ended September 30,
1995.  This decrease is generally due to an increase in the group combined
ratio resulting primarily from an increase in the medical loss ratio and a
decrease in group insurance premiums and contract charges earned, as discussed
above.  The combined ratio increased to 100.2% for the three months ended
September 30, 1996 from 97.0% for the three months ended September 30, 1995,
excluding the charges discussed above.  Total group covered lives decreased
19.0% to 975,000 at September 30, 1996 from 1,203,000 at September 30, 1995.
Group gross insurance premiums and contract charges earned decreased 12.2% to
$365.8 million for the three months ended September 30, 1996 from $416.5
million for the three months ended September 30, 1995 due to the decrease in
covered lives, partially offset by the premium rate increases which were put in
effect in 1996, as discussed above.

OTHER CONTINUING OPERATIONS
<TABLE>
<CAPTION>
                                                                                                                        
                                                                    PERCENTAGE                                 PERCENTAGE
                                           NINE MONTHS ENDED          CHANGE          THREE MONTHS ENDED        CHANGE   
                                              SEPTEMBER 30,           POSITIVE          SEPTEMBER 30,           POSITIVE 
                                          ----------------------    (NEGATIVE)      ---------------------      (NEGATIVE)
                                           1996          1995         EFFECT         1996         1995           EFFECT
                                          ----------   ---------    ----------      --------   ----------      ----------
 (In millions)
 <S>                                      <C>            <C>            <C>           <C>        <C>             <C>
 Gross premiums and fees   . . . . . . .  $ 12.3         $16.2          (24.1)%       $4.4       $ 4.3             2.3%
 Net investment income . . . . . . . . .    26.3          30.0          (12.3)         9.0         9.3            (3.2)
 Pre-tax operating loss  . . . . . . . .   (18.1)        (21.0)          13.8         (5.1)      (10.5)           51.4
 Net realized investment gains   . . . .     1.2           0.2          500.0          0.4         0.1           300.0
 Pre-tax loss  . . . . . . . . . . . . .   (16.9)        (20.8)          18.8         (4.7)      (10.4)           54.8
</TABLE>
Other Continuing Operations Results for the Nine Months Ended September 30,
1996 and 1995

         Other continuing operations include JALIC's individual life business
and products no longer marketed by the Company.  Also included are investment
income on equity, net corporate realized investment gains and losses and
corporate expenses for the Company and all of its subsidiaries, excluding John
Alden Life Insurance Company of New York ("JANY") and the Western Diversified
Group.  Pre-tax loss from other continuing operations decreased 18.8% to $16.9
million for the nine months ended September 30, 1996 from $20.8 million for the
nine months ended September 30, 1995.  The 1996 amount includes the other
continuing operations' share of the severance and other charges, as discussed
above, of approximately $1.4 million.  The 1995 amount includes $7.5 million of
charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses.  Excluding these adjustments, pre-tax loss from other continuing
operations increased 16.5% to $15.5 million for the nine months ended September
30, 1996 from $13.3 million for the nine months ended September 30, 1995 due
primarily to lower yielding invested assets which resulted in reduced
investment income for the 1996 period compared to the 1995 period.  Net
realized investment gains increased to $1.2 million for the nine months ended
September 30, 1996 from $0.2 million for the nine months ended September 30,
1995.  If the Company completes the anticipated sales of the discontinued
operations discussed below, certain corporate expenses in other continuing
operations shall be reduced.  However, there can be no assurance as to when and
to what extent such expense reductions will occur.

Other Continuing Operations Results for the Three Months Ended September 30,
1996 and 1995

         Pre-tax loss from other continuing operations decreased 54.8% to $4.7
million for the three months ended September 30, 1996 from $10.4 million for
the three months ended September 30, 1995.  The 1995 amount includes

                                       12
<PAGE>   15

$4.9 million of charges incurred in relation to the Company's comprehensive
strategic and financial evaluation of its non-core product lines and refocusing
on its core businesses.  Excluding these charges, the pre-tax loss decreased
14.5% to $4.7 million for the three months ended September 30, 1996 from $5.5
million for the three months ended September 30, 1995 due primarily to a
reduction in interest and overhead expenses, partially offset by reduced
investment income on equity.  Net realized investment gains increased 300.0% to
$0.4 million for the three months ended September 30, 1996 from $0.1 million
for the three months ended September 30, 1995.

DISCONTINUED OPERATIONS

         On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines.  Annuity Operations includes
substantially all of the annuity business of John Alden Life Insurance Company
("JALIC") and all of the business of JANY.  JANY primarily markets annuity
products in the State of New York, as well as certain individual life insurance
products.  The Western Diversified Group markets credit life and disability and
retail service warranty coverage, primarily through automobile dealers.  The
Company anticipates that the potential sales of these businesses will occur
within one year from the above date and that the formal process of disposing of
these separate segments will result in a net gain.  Such sales will be subject
to applicable regulatory approvals.  There can be no assurance that such sales
will occur.

ANNUITY OPERATIONS
<TABLE>
<CAPTION>
                                                                                                                                  
                                                                             PERCENTAGE                                PERCENTAGE 
                                                NINE MONTHS ENDED              CHANGE         THREE MONTHS ENDED         CHANGE   
                                                  SEPTEMBER 30,               POSITIVE          SEPTEMBER 30,           POSITIVE  
                                            --------------------------       (NEGATIVE)     -----------------------    (NEGATIVE) 
                                              1996             1995            EFFECT         1996          1995          EFFECT  
 (In millions)                              --------          --------       --------       --------       --------      --------
 <S>                                        <C>               <C>            <C>            <C>            <C>            <C>
 Deposits received   . . . . . . . . .      $ 351.0           $ 699.7        (49.8)%        $  80.3        $ 189.7        (57.7)%
 Net investment income   . . . . . . .        303.5             303.1          0.1            101.6          104.5         (2.8)
 Total revenues  . . . . . . . . . . .        325.3             333.6         (2.5)           105.4          114.4         (7.9)
 Benefit and surrender payments  . . .        531.8             485.5         (9.5)           167.6          152.5         (9.9)
 Interest credited to policyholders  .        217.4             232.1          6.3             71.4           83.3         14.3
 Average account balances, net of                                                                                       
 reinsurance   . . . . . . . . . . . .      5,174.1           5,282.3         (2.0)         5,197.8        5,441.9         (4.5)
 Pre-tax operating income (net spread                                                                                   
 earned)   . . . . . . . . . . . . . .         45.0              31.9         41.1             17.6            8.9         97.8
 Net realized investment losses  . . .         (7.6)             (7.5)        (1.3)            (3.9)          (3.8)        (2.6)
 Pre-tax income  . . . . . . . . . . .         37.4              24.4         53.3             13.7            5.1        168.6
</TABLE>

Annuity Operations Results for the Nine Months Ended September 30, 1996 and
1995

         The net spread earned increased 41.1% to $45.0 million for the nine
months ended September 30, 1996 from $31.9 million for the nine months ended
September 30, 1995.  Average account balances, net of reinsurance, decreased
2.0% to $5,174.1 million for the nine months ended September 30, 1996 from
$5,282.3 million for the nine months ended September 30, 1995.  The increase
in net spread is due to changes in the mix of annuity contracts caused by the
ceding of a large block of contracts in the third quarter of 1995 which carried
high surrender penalties and changes in the average credited rate on
outstanding annuity contracts during 1996 as compared to the tightening of
spreads during the period of declining interest rates in the first nine months
of 1995.  Also, investment income on JANY equity increased due to an increase
in retained earnings and a capital contribution made in late 1995.  In
addition, the Company recognized $1.2 million of premium and intangible tax
refunds during the nine months ended September 30, 1996.  Deposits received
decreased 49.8% to $351.0 million for the nine months ended September 30, 1996
from $699.7 million for the nine months ended September 30, 1995.  This
decrease is generally attributable to the Company's announcement in March 1996
that it was selling its Annuity Operations, as well as the

                                       13
<PAGE>   16

lower ratings received by JALIC and JANY from certain national rating agencies.
See "Current Trends and Developments."

Annuity Operations Results for the Three Months Ended September 30, 1996 and
1995

         The net spread earned increased 97.8% to $17.6 million for the three
months ended September 30, 1996 from $8.9 million for the three months ended
September 30, 1995.  Average account balances, net of reinsurance, decreased
4.5% to $5,197.8 million for the three months ended September 30, 1996 from
$5,441.9 million for the three months ended September 30, 1995.  The increase
in net spread earned is primarily attributable to an increase in gross margin
resulting from changes in the earned and credited rates on annuity contracts as
compared to the tightening of spreads which occurred during the three months
ended September 30, 1995 and income earned on JANY equity, as discussed above,
as well as a decrease in operating expenses.  Net realized investment losses
increased 2.6% to $3.9 million for the three months ended September 30, 1996
from $3.8 million for the three months ended September 30, 1995.  Pre-tax
income increased 168.6% to $13.7 million for the three months ended September
30, 1996 from $5.1 million for the three months ended September 30, 1995.

WESTERN DIVERSIFIED GROUP
<TABLE>
<CAPTION>
                                                                                                                   
                                                              PERCENTAGE                               PERCENTAGE  
                                     NINE MONTHS ENDED          CHANGE        THREE MONTHS ENDED         CHANGE    
                                       SEPTEMBER 30,           POSITIVE           SEPTEMBER 30,         POSITIVE   
                                 -----------------------      (NEGATIVE)    -----------------------    (NEGATIVE)
                                     1996          1995         EFFECT         1996      1995            EFFECT
                                 ----------   ----------     -----------    ----------  -----------    -----------
 (In millions)
 <S>                              <C>          <C>             <C>          <C>         <C>              <C>
 Written premiums  . . . . . . .  $ 69.3       $ 67.8             2.2%      $ 24.2      $ 20.0            21.0%
 Gross insurance premiums and
 contract charges earned   . . .    55.1         49.5            11.3         19.8        17.2            15.1
 Pre-tax income (loss)   . . . .    (1.7)         3.2          (153.1)         0.1         1.6           (93.8)
</TABLE>

Western Diversified Group Results for the Nine Months Ended September 30, 1996
and 1995

         Pre-tax income (loss) decreased 153.1% to a pre-tax loss of $1.7
million for the nine months ended September 30, 1996 from pre-tax income of
$3.2 million for the nine months ended September 30, 1995.  Excluding the
Western Diversified Group's portion of the charges discussed above, pre-tax
income (loss) decreased 181.0% to a pre-tax loss of $1.7 million for the nine
months ended September 30, 1996 from pre-tax income of $2.1 million for the
nine months ended September 30, 1995.  This decrease is primarily attributable
to additional profit sharing liabilities recorded during 1996 relating to
amounts ceded to reinsurers in the credit product line and an increase in the
credit loss ratio.

Western Diversified Group Results for the Three Months Ended September 30, 1996
and 1995

      Pre-tax income decreased to $0.1 million for the three months ended
September 30, 1996 from $1.6 million for the three months ended September 30,
1995.  Excluding the Western Diversified Group's portion of the charges
discussed above, pre-tax income decreased 80.0% to $0.1 million for the three
months ended September 30, 1996 from $0.5 million for the three months ended
September 30, 1995 due primarily to the profit sharing liabilities recognized
in 1996.

                                       14
<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

INDEBTEDNESS

         The Company maintains credit facilities with The Chase Manhattan Bank
on its own behalf and as administrative agent for certain commercial lending
institutions.  The Company made a scheduled principal payment of $15.0 million
in April 1996 and repaid $2.5 million under the Company's revolving credit
facility in June 1996.  Also in September and April 1996, the Company borrowed
$14.0 million and $12.0 million, respectively,  pursuant to the revolving
credit facility.  Future required principal payments are $25.0 million in 1997,
$32.0 million in 1998 and $58.5 million in 1999.

         The principal amounts of outstanding indebtedness of the Company at
September 30, 1996 and December 31, 1995 were $115.5 million and $107.1
million, respectively.  At September 30, 1996, the Company's ratio of debt and
redeemable securities to stockholders' equity was 0.30 to 1 compared to 0.27 to
1 at December 31, 1995.  The weighted average annualized interest rates on the
Company's indebtedness were approximately 7.7% and 7.0% for the nine months
ended September 30, 1996 and 1995, respectively.

DIVIDENDS

         The Company paid preferred stock dividends of approximately $0.7
million in each of April and October of 1996 and 1995.  A summary of common
stock dividends declared or paid during 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                     AMOUNT OF DIVIDEND          
                                                             ------------------------------------------
                                                                                         AGGREGATE
MONTH OF DECLARATION           PAYMENT MONTH                 PER SHARE              DOLLARS IN MILLIONS
--------------------           -------------                 ---------              -------------------
 <S>                             <C>                           <C>                         <C>
 December 1994                   January 1995                 $ .10                       $  2.5
 March 1995                      April 1995                     .11                          2.8
 June 1995                       July 1995                      .11                          2.8
 September 1995                  October 1995                   .11                          2.8
 December 1995                   January 1996                   .11                          2.8
 March 1996                      April 1996                     .11                          2.8
 June 1996                       July 1996                      .11                          2.8
 September 1996                  October 1996                   .12                          3.0
</TABLE>

CASH FLOWS

         Net cash provided by operating activities decreased to $225.8 million
for the nine months ended September 30, 1996 from $291.2 million for the nine
months ended September 30, 1995.  This decrease was generally attributable to
the timing of settlement of liabilities under reinsurance agreements and
benefit reserves.

         Net cash used in investing activities decreased to $55.9 million for
the nine months ended September 30, 1996 from $510.8 million for the nine
months ended September 30, 1995.  This was primarily due to the decrease in net
cash provided by financing activities as explained below.  The Company has
increased its sales of available-for-sale securities over the prior year in
order to increase yield earned during the period of an increasing interest rate
environment.  In May 1996 and April 1995, the Company exercised options to
purchase office buildings (one of which it had previously leased) located on
land owned by the Company adjacent to its headquarters building.  The purchase
prices of $33.5 million and $21.8 million, respectively, were paid from
internally generated funds.

                                       15
<PAGE>   18

         Net cash used in financing activities aggregated $181.6 million for
the nine months ended September 30, 1996 compared to net cash provided by
financing activities of $212.9 million for the nine months ended September 30,
1995.  This was primarily due to a decrease in receipts from universal life and
investment type contracts to $368.4 million for the nine months ended September
30, 1996 from $725.7 million for the nine months ended September 30, 1995 and
an increase in payments relating to universal life and investments type
contracts to $550.0 million for the nine months ended September 30, 1996 from
$496.5 million for the nine months ended September 30, 1995.  The decrease in
net cash flows from universal life and investment-type contracts may be due, in
part, to the Company's announcement in March 1996 that it was selling its
Annuity Operations, as well as the Company's recent downgrades in ratings, as
discussed below.

         Cash and cash equivalents increased to $87.9 million at September 30,
1996 from $51.7 million at September 30, 1995.  This increase was due to the
Company accumulating cash and cash equivalents at September 30, 1996 in
anticipation of making payments on debt instruments and purchasing additional
bonds in October 1996.

         The Company believes that operating cash flows, together with loan
repayments and investment maturities, are sufficient to meet anticipated
operating liquidity needs.

REINSURANCE RECEIVABLES

         Receivables from reinsurers and investment deposits recoverable,
consisting primarily of contract holder liabilities transferred to reinsurers,
aggregated $985.2 million.  Of the total, $775.7 million, or 78.7%, has been
placed in trusts.  These trust agreements generally require that assets be
maintained at least equal to 100% of the underlying regulatory liabilities and
that the assets in trust be left on deposit with an independent trustee.  The
Company generally requires that its reinsurers be rated "A (Excellent)" or
better by A.M. Best and Company ("A.M. Best").

         Significant reinsurance recoverables due to the Company and premiums
ceded as of and for the nine months ended September 30, 1996 are as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                                          
                                                                                                           PREMIUMS CEDED 
                                                                              RECOVERABLES                  FOR THE NINE  
                                                       A. M. BEST      -------------------------------      MONTHS ENDED  
                                                        RATING         PAID LOSSES       UNPAID LOSSES   SEPTEMBER 30, 1996 
                                                     ---------------   -----------       -------------   -------------------
<S>                                              <C>                     <C>                 <C>                <C>
London Life Insurance Company . . . . . . . .     A++ (Superior)          $    --             $73,748            $337,819
Mercantile & General Life Reassurance
  Company . . . . . . . . . . . . . . . . . .      A+ (Superior)           14,253              14,461              32,397
Transamerica Occidental Life Insurance
  Company . . . . . . . . . . . . . . . . . .      A+ (Superior)               --              49,165             225,213
</TABLE>

INVESTMENTS

         The Company's investment portfolio is managed by its internal
investment  professionals with the objectives of maintaining credit quality and
liquidity, maximizing current income within acceptable levels of risk,
minimizing interest rate exposure and matching the anticipated maturity of the
investments with the anticipated maturity of the liabilities they support.  To
achieve a balancing of these objectives, the portfolio emphasizes investment
grade publicly traded debt securities and commercial and residential mortgages
meeting the Company's specific underwriting standards.

                                       16
<PAGE>   19

         The Company's investment portfolio at September 30, 1996 is summarized
in the table below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                            PERCENTAGE
                                                                                             OF TOTAL
                                                                  CARRYING VALUE           CARRYING VALUE
                                                                  --------------           --------------
<S>                                                                 <C>                         <C>
Held-to-maturity securities (1):
  U.S. government and agency debt securities (2)  . . . . . .        $  142,506                   2.4%
  Municipal debt securities . . . . . . . . . . . . . . . . .            22,889                   0.4
  Investment grade corporate debt securities  . . . . . . . .           215,296                   3.6
  Non-investment grade corporate debt securities  . . . . . .             1,721                    --
  Mortgage-backed debt securities (3) . . . . . . . . . . . .           153,560                   2.6
  Asset-backed debt securities  . . . . . . . . . . . . . . .           118,660                   2.0
                                                                     ----------                ------
    Total held-to-maturity securities . . . . . . . . . . . .           654,632                  11.0
                                                                     ----------                ------
Available-for-sale securities (4):
  U.S. government and agency debt securities (2)  . . . . . .           880,426                  14.7
  Municipal debt securities . . . . . . . . . . . . . . . . .             2,872                    --
  Debt securities issued by foreign governments (5) . . . . .            15,995                   0.3
  Investment grade corporate debt securities  . . . . . . . .         1,330,052                  22.2
  Non-investment grade corporate debt securities  . . . . . .             3,036                   0.1
  Mortgage-backed debt securities (3) . . . . . . . . . . . .         1,051,087                  17.5
  Asset-backed debt securities  . . . . . . . . . . . . . . .           330,456                   5.5
                                                                     ----------                ------
    Total available-for-sale securities . . . . . . . . . . .         3,613,924                  60.3
                                                                     ----------                ------
Trading account securities (6)  . . . . . . . . . . . . . . .             5,489                   0.1
Equity securities (7) . . . . . . . . . . . . . . . . . . . .            80,961                   1.4
Commercial mortgages (8)  . . . . . . . . . . . . . . . . . .         1,084,918                  18.1
Residential mortgages (8) . . . . . . . . . . . . . . . . . .           416,115                   6.9
Investment in real estate (9) . . . . . . . . . . . . . . . .            37,748                   0.6
Real estate owned (10)  . . . . . . . . . . . . . . . . . . .             9,281                   0.1
Policy loans and other notes receivable (11)  . . . . . . . .            84,911                   1.4
Short-term investments (12) . . . . . . . . . . . . . . . . .             7,865                   0.1
                                                                     ----------                ------
  Total investments (13)  . . . . . . . . . . . . . . . . . .        $5,995,844                 100.0%
                                                                     ==========               ======= 
</TABLE>

-----------------------
(1)    Carried at amortized cost, adjusted for impairments in value which are
       considered other than temporary.  Total market value was approximately
       $659,272,000, representing net unrealized investment gains of
       approximately $4,640,000.
(2)    Includes $768,650,000 of agency collateralized mortgage obligations.
(3)    Includes $1,162,387,000 of non-agency and private placement
       collateralized mortgage obligations.
(4)    Carried at market value.  Total amortized cost was approximately
       $3,608,739,000, representing net unrealized investment gains of
       approximately $5,185,000.
(5)    Consist principally of Canadian provincial government bonds.
(6)    Carried at market value.  Total cost was approximately $5,438,000,
       representing net unrealized investment gains of approximately $51,000.
(7)    Carried at market value.  Total cost was approximately $73,346,000,
       representing net unrealized investment gains of approximately
       $7,615,000.
(8)    Carried at the unpaid principal balance less unamortized discounts, a
       $7,956,000 valuation reserve and $10,892,000 in write-downs for
       impairments in value, which are considered other than temporary.
(9)    Real estate acquired as investment property is carried at cost less
       accumulated depreciation of $1,684,000.

                                       17
<PAGE>   20

(10)   Acquired in satisfaction of debt.  Carried at cost less allowances for
       impairments in value which are considered other than temporary.
(11)   Consist of policy, collateral loans and provider notes receivable.
(12)   Carried at amortized cost, which approximates market value.
(13)   Includes Annuity Operations invested assets of approximately $5.2
       billion.  See "Management's Discussion and Analysis of Financial
       Condition and Results of Operations -- Discontinued Operations" for a
       discussion of the proposed sale of the Annuity Operations.

         The following table sets forth the composition of the Company's debt
securities portfolio by rating at September 30, 1996 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                          TRADING                        % OF TOTAL
                                              HELD-TO-MATURITY    AVAILABLE-FOR-SALE      ACCOUNT         TOTAL           CARRYING
                                                 SECURITIES          SECURITIES          SECURITIES   CARRYING VALUE        VALUE 
                                             -----------------    ------------------     ----------   --------------     ---------
<S>                                              <C>               <C>                    <C>           <C>                  <C>
   Rating (1)  
---------------
AAA(2)  . . . . . . . . . . . . . .              $ 343,625         $2,154,513             $ 5,489       $2,503,627            58.6%
AA  . . . . . . . . . . . . . . . .                 78,661            406,521                  --          485,182            11.3
A . . . . . . . . . . . . . . . . .                175,154            780,843                  --          955,997            22.4
BBB . . . . . . . . . . . . . . . .                 55,471            269,011                  --          324,482             7.6
                                                 ---------         ----------             -------       ----------           -----
  Total investment grade  . . . . .                652,911          3,610,888               5,489        4,269,288            99.9
                                                 ---------         ----------             -------       ----------           -----
BB  . . . . . . . . . . . . . . . .                     --                 --                  --               --              --
B . . . . . . . . . . . . . . . . .                     --                 --                  --               --              --
Other . . . . . . . . . . . . . . .                  1,721              3,036                  --            4,757             0.1
                                                 ---------         ----------             -------       ----------           -----
  Total non-investment grade  . . .                  1,721              3,036                  --            4,757             0.1
                                                 ---------         ----------             -------       ----------           -----
    Total . . . . . . . . . . . . .              $ 654,632         $3,613,924             $ 5,489       $4,274,045           100.0%
                                                 =========         ==========             =======       ==========           ===== 
</TABLE>

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

(1) Debt securities are classified according to the lowest rating by a
    nationally recognized statistical rating organization.  Debt securities not
    rated by any such organization are classified according to the rating
    assigned to them by the NAIC as follows: NAIC class 1 is considered
    equivalent to an A or higher rating; class 2, BBB; class 3, BB; and classes
    4-6, B and below.

(2) Includes approximately $1,028,421,000 of U.S. government and  agency debt
    securities.

         Commercial and residential mortgages comprised 25.0% of the Company's
invested assets at September 30, 1996.  Mortgage loans are diversified as to
property type, location and loan size, and are collateralized by the related
properties.  At September 30, 1996, mortgages more than 30 days delinquent
accounted for 0.8% of the carrying value of the Company's mortgage portfolio of
$1,501.0 million and, together with real estate owned by the Company, accounted
for 0.3% of the carrying value of the Company's total investment portfolio.

                                       18
<PAGE>   21

         The following table sets forth information regarding the Company's
delinquent and other problem mortgage loans as of September 30, 1996 (dollars
in thousands):

<TABLE>
<CAPTION>
                                                                         COMMERCIAL         RESIDENTIAL            TOTAL
                                                                         ----------         -----------            -----
<S>                                                                        <C>                  <C>                <C>
Delinquent 31 days or more:
  In non-accrual status(1)  . . . . . . . . . . . . . . . . . .             $ 7,932             $1,236             $ 9,168
  Other           . . . . . . . . . . . . . . . . . . . . . . .               1,367              1,061               2,428
                                                                            -------             ------             -------
    Total delinquent  . . . . . . . . . . . . . . . . . . . . .               9,299              2,297              11,596
Restructured on other than market terms(2)  . . . . . . . . . .              36,388                 --              36,388
                                                                            -------             ------             -------
Delinquent and other problem loans  . . . . . . . . . . . . . .             $45,687             $2,297             $47,984
                                                                            =======             ======             =======
Delinquent and other problem loans as a percentage of
  loans outstanding at September 30, 1996 . . . . . . . . . . .                 4.2%               0.6%                3.2%
</TABLE>

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

(1) The Company continues to accrue interest payments on mortgage loans which
    are up to 90 days contractually past due as to principal or interest.
    After such 90-day period, no additional interest is accrued.  For mortgage
    loans which are in process of foreclosure, all accrued interest is reduced
    to zero.

(2) Excludes loans in this category included in delinquency totals.

CURRENT TRENDS AND DEVELOPMENTS

        The Company has continued its strategy to strengthen its managed care
networks and products.  This strategy is designed to reduce the risks created
in its marketplace by healthcare reforms and changing patterns of behavior by
providers while offering customers attractive, high quality, affordable
products.  In this pursuit, the Company has been designing benefit plans that
are more easily understood and administered by providers and which steer
customers into selected provider networks.  The strategy has resulted in the
development of a new product which is anticipated to be introduced into the
marketplace beginning in the second quarter of 1997 and fully implemented by
the end of 1997.  The new product will be targeted to specific geographic
locations and will focus on improving the ability of providers to work with the
product.  Although there can be no assurance as to the success of this new
product in the competitive healthcare industry, it has been designed to be more
attractive to providers and customers, thereby leading to increased demand in
the marketplace and increased sales.  In addition, the Company is enhancing
provider incentives and risk-sharing programs that encourage and reward
networks for effective medical cost management.  It is anticipated that the
cost of implementing this strategy will result in an increase in the group
gross expense ratio over the next several quarters and possibly thereafter.

         In April 1995, A.M. Best completed its annual review of JALIC and
assigned it a rating of "A (Excellent)".  JALIC had previously been rated "A+
(Superior)".  In October 1995, Standard & Poor's Rating Group ("S&P") assigned
JALIC a claims-paying ability rating of "A (Good)".  JALIC had previously been
assigned a rating of "A+ (Good)".  In November 1995, Moody's Investors Service
assigned JALIC and JANY initial insurance financial strength ratings of "A3".
On March 7, 1996, S&P lowered JALIC's "A (Good)" claims-paying ability rating
to "BBB+" and placed JANY's "A (Good)" claims-paying ability rating on "Credit
Watch with Developing Implications," meaning that JANY's rating could be raised
or lowered in connection with the potential sale of the Company's Annuity
Operations.  S&P stated that if that sale does not occur, JANY's rating will be
downgraded to reflect JALIC's current rating.  On March 11, 1996, A.M. Best
lowered JALIC's and JANY's "A (Excellent)" ratings to "A-(Excellent)" and has
placed such ratings under "Review with Developing Implications" pending further
discussions with the Company.  The Company believes that these actions may
materially adversely affect future sales of the Company's products and
surrenders in the Company's Annuity Operations.  Although the

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<PAGE>   22

Company cannot predict the ultimate effect of these actions, it is possible
that they could have a material adverse effect on the Company's financial
position, results of operations, cash flows and liquidity.

          On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines.  The Annuity Operations includes
substantially all of the annuity business of JALIC and all of the business of
JANY.  JANY primarily markets annuity products in the State of New York, as
well as certain individual life insurance products.  The Western Diversified
Group markets credit life and disability and retail service warranty coverage,
primarily through automobile dealers.  The Company anticipates that the
potential sales of these businesses will occur within one year from the above
date and that the formal process of disposing of these separate segments will
result in a net gain.  Such sales will be subject to applicable regulatory
approvals.  There can be no assurance that such sales will occur.

         On November 13, 1996, the Company entered into a non-binding letter of
intent with SunAmerica, Inc. relating to the sale of all the common stock of
JANY and the reinsurance of substantially all of the annuity business of JALIC. 
The Company is proceeding to finalize the definitive agreement. 

         Although the Company's medical loss ratio has generally been higher in
the fourth quarter than the other quarters of the year, the Company has
recently recognized an increase in this disparity.  The Company cannot predict
the extent to which  this disparity may increase or decrease in the future.

         As discussed above, the Company is anticipating the sale of its
Annuity Operations.  Such operations have generally resulted in fairly stable
earnings per share, which has had the effect of reducing the volatility in the
Company's earnings per share caused by fluctuations in the gross group medical
loss ratio.  The Company believes, therefore, that the relative volatility of
the earnings per share may increase following the proposed sale of the Annuity
Operations.

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<PAGE>   23

                          PART II: OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
ultimate disposition of such proceedings, individually and in the aggregate
(including the lawsuit discussed below), will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.

         During the period of April 1995 through May 1995, the Company and
certain of its officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws.  The
actions, all of which were filed in the United States District Court for the
Southern District of Florida (the "Court"), have been consolidated.  In October
1995, the plaintiffs filed a Consolidated Amended Complaint purportedly on
behalf of a class of persons who purchased the Company's common stock, par
value $.01 per share (the "Common Stock") during the period of October 27, 1994
through May 3, 1995 seeking unspecified damages, fees, costs and interest.  The
first of the original complaints was filed after the Company revised its
previously announced earnings for the fourth quarter of 1994 to reflect an
unanticipated increase in claims received in 1995 for medical services rendered
in 1994.  The remainder of the original complaints were filed after the Company
increased reserves during the first quarter of 1995 to reflect a further
increase in such claims.  On September 30, 1996, the Court denied the
defendants motion to dismiss the Consolidated Amended Complaint and the Court
certified a class of those persons who purchased the Company's Common Stock
during the period between October 27, 1994 through May 3, 1995.  Discovery in
this lawsuit is ongoing.  The Company and individual defendants deny any
wrongdoing, believe they have meritorious defenses against the claims asserted,
and intend to vigorously defend the lawsuit.

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<PAGE>   24

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits
             3. Amended and restated By-Laws of the Company, dated as of
                   September 12, 1996.

             27. Financial Data Schedule
 
             (b) Reports on Form 8-K
                 None

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<PAGE>   25

                                   SIGNATURE

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

                                    JOHN ALDEN FINANCIAL CORPORATION
                                    
Date: November 12, 1996                     By: /s/ Scott L. Stanton           
                                               --------------------------------
                                                     Scott L. Stanton
                                                     Senior Vice President and
                                                     Chief Financial Officer

                                      23
<PAGE>   26

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                           Description                                   Page No.
-----------                           -----------                                   --------
    <S>                <C>                                                             <C>
     3                    Amended and restated By-Laws of the                          25
                       Company, dated as of  September 12, 1996.

    27                          Financial Data Schedule                                49
</TABLE>

                                      24