===============================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                    FORM 10-K
                            ------------------------

(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
                          ---------------------------
                          Commission file no. 1-12502
                          ---------------------------

                            Chartwell Re Corporation
             (Exact name of registrant as specified in its charter)

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

               DELAWARE                               41-1652473
     (State or other jurisdiction of              (I.R.S. Employer
     incorporation or organization)               Identification No.)

                       Four Stamford Plaza, 107 Elm Street
                           Stamford, Connecticut 06902
              (Address of principal executive offices and zip code)
                                 ---------------
       Registrant's telephone number, including area code: (203) 705-2500

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

    Title of Each Class                Name of Each Exchange on which registered
Common Stock, par value $.01 per share       New York Stock Exchange
Preferred Stock Purchase Rights              New York Stock Exchange

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X NO __
-                                      --

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of March 24, 1998 was approximately $ 264,067,000.

As of March 24, 1998,  there were  9,623,653  shares of Common Stock,  $0.01 par
value outstanding.

                      Documents Incorporated by Reference
Portions of the  registrant's  definitive  Proxy  Statement  for its 1998 Annual
Meeting of  Stockholders,  which will be filed with the  Securities and Exchange
Commission  within 120 days of the close of the  registrant's  fiscal year ended
December 31, 1997, are incorporated by reference into Part III hereof.

================================================================================
<PAGE>




                            CHARTWELL RE CORPORATION
                                TABLE OF CONTENTS

                                                                           Page
         Item                                                             Number

PART I
     1.  Business---------------------------------------------------------    1
     2.  Properties-------------------------------------------------------   19
     3.  Legal Proceedings------------------------------------------------   19
     4.  Submission of Matters to a Vote of Security Holders--------------   19

PART II
     5.  Market for the Registrant's Common Stock and Related
          Stockholder Matters---------------------------------------------   20
     6.  Selected Financial Data------------------------------------------   21
     7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations---------------------------------------   23
     7A. Quantitative and Qualitative Disclosures About Market Risk-------   32
     8.  Financial Statements and Supplementary Data----------------------   32
     9.  Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosures ------------------------------------------   32

PART III
     10. Directors and Executive Officers of the Registrant---------------   33
     11. Executive Compensation-------------------------------------------   33
     12. Security Ownership of Certain Beneficial Owners and Management---   33
     13. Certain Relationships and Related Transactions-------------------   33

PART IV
     14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K-   34

                                       i

<PAGE>


                                    PART I

Item 1. Business

Overview
         Chartwell Re Corporation ("Chartwell" or the "Company") is an insurance
holding company with global  underwriting and service  operations which conducts
its  business  in the  United  States  and in the  Lloyd's  market  through  its
principal  operating  subsidiaries,  Chartwell  Reinsurance  Company ("Chartwell
Reinsurance"),  The Insurance  Corporation  of New York  ("INSCORP")  and Archer
Managing  Agents  Limited  ("Archer").  As of December 31, 1997,  Chartwell  had
nearly $1.4 billion of total assets and stockholders'  equity of $260.5 million.
For the year  ended  December  31,  1997,  Chartwell's  gross  premiums  written
amounted  to  $362.8  million.  Of  such  amount,   $236.1  million,  or  65.1%,
represented gross reinsurance  premiums,  $106.5 million, or 29.4%,  represented
gross insurance premiums and $20.1 million, or 5.5%,  represented  premiums from
Oak Dedicated Limited and ADIT One Ltd.,  Archer's  dedicated  corporate capital
vehicles (the "Dedicated CCV's").
          Chartwell  Reinsurance  is a broker market  reinsurer with  over  $262
million of  policyholders'  surplus which  underwrites  treaty  reinsurance  for
casualty,  property,  marine and aviation risks.  INSCORP is a primary insurance
company with over $113 million of policyholders'  surplus that develops property
and casualty insurance programs through specialty production sources focusing on
a specific  line of business and  geographic  region.  Chartwell and INSCORP are
each licensed or  authorized to transact  business in 49 states and the District
of Columbia.  INSCORP is also approved to transact business in Canada. Archer is
the tenth largest managing agency at Lloyd's,  managing nine Lloyd's  syndicates
with total  underwriting  capacity of  approximately  (pound)352  million  ($580
million) for the 1998 year of account.  Approximately 77% of Archer  syndicates'
1998  capacity  is supplied  by  corporate  capital,  and  approximately  76% of
Archer's 1998 premium volume is derived from non-U.S. sources.
         Chartwell's other operating subsidiaries are Dakota Specialty Insurance
Company  ("Dakota")  and  Drayton  Company  Limited  ("Drayton").  Dakota  is an
indirect  wholly-owned  subsidiary of Chartwell which was formed late in 1996 to
act as a non-admitted carrier writing surplus lines business.  Currently, Dakota
is approved to write  business on a surplus  lines basis in 21 states.  Drayton,
which was acquired by Chartwell in 1995, is a Bermuda-domiciled insurer which is
not  currently  writing new  business.  Chartwell is managing the  resolution of
Drayton's remaining claims and assets in a controlled winding up or "run-off" of
Drayton's old business.

History
         Chartwell Reinsurance was founded in 1979 as a wholly-owned  subsidiary
of Northwestern  National Life Insurance Company ("NWNL").  Chartwell was formed
in 1989 to act as the parent company of Chartwell Reinsurance,  and, in March of
1992,  Chartwell was acquired (the "1992  Acquisition") by an acquisition  group
including members of Chartwell's senior management.
         INSCORP  was  acquired  by  Chartwell  as a  result  of the  merger  of
INSCORP's former parent, Piedmont Management Company Inc. ("Piedmont"), with and
into Chartwell,  with Chartwell as the surviving corporation (the "Merger"). The
Merger was completed in December,  1995,  and upon  consummation  of the Merger,
Chartwell assumed all of Piedmont's  obligations  under its Contingent  Interest
Notes  due  2006  (the  "CI  Notes")  which  were  issued  by  Piedmont  to  its
stockholders just prior to the Merger.
         In November,  1996, Chartwell Holdings Limited ("Holdings Limited"),  a
newly-formed,  indirect  wholly-owned  subsidiary  of  Chartwell,  acquired (the
"Acquisition") the parent company of Archer,  Archer Group Holdings plc ("Archer
Holdings"), in a cash tender offer for all of the outstanding ordinary shares of
Archer  Holdings (the "Archer  Shares").  Archer Holdings was publicly traded on
the London Stock Exchange prior to the Acquisition.

Ratings
         Chartwell  Reinsurance  is rated "A"  (Excellent) by A.M. Best Company.
INSCORP and Dakota are both rated "A-"  (Excellent)  by A.M. Best  Company.  All
three  companies are assigned an A- claims paying  ability  rating by Standard &
Poor's. All of Archer's syndicates enjoy the benefit of the newly issued ratings
of Lloyd's,  which has been rated "A"  (Excellent)  by A.M. Best Company and has
been assigned an A+ claims  paying  ability  rating by Standard & Poor's.  These
ratings  are based upon  factors  that may be of  concern to policy or  contract
holders,  agents and  intermediaries,  but may not  reflect  the  considerations
applicable  to an equity  investment in a reinsurance  or insurance  company.  A
change  in any  such  rating  is at the  discretion  of  the  respective  rating
agencies.


                                       1
<PAGE>
Corporate Structure
         The  current  corporate   structure  of  Chartwell  and  its  principal
subsidiaries is as follows:

                               [GRAPHIC OMITTED]

Property and Casualty Reinsurance
         Reinsurance  is an  arrangement  in which  an  insurance  company,  the
reinsurer,  agrees to indemnify another insurance  company,  the ceding company,
for all or a portion of the insurance  risks  underwritten by the ceding company
under one or more insurance  policies.  Reinsurance can benefit a ceding company
in a number of ways,  including  reducing net  liability  exposure on individual
risks,   providing  catastrophe   protection  from  large  or  multiple  losses,
stabilizing financial results and assisting in maintaining  acceptable operating
leverage  ratios.  Reinsurance  also provides a ceding  company with  additional
underwriting  capacity by permitting it to accept larger risks and  underwrite a
greater  number of risks  without a  corresponding  increase  in its capital and
surplus.
         Reinsurance  is  contracted  either  through  treaties  or  facultative
certificates. A reinsurance treaty is an agreement whereby the ceding company is
obligated to cede, and the reinsurer is obligated to assume, a specified portion
or category of risk under all qualifying  policies  issued by the ceding company
during  the  term  of  the  treaty.  Facultative  reinsurance  arrangements  are
separately  negotiated for each insurance policy to be reinsured and result in a
facultative  certificate under which the ceding company cedes, and the reinsurer
assumes, all or part of the risk under a specific insurance policy.  Facultative
reinsurance is normally  purchased by insurance  companies for individual  risks
not  covered  under  reinsurance  treaties or for amounts in excess of limits on
risks  covered  under  reinsurance  treaties.  In  the  underwriting  of  treaty
reinsurance, the reinsurer does not evaluate each individual risk assumed, as it
must in the underwriting of facultative  reinsurance,  and generally accepts the
original underwriting decisions made by the ceding insurer.

          Both treaty and facultative reinsurance can be written on either a pro
rata (also known as quota share or proportional) or excess of loss basis.  Under
pro rata  reinsurance,  the reinsurer  indemnifies the ceding company against an
agreed upon portion or share of the losses and loss adjustment  expenses ("LAE")
incurred by the ceding company under the reinsured policy or policies.  Premiums
that the ceding  company  pays to the  reinsurer  for pro rata  reinsurance  are
proportional to the premiums that the ceding company  receives,  consistent with
the proportional sharing of risk, generally less a ceding commission. The ceding
commission  is  negotiated  between  the  reinsurer  and the  ceding  company to
reimburse  the  ceding  company  for  its  acquisition  costs  relating  to  the
underlying policies and may include a contingent component that varies depending
upon the loss  experience of the  underlying  business.  As a  consequence,  the
underwriting  results of the reinsurer may not parallel the underwriting results
of  the  ceding  company.  Under  excess  of  loss  reinsurance,  the  reinsurer
indemnifies the ceding company against all or a specified  portion of losses and
LAE on the reinsured  policy or policies in excess of a specified dollar amount,
known  as the  ceding  company's  retention  or  reinsurance  attachment  point,
generally  subject to a negotiated limit. Such reinsurance can cover losses from
a single risk or from a variety of risks in connection with a single  occurrence
(generally referred to as catastrophe  coverage).  Excess of loss reinsurance is
often written in multiple layers. One or a group of reinsurers typically assumes
that portion of the risk immediately above the ceding company's  retention up to
a specified  amount,  at which point  another  reinsurer or group of  reinsurers
assumes,  or the ceding company  retains,  the excess  liability.  The reinsurer
assuming the risk immediately above the ceding company's retention point is said
to write  working  layer (or low layer)  reinsurance.  A loss that is greater in
amount than the ceding company's  retention will result in a loss to the working
layer  reinsurer,  but may not  result  in a loss to the  reinsurers  on  higher
layers. Since the probability of loss for the reinsurer providing excess of loss
coverage  differs  from  that to which  the  ceding  company  is  subject,  such
reinsurance  coverage  is priced  separately  from the pricing set by the ceding
company with respect to its own risks. Reinsurers may also purchase reinsurance,
known as  retrocessional  reinsurance,  to cover  their own risks  assumed  from
primary  ceding  companies.  Reinsurance  companies  enter  into  retrocessional
agreements  for reasons  similar to those for which  ceding  companies  purchase
reinsurance.

                                       2
<PAGE>

Underwriting
         Underwriting  opportunities  presented to Chartwell are evaluated based
upon a number of  factors  including  an  historical  analysis  of  results,  an
estimation of future loss costs based upon an analysis of exposure,  a review of
other  programs  displaying  similar  exposure   characteristics,   the  primary
insurer's underwriting and claims experience and the primary insurer's financial
condition.
         In  general,  prior  to  authorization,  underwriting  submissions  are
reviewed by at least two  underwriters,  including  the manager of the  relevant
underwriting unit. Large,  complex or unusual  submissions are generally further
reviewed by senior management.

Client Segments
          Chartwell has organized its marketing and underwriting activities into
client  segments  differentiated  from one  another  based on the  nature of the
clientele  and  their  businesses  or  products.   Accordingly,   Chartwell  has
established five  underwriting  units,  four of which are focused on reinsurance
clients;  Specialty  Accounts,  Global  Accounts,  Regional  Accounts,  Marine &
Aviation  Accounts  and the fifth,  Controlled  Source  Insurance  Accounts,  is
dedicated to specialty  insurance program  opportunities.  Each unit consists of
specialized,  dedicated  underwriters who are supported by Chartwell's technical
resources  and  personnel,   including  its  actuarial,  claims  and  accounting
departments.  Chartwell employs a focused cycle management approach to marketing
and  underwriting  pursuant to which it seeks to  emphasize  different  types of
business during various phases of the underwriting  cycle.  During soft markets,
Chartwell concentrates on identifying and pursuing underwriting opportunities in
areas exhibiting  adequate profit potential and ceding additional  business upon
advantageous  terms.  During hard markets,  Chartwell's  general  strategy is to
expand its premium writings in all market segments.

         The table set forth below shows gross premiums  written by underwriting
client segment for the periods indicated:

                   Gross Premiums Written by Underwriting Client Segment
                           (Dollars in thousands)
                                           Year Ended December 31,
                             -------------------------------------------------
                                  1997             1996            1995
                             ---------------- ----------------  --------------
                                        % of              % of            % of
                              Amount    Total   Amount   Total   Amount  Total
                             --------- ------ --------- ------  -------- -----
Specialty Accounts .......... $140,965  38.9% $100,817  38.2 % $ 60,529   47.7%
Global Accounts..............
  Domestic...................   19,658   5.4    19,818   7.5     21,010   16.5
  International..............   22,723   6.3    24,120   9.2     17,400   13.7
                               ------- -----   -------  -----   -------  -----
Subtotal Global Accounts.....   42,381  11.7    43,938   16.7    38,410   30.2
Regional Accounts............   24,718   6.8    25,967    9.8    16,738   13.2
Marine & Aviation Accounts...   28,050   7.7    27,780   10.5    11,291    8.9
                               -------  ----   -------  ------  -------  -----
  Total Reinsurance..........  236,114  65.1%  198,502   75.2%  126,968  100.0%
                               -------  ----   -------  ------  -------  -----

Controlled Source Insurance
   Accounts..................  106,543  29.4    58,752   22.3
                               -------  ----   -------  -----

INSCORP Run-Off..............     --      --     6,584    2.5
                               -------  ----   -------  -----

Archer Dedicated Facilities..   20,113   5.5     --         --
                               -------  ----    ------  ------

Total........................ $362,770 100.0%  $263,838 100.0%
                              ======== ======  ======== ======


                                       3
<PAGE>
         The growth of 185.7% in gross premiums written for the period from 1995
to 1997 is due  principally to the addition of the Controlled  Source  Insurance
portfolio  and the  retention  of selected  INSCORP  reinsurance  contracts as a
result of the Merger, as well as the addition of premium income from Chartwell's
participation on Archer's syndicates through support of its Dedicated CCV's.

         Specialty Accounts.  Specialty Accounts primarily covers  non-standard,
non-traditional  risks  that  require  specialized   underwriting,   claims  and
actuarial  skills.  Currently,  these coverages  include  workers  compensation,
professional  liability,  directors'  and officers'  liability,  surety/fidelity
programs, non-standard automobile, accident & health, political risk, employment
practices  liability  and managing  general  agencies,  as well as coverages for
excess and surplus lines insurers and start-up companies. In addition, Specialty
Accounts writes business arising from the alternative risk transfer segment with
a particular  emphasis in the  professional  liability  and medical  malpractice
areas.
          Specialty  Accounts  represented  59.7%,  50.8%,  and  47.7%  of gross
reinsurance premiums written by Chartwell for the years ended December 31, 1997,
1996 and 1995,  respectively.  The alternative risk transfer business  accounted
for 7.5% and 11.5%, of gross  reinsurance  premiums written by Chartwell in 1997
and 1996,  respectively,  the  majority  of which was  written by the  Specialty
Accounts department.
         The table set forth  below  shows the  distribution  of gross  premiums
written for Specialty Accounts by line of business for the periods indicated:

                               Specialty Accounts
                   Gross Premiums Written by Line of Business
                             (Dollars in thousands)
                                         Year Ended December 31,
                           -----------------------------------------------------
                                1997              1996               1995
                           ----------------  ----------------  -----------------
                                     % of               % of              % of
                            Amount    Total   Amount    Total   Amount   Total
                          ---------- ------  --------  ------  --------  ------
Workers Compensation...... $ 67,550   47.9%  $ 27,477   27.3%  $    132    0.2%
Professional Liability....   25,134   17.8     21,642   21.5     24,910   41.2
Automobile Liability......   23,533   16.7     26,317   26.1     18,308   30.2
General Liability.........   14,580   10.3     14,176   14.1     12,505   20.7
Fidelity, Surety & Other..   10,168    7.3     11,205   11.0      4,674    7.7
                             ------    ---     ------   ----      -----    ---
Total..................... $140,965  100.0%  $100,817  100.0%  $ 60,529  100.0%
                           ========  =====   ========  =====   ========  =====

         Gross  premiums  written for  Specialty  Accounts  increased in 1997 by
39.8% over 1996.  Contributing  to this  growth was a  significant  increase  of
145.8% in the workers  compensation line of business.  Automobile  liability and
fidelity,  surety and other premiums decreased slightly in 1997 from 1996 due to
continued  competition in this line, while premiums associated with professional
liability  increased due to the expansion of relationships  with clients in this
area.
         Global  Accounts.   Global  Accounts  is  principally  engaged  in  two
activities.  Global Accounts  provides  reinsurance to large U.S. based domestic
insurance companies with $100 million or more in surplus which write business in
more than 10 states and writes specific  reinsurance  programs for international
ceding companies  including  reinsurance of select syndicates at Lloyd's and for
other insurers and reinsurers writing non-U.S. risks.
         Global  Accounts   represented   17.9%,   22.1%,  and  30.3%  of  gross
reinsurance premiums written by Chartwell for the years ended December 31, 1997,
1996, and 1995,  respectively.  For the years ended December 31, 1997,  1996 and
1995, 46.4%,  45.1%, and 54.7%,  respectively,  of the gross premiums written in
the Global  Accounts  client segment  represented  domestic  business and 53.6%,
54.9%, and 45.3%, respectively, represented international business.

                                       4
<PAGE>

         The table set forth  below  shows the  distribution  of gross  premiums
written for Global Accounts by line of business for the periods indicated:

                                 Global Accounts
                   Gross Premiums Written by Line of Business
                             (Dollars in thousands)
                                            Year Ended December 31,
                              --------------------------------------------------
                                    1997            1996             1995
                              --------------   --------------- -----------------
                                       % of             % of              % of
                              Amount   Total   Amount   Total    Amount   Total
                              ------   -----  -------  -----   ---------  -----
Property....................$ 18,802   44.4%  $ 17,755   40.4%  $ 19,526   50.8%
Automobile Physical Damage..  10,797   25.5     12,680   28.9      7,714   20.1
Automobile Liability........   6,818   16.1      8,904   20.3      7,417   19.3
General Liability...........   3,478    8.2      2,649    6.0      2,597    6.8
Other Casualty..............   2,486    5.8      1,950    4.4      1,156    3.0
                            --------  -----   --------  -----   --------   ----
Total.......................$ 42,381  100.0%  $ 43,938  100.0%  $ 38,410  100.0%
                            ========  =====   ========  =====   ========  ======

         In 1997,  Global  Accounts  recorded a 3.5%  decline in gross  premiums
written in response to the  persistence  of  competitive  conditions in both the
domestic and  international  markets.  Automobile  physical damage and liability
premiums  decreased  14.9%  and  23.4%,  respectively,  in 1997  reflecting  the
increase in competition worldwide.

         Regional  Accounts.  Regional  Accounts  includes  reinsurance  of  the
standard risks of insurance  companies that either operate in 10 or fewer states
or have a surplus of $100 million or less.  Gross  premiums  written in Regional
Accounts,  which  represented  10.5%,  13.1%,  and  13.2% of  gross  reinsurance
premiums  written by Chartwell for the years ended  December 31, 1997,  1996 and
1995, respectively,  decreased 4.8% from 1996 levels. This decrease reflects the
non-renewal of one relatively large program.
         The table set forth  below  shows the  distribution  of gross  premiums
written for Regional Accounts by line of business for the periods indicated:

                                Regional Accounts
                   Gross Premiums Written by Line of Business
                             (Dollars in thousands)
                                      Year Ended December 31,
                      -----------------------------------------------------
                            1997               1996            1995
                      -----------------  ---------------  ----------------
                                 % of              % of             % of
                        Amount   Total     Amount Total    Amount   Total
                      ---------  -----   -------- -----   -------   -----
Property.............. $ 11,027   44.6%  $ 11,023  42.5%  $  5,118   30.6%
General Liability.....   10,834   43.8      8,264  31.8      5,620   33.6
Workers Compensation..    1,621    6.6      3,698  14.2      3,138   18.7
Automobile Liability..    1,236    5.0      2,982  11.5      2,862   17.1
                       --------   ----   --------  ----   --------  -----
Total................. $ 24,718  100.0%  $ 25,967 100.0%  $ 16,738  100.0%
                       ========  =====   ======== =====   ========  =====

         General  liability  premiums  increased  31.1% in 1997 from 1996  while
property premiums were relatively flat year to year. All other lines of business
recorded  decreases in gross premiums  written of more than 50% in 1997 compared
to 1996, reflecting the non-renewal of one relatively large program.

         Marine  and  Aviation  Accounts.  Marine & Aviation  Accounts  includes
reinsurance of domestic and  international  ceding  companies,  managing general
agencies and select Lloyd's syndicates,  as well as Chartwell's participation in
certain marine & aviation pools. The majority of Chartwell's  marine reinsurance
business  is in the  bluewater  hull  and  energy  areas.  Chartwell's  aviation
business is derived  primarily from  reinsuring  general  aviation and satellite
business.  Business  emanating from INSCORP's  participation  in the marine pool
managed by Navigators Group, Inc. is also included in this client segment.
          Marine & Aviation Accounts  represented 11.9%, 14.0% and 8.9% of gross
reinsurance  premiums written during the years ended December 31, 1997, 1996 and
1995,  respectively.  Gross premiums written in Marine & Aviation  Accounts were
relatively flat from 1996 to 1997 reflecting the increasingly competitive market
conditions  in this  segment.  Marine  premiums  decreased  3.2%  in 1997  while
Aviation premiums increased 29.5%.

                                       5
<PAGE>
         The table set forth below  shows the  distribution  of gross  premiums
written  for Marine & Aviation  Accounts  by line of  business  for the  periods
indicated:

                           Marine & Aviation Accounts
                   Gross Premiums Written by Line of Business
                             (Dollars in thousands)

                                  Year Ended December 31,
                    ----------------------------------------------------
                          1997            1996               1995
                     --------------   --------------   -----------------
                              % of               % of             % of
                      Amount  Total    Amount   Total     Amount  Total
                     -------- -----   -------- ------   --------  -----
Marine.............. $ 23,472  83.7%  $ 24,245   87.3%   $ 5,034   44.6%
Aviation............    4,578  16.3      3,535   12.7      6,257   55.4
                      -------  ----   --------  -----    -------  -----
Total............... $ 28,050 100.0%  $ 27,780  100.0%   $ 11,291 100.0%
                      ======= =====   ========  ======   ======== =====

Mix of Reinsurance Business
         Chartwell  writes  excess of loss and pro rata  reinsurance  as well as
casualty  clash  and  property  catastrophe  coverages,  all on a treaty  basis.
Chartwell  typically  focuses  on  the  working  layers  of a  ceding  company's
reinsurance program.  Chartwell does not currently write facultative reinsurance
but may commence writing such coverages depending on market conditions.
         Chartwell's mix of reinsurance  business, on the basis of gross and net
reinsurance  premiums  written,  is set  forth in the  following  table  for the
periods indicated:
                                               Mix of Reinsurance Business
                                                  (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                 ---------------------------------------------------------------------------------------------
                                        1997                 1996               1995                1994             1993
                                 ------------------- ------------------  -----------------  ------------------ ------------------
                                  Amount  % of Total  Amount % of Total  Amount % of Total  Amount  % of Total  Amount  % of Total
                                --------- ---------- ------- ---------- ------- ----------  ------- ---------- -------  ----------
Gross Premiums Written
  Casualty:
<S>                               <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>      <C>         <C>
    Excess of Loss..............  $ 36,659   15.5%   $ 32,679   16.5%   $ 40,089   31.6%   $ 32,674   28.1%    $ 23,622    33.7%
    Pro Rata....................   134,495   57.0      94,223   47.5      41,570   32.7      43,328   37.2       28,542    40.7
    Clash.......................     1,983    0.8       1,816    0.8       2,704    2.1       3,498    2.9        1,710     2.4
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
  Total Casualty................   173,137   73.3     128,718   64.8      84,363   66.4      79,500   68.2       53,874    76.8
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
  Property:
    Excess of Loss..............    12,912    5.5       6,267    3.2       4,730    3.7       2,656    2.3        1,369     2.0
    Pro Rata....................    49,583   21.0      62,455   31.5      35,841   28.2      31,030   26.7       10,105    14.4
    Catastrophe.................       482    0.2       1,062    0.5       2,034    1.7       3,210    2.8        4,781     6.8
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
  Total Property................    62,977   26.7      69,784   35.2      42,605   33.6      36,896   31.8       16,255    23.2
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
    Total Gross Premiums Written. $236,114  100.0%  $ 198,502  100.0%  $ 126,968  100.0%   $116,396  100.0%    $ 70,129   100.0%
                                  ========  =====   =========  =====   =========  =====    ========  =====     ========   =====

Net Premiums Written
  Casualty:
    Excess of Loss..............  $ 35,413   17.4%   $ 32,567   18.6%   $ 40,043   32.5%   $ 32,680   28.7%    $ 23,797    34.1%
    Pro Rata....................   118,446   58.1      81,349   46.6      40,727   33.0      43,319   38.0       28,560    40.9
    Clash.......................     1,920    0.9       1,807    1.0       2,691    2.2       3,492    3.1        1,729     2.5
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
Total Casualty..................   155,779   76.4     115,723   66.2      83,461   67.7      79,491   69.8       54,086    77.5
                                  --------  -----    --------  -----    --------  -----    --------  -----     --------   -----
Property:
    Excess of Loss..............    11,456    5.6       5,941    3.4       4,440    3.6       2,476    2.2        1,223     1.8
    Pro Rata....................    36,251   17.8      51,978   29.8      33,667   27.3      28,928   25.4        9,859    14.1
    Catastrophe.................       472    0.2       1,016    0.6       1,746    1.4       3,067    2.6        4,659     6.6
                                  --------  -----    --------  -----     -------  -----    --------  -----      -------   -----
Total Property..................    48,179   23.6      58,935   33.8      39,853   32.3      34,471   30.2       15,741    22.5
                                 ---------  -----    --------  -----     -------  -----    --------  -----     --------   -----
    Total Net Premiums Written..  $203,958  100.0%  $ 174,658  100.0%   $123,314  100.0%   $113,962  100.0%    $ 69,827   100.0%
                                 =========  =====   =========  =====    ========  =====    ========  =====     ========   =====
</TABLE>


                                       6
<PAGE>
          Chartwell's  percentage  of  property  writings  in its overall mix of
business  decreased for the year ended December 31, 1997 as compared to the year
ended December 31, 1996, principally as a result of increased competition in the
property market.  Chartwell  increased the amount of pro rata casualty  business
written in 1997 over 1996 primarily as a result of opportunities associated with
workers compensation programs from specialty writers.
          During  the  year  ended   December  31,  1997,   Chartwell   received
approximately 48.4% of its gross reinsurance premiums written from six groups of
ceding  companies,  of which RISCORP National  Insurance  Company  accounted for
approximately  17.8%,  American  International Group accounted for approximately
7.9% through 21 treaties with 8 member companies,  Somerset Marine accounted for
approximately  6.3%, AON  Corporation  Group accounted for  approximately  5.7%,
Commercial Casualty accounted for approximately 5.5% and North Carolina Commerce
Fund  accounted  for  approximately  5.2%.  No other ceding  company or group of
affiliated  ceding  companies  accounted for more than 5% of  Chartwell's  gross
reinsurance  premiums  written for the year ended  December 31, 1997, and no one
reinsurance  treaty accounted for more than 18% of Chartwell's gross reinsurance
premiums written for such period.
          During  the  year  ended   December  31,  1997,   Chartwell   received
approximately 69.7% of gross reinsurance  premiums written from four reinsurance
brokers,  of which Guy Carpenter & Co., Inc. accounted for approximately  26.6%,
AON Reinsurance  Agency accounted for  approximately  23.3%,  Willis Faber North
America  accounted for  approximately  10.3% and E.W.  Blanch Co.  accounted for
approximately  9.5%. No other broker accounted for more than 5% of the company's
gross reinsurance premiums written for the year ended December 31, 1997.
     In  order  to  reduce  the  potential   adverse  effect  arising  from  the
termination of any specific business relationship, Chartwell seeks business from
a large number of reinsurance  brokers and ceding  companies.  While  management
believes  that its  relationships  with  these  reinsurance  brokers  and ceding
companies are  satisfactory,  the termination of all or a substantial  number of
these  relationships  could have a material  adverse  effect on the business and
operations of Chartwell.

Insurance Operations
         Controlled  Source  Insurance  Accounts.  Controlled  Source  Insurance
Accounts develops insurance programs through specialty production sources with a
focus on a  specific  line or  lines  of  business,  with a  limited  geographic
emphasis, and where the program  administrator's  compensation is adjusted based
on the underwriting results of the business.
         Controlled Source Insurance Accounts gross written premiums grew 81.3%,
9.8%,  and  12.6%  for the  years  ended  December  31,  1997,  1996,  and 1995,
respectively,  over the  prior  year.  The  increases  in  premium  reflect  the
geographic  expansion  of existing  programs as well as the  development  of new
programs  during  the  periods  shown.  Premiums  from the  automobile,  general
liability and  commercial  multiple  peril lines of business  increased  105.2%,
104.3%  and  46.6%,  respectively,  in 1997  over  1996.  In  addition,  workers
compensation and homeowners,  which were new lines of business in 1997, together
comprised 5.1% of the total  Controlled  Source Insurance gross written premiums
for 1997.
         The  table set  forth  below  shows  the  gross  premiums  written  for
Controlled Source Insurance Accounts by INSCORP for the periods indicated:

                      Controlled Source Insurance Accounts
                   Gross Premiums Written by Line of Business
                             (Dollars in thousands)
                                          Year Ended December 31,
                             ---------------------------------------------------
                                  1997             1996            1995(1)
                            ----------------  ----------------  ---------------
                                       % of              % of             % of
                              Amount   Total   Amount    Total   Amount   Total
                            --------- ------- --------   ------ --------  -----
Commercial Multiple Peril.. $  48,404   45.4%  $ 33,014   56.2% $ 25,196   47.1%
General Liability..........    30,418   28.6     14,889   25.3    15,506   29.0
Automobile.................    22,267   20.9     10,849   18.5    12,821   23.9
Workers Compensation.......     4,169    3.9       --      --       --      --
Homeowners.................     1,285    1.2       --      --       --      --
                             --------  -----    -------  -----  --------  -----
Total...................... $ 106,543  100.0%  $ 58,752  100.0% $ 53,523  100.0%
                            =========  =====   ========  =====  ========  ======
---------------------------------
(1) Under ownership by Piedmont


                                       7
<PAGE>

Archer Dedicated Facilities
         Classes of business  covered by  Archer's  syndicates  include  marine,
non-marine property, non-marine liability, aviation, motor and life. Chartwell's
participation  on Archer's  syndicates,  through its Dedicated CCV's amounted to
(pound)27.0 million ($44.6 million) in 1997. For 1997, Chartwell's participation
at Archer  represented 7.1% of Archer  syndicates' total  underwriting  capacity
with approximately 45.0% coming from other corporate capital providers and 47.9%
from traditional Names.

                  Archer Dedicated Corporate Capital Facilities
                Gross Premiums Written by Lloyd's Market Segment
                            (Dollars in thousands)(1)

                                       Year Ended December 31,
                                      ------------------------
                                                 1997
                                      ----------------------
                                        Amount    % of Total
                                      ---------- -----------
      Non-Marine.....................    $9,969    49.6%
      Motor..........................     7,445    37.0
      Aviation.......................     1,569     7.8
      Marine.........................       984     4.9
      Life...........................       146     0.7
                                       --------    -----
      Total..........................   $20,113    100.0%
                                       ========    =====
--------------------------------

  (1)  Business at Archer is conducted in pounds sterling. The dollar amounts
       shown here have been  converted  from  pounds  sterling at the rate of
       $1.6496=  (pound)1 which was the exchange rate published by Lloyd's at
       December 31,  1997.  Data is not shown for years prior to 1997 because
       Chartwell   acquired   Archer  in  November  1996,   and   Chartwell's
       consolidated   results   prior  to  1997  did  not   include   amounts
       attributable  to Archer.  All amounts are presented in accordance with
       U.S. GAAP.

  Retrocessional Arrangements
          Chartwell utilizes retrocessions  primarily to provide protection from
large or multiple losses and may in the future use additional  retrocessions  to
increase   underwriting   capacity.   Chartwell  seeks  to  establish  long-term
relationships with its leading  retrocessionaires in order to achieve continuity
and stability of coverage. Chartwell purchases property catastrophe coverage for
Global,  Regional and Specialty Accounts business to provide coverage for losses
arising from an  aggregation of claims under various  insurance  policies from a
single  event.  Chartwell's  current  property  catastrophe  program,  effective
January 1, 1998,  provides  100% coverage for $9.5 million of exposure in excess
of a $2.5 million retention.  In addition,  during 1997,  Chartwell  purchased a
property  catastrophe  program to protect  against an accumulation of losses for
Chartwell and INSCORP from the same event;  this program  provides 100% coverage
for $2.5  million of exposure in excess of a combined  $2.0  million  retention.
INSCORP  purchases  specific  reinsurance  programs  for  each  of the  programs
underwritten.
          Chartwell renewed its  retrocessional  marine program,  as of April 1,
1997, which provides $1.45 million of coverage, per risk or per event, in excess
of a $0.3 million retention.
          In 1997,  Chartwell  Reinsurance  and INSCORP  entered into  aggregate
excess of loss treaties with two reinsurers.  These treaties  provide  Chartwell
Reinsurance  and INSCORP with a layer of protection  against  adverse results in
all lines of business in excess of specified loss ratios.
          Since  Chartwell is  contingently  liable with respect to  reinsurance
ceded in the event  that a  retrocessionaire  is unable to meet its  obligations
assumed  under  a  retrocession  agreement,   the  financial  strength  of  each
retrocessionaire  is  evaluated.  As  of  December  31,  1997,  the  reinsurance
recoverable balance of Chartwell Reinsurance of $54.6 million is attributable to
retrocessional   arrangements  with  approximately  150  retrocessionaires.   At
December  31,  1997,  Chartwell  Reinsurance  had a  reserve  for  uncollectable
reinsurance of $3.4 million.
          As of  December  31,  1997,  the  reinsurance  recoverable  balance of
INSCORP of $182.5 million was attributable to  retrocessional  arrangements with
approximately 460 retrocessionaires. At December 31, 1997, INSCORP had a reserve
for uncollectable reinsurance of approximately $3.0 million.


                                       8
<PAGE>
Claims
         Chartwell's  Claims  Department  analyzes  loss  exposure  in  order to
establish case reserves,  pays claims and assists in the underwriting process by
reviewing the claims activities of prospective  ceding companies.  In performing
these functions,  the claims department  consults with Chartwell's  underwriting
and actuarial  departments.  The claims  department  also assists the accounting
department  in  reporting  Chartwell's  retrocessional  claims  and  in  seeking
collection of such claims on a timely basis.
         In evaluating loss exposure, Chartwell's Claims Department reviews loss
reports  received  from ceding  companies to confirm that  submitted  claims are
covered under the contract  terms,  establishes  reserves on an individual  case
basis and monitors the adequacy of such  reserves.  The  department  also tracks
industry  loss  activity  as  well  as  other  industry   trends  to  facilitate
management's evaluation of Chartwell's overall risk profile.  Chartwell also has
an  Environmental  Claims  Unit to evaluate  the  complex  toxic tort and latent
injury claims inherited through the Merger.

Reserves
         General.  A significant  period of time may elapse between each of: (i)
the  occurrence of an event  causing an insured loss;  (ii) the reporting of the
loss to the  ceding  company;  (iii)  the  reporting  of the loss by the  ceding
company to Chartwell;  (iv) the ceding  company's  adjustment and payment of the
loss;  and  (v)  payment  to the  ceding  company  by  Chartwell.  To  recognize
liabilities  for unpaid  losses,  Chartwell  establishes  loss and loss  expense
reserves which are balance sheet  liabilities  representing  estimates of future
amounts  needed to pay  claims  and  related  expenses  with  respect to insured
events.  Loss and LAE reserves have two components:  case loss and LAE reserves,
which are  estimates of future loss and LAE with respect to insured  events that
have been  reported to the  reinsurer,  and incurred  but not reported  reserves
("IBNR").  IBNR reserves are actuarially  determined and reflect (i) an estimate
of the  ultimate  loss amount that will be paid by the  reinsurer on claims that
have  occurred  but have not yet been  reported  to the  reinsurer  and (ii) the
expected  change in the value of those claims that have already been reported to
the reinsurer.
         When a claim is reported to the ceding  company,  its claims  personnel
establish a liability for the estimated  amount of the ultimate  settlement cost
of the reported claim. The estimate reflects the judgment of the ceding company,
based on the  experience  and knowledge of its claims  personnel,  regarding the
nature and value of the claim.  The ceding company may  periodically  adjust the
amount of case  reserves  as  additional  information  becomes  known or partial
payments are made.
         Upon notification of loss from a ceding company,  Chartwell establishes
case  reserves,  including LAE,  based upon  Chartwell's  share of the amount of
reserves   established  by  the  ceding  company  and  Chartwell's   independent
evaluation of the loss. Where appropriate,  Chartwell  establishes case reserves
in excess of its share of the reserves established by the ceding company.  These
reserves are periodically reviewed by Chartwell's claims department based on its
evaluation  of  reports  from  the  ceding  company  and its  audits  of  claims
activities of the ceding company.
         During the claims settlement period, which may extend over a protracted
period of time,  additional  facts regarding claims and trends may become known.
As Chartwell  becomes aware of new  information,  it may adjust its estimates of
its ultimate liability. The revised estimates of ultimate liability may prove to
be less than or greater than the actual settlement or award amount for which the
claim is finally discharged.

         Actuarial  Methods.  Chartwell  utilizes the two most common methods of
actuarial    evaluation    used    within   the    insurance    industry,    the
Bornhuetter-Ferguson    method   and   the   loss   development    method.   The
Bornhuetter-Ferguson  method involves the application of selected loss ratios to
Chartwell's earned premiums to determine estimates of ultimate expected loss and
LAE for each underwriting year. Multiplying expected losses by underwriting year
by a  selected  loss  reporting  pattern  gives  an  estimate  of  reported  and
unreported IBNR losses.  When the IBNR is added to the loss and LAE amounts with
respect  to claims  that have  been  reported  to date,  an  estimated  ultimate
expected loss results.  This method provides a more stable estimate of IBNR that
is insulated  from wide  variations in reported  losses.  In contrast,  the loss
development method extrapolates the current value of reported losses to ultimate
expected  losses by using selected  reporting  patterns of losses over time. The
selected reporting patterns are based on historical  information (organized into
loss   development   triangles)   and  are  adjusted  to  reflect  the  changing
characteristics of the book of business written by Chartwell.
         Chartwell employs a combination of both methods outlined above. For the
older years,  when reported  losses have generally  stabilized,  Chartwell gives
greater weight to the loss development  result.  For the more recent years, when
reported loss activity is either less reliable in the aggregate or non-existent,
Chartwell  gives  greater  weight to the  Bornhuetter-Ferguson  method.  Because
losses  are  reported  relatively  earlier  for  property  and other  short tail
coverages,   the  weighting  for  those  types  of  coverages  shifts  from  the
Bornhuetter-Ferguson  method to the loss development  method at an earlier point
than for casualty and other long tail coverages.
         In the reserve  setting  process,  Chartwell  includes  provisions  for
inflation  and "social  inflation" if  appropriate,  as losses are generally not
determined  until  some  time  in the  future.  Chartwell  continually  monitors
legislative  activity and  evaluates  the  potential  effect of any  legislative
changes on its reserve liabilities.

                                       9
<PAGE>

         Chartwell's  reserves  are  carried at the full  amount  estimated  for
ultimate  expected losses and LAE without any discount to reflect the time value
of money in accordance  with both  Statutory  Accounting  Practices  ("SAP") and
Generally Accepted Accounting Principles ("GAAP").
         Chartwell's   actuarial  department  regularly  performs  loss  reserve
analyses for  Chartwell  Reinsurance  and INSCORP.  Such loss  reserves are also
reviewed  by  Milliman &  Robertson,  Inc.  ("M&R"),  an  independent  actuarial
consulting firm, which prepared a Statement of Actuarial  Opinion as of December
31, 1997 for each of Chartwell  Reinsurance and INSCORP (the "M&R  Statements").
The M&R  Statements  were  prepared  solely for the use of and only to be relied
upon by  Chartwell  and the  various  state  insurance  departments  with  which
Chartwell files annual statements.  The M&R Statements were not prepared for the
use of investors.
          Chartwell  provides  capital to its Dedicated  CCV's which support the
underwriting capacity of the Lloyd's syndicates managed by Archer. Loss reserves
for this  business  are  established  using  methods  similar  to those  used by
Chartwell  Reinsurance  and INSCORP.  Archer,  a subsidiary  of  Chartwell,  has
engaged Bacon & Woodrow  London Market  Services Ltd.  ("B&W"),  an  independent
actuarial  consulting firm, to review the loss reserves and prepare an actuarial
opinion  for  each of  Archer's  syndicates,  including  the  actuarial  opinion
required by Lloyd's solvency regulations.  The B&W opinions,  which are prepared
solely  for the use of  Lloyd's  regulators  and are only to be  relied  upon by
Archer, assist Archer's syndicates in establishing appropriate reserve estimates
for both the reinsurance to close and the open years of account.
          Analysis of Reserve  Development.  The  following  table  presents the
development of reserves of Chartwell Reinsurance for losses and LAE for calendar
years 1987 through  1997.  The first line of the table sets forth the  estimated
liability for losses and LAE for claims  arising in each of the indicated  years
as recorded on the balance sheet of Chartwell Reinsurance as of the end of years
1987-1994, including IBNR. For the years ended December 31, 1995, 1996 and 1997,
the first line includes the consolidated  reserves of Chartwell  Reinsurance and
INSCORP.  For the year ended December 31, 1997, the first line also includes the
loss reserves associated with the capital provided by CWL to the Dedicated CCVs.
The upper portion of the table shows the  cumulative  amounts paid as of the end
of each  successive  year for such claims.  The bottom portion of the table also
shows the  re-estimated  amount of the previously  recorded  liability  based on
experience as of the end of each succeeding year, including cumulative payments.
The  estimates  are  readjusted  as more  information  becomes  known  about the
frequency and severity of claims for each year. A redundancy (deficiency) exists
when the original  liability  estimate is greater  (less) than the  re-estimated
liability at the end of a year. The cumulative redundancy  (deficiency) shown in
the table is the  aggregate  net  change in  estimate  over the  period of years
subsequent to the calendar year reflected at the top of the particular columns.
         In evaluating  the  information  in the table,  it should be noted that
each amount entered  incorporates  the effects of all changes in amounts entered
for prior periods. Thus, if the 1991 estimate for a previously incurred loss was
$150,000 and the loss was reserved at $100,000 in 1985,  the $50,000  deficiency
(later  estimate  minus original  estimate)  would be included in the cumulative
redundancy (deficiency) in each of the years 1987-1991 shown in table. It should
further  be noted  that the table  does not  present  accident  or  policy  year
development  data.  In addition,  conditions  and trends that have  affected the
development  of liability in the past may not  necessarily  recur in the future.
Accordingly,  it may not be appropriate to extrapolate  future  redundancies  or
deficiencies from the table.


                                       10
<PAGE>
                            Analysis of Loss and LAE
                               Reserve Development
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                 Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                              1987       1988      1989      1990      1991     1992     1993     1994    1995      1996    1997
                             --------  --------  --------  --------  -------- -------- -------- -------- --------  -------- --------
<S>                          <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>      <C>       <C>      <C>
Reserves for Loss and LAE(1) $135,818  $156,869  $130,939  $126,746  $126,292 $189,386 $201,013 $232,733 $741,467  $747,858 $788,240
Cumulative paid as of:
  One year later               15,557    39,084    15,946    19,745     9,074   31,354   30,085   46,363  157,172   196,470
  Two years later              51,108    53,101    34,928    26,338    24,227   49,686   57,368   73,462  255,876
  Three years later            62,624    69,914    40,622    39,933    37,935   68,147   73,926   90,999
  Four years later             76,432    75,034    52,514    52,436    51,135   78,135   84,281
  Five years later             79,158    86,463    63,479    62,922    56,822   84,402
  Six years later              88,789    97,020    72,347    68,070    60,207
  Seven years later            97,869   104,840    76,481    70,839
  Eight years later           105,579   108,913    78,808
  Nine years later            109,376   111,223
  Ten years later             111,772
Reserves re-estimated as of:
  One year later              135,624   158,048   129,333   125,919   126,926  192,496  204,094  233,738  754,286   758,748
  Two years later             137,539   156,185   128,655   127,627   126,193  192,363  206,965  232,964  764,432
  Three years later           134,107   155,224   132,406   128,740   127,102  194,876  205,369  229,253
  Four years later            136,649   161,868   132,783   129,707   127,459  193,369  201,458
  Five years later            143,223   159,912   133,112   129,989   126,004  188,594
  Six years later             142,078   160,195   132,474   129,996   122,525
  Seven years later           146,443   162,142   133,808   127,239
  Eight years later           149,830   163,268   131,627
  Nine years later            152,695   161,525
  Ten years later             151,299
Cumulative redundancy        $(15,481) $ (4,656) $   (688)  $  (493) $  3,767 $    792 $   (445) $ 3,480 $(22,965) $(10,890)
     (deficiency)
Cumulative %                   (11.4%)    (3.0%)    (0.5%)    (0.4%)     3.0%     0.4%    (0.2%)    1.5%   (3.1%)    (1.5%)
</TABLE>
----------------------------
(1)  Reserves for loss and LAE are presented net of reinsurance recoverables for
     the periods  1987 through  1991.  In 1992,  Chartwell  adopted SFAS No. 113
     which,  among other things,  requires  Chartwell to record its reserves for
     unpaid losses and LAE without reduction for amounts that would be recovered
     from  retrocessionaires.  The amount recoverable from  retrocessionaires is
     recorded as an asset on Chartwell's  balance  sheet.  The net of such asset
     and the reserves  for loss and LAE is $585.6,  $575.5,  $561.6,  $197.3 and
     $167.4 million at December 31, 1997, 1996, 1995, 1994 1993, respectively.

          Chartwell  Reisnurance  entered the property and casualty  reinsurance
market in 1979.  Because  Chartwell  Reinsurance  was a new  participant  in the
reinsurance  market,  the business  available to Chartwell  Reisnurance prior to
1986 was not of the same quality as that  available to more  established  market
participants  and  was  thus  subject  to  relatively  greater  loss  potential.
Chartwell  Reinsurance's  entrance into the market also occurred during a period
of  extreme  price  competition  when  the  industry  as a whole  underestimated
significantly  the  potential  for loss on  business  written.  Thus,  Chartwell
Reinsurance and the reinsurance  industry have experienced  considerable adverse
loss development for business written prior to 1986.
                                       11
<PAGE>
          In the latter part of 1984, Chartwell  Reinsurance began to strengthen
management  resources  and to  re-underwrite  its  business in order to position
itself  for  an  upturn  in  the  underwriting  cycle.  In  addition,  Chartwell
Reinsurance  established  an  internal  actuarial  function  at the end of 1986.
Deficiencies in balance sheet loss reserves in 1987 were affected  significantly
by  facultative  business  written prior to 1986 and an assumed  treaty from one
client that has been  commuted.  Deficiencies  arising from these two sources of
business for 1987 totaled $13.5 million. The remaining loss reserve deficiencies
have developed from casualty pro rata and casualty excess treaties. This adverse
development  is  attributable  primarily to business  written prior to 1985 when
policy forms did not typically limit coverages for latent  liabilities  relating
to asbestos and environmental pollution claims. After adjustment for the adverse
development  attributable to the two previously  described business sources, the
remaining balance sheet loss reserves have been relatively stable since December
31,  1987.  Net  reserves on accident  years  since 1987 have  developed  modest
redundancies or  deficiencies,  except for 1988 which has developed a redundancy
of approximately $11.0 million since the initial recording. The gross deficiency
of $10.9  million at December 31, 1997 becomes a net  redundancy of $2.1 million
after  accounting for reinsurance  recoverables.  The gross  deficiency of $12.8
million at December 31, 1996  becomes a net  redundancy  of $1.7  million  after
accounting  for  reinsurance  recoverables.   (See  Note  11  of  the  Notes  to
Consolidated Financial Statements contained herein)
          Commutations  of treaties and large loss payments  distort the payment
patterns  represented in the table. In 1989,  Chartwell  Reinsurance commuted an
assumed treaty for $18.0 million affecting calendar years from 1986 to 1989. The
commutation  ensured that no further adverse development on that treaty occurred
in subsequent  years.  In 1992,  Chartwell  Reinsurance  commuted a retrocession
arrangement  which  resulted  in a  reduction  of net paid  losses for the prior
calendar  years  of  $4.4  million.   In  1993,   Chartwell   Reinsurance   paid
approximately  $12.0 million in gross losses  related to  Hurricanes  Andrew and
Iniki. In 1995,  Chartwell  Reinsurance paid $10.9 million to settle three large
claims  from  business  written  prior to 1986 and to commute a group of assumed
contracts from business written prior to 1995.
         At December 31, 1997,  the GAAP basis  reserves,  before  reduction for
ceded  reinsurance,  were $788.2 million compared to SAP basis reserves,  before
reduction for ceded  reinsurance,  of $790.0  million.  The difference is due to
adjustments for foreign  currency  transactions.  At December 31, 1997, 1996 and
1995, GAAP basis reserves,  net of amounts  recoverable from  retrocessionaires,
were  $585.6,  $575.5  and $561.6  million,  respectively,  compared  to SAP net
reserves of $548.0,  $537.2 and $532.2  million,  respectively.  The differences
between  GAAP and SAP  amounts are due to the  implementation  of  Statement  of
Financial   Accounting   Standards  No.  113,   "Accounting  and  Reporting  for
Reinsurance  of  Short-Duration  and  Long-Duration  Contracts" ("SFAS" No. 113)
($39.5,  $39.5 and $36.1  million for 1997,  1996 and 1995,  respectively),  the
recognition  of  future  amounts  recoverable  under a  reserve  indemnification
agreement  entered  into by the  Company in 1992 (the  "Reserve  Indemnification
Agreement")($3.7  million  for  1995) and a foreign  exchange adjustment of $1.9
million, $1.2 million and $2.9 million in 1997, 1996 and 1995, respectively.
     Activity  for loss and loss  adjustment  expenses as of December  31, 1997,
1996 and 1995 is herein incorporated by reference to Note 11 of the consolidated
financial statements of Chartwell included elsewhere herein.
         Management  believes that Chartwell's  reserves are adequate.  However,
the process of  estimating  reserves is  inherently  imprecise  and  involves an
evaluation of many variables,  including  potentially  unpredictable  social and
economic  conditions.  Accordingly,  there can be no assurance that  Chartwell's
ultimate  liability  will not vary  significantly  from  amounts  reserved.  The
inherent  uncertainties  of estimating  such reserves are greater for reinsurers
than for primary insurers,  primarily due to the longer-term reporting nature of
the reinsurance business,  the diversity of development patterns among different
types of reinsurance, the necessary reliance on ceding companies for information
regarding  reported  claims  and  differing  reserving  practices  among  ceding
companies.  Reserves  also include  provisions  for latent  injury or toxic tort
claims that cannot be estimated with traditional reserving  techniques.  Because
of inconsistent court decisions in federal and state  jurisdictions and the wide
variation  among  insureds  with  respect  to  underlying  facts  and  coverage,
uncertainty  exists with  respect to these  claims as to  liabilities  of ceding
companies and,  consequently,  reinsurance  coverage.  Management  believes that
Chartwell  Reinsurance's  exposure to such latent losses is lessened  because of
its  relatively  recent  entry into the  reinsurance  business in 1979,  its low
historical  levels  of  premium  volume  prior  to 1985  and its  retrocessional
programs.  In addition,  management  believes that INSCORP's exposure to adverse
development  related to latent losses is lessened because a significant  portion
of the $25 million net reserve strengthening  recorded by INSCORP in 1995 was in
respect of such losses.  In addition,  the amount  payable  under the  Company's
Contingent  Interest  Notes due 2006 (the "CI Notes") is subject to reduction in
the event of such adverse reserve development.

                                       12
<PAGE>

     Reserves for Chartwell's  participation in Lloyd's  syndicates  through its
Dedicated CCV's are included in the 1997 year end reserves.  Part of the reserve
represents  reinsurance to close balances  brought  forward to the open years of
account (for  example,  1995  reinsured  into the 1996 open year).  Favorable or
unfavorable  development of the prior year's  reserves can influence the results
of the open years of 1996 and 1997. In September of 1996,  Lloyd's  successfully
concluded the  implementation of its Reconstruction and Renewal plan. As part of
the plan,  Equitas,  a new  reinsurance  company,  was  formed to  reinsure  all
liabilities  from 1992 and prior  underwriting  years. The Company believes that
the  formation of Equitas  along with its  engagement  of B&W have enabled it to
control  some of the  uncertainties  inherent in reserve  estimates.  There can,
however,  be no assurance  as to the adequacy of reserves and the risk of future
developments, both favorable and unfavorable, still remains.
     The  following  table  presents a  three-year  development  of  Chartwell's
reserves  for losses and LAE  associated  with  environmental  and other  latent
injury claims. All of the development relates to years prior to 1984.

                             Year Ended December 31,
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                        ---------------------------------------------------------------
                                               1997                   1996                1995
                                        -------------------   -------------------  -------------------
                                         Gross        Net       Gross       Net      Gross       Net
                                        --------    -------    -------   --------    -------  --------
<S>                                     <C>        <C>        <C>        <C>         <C>        <C>
Liability, beginning of year..........  $ 65,717   $ 46,958   $ 66,936   $ 46,450    $ 8,955    $ 4,942
Incurred during the year..............    19,851      8,660      9,482      6,538        723        469
Less amount paid during the year......    14,645      7,566     10,701      6,030        691        443
Purchased liabilities (1)............                                                 57,949     41,482
                                        ---------  --------   ---------  --------   --------  ---------
Liability, end of year...............   $ 70,923   $ 48,052   $ 65,717   $ 46,958   $ 66,936   $ 46,450
                                        ========== ========   =========  ========   ========= =========
Deficiency for year.................    $ 19,851    $ 8,660    $ 9,482    $ 6,538      $ 723      $ 469
                                        =========  ========   =========  ========   ========  =========
</TABLE>
-----------------------------------
(1)  Represents  liabilities  assumed as a result of the merger of Chartwell and
     Piedmont.

         At  December  31,  1997,  Chartwell  Reinsurance  carried  loss and LAE
reserves of $355.4  million  ($305.3  million after  reduction  for  reinsurance
recoverable),  of which $8.3 million  gross ($4.9  million  after  reduction for
reinsurance  recoverable),  were loss reserves and allocated LAE attributable to
asbestos claims and environmental  pollution  claims.  For the three years ended
December 31, 1997, the effect of asbestos and environmental pollution claims was
not material to Chartwell Reinsurance's results of operations.
         At December 31, 1997,  INSCORP  carried loss and LAE reserves of $425.5
million ($273.0 million after reduction for reinsurance  recoverable),  of which
$62.7 million ($43.2 million after reduction for reinsurance  recoverable)  were
case   reserves  and  allocated  LAE   attributable   to  asbestos   claims  and
environmental pollution claims.
          The 1997 net deficiency of $8.7 million for asbestos and environmental
reserves results from  development on business  underwritten by INSCORP prior to
the Merger  and,  therefore,  is subject to the  protection  provided  by the CI
Notes,  as  described  below.  However,  due to  the  favorable  development  on
non-asbestos  and  non-environmental  exposed  business  underwritten by INSCORP
prior to the  Merger,  there  was no net  adverse  development  on the  reserves
covered by the CI Notes for the year ended December 31, 1997.

         Reserve   Indemnification   Agreement.  In  connection  with  the  1992
Acquisition,  Chartwell entered into the Reserve Indemnification  Agreement with
NWNL and its parent company,  ReliaStar Financial Corporation ("RLR"),  pursuant
to which NWNL and RLR  agreed  jointly  and  severally  to provide to  Chartwell
limited  indemnification  and reimbursement  for adverse  development of the net
loss and LAE reserves and related accounts (the "Covered Reserves") of Chartwell
Reinsurance  for  accident  years  ending on or before  December  31,  1991 (the
"Covered  Years").   Pursuant  to  the  Reserve  Indemnification   Agreement  as
originally drafted, if Chartwell  Reinsurance's  Covered Reserves as of December
31,  1996 for the Covered  Years were  greater  than its Covered  Reserves as of
December  31,  1991,  RLR and NWNL would  jointly and  severally  indemnify  and
reimburse  Chartwell at that time in an amount equal to (i) 85% of the first $20
million of such  difference  in excess of $100,000 plus (ii) 60% of the next $10
million of such difference, up to a maximum amount of $23 million,  representing
18% of loss reserves as of December 31, 1991. If Chartwell Reinsurance's Covered
Reserves  as of  December  31,  1996 for the  Covered  Years  were less than its
Covered Reserves as of December 31, 1991,  Chartwell agreed to reimburse NWNL at
that time in an amount equal to fifty  percent (50%) of the first $10 million of
such difference in excess of $100,000, up to a maximum amount of $5 million. The
Reserve  Indemnification  Agreement,  which by its  terms  was  scheduled  to be
settled as of the end of 1996,  was settled early by mutual  agreement with RLR.
On June 28, 1996,  Chartwell  received $7.9 million as a final settlement of the
Reserve  Indemnification  Agreement.  The settlement  did not materially  affect
operating results for the year.


                                       13
<PAGE>
         Contingent  Interest Notes. Upon consummation of the Merger,  Chartwell
assumed all of  Piedmont's  obligations  under the CI Notes which were issued by
Piedmont  to its  stockholders  just prior to the  Merger.  The CI Notes,  which
mature on June 30, 2006,  are  designed to provide the Company  with  protection
against adverse development of INSCORP's reserves for losses and loss adjustment
expenses. In the event that there is no adverse development, the Company will be
required  to pay the  holders  of the CI  Notes  approximately  $55  million  in
contingent  interest.  This contingent interest payment is in addition to the $1
million  principal  amount of the CI Notes and interest on such principal amount
at 8% per annum  (collectively,  the "Fixed  Amount")  which the  Company in any
event must pay at maturity or earlier redemption of the CI Notes.
         In  general,  assuming  the CI  Notes  are  settled  at  maturity,  the
contingent interest will be equal to $55 million (a) less an amount equal to (i)
the amount of any adverse  development  of the loss and LAE reserves and related
accounts  (including certain reinsurance  recoverable,  commissions and unearned
premiums) of INSCORP recorded as of March 31, 1995, minus (ii) $25 million,  (b)
plus the amount of certain tax  benefits  received or recorded by Chartwell as a
result of the amount  determined  pursuant  to clause  (a) above.  The amount so
calculated  may not be greater  than $55 million nor less than a minimum  amount
equal to the  lesser of (a) $10  million  less the Fixed  Amount and (b) the tax
benefits  referred to above. In the event that the CI Notes are settled prior to
maturity,  the  foregoing  formula  will in general  apply,  except that the $55
million maximum amount of the CI Notes will be reduced to an amount equal to $55
million  discounted  back from June 30, 2006 at a discount rate of 8% per annum,
compounded  annually,  and the tax benefits  will be  calculated in a prescribed
manner.
         The  carrying  value  of  the  CI  Notes  on  Chartwell's  consolidated
financial  statements at December 31, 1997 was $29.7 million,  representing  the
sum of the aggregate  principal  amount of the CI Notes and the present value as
of such date of the  maximum  amount of  contingent  interest  payable on the CI
Notes at their  stated  maturity in 2006.  During the term of the CI Notes,  the
discounted carrying value of the CI Notes will be increased to reflect accretion
of (i)  interest  on the  principal  amount and (ii) the  discounted  contingent
interest.   To  the  extent  that  adverse  development  of  INSCORP's  reserves
(including  IBNR reserves)  occurs prior to the maturity or redemption of the CI
Notes,  the  contingent  interest  payable  on the CI Notes (and  therefore  the
then-current  carrying value of such CI Notes) will be reduced.  Such reductions
in the  carrying  value of the CI Notes would  offset in part,  in the period in
which such adverse  development  occurs,  any reduction in Chartwell's  GAAP net
income and stockholders'  equity resulting from such adverse reserve development
(which would, however,  still be reflected in Chartwell's statutory underwriting
results and in the  policyholders'  surplus of INSCORP and, if INSCORP continues
to be a subsidiary thereof, of Chartwell Reinsurance).
         At its option,  Chartwell may settle the CI Notes with shares of Common
Stock of Chartwell instead of payment of cash. For purposes of settlement of the
CI Notes, such Common Stock would be valued at 85% of its average closing market
price over a specified period prior to the settlement date.  However,  Chartwell
may not settle the CI Notes in Common Stock unless (i) such stock is  registered
under the Securities Act (or is otherwise freely tradeable other than by certain
affiliates  of  Chartwell),  (ii) such stock is listed on a national  securities
exchange  or NASDAQ  and (iii) all CI Notes are  settled in such  Common  Stock.
Moreover,  Chartwell may not settle the CI Notes in Common Stock if the CI Notes
are being  settled  following  acceleration  thereof  due to an event of default
under the CI Notes.

Investments
         Chartwell's  investment  policies are  established  and approved by its
Board of  Directors.  Chartwell's  investment  policy is to maintain a portfolio
with an average rating of A or better from Moody's and to retain such securities
for sale in response to changes in interest rates and liquidity needs.  However,
it is not Chartwell's  policy to sell securities  merely to generate  profits on
short-term differences in price. The performance of Chartwell's advisors and the
fees associated  therewith are periodically  reviewed by both management and the
Board of Directors of Chartwell.  Investments by Chartwell Reinsurance,  INSCORP
and Dakota must comply with the insurance  laws of the States of Minnesota,  New
York and North Dakota, their respective domiciliary states.
         Chartwell's investment portfolio consists primarily of investment-grade
fixed maturity debt securities. As of December 31, 1997, approximately  92.5% of
the bond portfolio was rated A or better by Moody's.

                                       14
<PAGE>

         The  following  table  summarizes  the  investments  of  Chartwell  (at
carrying value):

                       Composition of Investment Portfolio
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                               December 31,
                                                   -------------------------------------------------------------------
                                                           1997                   1996                     1995
                                                   ---------------------  ---------------------  ---------------------
                                                     Amount   % of Total    Amount   % of Total   Amount    % of Total
                                                   ---------- ----------  ---------- ----------  ---------- ----------

Fixed Income Securities
<S>                                                 <C>          <C>      <C>           <C>       <C>          <C>
  Corporate.......................................  $ 225,587    30.8%    $ 200,899     29.8%     $ 199,068    36.2%
  U.S. Government and Government Agency (1).......    240,226    32.8       249,416     37.0        251,373    45.7
  Obligations of States and Political Subdivisions    161,544    22.1       134,769     20.0         50,715     9.2
  Foreign Government and Government Agency........     28,867     3.9        23,807      3.5         14,642     2.7
  Redeemable Preferred Stocks.....................     38,379     5.2        33,773      5.0
Other(2)..........................................     38,043     5.2        30,896      4.7         33,837     6.2
                                                    ---------  ------     ---------    -----       --------   -----
Total Investments.................................  $ 732,646   100.0%     $ 673,560   100.0%     $ 549,635   100.0%
                                                    =========  ======     =========    =====      =========   =====
Cash & Cash Equivalents(3)........................  $  31,607             $  51,134               $ 155,813
                                                    =========             =========               =========
</TABLE>
______________________________
(1)  At December 31, 1997, 1996 and 1995, $107.1,  $170.2, and $151.8 million of
     these  securities  were  backed by the full  faith  and  credit of the U.S.
     Government  and $133.1,  $79.2,  $99.6 million were  obligations of issuing
     agencies.
(2)  Other investments include equity securities and partnership  interests.  In
     1996, Chartwell made a commitment to invest $15 million in a private equity
     fund, High Ridge Capital Limited  Partnership,  which makes  investments in
     the insurance  industry.  Chartwell has contributed a total of $3.8 million
     to this fund as of December 31, 1997.
(3)  In the period  between August 7, 1995 and December 13, 1995, the management
     of Piedmont  began selling  investments  that would not be compatible  with
     Chartwell's  investment  policy.  The proceeds  from these sales along with
     other operating cash flows were invested in cash  equivalent  securities to
     allow  Chartwell a maximum amount of flexibility to reinvest these funds in
     a manner consistent with its investment policy.

         The following table reflects  investment  results for Chartwell for the
periods indicated:

                              Investment Results(1)
                             (Dollars in thousands)

                                               Year Ended December 31,
                                        -------------------------------------
                                           1997         1996         1995
                                       ------------ -----------  ------------
Average Invested Assets................ $ 734,149    $ 727,903    $ 299,307
Net Investment Income (2).............. $  43,575    $  44,089    $  19,907
Net Effective Yield (3)................       5.9%         6.1%         6.7%
Net Realized Capital Gains (Losses).... $     (3)    $   1,157    $   3,199
Effective Yield Including Realized.....
      Capital Gains (Losses)(4)........       5.9%         6.2%         7.7%

------------------------------------------
(1)  Because the Merger was completed in December 1995,  the foregoing  table of
     Investment Results does not include invested assets or investment income of
     INSCORP for 1995.
(2)  After  investment   expenses,   excluding  net  realized  investment  gains
     (losses).
(3)  Net investment  income for the year-end period divided by average  invested
     assets for the same period.
(4)  Net  investment  income for the year-end  period plus net realized  capital
     gains  (losses) for the period divided by average  invested  assets for the
     same period.

                                       15
<PAGE>

          The following  table  indicates the  composition of  Chartwell's  bond
portfolio (at carrying value), excluding cash and cash equivalents, by rating:

                          Composition of Bond Portfolio
                                  By Rating (1)
                             (Dollars in thousands)

                                                  December 31, 1997
                                         -------------------------------
                                             Amount             Percent
                                         ----------------   ------------
U.S. Government and Government
     Agency Fixed Income Securities......     $ 240,226         34.6%
Aaa/Aa...................................       244,101         35.1
A/Baa....................................       207,361         29.9
Ba.......................................         2,915          0.4
                                              ---------        -----
      Total.............................      $ 694,603        100.0%
                                              =========        =====
___________________
(1)  Rating as assigned by Moody's. Such ratings are generally assigned upon the
     issuance of the  securities and subject to revision on the basis of ongoing
     evaluations.  Ratings  in the  table  are as of the date  indicated.  Those
     government  guaranteed  securities that are specifically rated are included
     in the appropriate rating category.

         Moody's  rating  system  utilizes nine symbols to indicate the relative
investment quality of a rated bond. Aaa rated bonds are judged to be of the best
quality and are considered to carry the smallest  degree of investment  risk. Aa
rated bonds are also  judged to be of high  quality by all  standards.  Together
with Aaa bonds,  these bonds  comprise  what are  generally  known as high grade
bonds.  Bonds  rated A possess  many  favorable  investment  attributes  and are
considered to be upper medium grade obligations.  Baa rated bonds are considered
as medium  grade  obligations;  they are  neither  highly  protected  nor poorly
secured.  Bonds rated Ba or lower (those rated B, Caa, Ca and C) are  considered
to be too speculative to be of investment quality.
          National  Association of Insurance  Commissioners  ("NAIC") investment
ratings are provided annually at December 31 of each year. At December 31, 1997,
89.8% of Chartwell's  fixed maturity  investments were rated "Class 1," and 9.8%
of Chartwell's fixed maturity  investments were rated "Class 2," the two highest
ratings assigned by the NAIC.

          The following  table  indicates the  composition of  Chartwell's  bond
portfolio (at carrying value) by time to maturity (1)(dollars in thousands):

                                                December 31, 1997
                                         ----------------------------
                                            Amount          Percent
                                         -------------   ------------
1 year or less..........................     $ 21,950          3.2%
Over 1 year through 5 years.............      189,817         27.3
Over 5 years through 10 years...........      186,657         26.9
Over 10 years through 20 years..........       43,743          6.3
Over 20 years...........................       83,918         12.1
Mortgage backed securities..............      168,518         24.2
                                              -------         ----
          Total.........................    $ 694,603        100.0%
                                            =========        =====

(1) Based on stated maturity dates with no prepayment assumptions.

          Certain  mortgage  backed  securities are subject to prepayment  risk.
Mortgage backed securities  represent 22.0% of Chartwell's total investments and
cash and 24.2% of  Chartwell's  bond  portfolio  at December  31,  1997.  During
periods of significant  interest rate volatility,  the underlying  mortgages may
prepay more  quickly than  anticipated.  If the  repayment  of principal  occurs
earlier than anticipated during periods of declining interest rates,  investment
income may decline due to the  reinvestment  of these funds at the lower current
market  rates.  The risk is similar to  corporate  bonds being  called  prior to
maturity  due to lower  interest  rates.  Management  does not believe  that the
prepayment  risk  associated  with  Chartwell's  portfolio  of  mortgage  backed
securities is significant.

                                       16
<PAGE>
         The  following   table  sets  forth  certain   information   concerning
Chartwell's mortgage backed investments:

              Distribution of Mortgage Backed Securities Portfolio
                                   By Type (1)
                             (Dollars in thousands)
                                                    December 31, 1997
                                        -------------------------------------
                                         Estimated
                                           Market     Amortized
                                           Value       Cost       Par Value
                                         ---------  -----------  ------------
Collateralized Mortgage Obligations...   $  31,667   $  31,559     $  32,211
Pass-throughs (primarily GNMA,
      FNMA and FHLMC).................     136,851     135,253       134,199
                                         ---------   ---------     ---------
Total.................................   $ 168,518   $ 166,812     $ 166,410
                                         =========   =========     =========
____________________________
(1)  At  December  31,  1997,  agency  backed  securities  represented  95.0% of
     Chartwell's  mortgage backed investments.  Other mortgage backed securities
     represented  5.0%. These other mortgage backed  securities are rated either
     Aaa or A as  assigned  by  Moody's.  Such  ratings  equate  with the NAIC's
     Securities  Valuation  Office  ("SVO")  rating Class 1 which is the highest
     rating category used by the SVO.

Competition
         The   reinsurance  and  insurance   business  is  highly   competitive.
Competition  with  respect to the types of  reinsurance  and  insurance in which
Chartwell  is  engaged  is based on many  factors  including  perceived  overall
financial  strength of the insurer,  ratings of the insurer by A.M. Best Company
and Standard & Poor's, underwriting expertise,  reputation and experience in the
lines written,  premiums charged,  other terms and conditions of the reinsurance
offered, services offered, and speed of claims payments.
         Chartwell competes with numerous international and domestic reinsurance
and insurance  companies.  These  competitors,  many of which have substantially
greater  financial  and staff  resources  than  Chartwell,  include  independent
reinsurance  companies,  as  well as  subsidiaries,  affiliates  or  reinsurance
departments  of established  insurance  companies and  underwriting  syndicates.
Chartwell  competes  directly with other broker market  reinsurers  for business
obtained  through  reinsurance  brokers and,  because  reinsurance  brokers must
compete with direct writers for business from ceding  companies,  Chartwell also
competes indirectly with direct writers.
         While the  reinsurance  industry has  traditionally  had relatively low
barriers to entry,  the reinsurance  industry,  including the broker market,  is
undergoing  consolidation.  Management believes that in the next few years fewer
reinsurance  brokerage  firms will place a greater  proportion  of the  brokered
business. In addition,  because of concerns regarding financial security and the
ease of administration,  reinsurance brokers will also seek to reduce the number
of reinsurance companies with which they place business.  Chartwell's management
believes that, as a consequence, a reinsurer's relative financial strength will,
in the future, be of greater importance as a competitive factor.
         Chartwell may, in the future,  face additional  competition  from other
well-capitalized  companies or from market participants that may, in the future,
devote more of their capital to the reinsurance business.

Insurance Regulation
         General.  Chartwell Reinsurance,  INSCORP and Dakota are subject to the
insurance  laws  and  regulations  of  Minnesota,  New York  and  North  Dakota,
respectively, their domiciliary states, and to administrative supervision by the
regulatory  authorities of such states. In addition,  each is subject to similar
laws,  regulations and supervision in the various states in which it is licensed
or  authorized  to  transact  business,   primarily  with  regard  to  solvency,
accounting practices, reports on financial condition and operations, investments
and reserves.  Under state insurance law,  property and casualty  reinsurers and
surplus lines  insurers are generally not subject to filing or other  regulatory
requirements  applicable to primary insurers with respect to rates, policy forms
or contract  wording.  Licensed  insurers such as INSCORP are required to comply
with all  applicable  filing or  regulatory  requirements.  In  supervising  and
regulating insurance companies,  including reinsurers,  state agencies,  charged
primarily with  protecting  policyholders  and the public rather than investors,
enjoy broad authority and discretion in applying  applicable  insurance laws and
regulations for the protection of policyholders and the public.

         Insurance Holding Company Systems Regulations.  Chartwell  Reinsurance,
INSCORP and Dakota and their  affiliates  are subject to regulation  pursuant to
the insurance holding company systems statutes of Minnesota,  New York and North
Dakota.  While the insurance  holding company systems laws and regulations  vary
from state to state,  they generally  require an insurance  holding  company and
insurers and  reinsurers  that are members of such insurance  holding  company's
system to register  with the state  regulatory  authorities,  to file with those
authorities  certain  reports  disclosing


                                       17
<PAGE>

information including their capital structure,  ownership,  financial condition,
certain  intercompany  transactions  including  material transfers of assets and
intercompany  business  agreements,  and to  report  material  changes  in  such
information.  Such laws may also require that intercompany  transactions be fair
and reasonable and that an insurer's  policyholder  surplus following a dividend
distribution to affiliated stockholders be adequate to meet its financial needs.
         In general,  state  insurance  holding  company  systems  statutes also
require  prior notice to, or regulatory  agency  approval of, direct or indirect
changes in control  of  ownership  of a  domestic  insurer or  reinsurer.  Under
Minnesota, New York and North Dakota law, no person, corporation or other entity
may acquire, directly or indirectly, a controlling interest in the capital stock
of a domestic  insurer or  reinsurer  unless such person,  corporation  or other
entity  has  obtained  prior  approval  from the  insurer's  domestic  regulator
("Regulator")  for such acquisition of control.  Pursuant to the Minnesota,  New
York and North Dakota insurance  holding company systems  statutes,  any person,
corporation or other entity acquiring,  controlling or holding with the power to
vote, directly or indirectly, ten percent or more of the voting securities of an
insurance company (or reinsurer), is presumed to have "control" of such company.
The party may rebut this  presumption  by filing with the Regulator a disclaimer
of affiliation.  Other  jurisdictions  where Chartwell  Reinsurance,  INSCORP or
Dakota are licensed to transact  business may have similar  requirements  for an
acquisition of control of insurers or reinsurers  licensed or authorized in such
jurisdictions.   Additional  requirements  in  such  jurisdictions  may  include
relicensing  or  subsequent  approval for renewal of existing  licenses  upon an
acquisition of control.

         Restrictions on Dividends.  The principal source of funds for servicing
debt of the Company and paying dividends to stockholders of Chartwell is derived
from  receipt of  dividends  from its  insurance  subsidiaries.  While  dividend
restrictions  vary from state to state,  they  generally  require  insurers  and
reinsurers  to pay  dividends  only from  earned  surplus,  which is  defined as
unassigned  funds  (surplus) as reported in the  statutory  financial  statement
filed by the insurer or reinsurer with the Regulator for the most recent period.
Subject to such  constraints,  the  insurer or  reinsurer  may  declare  and pay
non-extraordinary  dividends,  subject to  certain  notice  requirements  to the
Regulator, and extraordinary dividends to stockholders subject to certain notice
and approval requirements by the Regulator.  Lastly, with respect to payments of
all  dividends  to  affiliated  shareholders,  following  the  payment of such a
dividend, an insurer's or reinsurer's  policyholders' surplus must be reasonable
in relation to its outstanding liabilities and adequate for its financial needs.
See Item 7,  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations--Liquidity and Capital Resources."
          On  November 25, 1997,  Chartwell  Reinsurance  paid  a  $3.0  million
dividend to Chartwell Re Holdings Corporation ("Re Holdings"). No dividends were
paid in 1996 or 1995.

          Investment Limitations. State insurance laws and regulations prescribe
the kind,  quality and  concentration  of investments  that are  permissible for
insurance  and  reinsurance  companies  domiciled in such state.  The purpose of
these laws is to protect the interests of  policyholders,  claimants,  creditors
and the general public by promoting the safety, yield and growth of an insurance
company's  investment  principal,  the liquidity necessary to meet the insurance
company's expected business needs, and investment diversification.  For example,
under Minnesota,  New York and North Dakota law, non-life  insurance  companies,
such as Chartwell  Reinsurance,  INSCORP and Dakota are  authorized to invest in
specifically  prescribed  investments.   Subject  to  certain  conditions,  such
investments include federal,  state and municipal government  obligations,  bank
obligations,  obligations and stocks of corporations and business  trusts,  real
estate and  mortgages on real estate,  collateral  loans,  options,  foreign and
other investments.  Such investment obligations,  however, may not be in default
as to payments of principal  and interest.  Property and casualty  insurance and
reinsurance  companies are subject to risk-based  capital guidelines which could
influence  investment   decisions.   See  "Risk-Based  Capital."  Management  of
Chartwell  believes  that  Chartwell  Reinsurance,  INSCORP  and  Dakota  are in
compliance  with all applicable  state  insurance  investment  laws for non-life
insurance companies.

         Regulatory  Examinations.  The  business  and  operations  of Chartwell
Reinsurance,  INSCORP  and Dakota are  subject to  periodic  examination  by the
insurance  departments  of the  jurisdictions  in  which  each  is  licensed  or
authorized to transact business.  The Regulators have broad authority to conduct
examinations  at any time.  The  report  made with  respect  to the most  recent
periodic  examination of Chartwell  Reinsurance is dated as of December 31, 1994
and contained no material adverse findings. The most recent periodic examination
of  INSCORP  was as of  December  31,  1993,  and  the  report  related  to such
examination has not yet been released.  The most recent report of examination of
Dakota is dated as of  November  21,  1996 and  contained  no  material  adverse
findings.

         Risk-Based  Capital.  In order to  enhance  the  regulation  of insurer
solvency,  the NAIC adopted risk-based capital ("RBC") requirements for property
and casualty insurance and reinsurance companies commencing with filings made in
1995  covering  the 1994 year.  These RBC  requirements  are designed to monitor
capital  adequacy and to raise the level of protection  that  statutory  surplus
provides for  policyholders.  The RBC formula  measures four major areas of


                                       18
<PAGE>

risk facing property and casualty insurers:  (i) underwriting risk, which is the
risk of errors in pricing and  reserves;  (ii) asset risk,  which is the risk of
asset  default  for fixed  income  assets  and loss in market  value for  equity
assets;  (iii)  credit  risk,  which is the risk of  losses  from  unrecoverable
reinsurance and the inability of insurers to collect agents'  balances and other
receivables;  and (iv)  off-balance  sheet  risk,  which is  primarily  the risk
created by excessive  growth.  Insurers  and  reinsurers  having less  statutory
surplus than that required by the RBC formula will be subject to varying degrees
of regulatory action depending on the level of capital inadequacy.
         The  RBC  formula  provides  a  mechanism  for  the  calculation  of an
insurance company's Authorized Control Level RBC and its total adjusted capital.
The  formula  sets  forth the points at which a  commissioner  of  insurance  is
authorized and expected to take regulatory  action.  The first level is known as
the Company Action Level RBC, which is set at twice the Authorized Control Level
RBC. The second level is the  Regulatory  Action Level RBC, set at 1.5 times the
Authorized Control Level RBC. The third is the Authorized Control Level RBC, and
the  fourth  is the  Mandatory  Control  Level  RBC,  set at 70  percent  of the
Authorized Control Level RBC.
         If an insurance  company's  adjusted capital is higher than or equal to
the  Regulatory  Action  Level RBC but below the Company  Action  Level RBC, the
insurance company must submit to its commissioner of insurance an RBC plan which
shall  contain,  among other  things,  proposals  of  corrective  action.  If an
insurance  company's  adjusted capital is higher than or equal to the Authorized
Control  Level  RBC  but  lower  than  the  Regulatory  Action  Level  RBC,  the
commissioner  of insurance  shall perform any  examination or analysis as deemed
necessary of the insurer's  business and  operations  and issue any  appropriate
corrective orders to address the insurance company's  financial problems.  If an
insurer's  adjusted  capital is higher  than or equal to the  Mandatory  Control
Level RBC but lower than the Authorized  Control Level RBC, the commissioner may
place the insurer under regulatory  control. If the insurance company's adjusted
capital falls below the Mandatory  Control Level RBC, the  commissioner  will be
required to place the insurer under  regulatory  control.  At December 31, 1997,
the  adjusted  capital of each of Chartwell  Reinsurance  and INSCORP was higher
than the Company  Action Level RBC,  and as a result,  no  regulatory  action is
required.  Should a future  deficiency  occur,  Chartwell  will be subject to an
increased  level  of  regulatory   attention  and,   depending  on  the  capital
deficiency,   possibly  to  actual   control  by  the   appropriate   regulatory
authorities.  There can be no assurance that any such  deficiency will not occur
in the future.

NAIC-IRIS Ratios
         The  NAIC's  Insurance  Regulatory   Information  System  ("IRIS")  was
developed by a committee of state insurance regulators and is primarily intended
to assist state insurance  departments in executing their statutory  mandates to
oversee the  financial  condition  of  insurance  companies  operating  in their
respective  states.  IRIS  identifies 11 industry  ratios and  specifies  "usual
values" for each ratio. Departure by an insurer from the usual values on four or
more of the ratios  generally leads to inquiries from individual state insurance
commissioners as to certain aspects of such insurer's business. Departure from a
usual value does not  necessarily  indicate an adverse  condition,  but rather a
deviation from the norm.
         For the year ended  December 31, 1997,  Chartwell  Reinsurance  did not
fall outside the range of usual IRIS values with  respect to any ratio.  For the
year ended  December  31,  1997,  INSCORP  fell  outside the range of usual IRIS
values with respect to the Change in Net Writings ratio,  due to the non-renewal
of its reinsurance portfolio.

Employees
         As of December 31, 1997,  Chartwell  had 519  employees,  including the
employees of its subsidiary, Archer. None of these employees is represented by a
labor union, and Chartwell believes that its employee relations are excellent.

Item 2.  Properties.
         Chartwell  leases  approximately  53,000  square  feet of space for its
principal  executive  offices in Stamford,  Connecticut.  Chartwell  also leases
approximately 68,000 square feet of space in London,  England for the operations
of Archer.  INSCORP is located in  Jericho,  New York,  occupying  approximately
1,150  square feet of office  space.  Management  believes  Chartwell's  current
office space is adequate for its needs.

Item 3.  Legal Proceedings.
          Chartwell,  Chartwell  Reinsurance,  INSCORP and Archer are subject to
the  litigation  of  disputes  and  arbitration  in the  normal  course of their
business.  Chartwell does not believe that any pending litigation or arbitration
to which it is a party, or of which any of its properties or assets are subject,
is likely to have a materially  adverse effect on its current financial position
or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders.
         There were no matters  submitted to a vote of security  holders  during
the fourth quarter of 1997.


                                       19
<PAGE>
                                    PART II

Item 5. Market for the Registrant's Common Stock
        and Related Stockholder Matters.
          As of August 29, 1996, the Company's common stock,  $.01 par value per
share,  commenced  trading on the New York  Stock  Exchange  ("NYSE")  under the
symbol  "CWL."  Prior to such date,  the  Company's  common  stock traded on the
NASDAQ National Market  ("NASDAQ")  under the symbol "CWLR." The following table
sets forth for the periods  indicated  the high and low closing sales prices per
share of the  Company's  common  stock as reported by the NYSE for  consolidated
transactions  or, as  appropriate,  by NASDAQ on its national  market  reporting
system. On March 24, 1998 the last reported sales price of the Company's  common
stock on the NYSE was $33.1250 per share.

 Fiscal year ending December 31, 1997:        High              Low
                                              ----              ---
  Fourth Quarter                             $35.6875         $30.5000
  Third Quarter                               36.0000          29.7500
  Second Quarter                              30.0000          24.7500
  First Quarter                               28.2500          25.5000

Fiscal Year ended December 31, 1996:
  Fourth Quarter                             $28.2500         $24.6250
  Third Quarter                               25.3750          21.2500
  Second Quarter                              22.7500          20.0000
  First Quarter                               23.8750          20.1250

     As  of  December  31,  1997  the   Company's   common  stock  was  held  by
approximately 2,600 stockholders of record,  including Cede & Co. as nominee for
The Depository Trust Company.
                   There were no  dividends  declared  on the  Company's  common
stock in the years 1992 through 1995.  The Company paid quarterly cash dividends
of $0.04 per share in each quarter of 1997 and during the last three quarters of
1996. The declaration and payment of future  dividends will be at the discretion
of the Company's Board of Directors and is subject to certain legal,  regulatory
and other  restrictions.  For a description of the restrictions on the Company's
ability  to pay  dividends,  reference  is made to Item 1,  "Business--Insurance
Regulation--Restrictions  on Dividends" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

                                       20
<PAGE>

Item 6.  Selected Financial Data.
         The following table sets forth selected consolidated  financial data of
Chartwell as of and for the periods  indicated.  This table does not include any
historical  operating  financial  data  relating to Archer prior to December 31,
1996 or Piedmont  prior to December 31, 1995  because the results of  operations
subsequent  to the  Acquisition  and the  Merger  through  the end of the  years
indicated were immaterial to Chartwell.  The financial data for each of the five
years in the  period  ended  December  31,  1997 is  derived  from  the  audited
financial  statements of Chartwell.  The following table also includes  selected
data from the Statutory Annual Statements of Chartwell  Reinsurance and INSCORP.
The selected consolidated  financial data should be read in conjunction with the
consolidated  financial  statements  of Chartwell  and notes thereto and Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," included elsewhere herein.

                                                SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                     --------------------------------------------------------------------
                                                       1997            1996        1995            1994        1993
                                                     -----------   -----------  ----------     -----------  ------------
Statement of Operations Data:                                        (Dollars in thousands, except per share amounts)
UNDERWRITING OPERATIONS:
<S>                                                   <C>           <C>           <C>            <C>            <C>
Gross premiums written...........................     $ 362,770     $ 263,838     $ 126,968      $ 116,396      $ 70,129
Net premiums written.............................       268,260       192,251       123,314        113,962        69,827


Premiums earned..................................       245,700       209,503       120,258        102,698        68,416
Net investment income............................        42,228        42,995        18,917         13,889        10,747
Net realized capital gains (losses)..............           (3)        1,106         3,109         (3,495)        6,418
                                                    ------------  ------------  ------------   ------------  ------------
     Total revenues..............................       287,925       253,604       142,284        113,092        85,581
                                                    ------------  ------------  ------------   ------------  ------------
Loss and loss adjustment expenses................       160,848       150,621        86,949         78,577        48,740
Policy acquisition costs.........................        72,655        52,030        28,790         24,295        15,398
Other expenses...................................        16,473        15,774         9,694          9,071         7,967
                                                    ------------  ------------  ------------   ------------  ------------
     Total expenses..............................       249,976       218,425       125,433        111,943        72,105
                                                    ------------  ------------  ------------   ------------  ------------
Income before taxes - underwriting operations....        37,949        35,179        16,851          1,149        13,476
                                                    ------------  ------------  ------------   ------------  ------------
SERVICE OPERATIONS:
Service and other revenue........................        28,322         6,167         1,095          1,679            54
Equity in net earnings of investees..............         4,794         3,559
Net investment income............................         1,104             9            44             29             2
                                                    ------------  ------------  ------------   ------------  ------------
     Total revenues..............................        34,220         9,735         1,139          1,708            56
Expenses.........................................        18,084         2,233         1,056          1,104             9
Amortization of goodwill.........................         2,297
                                                    ------------  ------------  ------------   ------------  ------------
Income before taxes -service operations..........        13,839         7,502            83            604            47
                                                    ------------  ------------  ------------   ------------  ------------
CORPORATE:
Net investment income............................           243         1,085           946            808           210
Net realized capital gains (losses)..............                          51            90           (299)
General and administrative expenses..............         1,903         1,162         1,211              3         2,262
Interest and amortization expense................        12,254        10,135         7,820          7,379         4,708
                                                    ------------  ------------  ------------   ------------  ------------
Loss before taxes - corporate....................       (13,914)      (10,161)       (7,995)        (6,873)       (6,760)
                                                    ------------  ------------  ------------   ------------  ------------
Consolidated income (loss) before taxes
  and extraordinary item.........................        37,874        32,520         8,939         (5,120)        6,763
Income tax expense (benefit).....................        10,611         9,657         2,700         (1,685)        2,266
                                                    ------------  ------------  ------------   ------------  ------------
Net income (loss) before extraordinary item......        27,263        22,863         6,239         (3,435)        4,497
Extraordinary item, net of tax...................                       1,874                          465
                                                    ------------  ------------  ------------   ------------  ------------
Net income (loss) (1)............................        27,263        20,989         6,239         (3,900)        4,497
Less: Preferred dividends and accretion..........                                                    1,078         1,405
                                                    ------------  ------------  ------------   ------------  ------------
Net income (loss) attributable to common shares..      $ 27,263      $ 20,989       $ 6,239       $ (4,978)      $ 3,092
                                                    ============  ============  ============   ============  ============
</TABLE>


                                       21
<PAGE>

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                          ------------------------------------------------------------------
                                              1997          1996           1995         1994         1993
                                           ----------    ----------    ----------    ---------    ----------
Per Share Data (2):
<S>                                            <C>           <C>            <C>        <C>            <C>
Basic earnings (loss) per share............    $2.84         $2.31          $1.66      ($0.84)        $0.62
                                            =========    ==========     =========    ========     =========
Weighted average number of common
   shares outstanding...................... 9,601,314     9,081,867     3,755,312   3,760,685     3,764,234
                                            =========    ==========     =========   ==========    =========
Diluted earnings (loss) per share..........     $2.74         $2.29         $1.65      ($0.84)        $0.62
                                            =========    ==========     =========   =========     =========
Weighted average number of common and
    common equivalent shares outstanding... 9,965,815     9,177,610     3,791,789   3,760,685     3,764,234
                                            =========    ==========     =========   =========     =========
Cash dividends declared....................     $0.16         $0.12        --           --             --
                                            =========    ==========     =========   =========     ========

Insurance Operating Data (GAAP):
Loss ratio.................................      65.5%        71.9%         72.3%       76.5%         71.2%
Underwriting expense ratio.................      36.4         32.3          31.9        32.5          34.5
                                            ----------   ----------     ---------   ---------     ---------
Combined ratio.............................     101.9%       104.2%        104.2%      109.0%        105.7%
                                            ==========   ==========     =========   =========     =========

Insurance Operating Data (SAP)(3):
Loss ratio.................................      65.5%        71.9%         72.9%       75.4%         76.7%
Underwriting expense ratio.................      36.2         35.2          32.5        30.3          37.2
                                             ---------    ---------     ---------   ---------     ---------
Combined ratio.............................     101.7%       107.1%        105.4%      105.7%        113.9%
                                             =========    =========     =========   =========     =========

Statutory net income.......................  $ 25,583     $ 28,426       $ 9,507       $ 910        $ 6,105
Policyholders' surplus (4).................   262,606      238,271       188,037     111,845         81,102
Net premiums written to surplus ratio......    1.02:1        .81:1        1.02:1      1.02:1          .80:1

Balance Sheet Data (GAAP)(5):
Total investments and cash................. $ 764,253    $ 724,694     $ 705,448   $ 275,136      $ 219,726
Total assets............................... 1,375,484    1,257,864     1,132,838     410,159        317,594
Loss and LAE reserves......................   788,240      747,858       741,467     232,733        201,013
Long term debt.............................   104,126      107,297        95,000      75,000         44,090
Redeemable preferred stock.................                                                          19,163
Common stockholders' equity................ $ 260,497    $ 225,990     $ 152,482    $ 56,339       $ 34,558
</TABLE>

-----------------------------------------
(1) The net  loss  for the year  ended  December  31,  1994  includes  after-tax
expenses  of  $3.6  million  for  losses  incurred  related  to the  Northridge,
California earthquake and $1.2 million of recapitalization expenses.
(2)  All per  share  amounts  have  been  calculated  in  accordance  with a new
accounting  standard,  Statement of Financial  Accounting Standards ("SFAS") No.
128,  "Earnings Per Share," which became  effective  December 15, 1997. SFAS No.
128 requires dual  presentation of basic and diluted  earnings per share and the
restatement of all prior-period earnings per share data presented.
(3)  Statutory  data has been derived from the  Statutory  Annual  Statements of
Chartwell Reinsurance and INSCORP as filed with insurance regulatory authorities
and prepared in accordance with SAP.
(4) The  statutory  surplus of  Chartwell  Reinsurance  was  increased  by $20.0
million in 1996 from the proceeds of a common stock  offering,  by $67.1 million
in 1995 as a result of the Merger and by $30.0 million in 1994 from the proceeds
of the Senior Notes offering. The ratio of net premiums written to surplus ratio
for 1995  includes only the premiums of Chartwell  Reinsurance  and excludes the
increase in surplus that resulted from the Merger.
(5) Total  assets  and loss and LAE  reserves  are stated  gross of  reinsurance
recoverable in accordance with the requirements of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration  and  Long-Duration  Contracts." The
balance sheet data at December 31, 1996 reflects the  Acquisition  of Archer and
at December 31, 1995 reflects the Merger of Piedmont with Chartwell.

                                       22
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition
        and Results of Operations
         The  following  discussion  of the  financial  condition and results of
operations  of Chartwell  should be read in  conjunction  with the  consolidated
financial  statements and notes thereto of Chartwell  included elsewhere herein.
The following  discussion does not include any information  relating to Archer's
historical  results  of  operations  prior to  November  19,  1996 or  INSCORP's
historical results of operations prior to December 13, 1995. Archer's results of
operations  for the period from  November  19,  1996 to  December  31, 1996 were
immaterial  to  Chartwell  and,  therefore,  have not been  included.  INSCORP's
results of operations for the period from December 13, 1995 to December 31, 1995
were  immaterial to Chartwell;  Chartwell has accounted for the Merger as though
it had occurred on December 31, 1995.

Recent Industry Performance
         The  property  and  casualty  insurance  and  reinsurance  industry has
historically  been  highly  cyclical.   Demand  for  reinsurance  is  influenced
significantly  by  prevailing  market  conditions,  including  the  underwriting
results of primary  insurers.  The supply of reinsurance is primarily related to
levels of  underwriting  capacity in the  reinsurance  industry and the relative
cost and terms of reinsurance  coverage.  The industry's  profitability  and the
cyclical  trends in the industry can be affected  significantly  by volatile and
unpredictable developments, including the occurrence of natural disasters, other
catastrophic   events,   competitive   pressures  on  pricing  (premium  rates),
fluctuations in interest rates, other variations in the investment  environment,
changes in the judicial system regarding tort law,  general economic  conditions
and trends, such as inflationary pressures,  that may tend to affect the size of
profits and losses experienced by ceding primary insurers and other factors such
as  changes  in tax laws and  regulations.  Many  sectors  of the  industry  are
currently  in a cyclical  downturn  and it cannot be predicted if or when market
conditions will improve or when other sectors may experience a deterioration  in
pricing and terms.
         Commencing in the late part of the 1980s, primary property and casualty
insurers began to retain more of their business. This reduction in the amount of
business ceded to reinsurers,  combined with the growth in reinsurance capacity,
resulted  in  renewed  price   competition  and  less  attractive   pricing  for
reinsurers.  This caused a downturn for the reinsurance  industry,  resulting in
increased underwriting losses which have continued to the present.

     The following  table presents the statutory  combined  ratios of Chartwell,
the  property and  casualty  reinsurance  industry and the property and casualty
insurance  industry during the 1993 to 1997 years. The combined ratio is the sum
of the loss ratio (incurred  losses and loss adjustment  expenses divided by net
premiums  earned) and the  underwriting  expense  ratio  (underwriting  expenses
divided  by net  premiums  written).  A  combined  ratio of over 100%  indicates
unprofitable  underwriting.  Although an insurance company's underwriting may be
unprofitable, the company may be profitable after including investment income.

                            Statutory Combined Ratios
                             Year Ended December 31,
                 ----------------------------------------------
<TABLE>
<CAPTION>

                                                   1997      1996      1995      1994    1993
                                                 --------  --------  --------  -------  -------
Chartwell (1)
<S>                                                <C>       <C>        <C>       <C>     <C>
Loss ratio......................................   65.5%      71.9%     72.9%     75.4%   76.7%
Underwriting expense ratio......................   36.2       35.2      32.5      30.3    37.2
                                                  -----      -----     -----     -----   -----
Combined ratio..................................  101.7%     107.1%    105.4%    105.7%  113.9%
                                                  =====      =====     =====     =====   =====

Property and Casualty Reinsurance Industry (2)
Loss ratio......................................   69.6%      72.7%     78.2%     76.8%   76.9%
Underwriting expense ratio......................   32.7       30.8      30.1      29.9    29.9
                                                  -----      -----     -----     -----   -----
Combined ratio.............................       102.3%     103.5%    108.3%    106.7%  106.8%
                                                  =====      =====     =====     =====   =====
</TABLE>
___________________________
(1)  Beginning in 1996, the combined  ratio includes both Chartwell  Reinsurance
     and INSCORP.
(2   Source: RAA Underwriting Report for the year ended December 31, 1997.


                                       23
<PAGE>

Consolidated Results of Operations
         Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
         Revenues: Total revenues for the year ended December 31, 1997 increased
21.9% to $322.4 million, compared to $264.5 million for the comparable period in
1996. The accompanying table summarizes gross and net premiums written and total
revenues for the periods indicated:

                                                  Revenues
                                                  Year Ended
                                                  December 31,
                                           ---------------------------
(Dollars in thousands)                         1997            1996
                                            ---------        ---------
Gross premiums written..................    $ 362,770        $ 263,838
                                            =========        =========
Net premiums written....................    $ 268,260        $ 192,251
                                            =========        =========
Premiums earned.........................    $ 245,700        $ 209,503
Net investment income...................       43,575           44,089
Net realized capital gains (losses).....           (3)           1,157
Service and other revenue...............       28,322            6,167
Equity in net earnings of investees             4,794            3,559
                                            ---------        ---------
                        Total...........    $ 322,388        $ 264,475
                                            =========        =========

Underwriting Operations
         Gross Premiums  Written;  Net Premiums  Written;  Net Premiums  Earned.
Gross premiums written for the year ended December 31, 1997 were $362.8 million,
an increase of 37.5%  compared to the same period in 1996. The increase in gross
premiums  written  reflects new programs and products  developed during the year
with ceding companies in the Specialty and Controlled Source Insurance  Accounts
client segments and the addition of gross premiums  written through Archer's two
Dedicated  CCV's.  Gross  premiums  written  by the  Global  Accounts,  Regional
Accounts  and Marine & Aviation  Accounts  client  segments  either  declined or
remained constant as a result of continued competitive pressures.
         Net premiums  written for the year ended  December  31, 1997  increased
39.5% to $268.3 million, compared to $192.3 million for the same period in 1996.
The increase in net premiums written was principally attributable to the reasons
described above for the increase in gross premiums written.  Net premiums earned
for the year ended December 31, 1997 were $245.7  million,  an increase of 17.3%
compared to the same period in 1996.

          Loss and Loss Adjustment  Expenses.  The Company's  principal expense,
loss and LAE related to the  settlement  of claims,  was $160.8  million for the
year ended December 31, 1997, a 6.8% increase compared to $150.6 million for the
comparable  period in 1996.  The  increase is  principally  attributable  to the
increase in net premiums written as noted above. Net losses and LAE expressed as
a percentage of net earned premiums (the loss and LAE ratio)  decreased to 65.5%
for the year ended  December 31, 1997 from 71.9% recorded for the same period in
1996. The improvement of 6.4 percentage points in the loss and LAE ratio for the
year ended  December 31, 1997 was a result of a change in the mix of business as
well as the benefits of new reinsurance programs,  including aggregate excess of
loss reinsurance treaties, and the enhancement of existing reinsurance programs.
In addition,  the 1997 results  were not  materially  affected by the run-off of
reinsurance  programs written by The Insurance  Corporation of New York prior to
December 1995, a factor which impacted the 1996 results.

          Policy  Acquisition  Costs.   Policy  acquisition  costs,   consisting
primarily of  commissions  paid to ceding  companies and brokerage  fees paid to
intermediaries, less commissions received on business ceded to other reinsurers,
were $72.7  million  for the year ended  December  31,  1997,  compared to $52.0
million for the same period in 1996.  Policy  acquisition  costs  expressed as a
percentage of net earned premiums (the  acquisition  expense ratio) increased to
29.6% from 24.8% in 1996.  The  increase is  primarily  due to the effect of the
aggregate excess of loss reinsurance treaties entered into in 1997 which reduced
net earned  premium for the year without  providing  any reduction in commission
expenses.  Also  contributing to the increase is the modestly higher  commission
structure, as noted above, for proportional business.

                                       24
<PAGE>

         Other  Expenses.  Other expenses  related to  underwriting  operations,
which include underwriting and administrative  expenses,  were $16.5 million for
the year ended  December 31, 1997  compared to $15.8 million for the same period
in 1996.  Other  expenses  expressed  as a  percentage  of net  earned  premiums
decreased to 6.7% for the year ended  December 31, 1997 compared to 7.5% for the
same period in 1996.

         Net Underwriting  Results.  The Company  incurred an underwriting  loss
(net  premiums  earned  minus  losses,  LAE and  underwriting  expenses) of $4.3
million for the year ended December 31, 1997 as compared to an underwriting loss
of $8.9  million for the same period in 1996.  The  combined  ratio  computed in
accordance  with GAAP for the year ended  December 31, 1997  decreased to 101.9%
from 104.2% for 1996.  Although the loss ratio component  improved to 65.5 % for
the year ended  December  31,  1997 from 71.9 % recorded  for the same period in
1996, the expense ratio  increased to 36.4% for the year ended December 31, 1997
from the 32.3 % recorded  for the same  period in 1996,  for the  reasons  noted
above.

Service Operations
          Revenue from service  operations,  exclusive of net investment income,
increased to $33.1 million for the year ended December 31, 1997 compared to $9.7
million for the same  period in 1996.  The  improvement  reflects  increases  in
advisory  fee  revenues,  equity in the earnings of investee  companies  and the
inclusion,  for the first  time,  of  profit  commissions  and fees from  Archer
operations.  The  1996  amount  includes  a gain of $2.8  million  on a  foreign
exchange option entered into to protect the Company from the increasing value of
the Pound  Sterling  for the period  from  inception  of the  Acquisition  until
completion.  In March 1998,  New London Capital plc ("NLC")  notified  Chartwell
Advisers Limited ("Chartwell  Advisers") that it chose not to renew the Advisory
Agreement  between NLC and Chartwell  Advisers (the "Advisory  Agreement") after
its contractual expiration on December 31, 1998. In 1997, the Advisory Agreement
produced  base fees of $1.7 million and a profit  commission of $0.7 million for
Chartwell  Advisers.   Following  the  expiration  of  the  Advisory  Agreement,
Chartwell Advisers will continue to earn profit commissions on the open years of
account (1996, 1997 and 1998) to the extent such years are profitable.

Corporate
          Interest and  Amortization.  Interest and  amortization  expenses were
$12.3 million for the year ended December 31, 1997 compared to $10.1 million for
the same period in 1996. Interest and amortization on Re Holdings' 10.25% Senior
Notes due 2004 (the "Senior Notes") was $5.2 million for the year ended December
31,  1997 and $6.0  million  for the  comparable  period in 1996.  Interest  and
amortization on the Company's CI Notes was $2.5 million and $2.2 million for the
years ended December 31, 1997 and 1996, respectively.  Also included in interest
and  amortization  expense for the year ended  December 31, 1997 is $3.4 million
related to a credit  facility  with First Union  National  Bank,  N. A.  ("First
Union")  established to fund the Acquisition and replace an existing $20 million
credit facility.

Consolidated
         Net  Investment   Income  and  Net  Realized  Capital  Gains  (Losses).
Consolidated net investment income, exclusive of realized and unrealized capital
gains and losses, for 1997 was $43.6 million, a decrease of 1.2% compared to the
same period in 1996.  This decrease is primarily due to a  repositioning  of the
investment  portfolio by increasing  the municipal  sector.  This  repositioning
occurred  late in 1996,  and the full effect was  realized in 1997.  The average
annual tax equivalent  yield on invested assets before  investment  expenses for
1997 and 1996 was 6.7%.
         The  Company  realized  net  capital  losses of $0.3  million  for 1997
compared net capital  gains of $1.2 million in 1996.  The 1996 net capital gains
were realized  principally to reposition certain sectors of the portfolio and to
modify the portfolio to improve credit quality without sacrificing yield.

         Income Before Income Taxes and  Extraordinary  Item.  Net income before
income taxes and  extraordinary  items  increased to $37.9  million for the year
ended  December 31, 1997  compared to $32.5 million for the same period in 1996.
The  increase  resulted  primarily  from the  increase in earned  premiums,  the
favorable  results in both loss and loss adjustment  expense and other expenses,
and the contributions from Archer to income from service operations.

         Income Tax Expense. The provision for Federal income taxes for the year
ended  December 31, 1997  increased to $10.6 million  compared with $9.7 million
for the same period in 1996.  The effective tax rate was 28.0% and 29.7% for the
years ended December 31, 1997 and 1996,  respectively.  The principal  factor in
the decline below the  statutory  rate of 35.0% for both periods was the benefit
of an increase during late 1996 and early 1997 of investments in  tax-advantaged
securities.

                                       25
<PAGE>

         Net Income Before  Extraordinary Item. Net income before  extraordinary
item increased to $27.3 million for the year ended December 31, 1997 as compared
to $22.9  million  for the same  period in 1996,  and basic  earnings  per share
before extraordinary item increased 12.7% to $2.84 from $2.52 for the year ended
December  31,  1996.  Diluted  earnings  per  share  before  extraordinary  item
increased  10.0% to $2.74 from  $2.49.  Basic and  diluted  after-tax  operating
income per share  (which  excludes  net  realized  capital  gains on the sale of
investments)  for the year ended  December 31, 1997  increased  16.9% and 13.7%,
respectively to $2.84 and $2.74 from $2.43 and $2.41, respectively, for the same
period in 1996.

         Extraordinary  Item,  Net of Income Tax.  The Company  recognized a net
after-tax  extraordinary expense of $1.9 million for the year ended December 31,
1996 for the  write-off  of  unamortized  debt  issuance  costs and a redemption
premium associated with the redemption of 35% of the Senior Notes.

         Net Income.  The Company realized a net profit of $27.3 million for the
year ended December 31, 1997 compared with a net profit of $21.0 million for the
comparable 1996 period because of the factors discussed above.  Basic net income
per share  increased  22.9% to $2.84 for the year ended  December  31, 1997 from
$2.31 per share for the year ended  December  31,  1996.  Diluted net income per
share  increased 19.7% to $2.74 from $2.29 per share for the year ended December
31, 1996.

         Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
         Revenues: Total revenues for the year ended December 31, 1996 increased
83% to $264.5 million,  compared to $144.5 million for the comparable  period in
1995. The accompanying table summarizes gross and net premiums written and total
revenues for the periods indicated:

                                                       Revenues
                                                      Year Ended
                                                     December 31,
                                              ----------------------------
                                                  1996           1995
                                              -------------   ------------
(Dollars in thousands)
Gross premiums written......................     $ 263,838      $ 126,968
                                                 =========      =========
Net premiums written........................     $ 192,251      $ 123,314
                                                 =========      =========
Premiums earned.............................       209,503        120,258
Net investment income.......................        44,089         19,907
Net realized capital gains..................         1,157          3,199
Service and other revenue...................         6,167          1,095
Equity in net earnings of investees.........         3,559           --
                                                 ---------       --------
          Total.............................     $ 264,475      $ 144,459
                                                 =========      =========

Underwriting Operations
         Gross Premiums  Written;  Net Premiums  Written;  Net Premiums  Earned.
Gross premiums written for the year ended December 31, 1996 were $263.8 million,
an increase of 108%  compared to the same period in 1995.  The increase in gross
premiums  written  was  attributable  to  business  acquired  in the  Merger and
continued growth with existing and new clients in all client segments.
         Net premiums written for the year ended December 31, 1996 increased 56%
to $192.3  million,  compared to $123.3 million for the same period in 1995. The
increase in net premiums  written was  principally  attributable  to the reasons
described above for the increase in gross premiums written.  Net premiums earned
for the year ended December 31, 1996 were $209.5  million,  an increase of $89.2
million or 74.2% compared to the same period in 1995.

         Loss and Loss Adjustment  Expenses.  The Company's  principal  expense,
loss and LAE related to the  settlement  of claims,  was $150.6  million for the
year ended December 31, 1996 a 73.3% increase  compared to $86.9 million for the
comparable  period in 1995.  The  increase is  principally  attributable  to the
increase in net premiums written as noted above. Net losses and LAE expressed as
a percentage of net earned  premiums (the loss and LAE ratio)  improved to 71.9%
for the year ended December 31, 1996, from 72.3% recorded for the same period in
1995. The improvement of 0.4 percentage points in the loss and LAE ratio for the
year  ended  December  31,  1996  was  due  to an  increase  in  the


                                       26
<PAGE>

amount of  proportional  business  written by the Company which  generally has a
lower  loss and LAE ratio  than  excess of loss  business  but  modestly  higher
commissions.
         Policy   Acquisition  Costs.   Policy  acquisition  costs,   consisting
primarily of  commissions  paid to ceding  companies and brokerage  fees paid to
intermediaries, less commissions received on business ceded to other reinsurers,
were $52.0  million  for the year ended  December  31,  1996,  compared to $28.8
million for the same period in 1995.  Policy  acquisition  costs  expressed as a
percentage of net earned premiums (the  acquisition  expense ratio) increased to
24.8% from 23.9% in 1995.  The  increase is due both to the run-off of INSCORP's
reinsurance  portfolio and to a modestly higher commission  structure,  as noted
above, for proportional business.

         Other  Expenses.  Other expenses  related to  underwriting  operations,
which include underwriting and administrative  expenses,  were $15.8 million for
the year ended December 31, 1996 compared to $9.7 million for the same period in
1995. Other expenses  expressed as a percentage of net earned premiums decreased
to 7.5% for the year  ended  December  31,  1996  compared  to 8.0% for the same
period in 1995.

         Net Underwriting  Results.  The Company  incurred an underwriting  loss
(net  premiums  earned  minus  losses,  LAE and  underwriting  expenses) of $8.9
million for the year ended December 31, 1996 as compared to an underwriting loss
of $5.2 million for the same period in 1995.  The  combined  ratio for the years
ended December 31, 1996 and 1995 computed in accordance with GAAP was 104.2% for
both years.  Although  the loss ratio  component  improved to 71.9% for the year
ended  December 31, 1996 from 72.3%  recorded  for the same period in 1995,  the
expense ratio  increased to 32.3% for the year ended  December 31, 1996 from the
31.9%  recorded for the same period in 1995,  for the reasons noted above.  On a
pro forma basis, as if the Merger occurred on January 1, 1995, the expense ratio
decreased to 32.3% for the year ended  December  31, 1996  compared to 34.9% for
the same period in 1995, and the combined ratio decreased to 104.2% for the year
ended  December 31, 1996 compared to 120.8% for the same period in 1995. The pro
forma  loss and LAE  ratio for the year  ended  December  31,  1995  includes  a
strengthening  of  INSCORP's  net loss  reserves  of $25.0  million  for  losses
incurred but not reported  with respect to INSCORP's  business  written in prior
years. This reserve strengthening, which was undertaken by Piedmont prior to the
Merger,  increased the Company's pro forma loss and LAE ratio by 10.1 percentage
points for the year.

Service Operations
         Income from service  operations  increased to $9.7 million for the year
ended  December  31, 1996  compared to $1.1 million for the same period in 1995.
The  improvement  reflects  increases  in advisory fee  revenues,  equity in the
earnings of investee  companies  acquired in the Merger and  development  of new
fee-based  revenue  sources  during the year.  Also  included  is a gain of $2.8
million on a foreign  exchange  option  entered into to protect the Company from
the increasing value of the Pound Sterling during the period commencing from the
initialization of the Acquisition to the closing of the transaction. During that
period, the Pound Sterling  appreciated by approximately 6% relative to the U.S.
Dollar.

Corporate
         Interest and  Amortization.  Interest and  amortization  expenses  were
$10.1 million for the year ended  December 31, 1996 compared to $7.8 million for
the same period in 1995.  Interest and amortization on the Senior Notes was $6.0
million for the year ended December 31, 1996 and $8.0 million for the comparable
period in 1995.  The 1996 amount was reduced due to the redemption of 35% of the
principal amount of outstanding Senior Notes on April 8, 1996.  Interest expense
for the year ended  December 31, 1996 also includes $1.4 million of interest and
amortization expense on a $20.0 million bank facility established on the date of
Merger,  $2.2 million of interest and amortization on the Company's CI Notes and
$0.5 million of interest and amortization related to the Archer acquisition.

Consolidated
         Net  Investment   Income  and  Net  Realized  Capital  Gains  (Losses).
Consolidated net investment income, exclusive of realized and unrealized capital
gains and losses, for 1996 was $44.1 million,  an increase of $24.2 million,  or
121%,  over 1995.  The  improvement  reflects  the  increase in invested  assets
principally  from the net proceeds of  Chartwell's  public stock offering in the
first half of 1996 and  continued  positive  cash flow from  operations of $12.2
million  offset by a decline  in the value of  marked-to-market  investments  of
$10.0 million. In addition,  on June 28, 1996, the Company received $7.9 million
in settlement of the Reserve  Indemnification  Agreement which further

                                       27
<PAGE>

increased the Company's  invested  asset base. The average annual tax equivalent
yield on invested assets before investment  expenses  decreased to 6.7% for 1996
from 6.8% for 1995.
         The  Company  realized  net  capital  gains  of $1.2  million  for 1996
compared to $3.2 million for the same period in 1995. Both the 1996 and 1995 net
capital gains were realized  principally  to reposition  certain  sectors of the
portfolio  and to  modify  the  portfolio  to  improve  credit  quality  without
sacrificing yield.

         Income Before Income Taxes and  Extraordinary  Item.  Net income before
income taxes and  extraordinary  items  increased to $32.5  million for the year
ended  December  31, 1996  compared to $8.9 million for the same period in 1995.
The  increase  resulted  primarily  from the  increase in earned  premiums,  the
favorable  results  in both  loss  and  loss  adjustment  expense  and in  other
expenses,  and from the increases in net investment income and service and other
revenue.

         Income Tax Expense. The provision for Federal income taxes for the year
ended December 31, 1996 increased to $9.7 million compared with $2.7 million for
the same  period  in 1995.  The  effective  tax rate was 29.7% and 30.2% for the
years ended December 31, 1996 and 1995,  respectively.  The principal  factor in
the decline below the statutory  rate of 35% for both periods was the benefit of
investments in tax-advantaged securities which increased in the 1996 period.

         Net Income Before  Extraordinary Item. Net income before  extraordinary
item increased to $22.9 million for the year ended December 31, 1996 as compared
to $6.2  million  for the same  period  in 1995,  and basic  earnings  per share
increased  51.8% to $2.52  from  $1.66 for the year  ended  December  31,  1995.
Diluted  earnings per share before  extraordinary  item increased 50.0% to $2.49
from $1.66.  The largest  components of these  increases  were  increases in net
investment income and income from service  operations as described above.  Basic
and diluted  after-tax  operating  income per share (which excludes net realized
capital gains on the sale of  investments)  for the year ended December 31, 1996
increased  120.9% and 121.1%,  respectively  to $2.43 and $2.41,  from $1.10 and
$1.09, respectively, for the same period in 1995.

         Extraordinary  Item,  Net of Income Tax.  The Company  recognized a net
after-tax  extraordinary expense of $1.9 million for the year ended December 31,
1996 for the  write-off  of  unamortized  debt  issuance  costs and a redemption
premium associated with the redemption of 35% of the Senior Notes.

         Net Income.  The Company realized a net profit of $21.0 million for the
year ended  December 31, 1996 compared with a net profit of $6.2 million for the
comparable 1995 period because of the factors discussed above.  Basic net income
per share  increased  39.2% to $2.31 for the year ended  December  31, 1996 from
$1.66 per share for the year ended  December  31,  1995.  Diluted net income per
share  increased 38.8% to $2.29 from $1.65 per share for the year ended December
31, 1995.

Liquidity and Capital Resources
         As a holding company, Chartwell's assets consist primarily of the stock
of its  direct  and  indirect  operating  subsidiaries,  Chartwell  Reinsurance,
INSCORP,  Archer,  and Chartwell  Advisers.  Chartwell's  cash flow,  therefore,
depends largely on dividends and other statutorily permissible payments from its
operating  subsidiaries.  Chartwell's  sources of funds consist primarily of net
premiums, reinsurance recoveries,  investment income and proceeds from sales and
redemptions of investments.  Funds are applied  primarily to payments of claims,
operating expenses and income taxes and to the purchase of investments,  largely
fixed income securities.  Cash and short-term investments are maintained for the
payment of claims and expenses.
         For the years  ended  December  31,  1997,  1996 and 1995,  Chartwell's
consolidated  cash flow provided by operations was $28.3 million,  $12.2 million
and $23.0  million,  respectively.  The cash flow  from  operations  in 1997 was
greater  than that in 1996 due to improved  underwriting  cash flows  comprising
premiums received less paid losses and LAE and underwriting  expenses.  The 1996
cash flow from  operations  was reduced as a result of the run-off of  INSCORP's
reinsurance reserves. The primary contributors to the positive cash flow for the
1995 period were underwriting cash flow and investment income received. The 1995
cash flow provided by operations was reduced by $10.9 million due to the payment
of three  unusually  large claims from  business  written  prior to 1985 and the
commutation of a group of assumed contracts.
         Sales of  available for sale  investments  were $200.8 million,  $500.7
million and $330.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively.  Trading  activity  increased  during 1996 primarily to modify the

                                       28
<PAGE>

portfolio by sector and to capitalize on some opportunities to improve on credit
quality without  sacrificing yield. There was no unusual trading activity during
1997.
         At  December  31,  1997,  the  carrying  value  of  total  investments,
including cash and cash equivalents,  increased 5.5%, to $764.3 million compared
to $724.7  million at December  31, 1996.  The primary  reasons for the increase
were positive cash flow from operations of $28.3 million and the increase in the
market value of the investment portfolio of $15.8 million.
         Financing activities have also been a source of liquidity for Chartwell
and its  subsidiaries.  On March 17, 1994,  Chartwell  completed the offering of
$75.0  million  principal  amount of the Senior  Notes.  The net proceeds to the
Company after transaction  expenses were $71.9 million. As of December 31, 1997,
$48.8  million in  principal  amount of the Senior Notes were  outstanding.  The
Senior  Notes bear  interest at a rate of 10 1/4% per annum and are due on March
1, 2004
         In the first half of 1996, the Company  completed a public  offering of
2,725,000  shares of common  stock at $23.00 per share.  The net proceeds to the
Company  were  $58.5  million  after  deduction  of  underwriting  discount  and
expenses.  Of the net proceeds,  $48.5 million was contributed to Re Holdings of
which $20.0  million  was  contributed  to the  statutory  surplus of  Chartwell
Reinsurance  and $28.5  million was used to retire 35% of the Senior  Notes plus
accrued  interest.  The  remaining  funds were  retained  for general  corporate
purposes.  This redemption  reduced  Chartwell's annual expense for interest and
amortization  of debt issuance  costs under the Senior Notes by $2.8 million per
year.
         In connection  with the  Acquisition,  stockholders  of Archer Holdings
could elect to receive  Loan Notes in the amount of one Pound  Sterling for each
Pound Sterling of cash consideration.  The aggregate amount of Loan Notes issued
in  connection  with  the  consummation  of the  Acquisition  was  $9.4  million
(denominated in Pounds Sterling).  The Loan Notes, which are guaranteed by First
Union as  described  below,  pay  interest  semi-annually  at the rate per annum
calculated  as one percent  below the  Sterling  London  Interbank  Offered Rate
("LIBOR") and will mature in June, 2002 unless redeemed at an earlier date.
          Also in connection with the  Acquisition,  Re Holdings  entered into a
new credit  facility  with First Union,  as agent (the "Credit  Facility").  The
Credit  Facility  provides  for (i) a Tranche  A-1 $20.0  million  loan,  (ii) a
Tranche  A-2  $10.0  million  loan,   (iii)  a  Tranche  B  $22.0  million  loan
(denominated  in  Pounds  Sterling)  (Tranche  A-1,  Tranche  A-2 and  Tranche B
collectively,  the "First  Union  Loans"),  and (iv) a $25.0  million  revolving
credit  facility  (subsequently  increased to $60.0  million)  (the "First Union
Revolver").
          The First Union Loans have six-year terms and the First Union Revolver
has a five-year  term but may be extended for one year with the consent of First
Union.  Tranche A-1 and A-2 require  repayment of principal  starting in year 3,
$6.0  million;  year 4,  $7.5  million;  year 5, $7.5  million  and year 6, $9.0
million.  Tranche B requires  repayment  of  principal  starting in year 3, $4.2
million;  year 4, $5.3  million;  year 5, $5.3 million and year 6, $6.4 million.
Borrowings  under the First Union  Revolver  are  available at any time prior to
maturity, subject to minimum funding amounts. Both the First Union Loans and the
First Union  Revolver will bear interest at a rate selected by Re Holdings equal
to either (1) the Base Rate (as  defined  below) or (2) U.S.  dollar or Sterling
LIBOR plus a margin (the "Margin"), as applicable. The amount of the Margin will
depend on the higher of Re Holdings'  senior debt rating by Standard & Poor's or
Moody's and can range from 0.50% to 0.875%. Based on Re Holdings' current senior
debt ratings,  the Margin over LIBOR is currently at 0.75%. The U.S. dollar Base
Rate is the higher of (1) First Union's prime commercial lending rate or (2) the
federal  funds  rate plus  0.5%.  The  Sterling  Base Rate is the rate per annum
announced by Midland Bank plc plus the Margin.  Re Holdings will also pay (1) an
unused  commitment  fee equal to 0.25% on the  aggregate  unused  portion of the
revolver,  (2)  utilization  fees for the  issuance  of  letters  of credit  and
guarantees of Loan Notes,  issued in connection with the Acquisition,  at a rate
per annum of  0.375%  (if  secured)  or the  Margin  plus a 0.075%  facing  fee,
currently  totaling 0.825% (if unsecured) on the outstanding amount of potential
credit  exposure,  and (3)  certain  other fees  customary  in  connection  with
syndicated loans of this nature.  All payments of interest and fees with respect
to each of the First Union Loans shall be made in the same currency in which the
principal of such loan is required.
          During 1997,  Re Holdings  maintained  the full balance on the Tranche
A-1 and A-2  loans. The Tranche B loan  increased  by $2.0  million  ((pound)1.2
million) to fund the  redemption of certain Loan Notes for the same amount.  The
First Union Revolver was paid off during 1997.
     At December 31, 1997,  $20.0 million,  $10.0 million and $14.0 million were
outstanding   under  the  Tranche   A-1,   Tranche  A-2  and  Tranche  B  loans,
respectively. In addition, at December 31, 1997, $7.2 million was used under the
Tranche  B loan to  guarantee  the Loan  Notes and a total of $53.0  million  of
letters of credit  were  extended  under the First Union  Revolver.  All amounts
denominated  in Pounds  Sterling were  converted to U.S.  dollars at the rate of
$1.6496 per (pound)1, the rate in effect at December 31, 1997.

                                       29
<PAGE>

         Upon  consummation  of the Merger,  Chartwell  became the  successor to
Piedmont under the CI Notes. The CI Notes were issued in an aggregate  principal
amount of $1 million,  which principal  amount will accrue interest at a rate of
8% per annum,  compounded  annually.  Such  interest  will not be payable  until
maturity or earlier  redemption of the CI Notes. In addition,  the CI Notes will
entitle  the  holders  thereof to  receive at  maturity,  in  proportion  to the
principal  amount of the CI Notes held by them, an aggregate of from $10 million
up to $55 million in contingent interest. Settlement of the CI Notes may be made
by payment of cash or, under certain specified conditions, by delivery of shares
of the Company's common stock. The CI Notes mature on June 30, 2006.
         Chartwell and its subsidiaries may incur additional indebtedness in the
future, subject to the limitations contained in the Senior Notes indenture,  the
agreements governing the Credit Facility and the CI Notes indenture.
         The agreements  governing the Senior Notes, the CI Notes and the Credit
Facility  significantly restrict the ability of Re Holdings to make dividend and
other payments to Chartwell. Further, dividend payments by Chartwell Reinsurance
and INSCORP are subject to limits under the laws of the States of Minnesota  and
New York, respectively. Under the applicable provisions of the insurance holding
company laws of the State of  Minnesota,  Chartwell  Reinsurance  may, upon five
days notice to the  Commissioner  of Insurance  of the State of Minnesota  ("the
Commissioner") following the declaration of dividends to stockholders,  and upon
at least ten days notice to the  Commissioner  prior to dividend  payments,  pay
dividends  without the  approval  of the  Commissioner,  unless such  dividends,
together with other  dividends paid within the preceding  twelve months,  exceed
the greater of (i) 10% of Chartwell  Reinsurance's  policyholders' surplus as of
the end of the prior calendar year or (ii) Chartwell Reinsurance's statutory net
income,  excluding  realized  capital  gains,  for the prior  calendar year. Any
dividend in excess of the amount  determined  pursuant to the foregoing  formula
would be  characterized  as an  "extraordinary  dividend"  requiring  the  prior
approval  of the  Commissioner.  In any case,  the maximum  amount of  dividends
Chartwell  Reinsurance may pay is limited to its earned  surplus,  also known as
unassigned  funds.  As of December  31,  1997,  Chartwell  Reinsurance  reported
unassigned  funds,  as  defined,  in the  amount of $68.8  million.  Up to $26.3
million is available under the foregoing formula for the payment of dividends by
Chartwell Reinsurance without regulatory approval in 1998. On November 25, 1997,
Chartwell  Reinsurance  paid a $3.0 million  dividend to Re Holdings.  Chartwell
Reinsurance paid no dividends in 1996 or 1995.
           Under New York law,  which is  applicable  to  INSCORP,  the  maximum
ordinary dividend payable in any twelve month period without the approval of the
Superintendent may not exceed the lesser of (a) 10% of policyholders  surplus as
shown on the  company's  last  annual  statement  or any more  recent  quarterly
statement or (b) the  company's  adjusted net  investment  income.  Adjusted net
investment  income is defined  as net  investment  income for the twelve  months
preceding  the  declaration  of the  dividend  plus the  excess,  if any, of net
investment  income  over  dividends  declared or  distributed  during the period
commencing  thirty-six  months prior to the  declaration or  distribution of the
current  dividend and ending twelve months prior thereto.  In any case, New York
law permits the payment of an ordinary  dividend by an insurer or reinsurer only
out of earned  surplus.  Moreover,  notwithstanding  the receipt of any dividend
from INSCORP,  Chartwell  Reinsurance may make dividend  payments to Re Holdings
only to the extent permitted under the Minnesota provisions described above.
         In  addition  to the  foregoing  limitation,  the  New  York  Insurance
Department,  as is its  practice  in any change of control  situation,  required
Chartwell  to  commit to  preclude  the  acquired  New  York-domiciled  insurer,
INSCORP,  from paying any dividends for two years after the Merger without prior
regulatory approval. The foregoing restriction expired on December 13, 1997.
         The maximum dividend permitted by law is not indicative of an insurer's
actual  ability to pay  dividends,  which may be  constrained  by  business  and
regulatory  considerations,  such as the impact of dividends  on surplus,  which
could  affect an  insurer's  ratings  or  competitive  position,  the  amount of
premiums  that  can  be  written  and  the  ability  to  pay  future  dividends.
Furthermore,  beyond  the  limits  described  in the  preceding  paragraph,  the
Commissioner  and  Superintendent  have  discretion  to  limit  the  payment  of
dividends  by  insurance   companies   domiciled  in  Minnesota  and  New  York,
respectively.
         Management  believes that current  levels of cash flow from  operations
and assets held at the holding company level provide the Company with sufficient
liquidity  to meet its  operating  needs in the  short  term  (over  the next 12
months).  Management  expects  Chartwell  to be able  to  continue  to meet  its
operating needs after the next 12 months from internally  generated funds. Since
the ability of Chartwell to meet its  obligations  in the long term (beyond such
12-month  period) is dependent  upon such factors as market  changes,  insurance
regulatory changes and economic  conditions,  no assurance can be given that the
available  net cash flow will be sufficient  to meet its  operating  needs.  The
Company expects that, in order to repay the principal amount of the Senior Notes
on maturity or otherwise,  it will be required to seek  additional  financing or
engage in asset  sales or similar  transactions,  and would be  required to take
similar actions in order to repay the CI Notes on maturity or otherwise,  in the
event it chose or was required to settle the

                                       30
<PAGE>

CI Notes in cash  rather  than  common  stock.  There can be no  assurance  that
sufficient  funds for any of the  foregoing  purposes  would be available to the
Company at such time.

Year 2000 Compliance
          The  Company  believes  that  it has  identified  certain  significant
computer  hardware and software  applications  that may require  modification to
ensure their continued proper operation,  notwithstanding  the change in century
on January 1, 2000 ("Year 2000 Compliance").  The Company is using both internal
and  external   resources  to  test  such   significant   computer  systems  and
applications and to make the  modifications  necessary for Year 2000 Compliance.
The testing and  modification  process,  which is  proceeding  on  schedule,  is
expected to be completed by June 30, 1999.
          In  addition,  the Company has  contacted  certain of its  significant
business  partners and service  vendors to determine  their Year 2000 Compliance
readiness as well as the extent to which the Company is  vulnerable to any third
party Year 2000 Compliance issues.  However,  there can be no guarantee that the
systems of other companies on which the Company's  systems rely will become Year
2000  Compliant  in a timely  manner,  or that the  failure by a third  party to
become  Year 2000  Compliant  would not have a  material  adverse  effect on the
Company.
          The total cost to the  Company  to test and  modify all  systems to be
Year 2000  Compliant  has not been,  and is not expected to be,  material to its
financial  position or results of operations in any given year.  These estimates
of cost and the  anticipated  completion date for Year 2000 Compliance are based
on  management's  best  estimates  utilizing  current data  regarding  available
resources,  coordination  with third  parties  and other  relevant  factors  and
information about systems  conversion.  However,  there can be no assurance that
these  estimates  will be  achieved,  and actual  results  could differ from the
current plan.

Accounting Standards
Disclosures About Segments of an Enterprise and Related Information
Footnotes - SFAS No. 131
         In June 1997, the Financial  Accounting Standards Board ("FASB") issued
SFAS  No.  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information Footnotes," which became effective for the Company beginning January
1, 1998.  SFAS No. 131  establishes  standards for the way that public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  Management believes that the presentation
of  financial  information  under  the  new  Statement  will  not be  materially
different than the current presentation.

Reporting Comprehensive Income - SFAS No. 130
         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income," which became effective for the Company  beginning January 1, 1998. SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its  components  (revenues,  expenses,  gains and  losses)  in a full set of
general-purpose  financial  statements.  This Statement  requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence  as other  financial  statements.  It does  not  require  a
specific  format for that  financial  statement  but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.

Earnings Per Share - SFAS No. 128
         In February,  1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which became  effective for interim and annual periods ending after December 15,
1997. SFAS No. 128 supersedes Accounting Principles Board Opinion ("APB") No. 15
and  replaces the  presentation  of primary  earnings  per share  ("EPS") with a
presentation  of basic EPS.  It also  requires  dual  presentation  of basic and
diluted EPS on the face of the income  statement  for all entities  with complex
capital  structures  and provides  guidance on other  computational  issues.  At
December 31, 1997,  all prior period EPS data  presented  have been  restated to
conform with the provisions of SFAS No. 128. (See Note 1).

Accounting for Stock-Based Compensation - SFAS No. 123
          In  October  1995,  the FASB  issued  SFAS No.  123,  "Accounting  for
Stock-Based  Compensation,"  which became  effective  for the Company  beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of
                                       31
<PAGE>

stock-based  compensation  arrangements  with employees and encourages (but does
not  require)  compensation  cost to be measured  based on the fair value of the
equity  instrument  awarded.  Companies are permitted,  however,  to continue to
apply APB  Opinion  No.  25,  which  recognizes  compensation  cost based on the
intrinsic value of the equity instrument  awarded.  The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees and
will  disclose  the  required  pro forma  effect on net income and  earnings per
share. (See Note 15).

Long-Lived Assets - SFAS No. 121
         In March  1995,  the FASB  issued  SFAS No.  121,  "Accounting  For the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of,"
which is effective for the financial  statements of Chartwell for the year ended
December  31,  1996.  SFAS No. 121 requires  impairment  of property,  plant and
equipment,  identifiable  intangibles  and  goodwill to be  considered  whenever
evidence suggests a lack of  recoverability.  The implementation of SFAS No. 121
did not  have a  material  effect  on the  financial  condition  or  results  of
operations of Chartwell.

Regulatory Accounting Practices
         Management  does not believe  that  current  accounting  changes  being
contemplated by regulatory authorities, if implemented, would have a significant
effect on the operations or liquidity of Chartwell.

Effects of Inflation
         The effects of  inflation on Chartwell  are  considered  in pricing and
estimating reserves for unpaid losses and loss adjustment  expenses.  The actual
effects of inflation on  Chartwell's  results  cannot be  accurately  determined
until ultimate losses are settled. However, based on the actual results reported
to date,  management  believes that premium rates and loss  reserves,  including
reserves  for  losses  that  have been  incurred  but not  reported,  adequately
incorporate the effects of inflation.
See Item 1, "Business--Reserves."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
          Not applicable.

Item 8.  Financial Statements and Supplementary Data.
         See the  Consolidated  Financial  Statements  and Notes thereto and the
Schedules  on pages F-1 through  F-25 and S-1  through S-7  included in Part IV,
Item 14.

Item 9. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosures.
         None.


                                       32
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.
         The  information  called  for by  Item  10 is  incorporated  herein  by
reference to the  Registrant's  definitive  proxy  statement for its 1998 Annual
Meeting of  Stockholders  (the "Proxy  Statement")  which will be filed with the
Securities  and  Exchange  Commission  pursuant  to  Regulation  14A  under  the
Securities  Exchange  Act of 1934,  as  amended,  not later  than 120 days after
December 31, 1997.

Item 11.  Executive Compensation.
         The  information  called  for by  Item  11 is  incorporated  herein  by
reference to the Proxy Statement referred to above in Item 10.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
         The  information  called  for by  Item  12 is  incorporated  herein  by
reference to the Proxy Statement referred to above in Item 10.

Item 13.  Certain Relationships and Related Transactions.
         The  information  called  for by  Item  13 is  incorporated  herein  by
reference to the Proxy Statement referred to above in Item 10.


                                       33
<PAGE>

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
              (a) Financial  Statements and Schedules--The  financial statements
     and schedules listed in the accompanying Index to Financial  Statements and
     Schedules on page F-1 are filed as part of this Annual Report on Form 10-K.
              (b)  Exhibits--The  exhibits listed in the  accompanying  Index to
    Exhibits are filed as part of this Annual Report on Form 10-K
              (c)  Reports on Form 8-K-- None


                                       34
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on March 20, 1998.
                                                 CHARTWELL RE CORPORATION

                                                 By /s/ Charles E. Meyers
                                                 -------------------------
                                                 Charles E. Meyers
                                                 Senior Vice President and
                                                 Chief Financial Officer

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

       Signatures             Title                                  Date
       ----------             -----                                  ----

/s/ Richard E. Cole         Chief Executive Officer and           March 20, 1998
-----------------------     Chairman of the Board of Directors
   Richard E. Cole          (Principal Executive Officer)


/s/ Charles E. Meyers       Senior Vice President and             March 20, 1998
------------------------    Chief Financial Officer
Charles E. Meyers           (Principal Financial Officer)


/s/ Richard B. Primerano    Vice President and Controller        March 20, 1998
-------------------------   (Principal Accounting Officer)
Richard B. Primerano


/s/ Steven J. Bensinger
-----------------------
Steven J. Bensinger         Director                              March 20, 1998

/s/ Jacques Q. Bonneau
----------------------
Jacques Q. Bonneau          Director                              March 20, 1998

/s/ David J. Callard
-----------------------
David J. Callard            Director                              March 20, 1998


/s/ Robert M. DeMichele
-----------------------
Robert M. DeMichele         Director                              March 20, 1998


/s/ Greg S. Feldman
-------------------
Greg S. Feldman             Director                              March 20, 1998


/s/ Stephen L. Green
--------------------
Stephen L. Green            Director                              March 20, 1998


/s/ Frank E. Grzelecki
----------------------
Frank E. Grzelecki          Director                              March 20, 1998


/s/ William R. Miller
---------------------
William R. Miller           Director                              March 20, 1998


                                       35
<PAGE>

       Signatures             Title                                  Date
       ----------             -----                                  ----

/s/ Lunsford Richardson, Jr.
----------------------------
Lunsford Richardson, Jr.    Director                              March 20, 1998


/s/ Stuart S. Richardson
------------------------
Stuart Smith Richardson     Director                              March 20, 1998


/s/ John Sagan
--------------
John Sagan                  Director                              March 20, 1998


/s/ Stephen L. Wenman
---------------------
Stephen L. Wenman           Director                              March 20, 1998

                                       36
<PAGE>
                            CHARTWELL RE CORPORATION


Index to Financial Statements
Independent Auditors' Report..........................................     F-2
Consolidated Balance Sheets at
     December 31, 1997 and 1996.......................................     F-3
Consolidated Statements of Operations
      for the Years Ended December 31, 1997, 1996 and 1995............     F-4
Consolidated Statements of  Stockholders' Equity for the
     Years Ended December 31, 1997, 1996 and 1995.....................     F-5
Consolidated Statements of Cash Flows for the Years Ended
     December 31, 1997, 1996 and 1995.................................     F-6
Notes to Consolidated Financial Statements for the Years
      Ended December 31, 1997, 1996 and 1995..........................     F-7


Index to Schedules
Schedule I--Summary of Investments--Other than
     Investments in Related Parties...................................     S-1
Schedule II--Condensed Financial Information of
     Registrant-Balance Sheets........................................     S-2
Schedule II--Condensed Financial Information of
     Registrant-Statements of Operations..............................     S-3
Schedule II--Condensed Financial Information of
     Registrant-Statements of Cash Flows..............................     S-4
Schedule IV--Reinsurance..............................................     S-5
Schedule V--Valuation and Qualifying Accounts.........................     S-6
Schedule VI--Supplemental Information Concerning
     Property/Casualty Insurance Operations...........................     S-7


                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Chartwell Re Corporation
Stamford, Connecticut

           We have  audited  the  accompanying  consolidated  balance  sheets of
Chartwell Re Corporation and  subsidiaries as of December 31, 1997 and 1996, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the three years in the period  ended  December  31, 1997.
Our audits also included the financial  statement  schedules listed in the Index
on page F-1. These financial  statements and financial  statement  schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial  statements and financial  statement schedules based
on our audits.

           We  conducted  our  audits  in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

           In  our  opinion,  such  consolidated  financial  statements  present
fairly,  in all  material  respects,  the  financial  position of  Chartwell  Re
Corporation  and  subsidiaries as of December 31, 1997 and 1996, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1997 in conformity with generally accepted  accounting
principles.  Also, in our opinion,  such  financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.




DELOITTE & TOUCHE LLP
Parsippany, New Jersey

February 3, 1998

                                      F-2
<PAGE>


                            CHARTWELL RE CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
                  (dollars in thousands, except share amounts)

<TABLE>
<CAPTION>

ASSETS:                                                           1997          1996
Investments:
  Fixed maturities:
    Held to maturity  (market value 1997, $37,421;
<S>                                                           <C>           <C>
      1996, $36,620)......................................... $    36,630   $    36,043
    Available for sale (amortized cost 1997, $645,108;
      1996, $609,368)........................................     657,973       606,621
  Other investments..........................................      38,043        30,896
Cash and cash equivalents....................................      31,607        51,134
                                                               ----------    ----------
          Total investments and cash.........................     764,253       724,694
Accrued investment income....................................      10,677        10,533
Premiums in process of collection............................     126,537        86,351
Reinsurance recoverable: on paid losses......................      34,502        29,767
                         on unpaid losses                         202,593       172,377
Prepaid reinsurance..........................................      29,929        21,733
Goodwill.....................................................      61,006        59,538
Deferred policy acquisition costs............................      26,100        17,903
Deferred income taxes........................................      33,298        45,318
Deposits.....................................................      19,040        18,135
Other assets.................................................      67,549        71,515
                                                              -----------   -----------
                                                              $ 1,375,484   $ 1,257,864
                                                              ===========   ===========

LIABILITIES:
Loss and loss adjustment expenses............................ $   788,240   $   747,858
Unearned premiums............................................     111,149        81,599
Contingent interest notes....................................      29,747        27,541
Other reinsurance balances...................................      33,723        15,085
Accrued expenses and other liabilities.......................      47,967        52,464
Long term debt...............................................     104,126       107,297
                                                              -----------   -----------
           Total liabilities.................................   1,114,952     1,031,844
                                                                ---------     ---------
COMMITMENTS AND CONTINGENCIES (Note 13)

MINORITY INTEREST............................................          35            30
                                                              -----------   -----------
STOCKHOLDERS' EQUITY
Preferred stock,  par value $1.00 per share;  authorized
    5,000,000  shares;  no shares issued or outstanding......
Common stock, par value $0.01 per share; authorized
     20,000,000 shares; shares issued and outstanding
     9,609,799 and 9,583,811 in 1997 and 1996, respectively..          96            96
  Additional paid-in capital.................................     211,864       211,782
  Net unrealized appreciation (depreciation) of investments...      8,741        (1,521)
  Foreign currency translation adjustment.....................        348         1,914
  Retained earnings...........................................     39,448        13,719
                                                              -----------   -----------
          Total stockholders' equity..........................    260,497       225,990
                                                              -----------   -----------
                                                              $ 1,375,484   $ 1,257,864
                                                              ===========   ===========
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>


                            CHARTWELL RE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                  (dollars in thousands, except share amounts)
<TABLE>
<CAPTION>


                                                                      1997           1996         1995
UNDERWRITING OPERATIONS:
<S>                                                              <C>            <C>            <C>
Premiums earned ..............................................   $   245,700    $   209,503    $   120,258
Net investment income ........................................        42,228         42,995         18,917
Net realized capital gains (losses) ..........................            (3)         1,106          3,109
                                                                 -----------    -----------      ---------
    Total revenues ...........................................       287,925        253,604        142,284
                                                                 -----------    -----------      ---------
Loss and loss adjustment expenses ............................       160,848        150,621         86,949
Policy acquisition costs .....................................        72,655         52,030         28,790
Other expenses ...............................................        16,473         15,774          9,694
                                                                 -----------    -----------      ---------
     Total expenses ..........................................       249,976        218,425        125,433
                                                                 -----------    -----------      ---------
Income before taxes - underwriting operations ................        37,949         35,179         16,851
                                                                 -----------    -----------      ---------
SERVICE OPERATIONS:
Service and other revenue ....................................        28,322          6,167          1,095
Equity in net earnings of investees ..........................         4,794          3,559
Net investment income ........................................         1,104              9             44
                                                                 -----------    -----------      ---------
     Total revenues ..........................................        34,220          9,735          1,139
                                                                 -----------    -----------      ---------
Other expenses ...............................................        18,084          2,233          1,056
Amortization of goodwill .....................................         2,297
                                                                 -----------    -----------      ---------
Total expenses ...............................................        20,381          2,233          1,056
                                                                 -----------    -----------      ---------
Income before taxes - service operations .....................        13,839          7,502             83
                                                                 -----------    -----------      ---------
CORPORATE:
Net investment income ........................................           243          1,085            946
Net realized capital gains ...................................                           51             90
General and administrative expenses ..........................         1,903          1,162          1,211
Interest expense .............................................        11,263          9,412          7,466
Amortization expense .........................................           991            723            354
                                                                 -----------    -----------      ---------
Loss before taxes - corporate ................................       (13,914)       (10,161)        (7,995)
                                                                 -----------    -----------      ---------
Consolidated income before taxes and extraordinary item ......        37,874         32,520          8,939
Income tax expense ...........................................        10,611          9,657          2,700
                                                                 -----------    -----------      ---------
Net income before extraordinary item .........................        27,263         22,863          6,239
Extraordinary item, net of tax ...............................                        1,874
                                                                 -----------    -----------      ---------
Net income ...................................................   $    27,263    $    20,989    $     6,239
                                                                 ===========    ===========      =========
Per Share Data:
Basic earnings per share:
Net income before extraordinary item .........................   $      2.84    $      2.52      $    1.66
Extraordinary item, net of income tax ........................                         0.21
                                                                 -----------    -----------      ---------
Net income ...................................................   $      2.84    $      2.31      $    1.66
                                                                 ===========    ===========      =========
Weighted average number of common shares outstanding .........     9,601,314      9,081,867      3,755,312
                                                                 ===========    ===========      =========
Diluted earnings per share:
Net income before extraordinary item .........................   $      2.74    $      2.49      $    1.65
Extraordinary item, net of income tax ........................                        (0.20)
                                                                  -----------    -----------     ---------
Net income ...................................................    $      2.74    $     2.29      $    1.65
                                                                  ===========    ===========     =========
Weighted average number of common and common equivalent shares
  outstanding ................................................      9,965,815      9,177,610     3,791,789
                                                                  ===========    ===========     =========
</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>


                            CHARTWELL RE CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                           1997        1996        1995
PREFERRED STOCK
<S>                                                           <C>         <C>         <C>
  Balance at beginning and end of year.................       $ 0         $ 0         $ 0
                                                         ========    ========    ========
COMMON STOCK
  Balance at beginning of year.........................      $ 96        $ 69        $ 38
  Issuance of common stock.............................                    27          31
                                                         --------    --------    --------
  Balance at end of year..............................       $ 96        $ 96        $ 69
                                                         ========    ========    ========
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of year........................   $211,782    $153,305    $ 77,254
  Issuance of common stock............................         82      58,477      76,051
                                                         --------    --------   ---------
  Balance at end of year..............................   $211,864    $211,782    $153,305
                                                         ========    ========    ========
UNREALIZED APPRECIATION (DEPRECIATION) OF
  INVESTMENTS, NET OF TAX
  Balance at beginning of year.........................  $ (1,521)   $  5,219    $ (8,608)
  Change in net unrealized appreciation (depreciation).    10,262      (6,740)     13,827
                                                         --------    --------    --------
  Balance at end of year...............................  $  8,741    $ (1,521)   $  5,219
                                                         ========    ========    ========
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
  Balance at beginning of year.........................  $  1,914         $ 9        $ 14
  Change in foreign currency translation adjustment....    (1,566)      1,905          (5)
                                                         --------    --------    --------
  Balance at end of year...............................  $    348    $  1,914         $ 9
                                                         ========    ========    ========
RETAINED EARNINGS (DEFICIT)
  Balance at beginning of year.........................  $ 13,719    $ (6,120)   $(12,359)
  Net income...........................................    27,263      20,989       6,239
  Common dividends - declared and paid.................    (1,534)     (1,150)
                                                         --------    --------   ---------
  Balance at end of year...............................  $ 39,448    $ 13,719    $ (6,120)
                                                         ========    ========    ========
TOTAL STOCKHOLDERS' EQUITY
  Balance at beginning of year........................   $225,990    $152,482    $ 56,339
  Issuance of common stock............................         82      58,504      76,082
  Change in net unrealized appreciation (depreciation).    10,262      (6,740)     13,827
  Net income...........................................    27,263      20,989       6,239
  Common dividends - declared and paid.................    (1,534)     (1,150)
  Translation adjustment...............................    (1,566)      1,905          (5)
                                                         --------    --------    --------
  Balance at end of year...............................  $260,497    $225,990    $152,482
                                                         ========    ========    ========
</TABLE>
                 See notes to consolidated financial statements.

                                      F-5
<PAGE>


                            CHARTWELL RE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                                                    1997          1996         1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>          <C>          <C>
        Net premiums collected ...............................................   $ 174,864    $ 126,456    $  87,324
        Net losses and loss adjustment expenses ..............................    (150,682)    (136,753)     (56,813)
        Overhead expenses ....................................................     (21,203)     (17,166)      (9,488)
        Service and other revenue ............................................      (3,954)       5,992        1,095
        Net income taxes paid ................................................      (6,982)      (5,378)        (543)
        Interest received on investments .....................................      44,876       43,652       19,107
        Interest paid ........................................................      (9,071)      (7,415)      (7,219)
        Other, net ...........................................................         413        2,847      (10,485)
                                                                                  --------     --------     --------
             Net cash provided by operating activities .......................      28,261       12,235       22,978
                                                                                  --------     --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchases of held to maturity securities ..............................        (596)      (8,105)      (1,724)
       Purchases of available for sale securities.............................    (275,794)    (640,182)    (374,961)
       Maturities of held to maturity securities..............................       1,850          430        1,054
       Maturities of available for sale securities ...........................      31,415       20,729        5,216
       Sales of available for sale securities ................................     200,792      500,706      330,563
       Cash from acquisitions of Piedmont Management Company Inc. ............
             and Drayton Company Limited .....................................                               135,937
       Investment in Archer Group Holdings plc, net of cash acquired .........                  (47,968)
                                                                                  --------     --------     --------
               Net cash provided by (used in) investing activities ...........     (42,333)    (174,390)      96,085
                                                                                  --------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of common stock ..............................                   58,503
     Issuance of long-term debt ..............................................         693       48,057
     Redemption of long-term debt ............................................      (3,476)     (48,280)
     Dividends paid ..........................................................      (1,534)      (1,150)
     Other, net ..............................................................          82                      (250)
                                                                                  --------     --------     --------
              Net cash provided by (used in) financing activities.............      (4,235)      57,130         (250)
                                                                                  --------     --------     --------
                     Effect of exchange rate on cash..........................      (1,220)         346           (5)
                                                                                  --------     --------     --------
Net increase (decrease) in and cash equivalents ..............................     (19,527)    (104,679)     118,808
Cash and cash equivalents at beginning of year ...............................      51,134      155,813       37,005
                                                                                  --------     --------     --------
Cash and cash equivalents at end of year .....................................   $  31,607    $  51,134    $ 155,813
                                                                                 =========    =========    =========

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
    Net income ...............................................................   $  27,263    $  20,989    $   6,239
    Adjustments to reconcile net income to net cash provided by
     operating activities:
          Extraordinary item .................................................                    1,874
          Equity in net earnings of investees.................................      (4,794)      (3,559)
          Net realized capital (gains) losses ................................           3       (1,158)      (3,199)
          Contingent interest ................................................       2,206        2,045
          Deferred policy acquisition costs ..................................      (8,197)         906       (1,502)
          Unpaid loss and loss adjustment expenses ...........................      40,382        6,391       28,205
          Unearned premiums ..................................................      29,550       (8,974)       5,805
          Other reinsurance balances .........................................      10,438        6,475       (4,494)
          Reinsurance recoverable ............................................     (34,951)      (6,710)       1,395
          Net change in receivables and payables .............................     (33,607)      (4,381)     (11,067)
          Other, net .........................................................         (32)      (1,663)       1,596
                                                                                  --------     --------     --------
                  Net cash provided by operating activities...................   $  28,261    $  12,235    $  22,978
                                                                                 =========    =========    =========
</TABLE>
                 See notes to consolidated financial statements.

                                      F-6
<PAGE>

                            CHARTWELL RE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          (a) Basis of  Presentation--  Chartwell Re Corporation (the "Company")
is an insurance  holding company which conducts  business  through its principal
indirectly  owned  operating   subsidiaries,   Chartwell   Reinsurance   Company
("Chartwell  Reinsurance"),  The Insurance  Corporation of New York  ("INSCORP")
(formerly The  Reinsurance  Corporation of New York) and Archer  Managing Agents
Limited  ("Archer"),  a managing  agency in the Lloyd's  marketplace  which is a
wholly-owned subsidiary of Archer Group Holdings plc ("Archer Holdings").
          The  consolidated  financial  statements  include the  accounts of the
Company and all  subsidiaries.  All significant  inter-company  transactions and
accounts have been eliminated in consolidation.
         The fiscal year end for Archer  Holdings is September 30, due to custom
and  practice  in the  Lloyd's  market.  There were no events  affecting  Archer
Holdings during the period from October 1, 1997 through  December 31, 1997 which
would have a material impact on the financial position of the Company.
         Investments  in companies in which the Company owns 20 to 50 percent of
the voting  common  stock or has the ability to exercise  significant  influence
over the  operating  and  financial  policies of the investees are accounted for
under the equity method.
         (b)  Investments--Fixed  maturity  securities are categorized as either
assets held to maturity or as  available  for sale.  Securities  on deposit with
state regulatory authorities are designated as held to maturity and are recorded
at  amortized  cost.  The  Company has both the ability and intent to hold these
securities  until their maturity.  All  investments  designated as available for
sale are stated at  aggregate  market  value with  unrealized  appreciation  and
depreciation  reported as a separate  component of stockholders'  equity, net of
applicable deferred income taxes.
         Realized  gains and losses on sales of securities are determined on the
specific identification method. Investment income is recognized when earned.
         (c) Cash and Cash Equivalents--The  Company considers all highly liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.
         (d)  Premiums  Earned  and  Unearned   Premiums--   Premiums,   net  of
reinsurance  ceded,  are  recognized as income  ratably  during the terms of the
related insurance and reinsurance  contracts.  Unearned and prepaid  reinsurance
premium  reserves are  established  to cover the  unexpired  portion of premiums
written.  Such reserves are computed by pro rata methods for direct business and
are established based on reports received from ceding companies for reinsurance.
         The Company  estimates and accrues for unreported  premiums and losses,
as well as premium and commission  adjustments on retrospectively rated or other
experience rated reinsurance  contracts,  based on the difference  between total
costs before and after the experience  under the contract (the  with-and-without
method).  These  estimates of experience to date are based on  statistical  data
with subsequent adjustments recorded in the period in which they become known.
         (e) Profit Commissions--Profit commissions earned on business emanating
from Lloyd's syndicates are estimated,  earned and recorded using studies of the
profitability  of the business  underwritten.  Profit  commission  estimates are
continually monitored and reviewed. As new information is received,  changes are
reflected  in current  operations  with final  settlement  three years after the
underwriting year to which it relates.
         (f) Deferred Policy  Acquisition  Costs--Acquisition  costs,  comprised
primarily of  commissions,  are deferred and amortized  over the period in which
the related premiums are earned.
         (g)   Deposits--Deposits   are  those  premiums  paid  in  relation  to
reinsurance  contracts  which do not  qualify  as a  transfer  of risk under the
Company's  accounting  policies.  The deposits earn interest at the  contractual
amounts set forth in the reinsurance contracts.
         (h) Loss and Loss Adjustment  Expenses--The liability for loss and loss
adjustment  expenses  ("LAE") is based on reports and individual  case estimates
and  additional  estimates  provided by the  Company's  claims  department.  The
liability  also  includes an amount for loss and LAE  incurred  but not reported
based on past  experience  of the  Company  and the  reinsurance  and  insurance
industries.  These  estimates  are regularly  reviewed  and, as new  information
becomes known, the liability is adjusted as necessary. Such adjustments, if any,
are reflected in results of operations in the period in which they become known.
         (i)  Income   Taxes--Deferred   income  taxes  result  from   temporary
differences  between the tax basis of assets and  liabilities and their reported
amounts in the financial statements. These differences will result in taxable or
deductible amounts in future years.

                                      F-7
<PAGE>
          (j)  Goodwill--Goodwill  represents the unamortized excess of purchase
price  over the fair  value of net  assets of  acquired  entities.  Goodwill  is
amortized  generally on a  straight-line  basis over periods not to exceed forty
years. On a periodic basis, the Company  estimates the future  undiscounted cash
flows of the  business to which it relates in order to ensure that the  carrying
value of goodwill has not been  impaired.  If  impairment  exists,  the carrying
amount of the  goodwill  is reduced by the  estimated  shortfall  of cash flows.
Amortization  charged to  operations  for each of the years ended  December  31,
1997,  1996 and 1995  was  $2,476,000,  $132,000  and  $(11,754),  respectively.
Accumulated  amortization  of  goodwill  at  December  31,  1997  and  1996  was
$4,679,000 and $161,000,  respectively.  Approximately $2,042,000 of accumulated
amortization  at  December  31,  1997  reflects  the effect of foreign  currency
fluctuations on goodwill related to Archer Holdings.
         (k)  Insurance   Brokerage  Assets  and  Liabilities  -  The  following
fiduciary  assets and liabilities  maintained by the Company's  insurance agency
subsidiaries on behalf of the insureds and the insurance companies are presented
net in the consolidated  financial  statements at December 31, 1997 and 1996 (in
thousands):
                                 1997        1996
                              ---------   ---------
Cash.......................   $  6,397    $ 13,839
Accounts receivable........   $ 19,559    $ 18,599
Accounts payable..........    $(25,956)   $(32,438)

          (l) Business  Segments--The  Company's operations have been classified
into two business  segments.  The Underwriting  Operations  segment includes the
pre-tax results of the insurance  entities over which  management of the Company
is responsible  for making all  underwriting  decisions.  This segment  consists
primarily of the premiums,  losses, expenses and investment results of Chartwell
Reinsurance,  INSCORP,  Oak  Dedicated  Limited  and  ADIT  One  Ltd.,  Archer's
dedicated  corporate capital vehicles.  The Service  Operations segment includes
the pre-tax  results  from  services or capital  provided to or  investments  in
insurance  entities over which  management of the Company does not influence the
underwriting  decisions and the pre-tax  results of Chartwell  Advisers  Limited
("Chartwell  Advisers")  and  Archer,  net  of  related  goodwill  amortization.
Corporate items relate  primarily to capital costs associated with the Company's
debt as well as unallocated  employee  expenses  incurred in connection with the
investigation of possible acquisition targets.
         The  statement of operations  has been  classified to present the total
revenue and pre-tax results of each segment.  This  segmentation  highlights the
increasing  importance of the Service segment to the Company.  The  identifiable
assets of each of the segments as well as the  unallocated  corporate  assets is
summarized as follows (in thousands):
                                       1997              1996
                                    -----------       -----------
Underwriting operations..........   $ 1,266,747       $ 1,140,136
Service operations...............        59,511            87,800
Corporate........................        49,226            29,928
                                    -----------       -----------
    Total assets.................   $ 1,375,484       $ 1,257,864
                                    ===========       ===========

         The Company's  principle areas of operation  include the United States,
the United Kingdom and, to a limited extent, Canada and continental Europe.
Geographic information is presented below:
                               United     United      Other
                               States     Kingdom    Foreign    Consolidated
                              ---------  ---------  ----------   ------------
        1997
Total revenue...............  $ 270,800   $ 48,130    $ 3,458     $ 322,388
Income before taxes.........     28,853      5,057      3,964        37,874
Net income..................     22,263      2,310      2,690        27,263
Identifiable net assets.....  1,250,477     97,281     27,726     1,375,484

        1996
Total revenue...............  $ 259,427    $ 2,124    $ 2,924     $ 264,475
Income before taxes.........     27,956        992      3,572        32,520
Net income..................     17,711        699      2,579        20,989
Identifiable net assets.....  1,169,387     60,755     27,722     1,257,864

        1995
Total revenue...............  $ 140,124    $ 1,082    $ 3,253     $ 144,459
Income before taxes.........      6,176         25      2,738         8,939
Net income..................      3,490         11      2,738         6,239
Identifiable net assets.....  1,096,404     13,137     23,297     1,132,838

                                      F-8
<PAGE>
         (m) Per Share  Data--Basic  and  diluted  earnings  per share have been
calculated  in  accordance  with  Statement  of Financial  Accounting  Standards
("SFAS") No. 128,  "Earnings Per Share," which became  effective for interim and
annual  periods  ending after  December 15, 1997.  Basic  earnings per share are
calculated based upon the weighted average number of common shares  outstanding.
Diluted earnings per share are calculated based upon the weighted average number
of shares  outstanding  increased  to include  the number of  additional  common
shares that would have been outstanding if all dilutive  potential common shares
had been issued.  All prior periods  presented  have been restated to conform to
the provisions of SFAS No. 128. The 1996 basic and diluted earnings per share do
not include the  results of Archer and the 1995 basic and diluted  earnings  per
share do not include the results of Piedmont because their results of operations
subsequent to the  Acquisition  and the Merger to the end of the year  indicated
were immaterial to Chartwell.  Following is a reconciliation of weighted average
common  shares  outstanding  to weighted  average  common and common  equivalent
shares outstanding for the years ended December 31, 1997, 1996 and 1995.

                                                1997      1996         1995

Weighted average common shares outstanding... 9,601,314  9,081,867   3,755,312
Dilutive effect of:
  Common Stock Options.......................   258,458     64,554
  Common Stock Warrants......................   106,043     31,189      36,477
                                              ---------  ----------  ---------

Weighted average common and common
  equivalent shares outstanding............   9,965,815  9,177,610   3,791,789
                                              =========  ==========  =========

         (n)  Minority   Interest--Minority  interest  represents  the  minority
stockholders'  proportionate  share of the  equity of  certain  subsidiaries  of
Archer.
         (o)  Foreign  Currency  Translation--  Adjustments  resulting  from the
translation of the financial statements of non-U.S. subsidiaries to U.S. dollars
are  reported  as a  separate  component  of  stockholders'  equity.  Assets and
liabilities denominated in foreign currency are translated at the exchange rates
in effect at the balance  sheet date.  Results of operations  are  translated at
average exchange rates during each period.
          (p) Disclosure  about Fair Value of Financial  Instruments - Statement
of Financial  Accounting  Standards  ("SFAS") No. 107,  "Disclosures  About Fair
Value of Financial  Instruments,"  requires  disclosures  of the estimated  fair
market value of certain  financial  instruments.  In cases where  quoted  market
prices are not readily  available,  fair values are based on estimates  that use
present value or other valuation techniques.
         (q) Management  Estimates--The  consolidated  financial statements have
been prepared in accordance with generally accepted  accounting  principles.  In
preparing the consolidated financial statements,  management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  statements of the financial condition and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
         (r)  Reclassification--  Certain  account  balances  from  prior  years
presentation   have  been   reclassified   to  conform  with  the  current  year
presentation.
         (s) New Accounting  Standards--In  June 1997, the Financial  Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting  Comprehensive Income,"
which becomes  effective for the Company beginning January 1, 1998. SFAS No. 130
established  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains  and   losses)  in  a  full  set  of
general-purpose  financial  statements.  This Statement  requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence  as other  financial  statements.  It does  not  require  a
specific  format for that  financial  statement  but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.

          In June 1997,  the FASB also issued SFAS No. 131,  "Disclosures  About
Segments of an  Enterprise  and Related  Information  Footnotes,"  which becomes
effective for the Company  beginning  January 1, 1998.  SFAS No. 131 establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  Management  believes that the presentation of financial  information
under  the new  Standard  will not be  materially  different  than  the  current
presentation.
                                      F-9
<PAGE>
2.       ACQUISITIONS

Archer Group Holdings Acquisition
          On November 19, 1996, Chartwell Holdings Limited ("Holdings Limited"),
a newly-formed,  indirect wholly-owned  subsidiary of the  Company acquired 100%
of the outstanding stock (the  "Acquisition") of Archer Holdings in exchange for
cash and loan notes ("Loan  Notes").  The Loan Notes,  guaranteed by First Union
National Bank N.A., pay interest semi-annually at one percent below the Sterling
London Interbank Offered Rate ("Sterling LIBOR") and, unless previously redeemed
or purchased,  mature in June 2002. The Loan Notes are transferable,  subject to
certain restrictions,  but are not listed on any Sterling exchange. Prior to the
Acquisition,  Archer  Holdings was publicly traded on the London Stock Exchange.
          The  Acquisition  has been accounted for under the purchase  method of
accounting.  Accordingly,  the  purchase  price was  allocated to the net assets
acquired based on the preliminary determination of the respective fair values at
the date of acquisition,  which were estimated based upon information  available
at December  31,  1996.  During 1997,  the Company  decreased  the fair value of
tangible net assets acquired by  approximately  $6,642,000,  as more information
became available. Goodwill of approximately $58,936,000,  representing the final
determination  of the fair value of net assets acquired over the purchase price,
is being amortized on a straight-line basis over twenty-five years.
         The purchase price presented at the U.S. Dollar  equivalent at the date
of  acquisition,  was  determined  to be  $60,289,000  and was  allocated to the
respective net assets and liabilities received as follows (in thousands):


Historical book value of Archer Holdings................   $ 6,044
                                                           -------
Acquisition adjustments:
  Deferred taxes........................................    (1,666)
  Accrued expenses......................................    (8,072)
  Other assets..........................................     5,047
                                                            ------
                                                            (4,691)
Fair value adjustment - Goodwill........................    58,936
                                                            ------
Total purchase price....................................  $ 60,289
                                                          ========

         The purchase has been  reflected in the  consolidated  balance sheet of
the  Company as of  December  31,  1996.  Archer  Holdings'  fiscal  year end is
September  30.  Results  of  Archer  Holdings'   operations  from  the  date  of
acquisition to December 31, 1996 were not material to the consolidated financial
statements  of the  Company  and,  accordingly,  have not been  included in such
financial statements.

Piedmont Management Company Merger
          On December 13, 1995,  the Company  acquired  INSCORP as a result of a
merger  with  INSCORP's  former  parent,   Piedmont   Management   Company  Inc.
("Piedmont")  whereby  Piedmont  was  merged  with  and into  the  Company  (the
"Merger"),  with the Company as the surviving corporation.  As consideration for
the Merger,  the Company issued an aggregate of 3,103,499 shares of common stock
to the  shareholders of Piedmont,  representing  45.25% of the then  outstanding
common stock of the Company immediately following the Merger.
         The acquisition of Piedmont was accounted for under the purchase method
of accounting.  Accordingly,  the purchase price of $80,256,000 was allocated to
the  net  assets  acquired  based  on  respective  fair  values  at the  date of
acquisition.  Goodwill  of  approximately  $5,389,000  is being  amortized  on a
straight line basis over forty years.


                                      F-10
<PAGE>
          Upon consummation of the Merger, the Company assumed all of Piedmont's
obligations under the Contingent  Interest Notes (the "CI Notes").  The CI Notes
were issued  immediately  prior to the Merger to protect the Company against the
possibility of adverse  development of INSCORP's reserves for LAE,  particularly
with respect to INSCORP's  potential  exposures  for  environmental  impairment,
asbestos-related and latent injury claims and other long-tail casualty exposures
(Notes 11 and 12).
         The purchase was  reflected in the  consolidated  balance  sheet of the
Company as of December 31, 1995. Results of Piedmont's  operations from the date
of  acquisition  to  December  31, 1995 were not  material  to the  consolidated
financial statements of the Company and, accordingly,  have not been included in
such financial statements.

Drayton Acquisition
         On May 31, 1995, the Company acquired 100% of the outstanding  stock of
Drayton  Company  Limited  ("Drayton")  in exchange for a nominal cash  payment.
Drayton is a Bermuda based insurer which is not currently  writing new business.
The Company is managing the resolution of Drayton's  remaining claims and assets
in a run-off of Drayton's old business.
         The  acquisition  was  accounted  for  under  the  purchase  method  of
accounting.  Accordingly,  the  purchase  price was  allocated to the net assets
acquired based on respective  fair values at the date of  acquisition.  Negative
goodwill  of  approximately  $498,000,  representing  the  excess of net  assets
acquired over the purchase price,  is being  amortized on a straight-line  basis
over the  estimated  run-off  period of five years.  The  historical  results of
Drayton for the periods prior to the date of  acquisition  were not material and
as such have not been included in the pro forma  unaudited  consolidated  income
statement information contained in this note.

Pro Forma Information
         The  following  pro  forma  unaudited   consolidated  income  statement
information  for the Company for the years ended  December  31, 1996 and 1995 is
presented as though the  acquisition  of Archer  Holdings,  the  acquisition  of
Piedmont, the issuance of 2,725,000 common shares through a public offering (See
Note 14) and the redemption by Chartwell Re Holdings Corporation ("Re Holdings")
of 35% of its  outstanding  10.25% Senior Notes due 2004  ("Senior  Notes") (See
Note 12) had  occurred  on  January  1,  1995 (in  thousands,  except  per share
amount):

                                          1996         1995
                                      ----------    ----------
Total revenues.....................    $ 292,627    $ 324,925
Net income (loss)..................    $  25,484    $  (6,074)
Basic earnings per share...........       $ 2.66      $ (0.63)
Diluted earnings per share.........       $ 2.63      $ (0.63)

         This  pro  forma   financial   information   has  been   prepared   for
informational   purposes  only  and  includes   certain   adjustments   such  as
amortization  expense as a result of goodwill,  interest expense on the CI Notes
and certain other adjustments, together with related income tax effects. The pro
forma  financial  information  is not  necessarily  indicative of the results of
operations as they would have been had the transactions  been consummated on the
assumed dates.

                                      F-11

<PAGE>

3.       INVESTMENTS

          The amortized  cost and  estimated  market  values of  investments  in
securities with fixed maturities were as follows (in thousands):
<TABLE>
<CAPTION>

                                                                              Gross Unrealized     Estimated
                                                            Amortized        ------------------      Market      Carrying
                                                               Cost            Gains   Losses         Value        Amount
                                                            ---------          -----   ------       ---------     --------
December 31, 1997:
  Held to maturity:
    U.S. Treasury securities and obligations of U.S.
<S>                                                             <C>             <C>      <C>        <C>            <C>
      government and government agencies.....................   $ 20,594        $ 95     $ 107      $ 20,582       $ 20,594
    Obligations of states and political subdivisions.........      1,868          11                   1,879          1,868
    Debt securities issued by foreign governments............     13,013         773        26        13,760         13,013
    Corporate securities.....................................      1,155          45                   1,200          1,155
                                                                  ------      ------     ------        -----          -----
Subtotal.....................................................     36,630         924       133        37,421         36,630
                                                                  ------      ------     ------       ------         ------

Available for sale:
    U.S. Treasury securities and obligations of U.S.
      government and government agencies.....................     58,922         604        77        59,449         59,449
    Obligations of states and political subdivisions.........    155,109       4,578        11       159,676        159,676
    Debt securities issued by foreign governments............     15,342         513         1        15,854         15,854
    Corporate securities.....................................    212,143       4,415       461       216,097        216,097
    Redeemable preferred stock...............................     36,780       1,602         3        38,379         38,379
    Mortgage backed securities...............................    166,812       2,064       358       168,518        168,518
                                                                 -------      ------    ------       -------        -------
Subtotal.....................................................    645,108      13,776       911       657,973        657,973
                                                                 -------      ------   -------       -------        -------

Total........................................................  $ 681,738    $ 14,700   $ 1,044     $ 695,394      $ 694,603
                                                               =========    ========   =======     =========      =========

December 31, 1996:
  Held to maturity:
    U.S. Treasury securities and obligations of U.S.
      government and government agencies.....................   $ 18,841        $ 92     $ 314      $ 18,619       $ 18,841
    Obligations of states and political subdivisions.........      1,895          10         1         1,904          1,895
    Debt securities issued by foreign governments............     14,545         832        81        15,296         14,545
    Corporate securities.....................................        762          39                     801            762
                                                                 -------       -----     -----        ------            ---
Subtotal.....................................................     36,043         973       396        36,620         36,043
                                                                 -------       -----     -----        ------         ------

Available for sale:
    U.S. Treasury securities and obligations of U.S.
      government and government agencies.....................     73,419         281     1,602        72,098         72,098
    Obligations of states and political subdivisions.........    132,906         848       900       132,854        132,854
    Debt securities issued by foreign governments............      8,139         129        48         8,220          8,220
    Corporate securities.....................................    181,384       1,337     2,501       180,220        180,220
    Redeemable preferred stock...............................     33,773                              33,773         33,773
    Mortgage backed securities...............................    179,747       1,026     1,317       179,456        179,456
                                                                 -------       -----     -----       -------        -------
Subtotal.....................................................    609,368       3,621     6,368       606,621        606,621
                                                                 -------       -----     -----       -------        -------
Total........................................................  $ 645,411     $ 4,594   $ 6,764     $ 643,241      $ 642,664
                                                               =========     =======   =======     =========      =========
</TABLE>


                                      F-12
<PAGE>

          The amortized cost and estimated market value of securities with fixed
maturities at December 31, 1997 and 1996,  by  contractual  maturity,  are shown
below (in thousands). Expected maturities may differ from contractual maturities
because  borrowers  may have the  right to call or  prepay  obligations  with or
without call or prepayment penalties. <TABLE> <CAPTION>

                                           Held to Maturity          Available for Sale
                                          ---------------------   -------------------------
                                                      Estimated                  Estimated
                                          Amortized    Market       Amortized     Market
                                             Cost      Value         Cost         Value
                                          ----------  --------     ---------- ------------
December 31, 1997:
<S>                                         <C>       <C>          <C>           <C>
  Due in one year or less................. $  8,763  $  8,856     $  13,106     $  13,187
  Due after one year through five years...   17,332    17,566       170,525       172,485
  Due after five years through ten years..    6,007     6,514       175,901       180,650
  Due after ten years.....................    4,528     4,485       118,764       123,133
  Mortgage backed securities..............                          166,812       168,518
                                           --------  --------     ---------     ---------
                                           $ 36,630  $ 37,421     $ 645,108     $ 657,973
                                           ========  ========     =========     =========
December 31, 1996:
  Due in one year or less................. $  1,618  $  1,647     $  19,378     $  19,460
  Due after one year through five years...   26,187    26,478       132,431       132,405
  Due after five years through ten years..    6,218     6,595       164,331       163,286
  Due after ten years.....................    2,020     1,900       113,481       112,014
  Mortgage backed securities..............                          179,747       179,456
                                            -------  --------     ---------     ---------
                                           $ 36,043  $ 36,620     $ 609,368     $ 606,621
                                            =======  ========     =========     =========
</TABLE>

         Proceeds from sales of investments in securities with fixed  maturities
(excluding  security  paydowns and calls) during 1997,  1996,  and 1995,  all of
which were classified as available for sale, were $77,339,000,  $281,712,000 and
$326,353,000,  respectively.  Gross gains of $523,000, $2,683,000 and $4,805,000
and gross losses of $526,000,  $2,284,000 and $1,275,000  were realized on those
sales during the years ended December 31, 1997, 1996 and 1995, respectively.

          Sources of net  investment  income for the years  ended  December  31,
1997, 1996 and 1995 were as follows (in thousands):
                                               1997        1996        1995
Investment income:
  Fixed maturities .....................   $ 39,752    $ 43,344    $ 20,468
  Equity securities ....................      2,841       1,150           1
  Mortgage loans .......................                                  5
  Other ................................      1,985         587         123
                                           --------    --------    --------
Total investment income ................     44,578      45,081      20,597
Investment expenses ....................     (1,003)       (992)       (690)
                                           --------    --------    --------
Net investment income ..................   $ 43,575    $ 44,089    $ 19,907
                                           ========    ========    ========

Realized gains (losses) on investments:
  Fixed maturities .....................   $     (4)   $    373    $  3,530
  Equity securities ....................          1         784        (331)
                                           --------    --------    --------
Net realized capital gains (losses) ....   $     (3)   $  1,157    $  3,199
                                           ========    ========    ========


                                      F-13
<PAGE>

         The net unrealized appreciation  (depreciation) of investments included
as a separate component of stockholders' equity at December 31, 1997 and 1996 is
as follows (in thousands):

Difference between market value and amortized       1997        1996
  cost of available for sale portfolio:
     Fixed maturities .......................   $ 12,865    $ (2,747)
     Equity securities ......................        583         407
                                                --------    --------
                                                  13,448      (2,340)
Deferred tax benefit (expense) ..............     (4,707)        819
                                                --------    --------
Net unrealized appreciation (depreciation)
  of investments ............................   $  8,741    $ (1,521)
                                                ========    ========
         Unrealized   appreciation   (depreciation)  of  investments  in  equity
securities  at December 31, 1997 and 1996  includes  gross  unrealized  gains of
$1,513,000 and $913,000,  respectively,  and gross unrealized losses of $930,000
and $506,000, respectively.
         At  December  31,  1997  and  1996,  bonds  with a  carrying  value  of
approximately  $36,630,000 and $36,043,000,  respectively,  were on deposit with
state  regulatory  authorities,  as required by law.  The Company also had cash,
cash  equivalents and bonds totaling  $18,681,000 and $14,669,000 in trusts held
for the benefit of ceding companies at December 31, 1997 and 1996, respectively.
          At  December  31,  1997 and 1996,  the  Company  had  $15,914,000  and
$15,943,000, respectively, of investments held in collateral accounts subject to
certain restrictions in conjunction with a loan guarantee and a letter of credit
arrangement (Note 13).
         At December  31, 1997 and 1996,  the Company had loaned  securities  of
approximately  $14,443,000 and $53,936,000,  respectively,  at fair market value
under a  security  lending  agreement  administered  through  First  Trust,  the
Company's primary custodian. In connection with these transactions,  the Company
holds as collateral securities with a fair value equal to 102% of the fair value
of the  securities  lent to others.  Such  collateral  securities  are marked to
market  on a daily  basis  and  borrowers  are  required  to  supply  additional
collateral to prevent any  collateral  from falling below 102% of the fair value
of the loaned securities.

4.       FAIR VALUE AND FINANCIAL INSTRUMENTS

         The following  methods were used in estimating  fair value  disclosures
for  significant  financial  instruments.  Cash  equivalents  approximate  their
carrying amount due to the short duration of those  investments.  Fixed maturity
securities are based upon quoted market information. The fair value of long term
debt at December 31, 1997and 1996 is based upon current market price.
         The  carrying  amounts  and fair  values of the  Company's  significant
financial instruments are as follows (in thousands):

                                             1997                 1996
                                    Carrying               Carrying
                                     Amount    Fair Value   Amount   Fair Value
                                     ------    ----------   ------   ----------
   Cash and cash equivalents .....   $ 31,607   $ 31,607   $ 51,134   $ 51,134
   Fixed maturity securities .....    694,603    695,394    642,664    643,241
Liabilities:
   Long-term debt ................   $104,126   $109,722   $107,297   $108,500
   CI Note........................     29,747     29,747     27,541     27,541

 On April 8, 1994, the Company entered into an interest rate swap agreement (the
"Swap") for other than trading  purposes with Salomon  Brothers  Holding Company
("Salomon") to convert a portion of its 10.25% fixed rate Senior Notes (Note 12)
to floating rate based on the six-month  U.S.  Dollar London  Interbank  Offered
Rate ("US LIBOR").  The Swap required  Salomon to pay the Company  interest on a
notional amount of $37,500,000 at the fixed rate of 6.95% and the Company to pay
interest at 4.44% for the first year and  thereafter  at the  six-month US LIBOR
rate which reset on a semiannual basis. On May 17, 1995, the Company  terminated
this swap transaction at no cost to the Company. For the year ended December 31,
1995,  the  Company  recorded a  reduction  in  interest  expense of $300,000 in
connection with this Swap.

                                      F-14
<PAGE>
           The Company  entered into a foreign  exchange  option  during 1996 to
protect  itself from the increasing  value of the British Pound Sterling  during
the period  commencing  from the initiation of the Acquisition to the closing of
the  transaction.   During  that  period,  the  Pound  Sterling  appreciated  by
approximately  6%  relative  to the  U.S.  Dollar,  resulting  in a gain of $2.8
million upon settlement of the option.

5.       FEDERAL INCOME TAXES

         The  Company  and  it's  majority  owned  U.S.   subsidiaries   file  a
consolidated  Federal income tax return.  The 1997 and 1996 current income taxes
are based upon regular taxable  income.  The 1995 current income taxes are based
upon alternative minimum taxable income.
         As of December 31, 1997, for Federal  income tax purposes,  the Company
and all includable  subsidiaries had available net operating loss  carryforwards
of  $19,500,000  which will begin  expiring  in 2007.  Such net  operating  loss
carryforwards were generated by INSCORP prior to its acquisition by the Company.
Due to the  change in  ownership,  as defined  by  Section  382 of the  Internal
Revenue Code, a maximum of $3,400,000 of the net operating  loss can be utilized
on an annual basis by the Company and its includable subsidiaries.
         Consolidated  income before taxes and  extraordinary  item consisted of
the following (in thousands):

                                    1997      1996      1995

United States..................   $28,853   $27,956   $ 6,176
Foreign .......................     9,021     4,564     2,763
                                   ------    ------     -----
   Total ......................   $37,874   $32,520   $ 8,939
                                  =======   =======   =======

          The  components  of income tax expense  (benefit)  for the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):

                                              1997      1996       1995
U.S. Taxes
Current ....................................   $ 2,301   $ 9,573    $   208
Deferred ...................................     4,793      (929)     2,478
                                                 -----      ----      -----
                                                 7,094     8,644      2,686
                                                 -----     -----      -----
Foreign Taxes
Current ....................................     2,183     1,013         14
Deferred ...................................     1,334
                                                 -----     -----      -----
                                                 3,517     1,013         14
                                                 -----     -----      -----

Total U.S. and Foreign income tax expense ...  $10,611   $ 9,657    $ 2,700
                                               =======   =======    =======

          The  difference  between  actual  income  tax  expense  and the amount
computed by applying the statutory  Federal  income tax rate of 35%, 35% and 34%
for the years  ended  December  31,  1997,  1996 and 1995,  respectively,  is as
follows (in thousands):

                                        1997        1996        1995
Income tax expense
  at statutory rate................   $ 13,256    $ 11,382    $  3,039
Non-taxable investment income......     (2,598)     (1,400)       (342)
Foreign operations.................       (682)
Amortization of goodwill...........        833          11          (4)
Other, net.........................       (198)       (336)          7
                                      --------    --------    --------
                                      $ 10,611    $  9,657    $  2,700
                                      ========    ========    ========

                                     F-15
<PAGE>

          The deferred income tax expense (benefit) for the years ended December
31, 1997, 1996 and 1995 consisted of the following (in thousands):

                                                       1997     1996      1995

Discounting of loss reserves........................   $ 766  $ 1,314  $ (1,665)
Deposit accounting..................................     150     (130)      (15)
Earned but not reported premiums,
      net of loss and expense.......................   1,186     (458)        4
Deferred acquisition costs..........................   2,869      317       511
Unearned premiums...................................  (1,486)    (865)     (389)
Profit commission...................................   1,334
Difference between carrying value and tax basis of
     investments sold...............................     (43)               (21)
Utilization/(increase) of tax loss carryforward.....   1,710   (4,473)    3,655
Other, net..........................................    (359)   3,366       398
                                                        ----    -----       ---
                                                     $ 6,127   $ (929)  $ 2,478
                                                     =======   ======   =======

         The tax effects of the temporary  differences  comprising the Company's
net  deferred  tax  asset at  December  31,  1997 and  1996 are as  follows  (in
thousands):
                                                               1997       1996
Deferred tax assets:
  Discounting of loss reserves.............................. $ 37,429  $ 38,195
  Unearned premiums.........................................    5,686     4,434
  Unrealized depreciation on investments....................                819
  Deposit accounting........................................      980     1,130
  Allowance for uncollectible reinsurance...................    1,225     1,225
  Tax benefit of loss carryforwards.........................    6,802     8,512
  Other, net................................................    1,917     1,685
                                                                -----     -----
                                                               54,039    56,000
Deferred tax liabilities:
  Deferred acquisition costs................................    9,135     6,266
  Earned but not reported premiums net of loss and expense..    3,141     2,189
  Unrealized appreciation of investments....................    4,707
  Accrued market discount...................................      609       636
  Profit commission.........................................    3,149     1,591
                                                                -----     -----
                                                               20,741    10,682
                                                               ------    ------
Deferred income taxes, net.................................  $ 33,298  $ 45,318
                                                             ========  ========

         Realization  of the  deferred  tax asset is  dependent  on the  Company
generating sufficient taxable income to realize the benefits of the net deferred
tax assets. Although realization is not assured,  management believes it is more
likely than not that the entire net  deferred  tax asset will be realized and as
such no valuation allowance has been recorded at December 31, 1997 or 1996.


6.       EMPLOYEE BENEFIT PLANS

         Eligible  employees  of  the  Company  may  participate  in  a  defined
contribution plan (the "Plan")  established by the Company.  Under the Plan, the
Company  makes  matching   contributions  equal  to  50%  of  employee's  pretax
contributions, not to exceed 6% of the employee's compensation. Amounts expensed
under  the Plan for the  years  ended  December  31,  1997,  1996 and 1995  were
$188,000, $168,000 and $92,000, respectively.
         Certain  members of  management  will receive a supplement  to the Plan
payable at the earlier of age 65 or employment termination.  The supplement will
be equal to the aggregate  contributions  made with respect to the employee to a
trust established by the Company. Annual contributions to the trust are 13.5% to
20.0% of the employee's  base salary as stated in their  employment  agreements.
The amounts  expensed in 1997, 1996 and 1995 for the obligation  under this plan
amounted to $206,500, $206,500 and $168,500, respectively.

                                      F-16
<PAGE>
         Archer Holdings operates  contributory  defined  contribution plans for
its U.K.  employees.  The level of the  contribution  varies  between 5% and 20%
dependent  upon the age of each  participant  at the  beginning of each calendar
year. The amount expensed in 1997 for the obligation  under these plans amounted
to $2,523,000.

7.       RELATED-PARTY TRANSACTIONS AND ASSUMED REINSURANCE TREATIES

         During 1992, Chartwell  Reinsurance entered into a reinsurance contract
with a related  party.  For the years ended  December 31,  1997,  1996 and 1995,
Chartwell Reinsurance earned $3,819,000, $1,716,000 and $2,606,000 of premium on
this  contract  and  incurred,   prior  to  the  effect  of  reinsurance  ceded,
$2,750,000, $1,506,000 and $2,688,000 in loss and LAE, respectively. At December
31, 1997 and 1996,  the loss and LAE liability for this contract was  $1,141,000
and $694,000 and unearned premiums were $569,000 and $224,000, respectively.

8.       RESTRICTION ON PAYMENT OF DIVIDENDS

         The ability of the Company to pay cash  dividends  to  shareholders  is
dependent upon the amount of dividends received from Re Holdings,  whose ability
to pay  dividends  is  dependent  upon the  amount of  dividends  received  from
Chartwell Reinsurance and Holdings Limited.  Chartwell  Reinsurance's ability to
pay cash  dividends to the Company is, in turn,  restricted by law or subject to
approval  of  the  insurance  regulatory  authorities  of  Minnesota,  Chartwell
Reinsurance's  state of domicile.  Insurance  regulatory  authorities  recognize
statutory accounting practices for the ability of an insurer to pay dividends to
its shareholders.
         Under  the  insurance  laws  of the  State  of  Minnesota,  payment  of
dividends by Chartwell Reinsurance in any year is limited to the greater of: (i)
10% of capital and surplus as of the prior year end as  determined in accordance
with  statutory  accounting  practices;   or  (ii)  statutory  net  income  from
operations  of  the  next  preceding  year  excluding  realized  capital  gains.
Notwithstanding the foregoing, Chartwell Reinsurance may pay dividends only from
its earned surplus,  also known as unassigned  funds.  The maximum dividend that
can be paid without prior  approval of the  Minnesota  Department of Commerce in
1998 is $26,261,000.
         On  November  25,  1997,  Chartwell  Reinsurance  paid a  $3.0  million
dividend to Re Holdings. No dividends were paid in 1996 or 1995.
         In addition, under the insurance laws of the State of New York, INSCORP
may pay  dividends to Chartwell  Reinsurance  only out of its  statutory  earned
surplus.  The  maximum  amount  of  cash  dividends  INSCORP  may pay out of its
statutory  earned  surplus,  without prior  regulatory  approval,  is subject to
statutory  restrictions imposed by New York State Insurance Law. Generally,  the
maximum  amount  that  may be paid in any  twelve  month  period  without  prior
approval is the lesser of net  investment  income as defined or 10% of statutory
surplus to policyholders.
         In addition to the foregoing  limitation,  the New York State Insurance
Department,  as is its practice in any change of control situation, has required
the Company to commit to preclude  INSCORP  from  paying any  dividends  for two
years from the date of its merger  with the  Company  without  prior  regulatory
approval. The two year period ended on December 13, 1997.
         The  capital  and  surplus  of  Chartwell  Reinsurance  on the basis of
statutory accounting practices was $262,606,000 and $238,271,000 at December 31,
1997 and 1996,  respectively.  Net  income  of  Chartwell  Reinsurance  based on
statutory accounting  principles was $10,239,000,  $6,156,000 and $9,507,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
         The capital and surplus of INSCORP on the basis of statutory accounting
practices  was  $113,677,000  and  $98,685,000  at  December  31, 1997 and 1996,
respectively. Net income of INSCORP based on statutory accounting principles was
$14,234,000  and  $22,270,000  for the years ended  December  31, 1997 and 1996,
respectively.


                                      F-17
<PAGE>
9.       REINSURANCE ASSUMED AND CEDED

         The  Company  cedes  a  portion  of  its  risks  by  utilizing  various
retrocessional  contracts.  These  contracts do not relieve the Company from its
obligations  to  policyholders.  The Company  regularly  evaluates the financial
condition  of its  reinsurers  and  monitors  concentration  of credit risk with
respect to amounts recoverable under these contracts.

          The effect of reinsurance  on premiums  written and earned at December
31, 1997, 1996 and 1995 is as follows (in thousands):

                              1997                1996               1995
                       Written   Earned    Written    Earned   Written   Earned
                       -------   ------    -------    ------   -------   ------
Primary insurance.... $105,635  $ 86,343  $ 68,307  $ 66,709
Reinsurance assumed..  257,135   245,662   195,530   210,871  $126,968  $123,506
Reinsurance ceded....   94,510    86,305    71,586    68,077     3,654     3,248
                        ------    ------    ------    ------     -----     -----

Net premiums......... $268,260  $245,700  $192,251  $209,503  $123,314  $120,258
                       ========  ========  ========  ========  ========  =======

          Certain of the Company's large assumed  reinsurance  programs were not
renewed for 1998.  During 1997, the Company's  earned premiums  related to these
programs were $48.2 million.
          The effect of reinsurance on loss and LAE for the years ended December
31,  1997,  1996  and  1995  is  a  decrease  of  $70,135,000, $45,908,000  and
$1,616,000, respectively.
         The reinsurance  recoverable  balance on paid and unpaid losses and LAE
from any single  entity or company in excess of 5% of the total at December  31,
1997  were  as  follows:  Centre  Reinsurance  (Bermuda)  Limited,   $38,885,000
(15.2%),  London  Life  and  Casualty   Company,  $15,689,000  (6.2%),  American
Re-Insurance Company,  $14,966,000 (5.9%) and European International Reinsurance
Company, Ltd., $14,000,000 (5.5%).
         In the  normal  course of  business,  the  Company  enters  into  trust
agreements effecting funds held arrangements or obtains letters of credit issued
by  banks  on  behalf  of the  retrocessionaires  which  are not  registered  as
"authorized  reinsurers"  with the  Minnesota  Department of Commerce or the New
York State Insurance Department. The letters of credit or trust agreements serve
as collateral to the extent of their limit for the  contingent  liability  which
exists in the event that the  retrocessionaire is unable to meet its obligations
assumed  under  a  retrocession   agreement.   Reinsurance   recoverables   with
"unauthorized  reinsurers"  totaled  $119,768,000 and $55,264,000 as of December
31, 1997 and 1996,  respectively.  The respective  portions  collateralized were
$111,319,000 and $51,247,000.
         Included in deposits on the balance sheet at December 31, 1997 and 1996
are  $11,548,000  and   $11,120,000,   respectively,   deposited  with  European
International  Reinsurance Limited and $7,492,000 and $7,015,000,  respectively,
deposited with Centre Reinsurance  (Bermuda) Limited,  both of which are secured
by letters of credit as described in the preceding paragraph.

10.      PERMITTED STATUTORY ACCOUNTING PRACTICES

         Chartwell  Reinsurance  prepares its statutory financial  statements in
accordance with accounting  principles and practices  prescribed or permitted by
the Minnesota  Department of Commerce.  INSCORP prepares its statutory financial
statements in accordance with accounting  principles and practices prescribed or
permitted  by the New York  State  Insurance  Department.  Prescribed  practices
include state laws, regulations,  and general administrative rules, as well as a
variety of publications of the National  Association of Insurance  Commissioners
("NAIC").  Permitted  statutory  accounting  practices  encompass all accounting
practices that are not  prescribed;  such practices  differ from state to state,
may differ from company to company within a state, and may change in the future.
Furthermore,  the NAIC has a project to codify statutory  accounting  practices,
the result of which is expected to  constitute  the only source of  "prescribed"
statutory accounting practices. Accordingly, that project will likely change the
definitions of what comprises  prescribed versus permitted statutory  accounting
practices,  and may result in changes to the accounting  policies that insurance
and reinsurance enterprises use to prepare their statutory financial statements.
                                     F-18
<PAGE>
11.      LOSS AND LAE

         The following table presents the activity in the liability for loss and
LAE for the years indicated (in thousands):
                                             1997         1996         1995
Loss and LAE
  at beginning of year..................  $ 747,858    $ 741,467    $ 232,733
Less reinsurance recoverables...........    172,377      179,854       35,432
                                            -------      -------       ------
   Net balance at beginning of year.....    575,481      561,613      197,301
                                            -------      -------      -------
Add provision for loss and LAE for claims
      occurring during:
  Current year..........................    163,003      152,338       86,470
  Prior years...........................     (2,155)      (1,717)         479
                                            -------      -------       ------
   Total incurred loss and LAE..........    160,848      150,621       86,949
                                            -------      -------       ------
Less losses and LAE payments for claims
     occurring during:
  Current year..........................     45,286       29,554       11,797
  Prior years...........................    105,396      107,199       45,016
                                            -------      -------       ------

   Total paid loss and LAE...............   150,682      136,753       56,813
                                            -------      -------       ------

Loss and LAE acquired as of acquisition date of:
  Drayton................................                               4,741
  INSCORP................................                             329,435
                                            -------      -------      -------
Net balance at end of year...............   585,647      575,481      561,613
Plus reinsurance recoverables............   202,593      172,377      179,854
                                            -------      -------      -------

Loss and LAE
  at end of year........................  $ 788,240    $ 747,858    $ 741,467
                                          =========    =========    =========

          As a result of changes in estimates of insured  events in prior years,
the net provision for loss and LAE decreased by $2,155,000 in 1997, decreased by
$1,717,000  in 1996 and  increased  by $479,000 in 1995.  These  amounts,  which
represent  a decrease of 0.3% and 0.2% and an increase of 0.2% of the gross loss
and LAE at the beginning of 1997, 1996 and 1995, respectively, are the result of
normal reserve development  inherent in the uncertainty of establishing loss and
LAE liabilities.
         The  liabilities  include  provisions  for latent  injury or toxic tort
claims that cannot be estimated  with  traditional  reserving  techniques.  Case
reserves,  including LAE, have been established  upon  notification of loss from
ceding companies. In addition, the Company establishes additional liabilities in
excess of its share of the reserve  established  by the ceding  company to cover
exposures  on  both  known  and  unasserted   claims.   These   liabilities  are
periodically reviewed by the Company's claims department. In the reserve setting
process,  the Company also includes provisions for social inflation (i.e. awards
by judges and juries  that have  progressively  increased  in recent  years) and
evaluates  the  potential  effect  of any  legislative  changes  on its  reserve
liabilities.  However,  because of  inconsistent  court decisions in federal and
state  jurisdictions  and the wide  variation  among  insureds  with  respect to
underlying facts and coverage,  uncertainty  exists with respect to these claims
as to liabilities of ceding companies and, consequently, reinsurance coverage.
         At December 31, 1997,  the Company  carried case reserves and allocated
LAE  attributable to asbestos claims and  environmental  pollution claims in the
amount of $70,923,000  ($48,052,000 after reduction for reinsurance recoverable)
of which $8,254,000 ($4,870,000 after reduction for reinsurance recoverable)

                                      F-19
<PAGE>
related to Chartwell  Reinsurance and $62,669,000  ($43,182,000  after reduction
for  reinsurance  recoverable)  related to  INSCORP.  Management  believes  that
Chartwell  Reinsurance's  exposure  to  asbestos  and  environmental  losses  is
lessened because of its relatively recent entry into the reinsurance business in
1979,  its low  historical  levels  of  premium  volume  prior to 1985,  and its
retrocessional programs. In addition, management believes the Company's exposure
to adverse reserve  development at INSCORP related to asbestos and environmental
losses is lessened  because the CI Notes,  as discussed in Note 12, are designed
to provide the Company  with  protection  against such  adverse  development  of
INSCORP's  reserves for losses and LAE.  For the three years ended  December 31,
1997, the effect of asbestos and environmental pollution claims was not material
to the Company's results of operations.
         Environmental  claims are  particularly  challenging  to a  reinsurance
company.  Such claims involve  underlying  coverage disputes between the insured
party  and  its  insurer;  substantial  legal  defense  costs;  questions  as to
occurrences and  aggregation of claims and "late notice"  issues.  Environmental
liability  suits often  contain  multiple  party and multiple  site actions that
result in varied adjudications among insureds and their insurers. Such a complex
setting  forces the parties to find a reasonable  basis for settling the claims.
These widely varying  settlements  involving  primary  insurers force challenges
upon the  reinsurer  with respect to the extent to which they should  follow the
settlements of their ceding  companies.  Accordingly,  there can be no assurance
that  the  Company's  ultimate  liability  for  losses  and LAE  will  not  vary
significantly from amounts reserved.
         In 1992, an  indemnification  agreement  (the "Reserve  Indemnification
Agreement")  was  entered  into  with  NWNL and its  parent  company,  ReliaStar
Financial Corp.  ("RLR") (formerly The NWNL Companies,  Inc.), which indemnified
the parties for subsequent  development in Chartwell  Reinsurance's December 31,
1991 balances of loss and loss adjustment expenses,  the statutory provision for
uncollectible  reinsurance and the collectibility of reinsurance  recoverable on
losses paid, among other items, up to an aggregate of $23.0 million.
         On June 28, 1996, the Company received  $7,900,000 as settlement of the
receivable  arising  from the  Reserve  Indemnification  Agreement.  The Reserve
Indemnification, which by its terms was scheduled to be settled as of the end of
1996,  was settled early by mutual  agreement  with RLR. The  settlement did not
materially affect operating results for the year ended December 31, 1996.

12.      DEBT
          (a) Long-term  debt--The  components of long-term debt at December 31,
1997 and 1996 are as follows (in thousands):

                              1997            1996

Senior notes.............. $  48,750      $  48,750
Bank loan.................    51,198         54,707
Other.....................     4,178          3,840
                           ---------      ---------
Total..................... $ 104,126      $ 107,297
                           =========      =========

         On March  17,  1994,  the  Company  completed  a public  offering  (the
"Offering") of 10.25% Senior Notes due 2004,  having a total principal amount of
$75,000,000.   The  net  proceeds  to  the  Company   from  the  Offering   were
approximately  $71,934,000 after deducting expenses related to the Offering.  Of
the net  proceeds,  $30,000,000  was  contributed  to the  statutory  surplus of
Chartwell  Reinsurance  and  $23,400,000  was used to retire the Company's  then
outstanding  senior term loan. The remaining  funds were retained by the Company
for general  corporate  purposes,  which included the payment of interest on the
Senior Notes.
         On April 8, 1996,  Re  Holdings  redeemed  35% of the Senior  Notes for
$28,300,000,  including the redemption premium. Due to this early extinguishment
of debt, the Company  recognized an  extraordinary  loss of  $1,874,000,  net of
applicable income taxes of $1,000,000.  This extraordinary charge represents the
redemption  premium  and  35% of the  remaining  original  debt  issuance  costs
relating to the Senior Notes.
         On December  13, 1995,  the Company  entered  into a  $20,000,000  loan
agreement  with Fleet Bank (the "Fleet  Loan"),  with a variable  interest  rate
based upon the  Eurodollar  rate plus a margin  based upon the S&P rating of the
Notes,  scheduled  to expire on  December  13,  2002.  The Fleet Loan was repaid
during 1996.
          On November 14, 1996, Re Holdings  entered into a new credit  facility
with First Union  National  Bank,  N.A.,  ("First  Union") as agent.  The credit
facility  provides  for a term loan in two  tranches,  A & B, (the "First  Union
Loans"),  with outstanding balances of $30,000,000 and $13,983,000  (denominated
in Pounds Sterling), respectively at December 31, 1997 and 1996. In addition, at
December 31, 1997,  $7,215,000  of the Tranche B Loan was used to guarantee  the
Loan Notes. Both loans are subject to a quarterly repayment schedule, commencing
on March 31, 1999 and ending on December 31, 2002. Re Holdings used  $20,000,000
of the  First  Union  Loans  to  repay  all  outstanding  borrowings  under  the
$20,000,000  loan  agreement  with Fleet Bank.  Portions of the remainder of the
First  Union  Loans were drawn down in cash by Re Holdings  and  contributed  to
Holdings Limited

                                      F-20
<PAGE>
for the purchase of Archer Holdings, and portions were utilized to guarantee the
obligations  of  Holdings  Limited  under  the  Loan  Notes  (the  "First  Union
Guarantee").  The holders of Loan Notes may require the Company to redeem all or
part of their  holdings in June or December of each year.  As the Loan Notes are
redeemed  ("Loan Note  Redemptions"),  the First Union  Guarantee is reduced and
replaced  with loan  proceeds to fund the Loan Note  Redemptions.  During  1997,
$1,992,000  of Loan  Note  Redemptions  occurred,  resulting  in an  outstanding
balance of Loan Notes of $7,215,000 at December 31, 1997.
         Re Holdings  currently has a $60,000,000  Revolving  Credit  Commitment
from  First  Union  (the  "First  Union  Revolver"),  which was  increased  from
$35,000,000 in October of 1997.  The First Union Revolver  replaced Re Holdings'
$10,000,000 revolving credit facility from Fleet Bank (under which no borrowings
were  outstanding).  The First Union Revolver may be used to provide  additional
Loan Note  guarantees,  to support  underwriting  at  Lloyd's  by the  Company's
subsidiaries  or for other general  corporate  purposes.  All  obligations of Re
Holdings under the Credit Facilities are guaranteed by the Company.
         The other portion of long-term debt primarily  represents capital lease
obligations.
         The Company's  long-term debt agreement  contains general covenants and
restrictions  as well as financial  covenants  relating to, among other  things,
minimum earned surplus,  minimum statutory surplus,  minimum net worth,  certain
financial ratios,  and maintenance of minimum cash and cash equivalent  balances
on the books of the borrower.
         Annual  maturities of long-term  debt  outstanding at December 31, 1997
are as follows (in thousands):

1998........................................    $ 389
1999........................................   11,576
2000........................................   13,957
2001........................................   13,644
2002........................................   64,560
-----                                          ------
                                            $ 104,126
                                            =========

         (b) Contingent Interest Notes--In conjunction with the Merger, Piedmont
issued the CI Notes.  The CI Notes were issued in an aggregate  principal amount
of $1  million,  with  principal  accruing  interest  at a rate of 8% per annum,
compounded annually. Such interest will not be payable until maturity or earlier
redemption of the CI Notes.  In addition,  the CI Notes will entitle the holders
thereof to receive at maturity,  in proportion to the principal amount of the CI
Notes  held by them,  an  aggregate  of from $10  million  up to $55  million in
contingent  interest.  Settlement of the CI Notes may be made by payment of cash
or, under certain specified  conditions,  by delivery of shares of the Company's
common stock. The CI Notes mature on June 30, 2006. The issuance of the CI Notes
was  primarily  designed  to  provide  protection  to the  Company  against  the
possibility  of adverse  development  of INSCORP's  reserves for losses and loss
adjustment  expenses  and  long-tail  casualty  exposures  (Notes 2 and 11).  At
December 31, 1997,  the CI Notes are recorded at the present value of the amount
which is  reasonably  determined  to be payable at maturity.  At this time,  the
Company believes that INSCORP's  reserves for loss and loss adjustment  expenses
are an appropriate  estimate of projected  ultimate  losses and loss  adjustment
expenses  to be paid  and  therefore,  at  this  time,  the  maximum  amount  of
contingent  interest  on the CI  Notes  is  presently  expected  to be  paid  at
maturity.  The CI Notes contain  covenants  which are similar in nature to those
provided for in the Company's long-term debt.

                                      F-21
<PAGE>

         (c) Capital  Leases - During 1996,  the Company began  leasing  certain
facilities  and  equipment  under  agreements  which are  classified  as capital
leases. The leases have original terms of 3 to 5 years and have purchase options
at the end of the original  lease term. At the end of the term,  the Company may
purchase the equipment for a mutually agreeable price, renew the lease or return
the equipment to the lessor and enter into a new lease.  Leased  capital  assets
include  the  buildout  costs  of the  Company's  leased  office  space  for its
principal  executive  offices,  furniture and  equipment,  and  electronic  data
processing  hardware  and  software  and are  included  in Other  Assets  in the
consolidated  balance  sheet  at  December  31,  1997 and  1996 as  follows  (in
thousands):

                                             1997      1996

Office space buildout costs............... $ 1,179    $ 1,474
Furniture and equipment...................   2,648      3,310
EDP hardware and software.................   1,137      1,705
                                           -------    -------
                                           $ 4,964    $ 6,489
                                           =======    =======

          Leased  capital  assets  are  amortized  to  interest   expense  on  a
straight-line  basis over the original  lease term.  For the year ended December
31, 1997,  the Company  recorded  $230,000 of interest  expense  related to such
leased assets.  Future minimum payments,  including  principal and interest,  by
year and in the aggregate,  under  non-cancelable  capital leases are as follows
(in thousands):

1998....................................................  $ 1,832
1999....................................................    1,336
2000....................................................    1,158
2001....................................................      845
2002....................................................      450
                                                         --------
                                                          $ 5,621
                                                         ========

13.      COMMITMENTS AND CONTINGENCIES

         Operating  leases--The  Company  leases  office space for its principal
executive offices in the U.S. and U.K. under non-cancelable, renewable operating
leases expiring on July 31, 2006 and December 24, 2008,  respectively.  The rent
expense has been accounted for on a straight-line  basis after amortization of a
rent abatement allowance (on the U.S. lease).  Rental expense for 1997, 1996 and
1995 was $2,828,000,  $1,386,000 and $562,000,  respectively. The future minimum
rental payments,  exclusive of escalation clauses,  under the existing leases as
of December 31, 1997 are as follows (in thousands):

   1998...........................................  $ 1,358
   1999...........................................    1,658
   2000...........................................    1,744
   2001...........................................    1,854
   2002...........................................    1,922
   Future years...................................    7,346

         Line of credit--The Company has a $60 million revolving credit facility
with First  Union,  of which $7 million  was unused and $53  million was used to
secure unsecured letters of credit at December 31, 1997.
        Loan  guarantees  and letters of  credit -- At  December 31,  1997,  the
Company has outstanding  loan guarantees and standby letters of  credit totaling
$4,084,000  and  $69,530,000,  respectively.  The loan  guarantees  and  standby
letters of credit are in force for five years, for which the Company pays annual
fees of $237,000.  The loan  guarantees and letters of credit provide capital to
NLC Name No. 6 Limited, Riverside Underwriters Plc and Oak Dedicated, corporate

                                     F-22
<PAGE>
members of Lloyd's,  to participate in certain  Lloyd's  syndicates for the 1995
Underwriting  Year  and  thereafter.  The  investments  in NLC  Name  No.  6 and
Riverside  Underwriters  Plc,  which amount to $16,331,000 at December 31, 1997,
are  included  in other  assets  with  corresponding  amounts  included in other
liabilities for the loan guarantees and letters of credit.
         American  Eagle--In  1996 and early  1997,  the  Company  entered  into
certain agreements with American Eagle Insurance Company ("American  Eagle"). On
December  3,  1997,  American  Eagle  was  placed in  receivership  by the Texas
Department  of  Insurance.   Since  a  significant   portion  of  the  Company's
liabilities in connection with American Eagle are collateralized by a trust fund
held by the Company,  management of the Company does not presently  believe that
any residual  exposure  resulting  from the  receivership  of American  Eagle is
likely to have a material adverse effect on its financial position or results of
operations.
          Lloyd's Names  exposure - The Company's  balance sheet at December 31,
1997 includes a provision for potential exposure to certain of the Names who had
participated on syndicates  managed by Archer.  The provision was established by
the Company based on actuarial projections of the expected deterioration for the
applicable  years of account.  Management  believes at the present time that the
provision related to such potential exposure is sufficient.
          Other -The  Company,  Chartwell  Reinsurance,  INSCORP  and Archer are
subject to the  litigation of disputes in the normal  course of their  business.
Management does not believe that any pending  litigation or arbitration to which
it is a party,  or of which any of its  properties  or assets  are  subject,  is
likely to have a materially  adverse effect on its current financial position or
results of operations.

14.           PREFERRED AND COMMON STOCK

          The Company  completed a public offering of 2,725,000 shares of common
stock at $23.00 per share during the first half of 1996. The net proceeds to the
Company were $58,503,000 after deduction of underwriting  discount and expenses.
Of the net  proceeds,  $48,500,000  was  contributed  to Re  Holdings,  of which
$20,000,000  was contributed to the statutory  surplus of Chartwell  Reinsurance
and $28,500,000 was used to retire 35% of Re Holdings'  outstanding Senior Notes
plus accrued  interest (Note 12). The remaining  funds were retained for general
corporate purposes.
         In 1997,  the board of directors of the Company  approved a stockholder
rights plan.  Stockholders of record as of the close of business on May 22, 1997
received a dividend of one preferred  share  purchase right (a "Right") for each
outstanding  share of common  stock of the Company.  The Rights  attached to the
common  stock  certificates  then  outstanding  and  no  separate   certificates
representing the Rights were issued. The Rights expire on May 22, 2007.
         The Rights are  exercisable  only if a person or group  (other than the
Company,  certain affiliates of the Company and certain  inadvertent  beneficial
owners) either (i) acquired beneficial ownership of 20% or more of the Company's
common  stock or (ii)  commenced  or  announced  the intent to commence a tender
offer or exchange  offer that would lead to beneficial  ownership by a person or
group of 20% or more of the  Company's  common  stock.  Each Right  entitles its
holder to purchase 1/100 of a share of Junior Participating Cumulative Preferred
Stock at a purchase  price of $120,  subject to adjustment  from time to time to
prevent dilution.
         In  certain  cases  where an  acquirer  purchased  more than 20% of the
Company's  common  stock,  the Rights would allow  stockholders  (other than the
acquirer)  to purchase  shares of the  Company's  common  stock at 50% of market
price.  If the Company were acquired in a merger or other  business  combination
transaction,  under certain  circumstances  the Rights could be used to purchase
shares  in the  acquirer  at  50%  of  the  market  price.  Subject  to  certain
conditions, if a person or group acquired 20% but less than 50% of the Company's
common stock, the Company's board of directors could exchange each Right held by
stockholders (other than the acquirer) for one share of common stock. The Rights
can be redeemed by the  Company's  board of directors for $.001 per Right at any
time prior to the acquisition by any person or group of beneficial  ownership of
20% or more of the Company's common stock.

15.      STOCK OPTION PLANS AND COMMON STOCK WARRANTS

         During 1997, the Company  adopted the 1997 Omnibus Stock Incentive Plan
(the "1997  Plan") as the  successor  to the 1993 Stock  Option  Plan (the "1993
Plan")  which was adopted on October 15, 1993.  Under the 1993 Plan,  options to
acquire  1,000,000  shares of Common  Stock  were  authorized  to be  granted to
officers,  key  employees  and  directors  of the  Company  and  its  designated
subsidiaries.  Upon adoption of the 1997 Plan,  no further  awards shall be made
under the 1993 Plan and  107,000 of  previously  authorized  non-granted  shares
under the 1993 Plan  became  available  under the 1997 Plan.  The  Company  also
authorized an additional 500,000 shares to be granted under the 1997 Plan. Under
both plans, the options become exercisable at various dates.
         A total of  50,000  shares  are  available  for  grants of  options  to
non-employee  directors  until  December  31,  2006 under the 1996  Non-Employee
Directors Stock Option Plan. An option to purchase 1,000 shares of the Company's

                                      F-23
<PAGE>
Common Stock was granted to all  non-employee  directors in office at January 1,
1996 and  will be  granted  to all  non-employee  directors  on the date of each
annual meeting of  stockholders.  The options are  exercisable  after six months
from the grant date at a price equal to the fair value of the Company's stock on
the date of grant. The options expire ten years after the grant date.
         The total  number of options  available  to  purchase  shares of Common
Stock under the Company's stock option plans at December 31, 1997, 1996 and 1995
are as follows: <TABLE> <CAPTION>

                                             1997                      1996                    1995
                                                  Weighted                Weighted                  Weighted
                                                  Average                 Average                   Average
                                       Shares  Exercise Price  Shares  Exercise Price   Shares   Exercise Price
                                       ------  --------------  ------  --------------   ------   --------------
<S>                                    <C>       <C>           <C>        <C>           <C>          <C>
Outstanding, beginning of year.......  876,400   $ 21.92       672,900    $ 21.00       590,100     $ 21.00
Granted..............................  431,000     29.65       203,500      24.95        82,800       21.00
Exercised............................  (22,400)    21.04          -         -              -            -
Canceled.............................   (9,700)    22.01          -         -              -            -
                                        ------     -----       -------     ------       -------     -------
Outstanding, end of year............ 1,275,300   $ 24.55       876,400    $ 21.92       672,900     $ 21.00
                                     =========   =======       =======    =======       =======     =======
Options exercisable at end of year..   665,040                 554,060                  409,480
                                       =======                 =======                  =======
</TABLE>
          In  October  1995,  the FASB  issued  SFAS No.  123,  "Accounting  for
Stock-Based  Compensation,"  which became  effective  for the Company  beginning
January 1, 1996.  SFAS No. 123  requires  expanded  disclosures  of  stock-based
compensation  arrangements with employees and encourages,  but does not require,
compensation  cost  to be  measured  based  on the  fair  value  of  the  equity
instrument awarded.  Companies are permitted,  however, to continue to apply APB
Opinion No. 25, which recognizes  compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB Opinion
No.  25 to its  stock-based  compensation  awards  to  employees.  There  was no
compensation  cost  recognized in income for stock options  granted during 1997,
1996 or 1995. Had  compensation  cost related to the stock options been recorded
at fair value on the dates of grant in accordance  with SFAS No. 123, the effect
on the  Company's  net income  and EPS  amounts  would have been as follows  (in
thousands, except share data):

                                          1997        1996        1995
Net income:
      As reported.....................  $ 27,263    $ 20,989     $ 6,239
      Pro Forma.......................    26,270      20,709       6,053
Basic EPS:
      As reported.....................    $ 2.84      $ 2.31      $ 1.66
      Pro Forma.......................      2.74        2.28        1.61
Diluted EPS:
      As reported.....................    $ 2.74      $ 2.29      $ 1.65
      Pro Forma.......................      2.64        2.26        1.60

         The  Black-Scholes  Option  Pricing Model was used to estimate the fair
values of options granted during 1997,  1996 and 1995. The assumptions  used for
these grants included a 10-year average expected life for all years, zero-coupon
U.S.  Government  risk free interest  rates of 5.76%,  6.43% and 5.64% for 1997,
1996 and  1995,  respectively,  current  dividend  yield  rates of 1.00% for all
years,  and  volatility  of 32.34%,  39.35% and 35.00% for 1997,  1996 and 1995,
respectively.  The weighted  average fair values of options  granted  during the
years 1997, 1996 and 1995 were $14.29, $13.59 and $9.94, respectively.

          At December 31, 1997, there were warrants outstanding for the purchase
of 340,577 shares of Common Stock at prices of $21 and $22 per share.

16.      EMPLOYEE STOCK PURCHASE PLANS

         The Company  established  an Employee  Stock Purchase Plan which became
effective  January 1, 1996.  Participating  employees are permitted to purchase,
annually,  shares of the Company's Common Stock through payroll deductions in an
amount ranging from 2% to 10% of the employee's base pay (as elected by the

                                      F-24
<PAGE>
employee).  The purchase price for shares purchased in a particular plan year is
equal to the  lesser of (i) 85 percent  of the fair  market  value of the Common
Stock on the  beginning  of such plan year or (ii) 85 percent of the fair market
value  of the  Common  Stock  at the end of such  plan  year.  The  Company  has
authorized  100,000  shares of common stock for purchase under the plan of which
11,587  and  12,381  were   purchased  in  February   1998  and  January   1997,
respectively.
         Archer  Holdings  established  an Employee  Stock  Purchase  Plan which
became effective May 1, 1997.  Participating employees contribute savings to the
Plan ranging from (pound)5 to (pound)250 per month (as elected by the employee).
At the end of three years,  the employees may use their savings to buy shares in
the  Company at a price equal to 85% of the fair value of the  Company's  Common
Stock as of the inception of the three year period.

17.       QUARTERLY FINANCIAL DATA (UNAUDITED)
          Summarized  quarterly  financial  data is as  follows  (in  thousands,
except per share data):
                                         First     Second     Third     Fourth
                                        Quarter    Quarter   Quarter    Quarter
                                        -------    -------   -------    -------

For the year ended December 31, 1997
  Premiums earned..................... $ 61,785   $ 73,890   $ 59,002  $ 51,023
  Net investment income..............    10,210     11,202     10,943    11,220
  Net realized capital gains (losses).      (20)       (29)       112       (66)
  Income tax expense..................    2,577      2,848      2,857     2,329
  Net income..........................    6,487      6,705      6,987     7,084
  Stockholders' equity................  222,305    236,550    248,264   260,497
  Basic earnings per share............     0.68       0.70       0.73      0.74
  Diluted earnings per share..........     0.66       0.68       0.69      0.70

For the year ended December 31, 1996
  Premiums earned..................... $ 56,243   $ 48,961   $ 47,982  $ 56,317
  Net investment incomE...............   10,764     10,814     11,791    10,720
  Net realized capital gains..........      921                    81       155
  Income tax expense..................    2,050      2,177      2,590     2,840
  Net income..........................    4,834      3,870      6,011     6,274
  Stockholders' equity................  201,454    204,630    212,414   225,990
  Basic earnings per share (1)........     0.64       0.40       0.63      0.65
  Diluted earnings per share(1).......     0.63       0.40       0.62      0.64


(1)   Basic and diluted earnings per share in the second quarter of 1996 are
      net of $0.20 per share related to an extraordinary item.


                                       F-25
<PAGE>
                            CHARTWELL RE CORPORATION

                       SCHEDULE I-SUMMARY OF INVESTMENTS-
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                              At December 31, 1997
                                 (In Thousands)

                                  Column A    Column B  Column C      Column D
                                                                      amount at
                                                                     which shown
                                                                        in the
                                                                       balance
                                                  Cost     Value        sheet
                                                  ----     -----     -----------
Fixed Maturities:
  Bonds:
     United States Government and government
       agencies and authorities(1).............$ 237,958   $ 240,213   $ 240,225
     States, municipalities and political
       subdivisions(1).........................  156,977     161,556     161,544
     Foreign governments.......................   28,355      29,614      28,867
     All other corporate bonds.................  221,668     225,632     225,588
  Redeemable preferred stock...................   36,780      38,379      38,379
                                                ---------  ---------   ---------
          Total fixed maturities...............  681,738     695,394     694,603
                                                ---------  ---------   ---------
Equity Securities- Common stocks of banks,
   trusts and insurance companies.............    34,843      38,043      38,043
                                                ---------  ---------   ---------
           Total investments.................. $ 716,581   $ 733,437   $ 732,646
                                               ==========  =========   =========

(1)   Balance sheet value differs from column B and C because category  includes
      a combination  of securities  "Held to Maturity" and "Available for Sale".
      See Notes 2b and 3 of the audited consolidated financial statements.





                                      S-1

<PAGE>

                            CHARTWELL RE CORPORATION
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
                                 (In thousands)
                                                               December 31,
                                                        ------------------------
                                                            1997         1996

ASSETS:
Investment in and receivable/payable from/to
  subsidiaries.......................................  $ 275,311      $ 242,209
Cash and cash equivalents............................      2,073            789
Other assets.........................................     12,866         11,155
                                                       ----------     ----------
                                                       $ 290,250      $ 254,153
                                                       ==========     ==========
LIABILITIES:
Contingent interest notes............................   $ 29,747       $ 27,541
Other liabilities....................................          6            622
                                                       ----------     ----------
      Total liabilities..............................     29,753         28,163
                                                       ----------     ----------

STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share;
  authorized 5,000,000 shares; no shares
  issued or outstanding
Common stock, par value $.01 per share; shares
  issued and outstanding 9,609,799 and 9,583,811
  in 1997 and 1996, respectively....................          96             96
Additional paid-in capital..........................     211,864        211,782
Net unrealized appreciation (depreciation) of
  investments.......................................       8,741         (1,521)
Foreign currency translation adjustment.............         348          1,914
Retained earnings...................................      39,448         13,719
                                                       ----------      ---------
      Total stockholders' equity....................     260,497        225,990
                                                       ----------      ---------
                                                       $ 290,250      $ 254,153
                                                       ==========     ==========


The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and the accompanying notes thereto.




                                      S-2



<PAGE>
                            CHARTWELL RE CORPORATION
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS
                                 (In thousands)
                                                1997          1996         1995
REVENUES:
Net investment income.......................   $  118        $   491     $   946
Other income................................                   2,802
Realized gains..............................                                  90
                                               -------     ---------   ---------
             Total revenues.................      118          3,293       1,036
                                               -------     ---------   ---------

EXPENSES:
Interest and amortization..................     2,618          2,358       7,820
General expenses...........................       127            119       1,211
                                               -------     ---------   ---------
             Total expenses................     2,745          2,477       9,031
                                               -------     ---------   ---------

Income (loss) before federal income taxes
  and equity in earnings of subsidiaries...    (2,627)           816     (7,995)
                                               -------     ---------   ---------

Federal income taxes:
   Current.................................    (1,442)           241     (2,729)
   Deferred................................      (149)
                                               -------      --------    --------
             Total income tax expense
                (benefit)..................    (1,591)           241     (2,729)
                                               -------       -------     -------

Income (loss) before equity in undistributed
   income of subsidiaries..................    (1,036)           575     (5,266)
Equity in undistributed income of
   subsidiaries............................    28,299         20,414     11,505
                                              -------       --------    -------
Net income.................................  $ 27,263       $ 20,989    $ 6,239
                                              =======       ========    =======



The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and the accompanying notes thereto.





                                      S-3
<PAGE>


                            CHARTWELL RE CORPORATION
           SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)




                                                    1997         1996       1995
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income taxes (paid) recovered........  $ 191      $ (210)    $ 5,193
        Interest received on investments.........    113         494       1,058
        Overhead expenses........................   (151)
        Service and other revenue................    525
        Interest paid............................                        (7,219)
        Net realized capital gains...............                             90
        Other, net...............................   (807)        758       (756)
                                                  -------     -------    -------
             Net cash provided by (used in)
             operating activities................   (129)      1,042     (1,634)
                                                  -------     -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Capital contributions and advances to
         subsidiaries............................  2,865     (20,000)    (7,446)
       Cash from acquisitions of Archer Holdings
         and Piedmont, net of expenses paid......            (40,912)      (672)
       Cost of investments acquired..............                        (3,789)
       Proceeds of investments sold..............                          6,344
                                                  -------    --------   --------
               Net cash provided by (used in)
               investing activities..............  2,865     (60,912)    (5,563)
                                                  -------    --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of common
       stock.....................................             58,503
     Dividends paid.............................. (1,534)     (1,150)
     Other, net..................................     82
                                                  -------     -------   --------
              Net cash provided by (used in)
              financing activities............... (1,452)     57,353
                                                  -------     -------   --------
                  Effect of exchange rate
                  on cash........................                            (5)
                                                  -------     -------   --------
Net increase (decrease) in cash and cash
  equivalents....................................  1,284      (2,517)    (7,202)
Cash and cash equivalents at beginning of year...    789       3,306      10,508
                                                  -------     -------   --------
Cash and cash equivalents at end of year.........$ 2,073      $  789     $ 3,306
                                                  ========    ========  ========

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
    Net income..................................$ 27,263     $ 20,989    $ 6,239
    Adjustments to reconcile net income to net
       cash provided by operating activities
          Equity in undistributed earnings of
            subsidiaries.........................(28,299)     (20,414)  (11,505)
          Net realized capital (gains) losses....                           (90)
          Deferred income taxes..................                          4,118
          Contingent interest....................  2,206        2,045
          Net change in other assets and
            liabilities.......................... (1,105)      (1,578)     (396)
          Other, net.............................   (194)
                                                  -------     --------   -------
                  Net cash provided by (used in)
                    operating activities........$   (129)    $  1,042  $ (1,634)

The  condensed  financial  statements  should  be read in  conjunction  with the
consolidated financial statements and accompanying notes thereto.




                                      S-4
<PAGE>

<TABLE>

                            CHARTWELL RE CORPORATION

                            SCHEDULE IV--REINSURANCE

                  Years Ended December 31, 1997, 1996 and 1995
                                 (In thousands)


<CAPTION>

           Column A                 Column B    Column C   Column D    Column E  Column F
           --------                 --------    --------   --------    --------  --------
                                                            Assumed              Percentage
                                                 Ceded to   from                 of amount
                                       Gross      other     other      Net       assumed to
                                       Amount    companies  companies   amount      net
<S>                                    <C>       <C>        <C>        <C>       <C>
                                       -------  ----------  --------   --------  ----------
1997
Premiums earned:
   Property and casualty insurance.....$86,343   $86,305    $245,662   $245,700  100.0%
                                       --------   -------   --------   --------  -----
          Total premiums...............$86,343   $86,305    $245,662   $245,700  100.0%
                                       ========  =======    ========   ========= =====

1996
Premiums earned:
   Property and casualty insurance.....$66,709   $68,077    $210,871   $209,503  100.7%
                                        -------   -------   --------   --------- -----
          Total premiums...............$66,709   $68,077    $210,871   $209,503  100.7%
                                        =======   =======   ========   ========= =====
1995
Premiums earned:
   Property and casualty insurance.....    $0    $ 3,248    $123,506   $120,258  102.7%
                                        -------   -------   --------    -------- -----
          Total premiums...............    $0    $ 3,248    $123,506   $120,258  102.7%
                                        =======   =======   ========   ========  =====





                                      S-5

</TABLE>

<PAGE>
<TABLE>


                            CHARTWELL RE CORPORATION

                  SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1997, 1996 and 1995
                                 (In thousands)


<CAPTION>

                    Column A                  Column B           Column C           Column D    Column E
                   ---------                  ---------     ---------------------   --------    --------
                                                                Additions
                                                           ---------------------
                                             Balance at     Charged to   Charged               Balance
                                             Beginning      Costs and    to Other  Deductions  at End
                                             of Period      Expenses     Accounts  Described   of Period
<S>                                          <C>            <C>          <C>        <C>         <C>
                                             ----------     ----------   --------  ----------- ---------
Year Ended December 31, 1997:
  Reinsurance recoverable:
     Allowance for Uncollectible
          Reinsurance (1)................    $5,731         $663                                $6,394
Deposits:
    FASB 113 Valuation Allowance.........    $1,502                                             $1,502

Year Ended December 31, 1996:
  Reinsurance recoverable:
     Allowance for Uncollectible
          Reinsurance (1)................    $5,717         $ 14                                $5,731
Deposits:
    FASB 113 Valuation Allowance.........    $1,502                                             $1,502

Year Ended December 31, 1995:
  Reinsurance recoverable:
     Allowance for Uncollectible
          Reinsurance (1)................    $2,649         $68          $3,000 (2)             $5,717
Deposits:
    FASB 113 Valuation Allowance.........    $1,502                                             $1,502
</TABLE>

(1)   The Company has a reinsurance  agreement  which  protects the Company from
      certain  uncollectible  reinsurance  balances.  Uncollectible amounts have
      been ceded to said contract and are reflected as  reinsurance  recoverable
      in  the  balance  sheet.   Deductions  to  reserve  represent   subsequent
      collections of amounts deemed uncollectible.

(2)   Allowance for  uncollectible  reinsurance on the  books of INSCORP at the
      date of acquisition.


                                      S-6
<PAGE>
<TABLE>
                            CHARTWELL RE CORPORATION
        SCHEDULE VI-SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
                              INSURANCE OPERATIONS
                  Years Ended December 31, 1997, 1996 and 1995

<CAPTION>


                                                                                Claims and
                                                                                Adjustment
                                                                                Expenses
                                                                                Incurred
                                                                                Related to
                                                                            ----------------
                              Reserves
                              for Unpaid                                                      Amort.    Paid
                              Claim and                                                       of Defer. Claims
Affiliation          Deferr.  Claim       Disc.                    Net                        Policy    & Claims  Other    Net
with                 Policy   Adjustment  if any   Unearn. Earned  Invest.  Curr.    Prior    Acquis.   Adjust.   Operat.  Premiums
Registrant           Costs    Exp.(1)     Deduct.  Prem.   Prem.   Income   Year     Year     Costs     Expenses  Exp.     Written
 -------------       -------- ----------  -------  ------- ------   ------  -----    -----    --------  --------  -------  --------
<S>                 <C>       <C>         <C>    <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>       <C>

Years Ended:
 December 31,1997...$26,100  $788,240            $111,149 $245,700 $43,575  $163,003 ($2,155) $72,655   $150,682  $38,757  $268,260
 December 31,1996... 17,903   747,858              81,599  209,503  44,089   152,338  (1,717)  52,030    136,753   19,168   192,251
 December 31,1995... 18,809   741,467              90,573  120,258  19,907    86,470     479   28,790     56,813   11,961   123,314


(1)   The Company adopted SFAS No. 113 which,  among other things,  requires the
      Company to record its reserves for unpaid losses and LAE without reduction
      for amounts that would be  recovered  from  retrocessionaires.  The amount
      recoverable  from  retrocessionaires  is  recorded  as  an  asset  on  the
      Company's  balance sheet.  The net of such asset and the reserves for loss
      and LAE is $585.6,  $575.5 and $561.6  million at December 31, 1997,  1996
      and 1995, respectively.
</TABLE>

<PAGE>

                               INDEX TO EXHIBITS

Exhibits

3.1       Restated  Certificate of Incorporation  of Chartwell.  Incorporated by
          reference o Exhibit 3.1 to Chartwell's  Registration Statement on Form
          S-1 (File No. 333-678).

3.2       Amended and Restated  By-laws of Chartwell.  Incorporated by reference
          to Exhibit 3.2 to Chartwell's Registration Statement on Form S-1 (File
          No. 333-678).

4.2       Indenture,  dated as of March 17, 1994,  between Chartwell and Bankers
          Trust  Company,  as Trustee,  for the 10 1/4%  Senior  Notes due 2004.
          Incorporated  by reference to Exhibit 4.1 to Chartwell's  Registration
          Statement on Form S-1 (File No. 33-75386).

4.3       First  Supplemental  Indenture,  dated as of December 12, 1995,  among
          Chartwell,  Chartwell  Holdings and the Trustee for the Senior  Notes.
          Incorporated  by reference to Exhibit 4.3 to Chartwell's  Registration
          Statement on Form S-1 (File No. 333-678).

4.4       Second Supplemental Indenture,  dated as of December 12, 1995, between
          Chartwell Holdings and the Trustee for the Senior Notes.  Incorporated
          by reference to Exhibit 4.4 to Chartwell's  Registration  Statement on
          Form S-1 (File No. 333-678).

4.5       Indenture,  dated as of December 1, 1995,  between  Chartwell,  as the
          successor to Piedmont Management Company Inc. ("Piedmont"),  and Fleet
          Bank,  as trustee,  for the CI Notes.  Incorporated  by  reference  to
          Exhibit 4.5 to  Chartwell's  Registration  Statement on Form S-1 (File
          No. 333-678).

4.6       First  Supplemental  Indenture,  dated as of December 13, 1995,  among
          Piedmont,  Chartwell and the trustee under the CI Notes.  Incorporated
          by reference to Exhibit 4.6 to Chartwell's  Registration  Statement on
          Form S-1 (File No. 333-678).

10.1      First Amended and Restated Credit Agreement,  dated as of November 14,
          1996 among Chartwell Holdings,  a Delaware  corporation,  First Union,
          Fleet Bank, Royal Bank of Scotland,  CIBC/Wood Gundy,  Credit Lyonnais
          (collectively,  the "Lenders"),  First Union as agent for the Lenders,
          and First Union National Bank (London Branch), as amended by the First
          Amendment to First Amended and Restated Credit Agreement,  dated as of
          January 24, 1997 by and between Chartwell Holdings, the Lenders, First
          Union as agent for the Lenders,  and First Union National Bank (London
          Branch).  Incorporated  by reference  to Exhibit  10.1 to  Chartwell's
          Annual Report on Form 10-K for the year ended  December 31, 1996 (File
          No. 1-12502).

10.2      Agreement  and Plan of Merger,  dated as of August 7, 1995, as amended
          as of November 9, 1995,  between Chartwell and Piedmont.  Incorporated
          by reference to Annex A to Chartwell's  Registration Statement on Form
          S-4 (File. No. 333-678).

10.3      Contribution  and  Distribution  Agreement,  dated as of December  13,
          1995, between Chartwell,  as the successor to Piedmont, and Lexington.
          Incorporated by reference to Exhibit 10.2 to Chartwell's  Registration
          Statement on Form S-1 (File No. 333-678).

10.4      Stockholders  Agreement,  dated  as  of  December  13,  1995,  between
          Chartwell  and the security  holders  named in the schedule of holders
          attached  thereto.  Incorporated  by  reference  to  Exhibit  10.3  to
          Chartwell's Registration Statement on Form S-1 (File No. 333-678).

10.5      Registration Rights Agreement,  dated as of December 13, 1995, between
          Chartwell  and the security  holders  named in the schedule of holders
          attached  thereto.  Incorporated  by  reference  to  Exhibit  10.4  to
          Chartwell's Registration Statement on Form S-1 (File No. 333-678).

10.6      Advisory Agreement, dated November 15, 1993, among Chartwell Advisers,
          NLC,  the  Companies  set forth in  Schedule  1 attached  thereto  and
          Chartwell.  Incorporated  by reference to Exhibit 10.39 to Chartwell's
          Registration Statement on Form S-1 (File No. 33-75386).

10.7      Common  Stock  Purchase  Warrant,  dated  March  6,  1992,  issued  by
          Chartwell to Wand  (Chartwell).  Incorporated  by reference to Exhibit
          10.34  to  Chartwell's   Registration  Statement  on  Form  S-1  (File
          33-75386).

10.8      Common Stock  Purchase  Warrant,  dated  December 31, 1992,  issued by
          Chartwell to Wand  (Chartwell).  Incorporated  by reference as Exhibit
          10.35 to  Chartwell's  Registration  Statement  on Form S-1  (File No.
          33-75386).

10.9      Common Stock  Purchase  Warrant,  dated  December 31, 1992,  issued by
          Chartwell to John Sagan. Incorporated by reference to Exhibit 10.36 to
          Chartwell's Registration Statement on Form S-1 (File No. 33-75386).

10.10     Form of Common Stock Purchase  Warrants,  dated March 17, 1994, issued
          by  Chartwell  to the  Partnership  and to the holders of the Series A
          Stock,  the Series B. Stock and the  Series C Stock.  Incorporated  by
          reference to Exhibit 4.2 to Chartwell's  Quarterly Report on Form 10-Q
          for the quarter ended March 31, 1994.

10.11     Employment   Agreement   between   Chartwell   and  Richard  E.  Cole.
          Incorporated by reference to Exhibit 10.19 to Chartwell's Registration
          Statement on Form S-1 (File No. 33-75386).*

10.12     Employment  Agreement  between  Chartwell  and  Steven  J.  Bensinger.
          Incorporated by reference to Exhibit 10.20 to Chartwell's Registration
          Statement on Form S-1 (File no. 33-75386).*

10.13     Employment   Agreement  between  Chartwell  and  Jacques  Q.  Bonneau.
          Incorporated by reference to Exhibit 10.21 to Chartwell's Registration
          Statement on Form S-1 (File No. 33-75386).*

10.14     Employment   Agreement   between   Chartwell  and  Michael  H.  Hayes.
          Incorporated  by reference to Exhibit  10.1 to  Chartwell's  Quarterly
          Report on Form 10-Q for the quarter ended March 31, 1994.*

10.15     Form of Incentive  Agreement with Jacques Q. Bonneau.  Incorporated by
          reference to Exhibit 10.13 to  Chartwell's  Registration  Statement on
          Form S-4 (File No. 33-97010).*

10.16     1993 Stock Option Plan of Chartwell Re  Corporation.  Incorporated  by
          reference to Exhibit 10.14 to  Chartwell's  Registration  Statement on
          Form S-4 (File No. 33-97010).*

10.17     Tax Disaffiliation  Agreement,  dated as of December 13, 1995, between
          Chartwell,  as the successor to Piedmont, and Lexington.  Incorporated
          by reference to Exhibit 10.18 to Chartwell's Registration Statement on
          Form S-1 (File No. 333-678).

10.18     Reserve  Indemnification  Agreement.   Incorporated  by  reference  to
          Exhibit 10.2 to Chartwell's  Registration  Statement on Form S-1 (File
          No. 33-75386).

10.19     Amendment No. 1 to Reserve Indemnification Agreement.  Incorporated by
          reference to Exhibit  10.3 to  Chartwell's  Registration  Statement on
          Form S-1 (File No. 33-75386).

10.20     Consent to  Assignment  of Reserve  Indemnification  Agreement,  dated
          March 6, 1992,  from NCI and NWNL to CRCA and Amerisure.  Incorporated
          by reference to Exhibit 10.4 to Chartwell's  Registration Statement on
          Form S-1 (File No. 33-75386).

10.21     Stockholders Agreement, dated as of December 31, 1992, among Chartwell
          and the security  holders.  Incorporated by reference to Exhibit 10.24
          to Chartwell's Registration Statement on Form S-1 (File No. 33-75386).

10.22     Individual Stockholders  Agreement,  dated as of March 6, 1992, by and
          among  Chartwell,  the Partnership,  MMIC, and the individuals  listed
          therein.  Incorporated  by reference to Exhibit  10.25 to  Chartwell's
          Registration Statement on Form S-1 (File No. 33-75386).

10.23     Individual  Stockholders  Agreement,  dated as of  December  31,  1992
          between Chartwell and John Sagan. Incorporated by reference to Exhibit
          10.26 to the registrant's Registration Statement on Form S-1 (File No.
          33-75386).

10.24     Agreement,  dated November 15, 1993, among New London Capital plc, the
          Companies set forth in Schedule 1 attached thereto, Chartwell Advisers
          Limited and the Company. Incorporated by reference to Exhibit 10.39 to
          the  registrant's   Registration  Statement  on  Form  S-1  (File  No.
          33-75386).

10.25     Omnibus  Agreement,  dated February 22, 1994,  among Chartwell and its
          security  holders.  Incorporated  by reference to Exhibit 10.42 to the
          registrant's Registration Statement on Form S-1 (File No. 33-75386).

10.26     Subscription Agreement between Chartwell and the Partnership for 6,926
          shares of Common Stock.  Incorporated by reference to Exhibit 10.28 to
          the  registrant's   Registration  Statement  on  Form  S-1  (File  No.
          33-75386).

10.27     Subscription  Agreement  between  Chartwell  and John  Sagan for 4,762
          shares of Common Stock.  Incorporated by reference to Exhibit 10.29 to
          the  registrant's   Registration  Statement  on  Form  S-1  (File  No.
          33-75386).

10.28     Tax  Allocation  Agreement,  dated  December  13,  1995,  by and among
          Chartwell,  Chartwell Holdings,  Drayton, Chartwell Reinsurance,  RECO
          and The Recor Insurance Company, Inc.

10.29     Chartwell  Re   Corporation   1995  Employee   Stock   Purchase  Plan.
          Incorporated by reference to Exhibit 4(c) to Chartwell's  Registration
          Statement on Form S-8 (File No. 33-80975).*

10.30     Chartwell Re Corporation 1996 Non-Employee Director Stock Option Plan.
          Incorporated by reference to Exhibit 4(c) to Chartwell's  Registration
          Statement on Form S-8 (File No. 333-12203).*

10.31     Chartwell  Re   Corporation   1997  Omnibus  Stock   Incentive   Plan.
          Incorporated by reference to Exhibit A to Chartwell's Definitive Proxy
          Statement  on  Schedule  14A filed with the  Securities  and  Exchange
          Commission on April 11, 1997.*

10.32     Form of Change of  Control  Agreement  between  Chartwell  and  senior
          officers of Chartwell.*

10.33     Fourth  Amendment to the  Employment  Agreement  between  Chartwell Re
          Corporation and Richard E. Cole, dated as of December 31, 1997.*

10.34     Fourth  Amendment to the  Employment  Agreement  between  Chartwell Re
          Corporation and Steven J. Bensinger, dated as of December 31, 1997.*

10.35     Fourth  Amendment to the  Employment  Agreement  between  Chartwell Re
          Corporation and Jacques Q. Bonneau, dated as of December 31, 1997.*

10.36     Third  Amendment  to the  Employment  Agreement  between  Chartwell Re
          Corporation and Michael H. Hayes , dated as of December 31, 1997.*

10.37     Service Agreement between Archer Group Management Services Limited and
          Stephen L. Wenman, dated as of March 20, 1997.*

10.38     Trust  Agreement,  dated as of June 20, 1994,  by and between  Shawmut
          Bank CT  (currently  known as State  Street Bank & Trust  Company) and
          Chartwell Re Corporation.*

10.39     Second Amendment to First Amended and Restated Credit Agreement, dated
          as of October 30, 1997, by and among  Chartwell  Holdings,  a Delaware
          corporation,  The Royal Bank of Scotland,  Fleet National  Bank,  CIBC
          Inc.,  Credit  Lyonnais  (collectively,  the  "Lenders"),  First Union
          National Bank, as Issuing Bank and as agent for the Lenders, and First
          Union National Bank (London Branch).

10.40     Workers  Compensation   Retrocessional  Stop  Loss  Agreement,   dated
          September 30, 997, by and between both Chartwell  Reinsurance  Company
          and  The  Insurance  Corporation  of  New  York  and  Western  General
          Insurance Ltd.

10.41     Aggregate Excess of Loss Reisnruance Teaty among Chartwell Reinsurance
          Company,  The  Insurance  Corporation  of New York,  Dakota  Specialty
          Insurance  Company and London Life Casulaty  Reinsurance  Corporation,
          dated as of July 1, 1997.

10.42     Rights  Agreement,  dated as of May 22, 1997,  between the Company and
          Fleet  National  Bank of  Connecticut.  Incorporated  by  reference to
          Exhibit 4.1 to the Company's  Registration Statement on Form 8-K filed
          with the Securities and Exchange  Commission on June 5, 1997 (File No.
          1-12502).*

10.43     Rules of the Chartwell Re Corporation Sharesave Scheme 1997.*

12.1      Computation of ratio of earnings to fixed charges.

21.       Subsidiaries of Chartwell.

27.1      Financial Data Schedule

-------------------------
*Management contract, compensatory plan or arrangement