STIRLING COOKE BROWN HOLDINGS LTD, 424B4, 1998-08-10

STIRLING COOKE BROWN HOLDINGS LTD
424B4, 1998-08-10
INSURANCE AGENTS, BROKERS & SERVICE

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RULE NO. 424(b)(4)
REGISTRATION NO. 333-32995

[LOGO]SCB STIRLING COOKE BROWN HOLDINGS LIMITED

ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)

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SEE "RISK FACTORS" ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE ORDINARY SHARES.

The Ordinary Shares are quoted on the Nasdaq National Market under the
symbol "SCBHF". On July 23, 1998, the last sale price of the Ordinary Shares
on the Nasdaq National Market was $24 3/4 per share. See "Price Range of
Ordinary Shares".

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales of the Ordinary Shares related to
market-making transitions, at prevailing market prices, related prices or
negotiated prices. The Company will not receive any of the proceeds of such
sales. Goldman, Sachs & Co. may act as a principal or agent in such
transactions. The closing of the offering referred to herein, which
constituted the initial public offering of the Ordinary Shares of the Company,
occurred on December 2, 1997. See "Plan of Distribution".

GOLDMAN, SACHS & CO.

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The date of this Prospectus is August 10, 1998.
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For North Carolina investors: These Securities have not been approved or
disapproved by the Commissioner of Insurance for the State of North Carolina,
nor has the Commissioner of Insurance ruled upon the accuracy or the adequacy
of this document.

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Consent under the Exchange Control Act 1972 (and regulations thereunder) has
been obtained from the Bermuda Monetary Authority for the issue of the shares
being offered pursuant to the Offering. In addition, a copy of this document
has been delivered to the Registrar of Companies in Bermuda for filing
pursuant to the Companies Act 1981 of Bermuda. In giving such consent and in
accepting this prospectus for filing, the Bermuda Monetary Authority and the
Registrar of Companies in Bermuda accept no responsibility for the financial
soundness of any proposal or for the correctness of any of the statements made
or opinions expressed herein.

These securities may not be offered or sold to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses, or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995. All applicable provisions of
the Financial Services Act 1986 of the United Kingdom must be complied with in
relation to anything done in relation to these securities in, from or
otherwise involving the United Kingdom. This document may not be issued or
passed on to any person in the United Kingdom unless that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom this document
may otherwise lawfully be issued or passed on.

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The Company furnishes to its shareholders annual reports containing
consolidated financial statements prepared in accordance with United States
generally accepted accounting principles, which financial statements will be
examined and subject to a written opinion expressed by an independent public
accounting firm. The Company also makes available to its shareholders
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.

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No purchaser may acquire directly or indirectly 10% or more of the Company's
outstanding ordinary shares without prior approval by the Insurance Department
of the State of New York. See "Business--Regulation".

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ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES LAWS

Stirling Cooke Brown Holdings Limited was organized pursuant to the laws of
Bermuda and certain of the Company's directors and officers and certain of the
experts named herein reside outside of the United States. Moreover, a
significant portion of the assets of the Company is located outside the United
States. Consequently, it may not be possible to effect service of process on
such persons or entities within the United States or to enforce against any of
them judgments of courts in the United States predicated upon the civil
liability provisions of the federal securities laws of the United States. The
Company has been informed that the United States and Bermuda do not currently
have a treaty providing for reciprocal recognition and enforcement of
judgments in civil and commercial matters, and a final judgment for the
payment of money rendered by any federal or state court in the United States
based on civil liability, whether or not predicated solely upon the federal
securities laws, would, therefore, not be automatically enforceable in
Bermuda. The Company has also been advised that a final and conclusive
judgment obtained in federal or state courts in the United States under which
a sum of money is payable as compensatory damages (i.e., not being a sum
claimed by a revenue authority for taxes or other charges of a similar nature
by a governmental authority, or in respect of a fine or penalty or multiple or
punitive damages) may be the subject of an action on a debt in the Supreme
Court of Bermuda under the common law doctrine of obligation. Such an action
should be successful upon proof that the sum of money is due and payable, and
without having to prove the facts supporting the underlying judgment, as long
as (i) the court that gave the judgment was competent to hear the action in
accordance with private international law principles as applied by the courts
in Bermuda and (ii) the judgment is not contrary to public policy in Bermuda,
was not obtained by fraud or in proceedings contrary to natural justice of
Bermuda and is not based on an error in Bermuda law. A Bermuda court may
impose civil liability on the Company or its directors or officers in a suit
brought in the Supreme Court of Bermuda against the Company or such persons
with respect to a violation of federal securities law, provided that the facts
surrounding such violation would constitute or give rise to a cause of action
under Bermuda law.

The Company has been advised that the United States and the United Kingdom
do not currently have a treaty providing for the reciprocal recognition and
enforcement of judgments (other than arbitration awards) in civil and
commercial matters. Therefore, a final judgment for the payment of money
rendered by any federal or state court in the United States based on civil
liability, whether or not predicated solely upon the U.S. federal securities
laws, would not be automatically enforceable in the United Kingdom. In order
to enforce in the United Kingdom any U.S. judgment, proceedings must be
initiated before a court of competent jurisdiction in the United Kingdom. A
U.K. court will, under current practice, normally issue a judgment
incorporating the judgment rendered by a U.S. court if it finds that (i) the
U.S. court had, according to English rules of conflict of laws, jurisdiction
over the original proceeding, (ii) the judgment was obtained without fraud and
in accordance with the principles of natural justice, (iii) the judgment is
final and conclusive on the merits, (iv) the judgment does not contravene the
public policy or public order of the United Kingdom and (v) the judgment is
for a debt or a definite sum of money (not being a penalty, fine, multiple of
damages or taxes). Based on the foregoing, there can be no assurance that U.S.
investors will be able to enforce in the United Kingdom judgments in civil and
commercial matters obtained in any federal or state court in the United
States. There is doubt as to whether a U.K. court would impose civil liability
in an original action predicated solely upon the U.S. federal securities laws
brought in a court of competent jurisdiction in the United Kingdom.

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FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified by the
use of terms such as "believes", "anticipates", "intends" or "expects". These
forward-looking statements relate to the plans and objectives of the Company
for future operations, including the Company's policy concerning dividends. In
light of the risks and uncertainties inherent in all future projections, the
inclusion of the forward-looking statements in this Prospectus should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Many factors could cause
the Company's actual results to differ materially from those in the forward-
looking statements, including the following: (i) loss of the services of any
of the Company's key personnel; (ii) increased competitive pressure caused by
increase in the supply of traditional insurance, new entrants in the
alternative market services industry, or the willingness of existing
competitors to accept lower returns in exchange for market share; (iii)
adverse changes in the statutes or regulations under which the Company's and
its subsidiaries' businesses operate in one or more of the various
jurisdictions in which the Company's or its subsidiaries' businesses are
located; (iv) a contention by the United States Internal Revenue Service that
the Company's operations in Bermuda or the United Kingdom are engaged in the
conduct of a trade or business within the U.S.; (v) a competitive disadvantage
resulting from certain of the competitors of Realm National Insurance Company
having higher financial ratings than Realm National Insurance Company or any
future decline in Realm National Insurance Company's financial ratings; (vi)
the termination of the Company's managing general agency agreements with
certain large insurers; (vii) the failure of one or more of the Company's
reinsurers to fulfill their obligations under reinsurance agreements; (viii)
the inability of the Company to obtain adequate reinsurance coverage at
acceptable cost; and (ix) changing rates of inflation and other economic
conditions, which could adversely affect loss payments, investment returns,
and the fundamental financial strength of the Company's target customer base
in the regions in which the Company operates. The foregoing review of
important factors should not be construed as exhaustive and should be read in
conjunction with other cautionary statements that are included in this
Prospectus. The Company undertakes no obligation to update forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements (and the related notes thereto) included elsewhere in this
Prospectus. As used in this Prospectus, unless the context otherwise requires,
the term "Company" includes Stirling Cooke Brown Holdings Limited and all of
its subsidiaries as they have existed from time to time during the periods
covered by this Prospectus, on a consolidated basis. In January 1996, the
Company acquired Realm Investments Ltd. ("RIL"), an affiliated Bermuda-based
holding company with subsidiaries engaged in managing general underwriting,
managing general agency, reinsurance, captive management and insurance
brokering activities. This transaction was structured as a share for share
exchange and was accounted for as a purchase (the "Acquisition"). Unless
otherwise indicated, all financial statements used in this Prospectus have been
prepared in accordance with United States generally accepted accounting
principles and all dollar references are to U.S. dollars, which are the
Company's functional currency. Except as otherwise indicated, all information
in this Prospectus has been adjusted to give effect to a four for one split of
the Ordinary Shares which occurred effective June 30, 1997. See "Glossary of
Selected Insurance Terms" for definitions of certain terms used in this
Prospectus; such terms are printed in boldface the first time they appear in
the text below. An investment in the Ordinary Shares offered hereby involves
significant risks. See "Risk Factors".

THE COMPANY

Stirling Cooke Brown Holdings Limited is a Bermuda holding company which,
through its subsidiaries, provides risk management services and products
predominantly to U.S. based small and mid-sized businesses seeking cost-
effective alternatives to traditional WORKERS' COMPENSATION insurance. In
addition, the Company arranges REINSURANCE for its products as well as for
those offered by independent U.S. based insurance carriers active in the
workers' compensation, occupational accident and health insurance markets. The
Company believes that its integrated approach, experienced personnel and market
position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions.

The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of ALTERNATIVE MARKET insurance coverage given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. In recent years, the Company has applied its integrated
risk transfer approach to the development of insurance programs for other
SPECIALTY CASUALTY LINES.

The Company has historically experienced strong growth in revenues and
earnings despite the current prolonged SOFT INSURANCE MARKET. The expansion of
the Company's risk management services and products, including the Acquisition,
has led to an increase in the Company's net income from $2.1 million in 1993 to
$13.0 million in 1997. The Company's revenues are predominantly fee based, as
the Company earns risk management fees for providing services and products to
insureds, insurers and reinsurers. In 1997, 69.9% of the Company's total
revenues were derived from risk management fees including agency and brokerage
fees and commissions, underwriting management and administration fees and fees
from other non-risk bearing activities.

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Immediately after the Acquisition in January 1996, certain investment funds
affiliated with The Goldman Sachs Group, L.P. (collectively, the "GS Funds")
made an equity investment in the Company. Consistent with the Company's
strategy of providing services and products at multiple stages in the risk
transfer process, the Company used the proceeds from this investment to acquire
and provide additional capital for Realm National Insurance Company ("Realm
National"), a New York domiciled insurance company, in September 1996. The
acquisition of Realm National had an insignificant impact on the Company's net
income for 1996 and 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Company is in the process
of integrating Realm National's insurance underwriting capabilities with the
Company's risk management services and will seek to earn additional income
through a combination of policy issuance fees and NET PREMIUMS EARNED while
retaining a minimum amount of risk. In December 1997, the Company completed its
initial public offering (the "IPO") and intends to use the net proceeds
therefrom (approximately $26.8 million) primarily to provide additional capital
to Realm National, allowing the Company to expand its underwriting activities.

BUSINESS STRATEGY

The Company believes that growth potential exists in its markets which will
provide opportunities to increase fee-based revenues, net premiums earned and
net investment income. To capitalize on these opportunities, the Company has
established the following strategic priorities which the Company believes will
allow it to maintain and enhance its position as a provider of alternatives to
traditional workers' compensation insurance:

. Increase market penetration and extend agency network. The Company, through
its MANAGING GENERAL AGENCY network, typically receives net fee income from
the insurance carrier of between 13% and 17% of the insured's gross premium
on the underlying policy for providing underwriting services, POLICY
ADMINISTRATION and PREMIUM ACCOUNTING, and CLAIMS ADJUSTING and
administrative services. The Company intends to increase the market
penetration of its existing agency network by concentrating its marketing
efforts on the most productive agents and by continuing to use agency
incentive and promotional programs to encourage increased levels of new
business development. In addition, the Company intends to continue to
increase the number of INDEPENDENT PRODUCING AGENTS distributing the
Company's services and products.

. Expand current insurance operations. The Company currently uses independent
primary insurance carriers in connection with most of its existing workers'
compensation business, and expects these arrangements to continue for much of
this existing business. However, through Realm National, the Company intends
to act as an issuing carrier for a portion of its new business opportunities
and receive a combination of policy issuance fees (typically 7% of the
insured's gross premiums) and/or net premiums earned. The Company is in the
process of increasing Realm National's capital base and expanding the number
of states in which Realm National is licensed.

. Expand product offerings through existing distribution network. The Company
seeks to expand its product offerings by developing services and products
that meet the financial and risk management objectives of its clients. For
example, in response to rising workers' compensation costs, the Company was
one of the pioneers in the development of alternative NON-SUBSCRIBER
PROGRAMS, which the Company began to market and sell in Texas in the early
1990s. The Company intends to continue to develop new services and products
to be marketed through its agency distribution network.

. Expand and develop program business. The Company structures and markets
comprehensive programs to transfer risk from an insured to insurers and
ultimately to reinsurers in the workers' compensation market as well as for
other specialty casualty lines. These programs enable the

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Company to provide a range of risk management services and products for retail
agents, while also maximizing the Company's revenues at each stage of the risk
transfer process. The Company intends to utilize its existing reinsurance
business relationships to expand the number of programs it offers and also
intends to increase the sale of insurance policies issued under existing
programs through its agency network. The Company expects the growth of its
PROGRAM BUSINESS to increase total revenues as well as increase the revenues
generated from specialty casualty lines.

. Increase reinsurance brokering revenues. The Company's REINSURANCE BROKERING
subsidiaries arrange the reinsurance programs associated with the Company's
products and also arrange reinsurance programs for numerous other U.S. and
European insurance companies. The Company expects that Realm National's
expansion will generate additional business for the Company's reinsurance
brokering operations.

. Selectively pursue acquisitions. The Company is continuously looking to
expand its business by selectively acquiring general agencies and books of
insurance business. Given the Company's ability to earn fees throughout the
risk transfer process, the Company believes that the selective acquisition of
general agencies and books of insurance business can generate significant
additional profits relative to the costs of such acquisitions.

Because the Company has already developed the infrastructure necessary to
implement these strategies, the Company believes that its objectives can be
achieved with minimal additional costs.

RISK FACTORS

Prospective purchasers of the Ordinary Shares should consider carefully the
specific investment considerations set forth under the caption "Risk Factors"
as well as the other information set forth in this Prospectus.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The historical consolidated balance sheet data presented below as of December
31, 1996 and 1997 and the consolidated income statement data for each of the
years in the three-year period ended December 31, 1997 were derived from the
Company's audited consolidated financial statements included elsewhere in this
Prospectus. The historical consolidated balance sheet data as of December 31,
1993 and 1994 and consolidated income statement data for the year ended
December 31, 1993 were derived from the Company's unaudited consolidated
financial statements. The consolidated income statement data set forth below
for the three-month period ended March 31, 1997 and 1998 and the consolidated
balance sheet data at March 31, 1998 have been derived from the Company's
unaudited consolidated financial statements appearing elsewhere in this
Prospectus. In the opinion of the Company, such information reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations during, and the financial
condition of the Company at the end of, such periods. Results for interim
periods should not be considered as indicative of results for any other periods
or for the full year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
AS OF OR FOR THE THREE-
MONTH PERIOD ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- ------------------------
1993 1994 1995 1996(1) 1997 1997 1998
----------- ---------- ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Brokerage fees and
commissions........... $ 10,283 $ 11,670 $ 17,084 $ 20,117 $ 23,965 $ 5,324 $ 6,066
Managing general agency
fees.................. 0 0 0 6,016 11,391 2,508 3,715
Underwriting management
fees.................. 0 0 0 4,045 4,022 960 919
Program and captive
management fees....... 0 0 0 1,625 2,876 597 875
Loss control and audit
fees.................. 0 0 0 2,039 2,627 663 814
Policy issuance fees... 0 0 0 219 783 214 386
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total risk management
fees................. 10,283 11,670 17,084 34,061 45,664 10,266 12,775
Net premiums earned.... 0 0 0 8,754 11,790 2,694 4,486
Net investment income.. 514 703 1,964 3,405 5,782 1,212 1,966
Other income........... 0 0 0 841 2,074 173 716
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues........ 10,797 12,373 19,048 47,061 65,310 14,345 19,943
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
Net losses and loss
expenses incurred..... 0 0 0 6,765 10,951 2,376 4,767
Acquisition costs...... 0 0 0 1,837 1,344 360 566
Salaries and benefits.. 3,658 4,454 6,066 13,106 18,503 4,058 4,665
General and
administration
expenses.............. 3,602 3,788 5,828 13,154 18,594 3,991 5,165
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses........ 7,260 8,242 11,894 34,862 49,392 10,785 15,063
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxation.. 3,537 4,131 7,154 12,199 15,918 3,560 4,880
Taxation............... 1,419 1,298 2,560 2,281 2,925 740 893
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............ $ 2,118 $ 2,833 $ 4,594 $ 9,918 $ 12,993 $ 2,820 $ 3,987
========== ========== ========== ========== ========== ========== ==========
Net income per share(2). $ 0.49 $ 0.66 $ 1.07 $ 1.22 $ 1.55 $ 0.35 $ 0.41
Net income per share
assuming dilution(2)... $ 0.49 $ 0.66 $ 1.07 $ 1.19 $ 1.53 $ 0.34 $ 0.40
Dividends per ordinary
share.................. $ 0.28 $ 0.19 $ 0.53 $ 0.00 $ 0.00 $ 0.00 $ 0.03
Weighted average numbers
of ordinary shares
outstanding............ 4,288,908 4,288,908 4,288,908 8,100,782 8,383,482 8,086,104 9,823,372
Weighted average number
of ordinary shares
outstanding assuming
dilution............... 4,288,908 4,288,908 4,304,098 8,306,610 8,515,473 8,339,452 9,867,061
BALANCE SHEET DATA:
Cash and marketable
securities............. $ 368 $ 428 $ 688 $ 38,221 $ 71,667 $ 36,928 $ 80,667
Total assets(3)......... 15,576 61,914 103,273 235,084 406,330 363,532 446,673
Long-term debt.......... 0 0 0 0 0 0 0
Ordinary Shares subject
to redemption(4)....... 0 0 0 14,457 0 14,457 0
Total shareholders'
equity................. 2,532 4,596 7,055 29,001 83,103 31,519 86,826
OTHER SELECTED DATA:
Fee income as a percent
of total revenues...... 95.2% 94.3% 89.7% 72.4% 69.9% 71.6% 64.1%
Number of employees..... 74 84 104 235 292 286 308
</TABLE>

(footnotes on following page)

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(footnotes from previous page)

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(1) Includes the operations of RIL from its January 1996 acquisition by the
Company, Realm National from its September 1996 acquisition by the Company
and the operations of North American Risk, Inc. ("North American Risk")
from its July 1996 acquisition by the Company. All of such acquisitions
were accounted for as purchases. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
(2) Net income per share is calculated by dividing income available to ordinary
shareholders by the weighted average number of Ordinary Shares outstanding.
The Ordinary Shares which were subject to redemption are included in the
computation of the weighted average number of outstanding Ordinary Shares
since they have identical rights. Shares held in treasury are not
considered outstanding for purposes of the computation. Income per Ordinary
Share assuming dilution is computed by dividing income available to
ordinary shareholders by the weighted average number of Ordinary Shares and
potentially dilutive securities such as stock options. The dilutive effect
of options are reflected in the computation by application of the treasury
stock method.
(3) Total assets comprise corporate assets together with cash held and
insurance balances receivable in a fiduciary capacity. See Note 5 to the
Company's Consolidated Financial Statements.
(4) The Ordinary Shares owned by the GS Funds were subject to a conditional put
option exercisable after January 2004. Such shares were excluded from total
shareholders' equity until the put option expired upon the consummation of
the IPO. See Note 11 to the Company's Consolidated Financial Statements.

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RISK FACTORS

COMPETITION; CYCLICALITY OF INSURANCE AND REINSURANCE BUSINESSES

The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with other providers of alternative market
services (including domestic and foreign insurance companies, reinsurers,
insurance brokers, CAPTIVE insurance companies, RENT-A-CAPTIVES, self-
insurance plans, risk retention groups, state funds, ASSIGNED RISK POOLS and
other risk-financing mechanisms) and with providers of traditional insurance
coverage. Many of the Company's competitors have significantly greater
financial resources, longer operating histories, and better financial ratings
and offer a broader line of insurance products than the Company.

Factors affecting the traditional insurance and reinsurance industry
influence the environment for alternative risk management services and
products. Insurance market conditions historically have been subject to
cyclicality and volatility due to premium rate competition, judicial trends,
changes in the investment and interest rate environment, regulation and
general economic conditions, causing many insurance buyers to search for more
stable alternatives. The traditional insurance and reinsurance industry is in
a protracted period of significant price competition, due in part to excess
capacity in most lines of business. While some form of workers' compensation
insurance is a statutory requirement in most states, the choices exercised by
employers in response to the underwriting cycle in traditional insurance and
reinsurance markets have had and will continue to have a material effect on
the Company's results of operations. Although most of the Company's revenues
are derived from fees and commissions rather than underwriting activities, a
substantial portion of the Company's fees are calculated as a percentage of
premium volume, and therefore the Company's fee revenues are directly and
adversely affected by highly competitive market conditions. Additionally,
changes in risk retention patterns by purchasers of insurance and reinsurance
products could have an adverse effect upon the Company.

DEPENDENCE ON RELATIONSHIPS WITH INDEPENDENT PRIMARY INSURANCE CARRIERS

The Company's managing general agencies market insurance products and
programs developed by the Company on behalf of independent insurance carriers,
primarily Clarendon National Insurance Company and its affiliates
("Clarendon") and Legion Insurance Company and its affiliates ("Legion"). In
addition, the Company's insurance brokering and reinsurance brokering
operations, MANAGING GENERAL UNDERWRITERS, and claims and loss control
servicing operations provide additional business and services to Clarendon and
Legion in respect of these products and other insurance and reinsurance
policies. In 1997, fees received from Clarendon accounted for approximately
51% of the Company's total revenues, while fees received from Legion accounted
for less than 10% of the Company's total revenues. Historically, the Company
has had a good relationship with both Clarendon and Legion. There can be no
assurance, however, that Clarendon or Legion will not institute changes which
affect their relationships with the Company. The loss of business from
Clarendon or Legion could have a material adverse effect on the Company's
results of operations and financial conditions. Additionally, any decline in
or disruption of Clarendon's or Legion's business could disrupt the Company's
business and could have a material adverse effect on the Company's results of
operations and financial condition. See "Business--Relationships with
Independent Primary Insurance Carriers".

REINSURANCE CONSIDERATIONS; AVAILABILITY AND COSTS; CREDIT RISKS

The Company relies upon the use of reinsurance agreements in its various
programs to limit and manage the amount of risk retained by the Company or its
customers, including insurance companies. The availability and cost of
reinsurance may vary over time and is subject to prevailing market conditions.
A lack of available reinsurance coverage could limit the Company's ability to
continue

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certain of its insurance programs. When the Company's own insurance operations
are participating in a program, the lack of available reinsurance or increases
in the cost of reinsurance could also increase the amount of risk retained by
the Company. In addition, while the Company seeks to obtain reinsurance with
coverage limits intended to be appropriate for the risk exposures assumed,
there can be no assurance that losses experienced by the Company will be
within the coverage limits of the Company's reinsurance agreements.

The Company is also subject to credit risk as a result of its reinsurance
arrangements, as the Company is not relieved of its liability to policyholders
by ceding risk to its reinsurers. The Company is selective in regard to its
reinsurers, placing reinsurance with only those reinsurers that it believes
have strong balance sheets. The Company monitors the financial strength of its
reinsurers on an ongoing basis. The insolvency or inability of any of the
reinsurers used by the Company to meet its obligations could have a material
adverse effect on the results of operations and financial position of the
Company. No assurance can be given regarding the future ability of any of the
Company's reinsurers to meet their obligations.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a substantial extent on the ability and
experience of its executive officers. See "Management". The loss of the
services of one or more such persons could have a material adverse effect on
the business of the Company and its future operations.

POSSIBLE REVISIONS TO LOSS RESERVES

To the extent its activities involve any retention of risk of loss, the
Company maintains LOSS RESERVES to cover its estimated ultimate liability for
losses and loss adjustment expenses with respect to reported and unreported
claims incurred. Loss reserves are estimates involving actuarial and
statistical projections at a given time of what the Company expects to be the
cost of the ultimate settlement and administration of claims based on facts
and circumstances then known, estimates of future trends in claims severity
and other variable factors such as inflation. To the extent that reserves
prove to be inadequate in the future, the Company would have to increase such
reserves and incur a charge to earnings in the period such reserves are
increased, which could have a material adverse effect on the Company's results
of operations and financial condition. The establishment of appropriate
reserves is an inherently uncertain process and there can be no assurance that
ultimate losses will not materially exceed the Company's loss reserves. The
Company has limited historical claim loss experience to serve as a reliable
basis for the estimation of ultimate claim losses. Although the Company has no
reason to believe that its loss reserves are inadequate, it is possible that
the Company will need to revise the estimate of claim losses significantly in
the near term. In the event of such an increase, the amount, net of associated
reinsurance recoveries, would be reflected in the Company's income statement
in the period in which the reserves were increased.

ADVERSE EFFECT OF LEGISLATION AND REGULATORY ACTIONS

The Company conducts business in a number of states and foreign countries.
Certain of the Company's subsidiaries are subject to comprehensive regulation
and supervision by government agencies in the states and foreign jurisdictions
in which they do business. The primary purpose of such regulation and
supervision is to provide safeguards for policyholders rather than to protect
the interests of shareholders. The laws of the various state jurisdictions
establish supervisory agencies with broad administrative powers with respect
to, among other things, licensing to transact business, licensing of agents,
admittance of assets, regulating premium rates, approving policy forms,
regulating unfair trade and claims practices, establishing reserve
requirements and solvency standards, requiring participation in guarantee
funds and shared market mechanisms, and restricting payment of dividends.
Also, in

11
<PAGE>

response to perceived excessive cost or inadequacy of available insurance,
states have from time to time created state insurance funds and assigned risk
pools which compete directly, on a subsidized basis, with private providers
such as the Company. Any such event, in a state in which the Company has
substantial operations, could substantially affect the profitability of the
Company's operations in such state, or cause the Company to change its
marketing focus.

State insurance regulators and the National Association of Insurance
Commissioners (the "NAIC") continually re-examine existing laws and
regulations. It is impossible to predict the future impact of potential state,
federal and foreign country regulations on the Company's operations, and there
can be no assurance that future insurance-related laws and regulations, or the
interpretation thereof, will not have an adverse effect on the operations of
the Company's business.

POSSIBLE ADVERSE IMPACT OF LICENSING PROCESS ON REALM NATIONAL

The Company is in the process of seeking the regulatory approvals necessary
to expand Realm National's business to include workers' compensation and other
specialty casualty insurance lines in each of the states in which Realm
National is currently licensed to offer other insurance products, and intends
to license Realm National in substantially all of the remaining 50 states and
the District of Columbia. See "Business--Risk Transfer and Management". The
Company expects that, as Realm National receives such approvals and licenses,
the revenues to be generated by Realm National and its integration into the
Company's existing businesses will become an important component of the
Company's future earnings growth. However, no assurance can be given that
Realm National will receive such approvals and licenses, or when such
approvals and licenses will be granted if Realm National does receive them.
See "Business--Regulation". A state may require as part of its licensing
process that the insurer or its management have a certain period of experience
(typically one to three years) in the lines of business for which a license is
being sought. Although the Company's management has been involved in offering
workers' compensation products and services for many years, Realm National's
own experience in this line of business began for all material purposes after
Realm National's acquisition by the Company in September 1996. Therefore, some
states may determine that Realm National does not have the requisite
experience to meet this requirement. In the absence of such experience, the
insurance regulatory authority may delay issuing a license until such time as
the experience is obtained. The failure to receive, or a delay in receiving,
one or more of such approvals and licenses could have a material adverse
impact on Realm National's ability to generate future earnings growth for the
Company.

POTENTIAL IMPACT OF HOLDING COMPANY STRUCTURE ON DIVIDENDS

The Company is a holding company that conducts no operations of its own and
whose assets essentially consist of its equity interest in its subsidiaries
and cash proceeds from the Company's IPO. The Company will rely on cash
dividends and other permitted payments from its subsidiaries to pay creditors
and to pay cash dividends, if any, to the Company's shareholders. Certain of
the Company's subsidiaries are subject to regulations and may be subject to
certain taxes that could limit the amount or restrict the payment of dividends
to the Company. By agreement with the New York Department of Insurance, Realm
National is restricted from declaring dividends until September 5, 1998. See
"Dividend Policy", "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources",
"Certain Tax Considerations", "Business--Regulation" and Note 18 to the
Company's Consolidated Financial Statements.

TAXATION OF THE COMPANY AND CERTAIN OF ITS SUBSIDIARIES

The Company and certain of its subsidiaries are incorporated outside the
United States and, as foreign corporations, do not file United States tax
returns. These entities believe that they operate in such a manner that they
will not be subject to U.S. tax (other than U.S. excise tax on reinsurance
premiums and withholding tax on certain investment income from U.S. sources)
because they do not

12
<PAGE>

engage in business in the United States. There can be no assurance, however,
that these entities will not become subject to U.S. tax because U.S. law does
not provide definitive guidance as to the circumstances in which they would be
considered to be doing business in the United States. If such entities are
deemed to be engaged in business in the United States (and, if the Company
were to qualify for benefits under the income tax treaty between the United
States and Bermuda or the United States and the United Kingdom, such business
were attributable to a "permanent establishment" in the United States), the
Company would be subject to U.S. tax at regular corporate rates on its income
that is effectively connected with its U.S. business plus an additional 30%
"branch profits" tax on income remaining after the regular tax. See "Certain
Tax Considerations".

SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS

The Company is a Bermuda company and the majority of its officers and
directors are residents of various jurisdictions outside the United States. A
significant portion of the assets of the Company and such officers and
directors, at any one time, are or may be located in jurisdictions outside the
United States. It may be difficult for investors to effect service of process
within the United States on directors and officers of the Company who reside
outside the United States or to enforce against the Company or such directors
and officers judgments of United States courts predicated upon civil liability
provisions of the United States federal securities laws. See "Enforceability
of Civil Liabilities Under United States Laws".

PRINCIPAL SHAREHOLDERS; POSSIBLE CONFLICTS OF INTEREST

The Company's officers and directors beneficially own approximately 26.4% of
the outstanding Ordinary Shares. Accordingly, these officers and directors
have the ability to significantly influence the election of directors and most
other corporate actions.

The GS Funds own approximately 22.1% of the outstanding Ordinary Shares. In
addition, of the six current members of the Company's Board of Directors, one
is a Managing Director of Goldman, Sachs & Co. and one is a Vice President of
Goldman, Sachs & Co.

Goldman, Sachs & Co. (directly or through affiliates) are engaged in certain
commercial activities and transactions with the Company. See "Certain
Relationships and Related Party Transactions".

POSSIBLE ISSUANCES OF UNDESIGNATED SHARES; ANTI-TAKEOVER PROVISIONS

The Board of Directors is authorized under the Company's Bye-Laws to issue
up to 5,000,000 preference shares and to determine their relative rights,
preferences, privileges and restrictions, including voting rights. Therefore,
the rights of the holders of Ordinary Shares will be subject to and may be
adversely affected by the rights of the holders of any preference shares that
may be designated and issued in the future. Although there is no current
intention to do so, the issuance of newly designated shares could have the
effect of delaying, deferring or preventing a change in control of the
Company, which could deprive the Company's shareholders of opportunities to
sell their Ordinary Shares at a premium. The Company's Board of Directors is
divided into three groups serving staggered three-year terms. Additionally,
directors may only be removed by shareholders holding not less than 75% of the
outstanding Ordinary Shares. The Company's Bye-Laws contain certain provisions
that may have the effect of making more difficult the acquisition of control
of the Company by means of a tender offer, open market share purchases, a
proxy contest or otherwise. Such provisions include a restriction on voting of
Ordinary Shares held by certain holders (other than the existing shareholders)
of 10% or more of the Ordinary Shares ("Interested Shareholders") and
restrictions on certain business combinations with certain Interested
Shareholders. While these provisions may have the effect of encouraging
persons seeking to acquire control of the Company to

13
<PAGE>

negotiate with the Board of Directors, they could also have the effect of
discouraging a prospective acquiror from making a tender offer or otherwise
attempting to gain control of the Company. See "Description of Capital
Shares".

INTEREST RATE FLUCTUATIONS

The Company maintains most of its cash in the form of short-term, fixed-
income securities, the value of which is subject to fluctuation depending on
changes in prevailing interest rates. The Company generally does not hedge its
cash investments against interest rate risk. Accordingly, changes in interest
rates may result in fluctuations in the income derived from the Company's cash
investments.

POSSIBLE VOLATILITY OF ORDINARY SHARES PRICE AND THE SECURITIES MARKETS

The Ordinary Shares are quoted on the Nasdaq National Market. The market
price of the Ordinary Shares could be subject to significant fluctuations in
response to variations in the Company's quarterly financial results or other
developments, such as announcements of new products by the Company or the
Company's competitors, enactment of legislation or regulation affecting the
insurance industry, interest rate movements or general economic conditions.

Subject to applicable laws and regulations, Goldman, Sachs & Co. currently
make a market in the Ordinary Shares. However, they are not obligated to do so
and any market-making may be discontinued at any time without notice. In
addition, such market-making activity is subject to the limits imposed by the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Moreover, Goldman,
Sachs & Co. intend to deliver a current prospectus and otherwise comply with
the requirements of the Securities Act in connection with any secondary market
sale of the Ordinary Shares, which may affect their ability to continue
market-making activities.

YEAR 2000

The Company has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The Year 2000 Issue is the result of
computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
timely, the Year 2000 Issue may have a significant impact on the operations of
the Company.

The Company plans to have formal communications with all of its significant
vendors and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issues. However, there can be no assurance that the systems of other companies
on which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company's operating results.

14
<PAGE>

THE COMPANY

The Company is a Bermuda holding company which, through its subsidiaries,
provides risk management services and products predominantly to U.S. based
small and mid-sized businesses seeking cost-effective alternatives to
traditional workers' compensation insurance. In addition, the Company arranges
reinsurance for its products as well as for those offered by independent U.S.
based insurance carriers active in the workers' compensation, occupational
accident and health insurance markets.

The Company believes that its integrated approach, experienced personnel and
market position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions. The Company structures and markets comprehensive
programs to transfer risk from an insured to insurers and ultimately to
reinsurers in the workers' compensation market as well as other specialty
casualty lines. The Company is able to offer these programs primarily as a
result of the strong relationships and expertise it has developed through its
reinsurance brokering activities. Furthermore, although certain of the
Company's programs utilize an independent primary insurance carrier, the
Company is capable of providing or obtaining the services and products
required at each stage of the risk transfer process. The Company believes
these programs are cost-effective to the insured and provide additional
business to reinsurers with excess underwriting capacity. Thus, the Company is
able to provide RETAIL AGENTS and insureds with the advantages of being a
single source provider of risk management services and products, while also
maximizing its own revenues at each stage of the risk transfer process.

The Company earns risk management fees and may retain a portion of the
premium paid by the insured on the underlying policy for providing its
services and products. In 1997, 69.9% of the Company's total revenues were
derived from risk management fees including agency and brokerage fees and
commissions, underwriting management and administration fees and fees from
other non-risk bearing activities.

The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of alternative market insurance coverage given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. In recent years, the Company has applied its integrated
risk transfer approach to the development of insurance programs for other
specialty casualty lines.

The Company, through its original operating subsidiary, Stirling Cooke Brown
Insurance Brokers Limited, began operations in 1989 as an insurance broker in
London specializing in the placement of alternatives to traditional workers'
compensation insurance and the arrangement of associated reinsurance programs.
The Company soon began to develop and market its own innovative services and
products designed for employers seeking effective methods of alleviating
onerous insurance costs.

15
<PAGE>

Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects. To
further these plans, the Company acquired RIL in January 1996. The Company has
expanded its businesses and services to include managing general agency
services, insurance underwriting, underwriting management, claims
administration, loss and safety control and premium auditing, enabling it to
diversify its revenues and increase its overall control of the risk transfer
process.

Immediately after the Acquisition in January 1996, the GS Funds made an
equity investment in the Company. Consistent with the Company's strategy of
providing services and products at multiple stages in the risk transfer
process, the Company used the proceeds from this investment to acquire and
provide additional capital for Realm National in September 1996. The Company
is in the process of integrating Realm National's insurance underwriting
capabilities with the Company's risk management services and will seek to earn
additional income through a combination of policy issuance fees and net
premiums earned associated with the underwriting function while retaining a
minimum amount of risk. The net proceeds received by the Company from the IPO
will be used primarily to provide additional capital to Realm National,
allowing the Company to expand its underwriting activities.

The Company has historically experienced strong growth in revenues and
earnings despite the current prolonged soft insurance market. The expansion of
the Company's risk management services and products, including the
Acquisition, has led to an increase in the Company's net income from $2.1
million in 1993 to $13.0 million in 1997. At March 31, 1998, the Company had
approximately $446.7 million in assets and 308 employees.

The Company was incorporated in 1995, its principal offices are located at
Victoria Hall, Third Floor, 11 Victoria Street, Hamilton, HM 11, Bermuda, and
its telephone number at that address is (441) 295-7556. The Company, through
its subsidiaries, also maintains offices in London, England; New York, New
York; and at various locations in Florida and Texas.

PRICE RANGE OF ORDINARY SHARES

The Company's Ordinary Shares, $0.25 par value, have been quoted on the
Nasdaq National Market under the symbol "SCBHF" since November 26, 1997. The
Ordinary Shares were listed in connection with the Company's IPO completed in
December 1997. As of July 20, 1998, the approximate number of holders of the
Company's Ordinary Shares was 650.

The following table sets forth the high and low closing sale prices per
share of the Company's Ordinary Shares for the period:

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
November 26, 1997 to December 31, 1997................... $25 1/2 $23 3/8
First Quarter 1998....................................... $27 3/4 $23 1/8
Second Quarter 1998...................................... $30 $25 1/8
Third Quarter 1998 (through July 23)..................... $27 7/8 $24 1/2
</TABLE>

MARKET FOR ORDINARY SHARES

Subject to applicable laws and regulations, Goldman, Sachs & Co. currently
make a market in the Ordinary Shares. However, they are not obligated to do so
and any market-making may be discontinued at any time without notice. In
addition, such market-making activity is subject to the limits imposed by the
Securities Act and the Exchange Act. Moreover, Goldman, Sachs & Co. intend to
deliver a current prospectus and otherwise comply with the requirements of the
Securities Act in connection with any secondary market sale of the Ordinary
Shares, which may affect their ability to continue market-making activities.

16
<PAGE>

DIVIDEND POLICY

During 1996 and 1997 the Company did not pay any dividends. A dividend of
$.03 per Ordinary Share was paid on March 30, 1998 and a dividend of $.03 per
Ordinary Share was paid on June 9, 1998. The Company currently intends to
declare quarterly dividends on the Ordinary Shares. The declaration and
payment of future dividends is at the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, capital
requirements, the general financial condition of the Company, general business
conditions and other factors. The Company, as a holding company, is dependent
on the payment of dividends from its operating subsidiaries. Certain of the
Company's subsidiaries are subject to regulations and may be subject to
certain taxes that could limit the amount of or restrict the payment of
dividends to the Company. By agreement with the New York Department of
Insurance, Realm National is restricted from declaring dividends until
September 5, 1998. See "Risk Factors--Potential Impact of Holding Company
Structure on Dividends", "Business--Regulation", "Certain Tax Considerations",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 18 to the Company's
Consolidated Financial Statements.

CAPITALIZATION

The following table sets forth as of March 31, 1998 the actual consolidated
capitalization of the Company. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Unaudited Consolidated Financial Statements and
the Notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
ACTUAL
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt.................................................. $ 0
Shareholders' equity:
Share capital
Authorized 20,000,000 Ordinary Shares of par value of $0.25
each
Issued and fully paid 9,863,372 Ordinary Shares............. 2,466
Additional paid in capital.................................... 54,167
Accumulated other comprehensive income........................ 95
Retained earnings............................................. 30,765
--------
87,493
Less: 40,000 Ordinary Shares in treasury at cost.............. (667)
--------
Total capitalization........................................ $ 86,826
========
</TABLE>

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The historical consolidated balance sheet data presented below as of
December 31, 1996 and 1997 and the consolidated income statement data for each
of the years in the three-year period ended December 31, 1997, were derived
from the Company's audited consolidated financial statements included
elsewhere in this Prospectus. The historical consolidated balance sheet data
as of December 31, 1993 and 1994 and consolidated income statement data for
the year ended December 31, 1993 were derived from the Company's unaudited
consolidated financial statements. The consolidated income statement data set
forth below for the three-month period ended March 31, 1997 and 1998 and the
consolidated balance sheet data at March 31, 1998 have been derived from the
Company's unaudited consolidated financial statements appearing elsewhere in
this Prospectus. In the opinion of the Company, such information reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations during, and the financial
condition of the Company at the end of, such periods. Results for interim
periods should not be considered as indicative of results for any other
periods or for the full year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
AS OF OR FOR THE THREE-
MONTH PERIOD ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- ------------------------
1993 1994 1995 1996(1) 1997 1997 1998
----------- ---------- ---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Brokerage fees and
commissions........... $ 10,283 $ 11,670 $ 17,084 $ 20,117 $ 23,965 $ 5,324 $ 6,066
Managing general agency
fees.................. 0 0 0 6,016 11,391 2,508 3,715
Underwriting management
fees.................. 0 0 0 4,045 4,022 960 919
Program and captive
management fees....... 0 0 0 1,625 2,876 597 875
Loss control and audit
fees.................. 0 0 0 2,039 2,627 663 814
Policy issuance fees... 0 0 0 219 783 214 386
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total risk management
fees.................. 10,283 11,670 17,084 34,061 45,664 10,266 12,775
Net premiums earned.... 0 0 0 8,754 11,790 2,694 4,486
Net investment income.. 514 703 1,964 3,405 5,782 1,212 1,966
Other income........... 0 0 0 841 2,074 173 716
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues......... 10,797 12,373 19,048 47,061 65,310 14,345 19,943
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
Net losses and loss
expenses incurred..... 0 0 0 6,765 10,951 2,376 4,767
Acquisition costs...... 0 0 0 1,837 1,344 360 566
Salaries and benefits.. 3,658 4,454 6,066 13,106 18,503 4,058 4,665
General and
administration
expenses.............. 3,602 3,788 5,828 13,154 18,594 3,991 5,165
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses......... 7,260 8,242 11,894 34,862 49,392 10,785 15,063
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxation.. 3,537 4,131 7,154 12,199 15,918 3,560 4,880
Taxation............... 1,419 1,298 2,560 2,281 2,925 740 893
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 2,118 $ 2,833 $ 4,594 $ 9,918 $ 12,993 $ 2,820 $ 3,987
========== ========== ========== ========== ========== ========== ==========
Net Income Per Share(2). $ 0.49 $ 0.66 $ 1.07 $ 1.22 $ 1.55 $ 0.35 $ 0.41
Net Income Per Share
assuming dilution(2)... $ 0.49 $ 0.66 $ 1.07 $ 1.19 $ 1.53 $ 0.34 $ 0.40
Dividends per ordinary
share.................. $ 0.28 $ 0.19 $ 0.53 $ 0.00 $ 0.00 $ 0.00 $ 0.03
Weighted average number
of ordinary shares
outstanding............ 4,288,908 4,288,908 4,288,908 8,100,782 8,383,482 8,086,104 9,823,372
Weighted average number
of ordinary shares
outstanding assuming
dilution............... 4,288,908 4,288,908 4,304,098 4,306,610 8,515,473 8,339,452 9,867,061
BALANCE SHEET DATA:
Cash and marketable
securities............. $ 368 $ 428 $ 688 $ 38,221 $ 71,667 $ 36,928 $ 80,667
Total assets(3)......... 15,576 61,914 103,273 235,084 406,330 363,532 446,673
Long-term debt.......... 0 0 0 0 0 0 0
Ordinary Shares subject
to redemption(4)....... 0 0 0 14,457 0 14,457 0
Total shareholders'
equity................. 2,532 4,596 7,055 29,001 83,103 31,519 86,826
OTHER SELECTED DATA:
Fee income as a percent
of total revenues...... 95.2% 94.3% 89.7% 72.4% 69.9% 71.6% 64.1%
Number of employees..... 74 84 104 235 292 286 308
</TABLE>

(footnotes appear on following page)

18
<PAGE>

(footnotes from previous page)

- --------
(1) Includes the operations of RIL from its January 1996 acquisition by the
Company, Realm National from its September 1996 acquisition by the Company
and the operations of North American Risk, Inc. from its July 1996
acquisition by the Company. All of such acquisitions were accounted for as
purchases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(2) Net income per share is calculated by dividing income available to
ordinary shareholders by the weighted average number of Ordinary Shares
outstanding. The Ordinary Shares which were subject to redemption are
included in the computation of the weighted average number of outstanding
Ordinary Shares since they have identical rights. Shares held in treasury
are not considered outstanding for purposes of the computation. Income per
Ordinary Share assuming dilution is computed by dividing income available
to ordinary shareholders by the weighted average number of Ordinary Shares
and potentially dilutive securities such as stock options. The dilutive
effect of options are reflected in the computation by application of the
treasury stock method.
(3) Total assets comprise corporate assets together with cash held and
insurance balances receivable in a fiduciary capacity. See Note 5 to the
Company's Consolidated Financial Statements.
(4) The Ordinary Shares owned by the GS Funds were subject to a conditional
put option exercisable after January 2004. Such shares were excluded from
total shareholders' equity until the put option expired upon the
consummation of the IPO. See Note 11 to the Company's Consolidated
Financial Statements.

19
<PAGE>

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

GENERAL

The Company derives its revenues principally from (i) risk management fees
earned from non-risk bearing services, (ii) net premiums earned from providing
insurance and reinsurance coverage and (iii) net investment income. In 1997,
the Company's risk management fees accounted for 69.9% of total revenues. The
Company's fees were generated from brokerage activities, managing general
agencies, captive management and various other services. Net premiums earned
accounted for 18.1% of total revenues in 1997. In 1996, a substantial majority
of the Company's net premiums earned were generated from Comp Indemnity
Reinsurance Company Limited, the Company's reinsurance subsidiary ("CIRCL").
In September 1996, the Company acquired Realm National, a primary insurance
carrier. As a result of this acquisition, the Company expects that a greater
proportion of its net premiums earned will be derived from insurance business
written through Realm National and in 1997, $2.9 million of the Company's
$11.8 million of net premiums earned was earned by Realm National. However,
the Company seeks to structure comprehensive reinsurance programs in order to
reduce the Company's participation to a minimal level of risk, subject to
applicable insurance regulations. Finally, net investment income accounted for
8.9% of total revenues in 1997. The Company earns investment income on both
its investment portfolio and on cash held in fiduciary accounts. Cash held in
fiduciary accounts relates to premiums collected pending the remittance of
such funds to the insurance company or underwriter.

The Company's ability to achieve profitable growth depends upon, among other
things, (i) its overall volume and mix of business; (ii) its ability to
attract and retain customers; (iii) the size of its investment portfolio; (iv)
the average cash balance held in a fiduciary capacity; (v) the pricing of its
insurance and reinsurance products (which is primarily a function of
competitive conditions and management's ability to assess and manage losses);
and (vi) its effective tax rate, since its subsidiaries are located in
Bermuda, the U.K. and the U.S. Additionally, general economic and market
conditions, including the Company's regulatory environment, will affect
revenues and profitability.

In January 1996, the Company's current holding company structure was created
through a share for share exchange in which Stirling Cooke Brown Holdings
Limited exchanged Ordinary Shares for all of the outstanding share capital of
Stirling Cooke Brown Holdings (U.K.) Limited ("Stirling Cooke U.K.") and RIL.
Stirling Cooke U.K. is a United Kingdom corporation and is deemed the
predecessor of the Company for accounting purposes. RIL was an affiliated
Bermuda-based holding company with subsidiaries engaged in managing general
underwriting, managing general agency, reinsurance, captive management and
insurance brokering activities. RIL was affiliated with Stirling Cooke U.K.
through substantial common ownership and directors. Prior to the share
exchange, RIL and Stirling Cooke U.K. engaged in business transactions which
generated substantial fees to each company from unrelated third parties. The
share for share exchange with RIL was treated as a purchase for accounting
purposes. The purchase price for the Acquisition was approximately $12.8
million, of which approximately $7.5 million was allocated to goodwill and
will be amortized over a twenty-year period. Therefore, beginning in 1996 the
Company's financial statements reflect the operations of both Stirling Cooke
U.K. and RIL, while prior to 1996 the Company's financial statements reflect
only the operations of Stirling Cooke U.K. See "Certain Relationships and
Related Party Transactions" for additional information regarding the
acquisition of RIL.

Immediately following the Acquisition in January 1996, the GS Funds made an
equity investment in the Company. The proceeds of the GS Funds' equity
investment were used to purchase Realm National in September 1996. The
Company's 1996 consolidated financial statements therefore reflect

20
<PAGE>

only three months of Realm National's operations while the Company's 1997
consolidated financial statements reflect the first full year of Realm
National's results being consolidated. Following the acquisition of Realm
National, the Company has expanded Realm National's licenses and business to
include workers' compensation and other specialty casualty lines.

In December 1997, the Company and certain selling shareholders consummated
the IPO of 3,421,250 Ordinary Shares. Of these shares, 1,375,000 were sold by
the Company and 2,046,250 were sold by the selling shareholders. The net
proceeds received by the Company of $26.8 million will be used primarily to
provide additional capital to Realm National in order to facilitate that
company's plans to expand its underwriting activities.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 AND 1998

The results of operations for the three months ended March 31, 1998 reflect
a continuation of growth in revenues and net income resulting from the
increased business activity of the Company.

REVENUES

Total revenues increased $5.6 million, or 39.0%, to $19.9 million for the
first three months of 1998, from $14.3 million in 1997.

The components of the Company's revenues are illustrated below:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
------------- -------------
% OF % OF
TOTAL TOTAL TOTAL TOTAL
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Risk management fees.............................. $10,266 71.6% $12,775 64.0%
Net premiums earned............................... 2,694 18.8 4,486 22.5
Net investment income............................. 1,212 8.4 1,966 9.9
Other income...................................... 173 1.2 716 3.6
------- ----- ------- -----
Total revenues.................................. $14,345 100.0% $19,943 100.0%
======= ===== ======= =====
</TABLE>

The increase in revenues for the first three months of 1998 compared to the
corresponding period in 1997 consisted primarily of a $2.5 million increase in
risk management fees. This was due to strong growth in managing general agency
fees as a result of a greater penetration of existing markets by the Company's
managing general agency network, increased business volume by the Company's
brokering subsidiaries, increased program administrative fees, and additional
risk management fees generated from the provision of loss control and audit
services. Net premiums earned increased $1.8 million over 1997 primarily as a
result of increased business generated by Realm National for the Company. Net
investment income in 1998 increased $0.8 million over 1997, reflecting an
increase in the Company's average balances of cash, including cash held in
fiduciary accounts. These increased cash balances reflect the growth in the
Company's business activities together with the cash held following completion
of the Company's IPO in December, 1997. Other income for the first quarter of
1998 of $0.7 million, comprised primarily of the Company's equity share in the
net income of affiliates, increased from $0.2 million in 1997.

21
<PAGE>

RISK MANAGEMENT FEES. The components of the Company's risk management fees
are illustrated below:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
------------- -------------
% OF % OF
TOTAL TOTAL TOTAL TOTAL
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Brokerage fees and commissions.................... $ 5,324 51.9% $ 6,066 47.5%
Managing general agency fees...................... 2,508 24.4 3,715 29.1
Underwriting management fees...................... 960 9.3 919 7.2
Program and captive management fees............... 597 5.8 875 6.8
Loss control and audit fees....................... 663 6.5 814 6.4
Policy issuance fees.............................. 214 2.1 386 3.0
------- ----- ------- -----
Total risk management fees...................... $10,266 100.0% $12,775 100.0%
======= ===== ======= =====
</TABLE>

Risk management fees increased $2.5 million, or 24.4%, to $12.8 million, for
the first three months of 1998 from $10.3 million in 1997. Managing general
agency fees had the most significant impact on the growth of total risk
management fees for the first three months of 1998, increasing $1.2 million,
primarily as a result of the Company's continued expansion of its managing
general agency operations in Florida and Texas. Brokerage fees and commissions
increased $0.7 million for the first three months of 1998, primarily the
result of increased insurance and reinsurance brokerage activities from the
Company's U.K.-based brokerage operations. Program and captive management fees
increased $0.3 million in the first three months of 1998 to $0.9 million, from
$0.6 million in 1997, due to an increase in business resulting from increased
program volumes generated by the Company's managing general agency network.
Fees for loss control and audit services provided by North American Risk, Inc.
increased $0.1 million for the first three months of 1998, to $0.8 million,
from $0.7 million in 1997. The Company's policy issuance fees earned by Realm
National increased $0.2 million for the first three months of 1998, to $0.4
million, from $0.2 million for the first three months of 1997.

EXPENSES. The components of the Company's expenses are illustrated below:

<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net losses and loss expenses incurred.................. $ 2,376 $ 4,767
Insurance premium acquisition costs.................... 360 566
----------- -----------
Total insurance costs................................ 2,736 5,333
----------- -----------
Salaries and benefits.................................. 4,058 4,665
General and administration expenses.................... 3,991 5,065
----------- -----------
Total operating expenses............................. 8,049 9,730
----------- -----------
Total expenses..................................... $ 10,785 $ 15,063
=========== ===========
</TABLE>

Total expenses increased $4.3 million, or 39.7% to $15.1 million, for the
first three months of 1998 from $10.8 million in 1997. Total insurance costs,
which includes net losses and loss expenses incurred and insurance premium
acquisition costs, increased $2.6 million, to $5.3 million, for the first
three months of 1998 from $2.7 million in 1997. This increase in total
insurance costs was primarily a result of the corresponding increase in net
premiums earned during the period together with loss

22
<PAGE>

development on one particular program that covers bodily injury and property
risks in the construction industry. Total operating expenses increased $1.7
million, or 20.9%, to $9.7 million for the first three months of 1998 from
$8.0 million in 1997. Salaries and benefits, the largest component of total
operating expenses, increased $0.6 million, to $4.7 million, for the first
three months of 1998 from $4.1 million in 1997. General and administration
expenses increased $1.1 million, to $5.1 million, for the first three months
of 1998 from $4.0 million in 1997, primarily as a result of the general
expansion of the Company's business as reflected in the Company's growth in
revenues.

INCOME. The components of the Company's income are illustrated below:

<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Risk management companies................................. $ 3,332 $ 5,532
Underwriting companies.................................... 228 (652)
--------- ---------
Income before taxation.................................... 3,560 4,880
--------- ---------
Taxation.................................................. 740 893
--------- ---------
Net income.............................................. $ 2,820 $ 3,987
========= =========
Effective tax rate........................................ 20.8% 18.3%
</TABLE>

Risk management companies comprise those companies that do not retain any
underwriting risk and underwriting companies comprise those companies that do
retain various degrees of risk. Underwriting companies include income from
risk management fees earned by them in the form of policy issuance fees.
Interest income is included in revenue if the asset on which the interest is
earned is included among the segment's identifiable assets. The performance of
the underwriting companies during the first quarter of 1998 was affected by
adverse loss development on one particular program that the Company writes
covering bodily injury and property risks in the construction industry.

Income before taxation increased $1.3 million, or 37.1%, to $4.9 million for
the first three months of 1998 from $3.6 million in the corresponding period
in 1997. Net income increased $1.2 million, or 41.4%, to $4.0 million for the
first three months of 1998 from $2.8 million in 1997.

Provision for income taxes increased $0.2 million, to $0.9 million, for the
first three months of 1998 compared to $0.7 million in 1997, representing
effective tax rates of 18.3% and 20.8%, respectively. This decrease in the
effective tax rate between 1998 and 1997 was primarily due to the relative
increase in profits from the Company's Bermuda subsidiaries.

Basic earnings per share increased to $0.41 in 1998 from $0.35 in 1997.
Diluted earnings per share for the three month period increased to $0.40, in
1998 from $0.34 in 1997.

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997.

REVENUES. Total revenues increased $18.2 million, or 38.8%, to $65.3 million
in 1997, from $47.1 million in 1996 which in turn was a 147% increase over
1995. Comparisons with 1995 are not considered meaningful as the figures do
not reflect the results of RIL which was acquired at the beginning of 1996.

23
<PAGE>

The components of the Company's revenues are illustrated below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
TOTAL % OF TOTAL TOTAL % OF TOTAL TOTAL % OF TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Risk management fees.... $17,084 89.7% $34,061 72.4% $45,664 69.9%
Net premiums earned..... 0 0.0 8,754 18.6 11,790 18.0
Net investment income... 1,964 10.3 3,405 7.2 5,782 8.9
Other income............ 0 0.0 841 1.8 2,074 3.2
------- ----- ------- ----- ------- -----
Total revenues........ $19,048 100.0% $47,061 100.0% $65,310 100.0%
======= ===== ======= ===== ======= =====
</TABLE>

The increase in 1997 revenues over 1996 revenues consisted primarily of an
$11.6 million increase in risk management fees due to increased business
volume by the Company's brokering subsidiaries, increased managing general
agency fees as a result of a greater penetration of existing markets by the
Company's managing general agency network, increased program administrative
fees, and additional risk management fees generated from the provision of loss
control, claims administration and premium auditing services. The Company's
wholly owned subsidiary, Realm National, earns risk management fees in the
form of policy issuance fees; these contributed $0.8 million to revenues in
1997 and $0.2 million in 1996. Net premiums earned increased $3.0 million over
1996 primarily as a result of 1997 being the first full year of Realm
National's results being consolidated and the increased business this
operation generated for the Company. Net investment income in 1997 increased
$2.4 million over 1996, reflecting an increase in the Company's average
balances of cash, including cash held in fiduciary accounts, and marketable
securities during the year. This was primarily as a result of increased cash
flow from the Company's operations and greater retained earnings. The Company
also benefited from investment income from the proceeds of the IPO completed
at the beginning of December 1997. Other income in 1997 comprised primarily
$1.3 million in respect of the Company's equity share in the net income of
affiliates compared to $0.3 million in 1996 and $0.5 million in 1997 in
respect of gains arising from the disposal of subsidiary companies compared to
no such gains in 1996.

Risk management fees as a percent of total revenues decreased to 69.9% in
1997 from 72.4% in 1996 and 89.7% in 1995, while net premiums earned as a
percent of total revenues decreased to 18.0% in 1997 from 18.6% in 1996 and
increased from 0% in 1995. The Company expects risk management fees as a
percent of total revenues to decrease in future periods and net premiums
earned to increase as a percent of total revenues as Realm National becomes
licensed to write insurance in additional states and increases its business
volume. The anticipated trend will be partially offset by an increase in risk
management fees associated with the new business expected to be produced
through Realm National.

RISK MANAGEMENT FEES. The components of the Company's risk management fees
are illustrated below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
TOTAL % OF TOTAL TOTAL % OF TOTAL TOTAL % OF TOTAL
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brokerage fees and
commissions............ $17,084 100.0% $20,117 59.0% $23,965 52.5%
Managing general agency
fees................... 0 0.0 6,016 17.7 11,391 24.9
Underwriting management
fees................... 0 0.0 4,045 11.9 4,022 8.8
Program and captive
management fees........ 0 0.0 1,625 4.8 2,876 6.3
Loss control and audit
fees................... 0 0.0 2,039 6.0 2,627 5.8
Policy issuance fees.... 0 0.0 219 0.6 783 1.7
------- ----- ------- ----- ------- -----
Total risk management
fees................. $17,084 100.0% $34,061 100.0% $45,664 100.0%
======= ===== ======= ===== ======= =====
</TABLE>

24
<PAGE>

Risk management fees increased $11.6 million, or 34.1% to $45.7 million, in
1997 from $34.1 million in 1996. Risk management fees in 1995 included only
brokerage fees and commissions as they do not include the revenues of RIL.
Managing general agency fees had the most significant impact on the growth of
total risk management fees in 1997, increasing $5.4 million, primarily as a
result of the Company's expansion of its managing general agency operations in
Florida and, to a lesser extent, in Texas. Brokerage fees and commissions
increased $3.8 million in 1997 and $3.0 million in 1996, primarily the result
of increased insurance and reinsurance brokerage activities from the Company's
U.K.-based brokerage operations. In October 1997, the Company sold its U.K.-
based international brokerage company following management's decision to
concentrate their efforts on continuing to build up the Company's core
business. Program and captive management fees increased $1.3 million in 1997
to $2.9 million from $1.6 million in 1996 due to an increase in business
resulting from increased program volumes generated by the Company's managing
general agency network. Fees for claims administration, safety and loss
control services, and premium audit services provided by North American Risk
increased $0.6 million in 1997 to $2.6 million from $2.0 million in 1996. The
Company's policy issuance fees through Realm National increased $0.6 million
in 1997 to $0.8 million from $0.2 million in 1996.

Brokerage fees and commissions represented 52.5% of risk management fees in
1997 compared to 59.0% in 1996 and 100% in 1995. This decrease was primarily a
result of the Company's strategy to further expand and diversify its risk
management business through its managing general agency operations and other
service-providing subsidiaries. As a result, managing general agency fees
comprised 24.9% of risk management fees in 1997 compared to 17.7% in 1996.
Loss control, claims administration and audit fees comprised 5.8% of risk
management fees in 1997 compared to 6.0% in 1996. Policy issuance fees
comprised 1.7% of risk management fees in 1997 compared to 0.6% in 1996. It is
anticipated that these fees will increase significantly as a percentage of
risk management fees as Realm National expands its activities.

EXPENSES. The components of the Company's expenses are illustrated below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net losses and loss expenses incurred.................. $ 0 $ 6,765 $10,951
Insurance premium acquisition costs.................... 0 1,837 1,344
------- ------- -------
Total insurance costs................................ 0 8,602 12,295
------- ------- -------
Salaries and benefits.................................. 6,066 13,106 18,503
General and administration expenses.................... 5,828 13,154 18,594
------- ------- -------
Total operating expenses............................. 11,894 26,260 37,097
------- ------- -------
Total expenses..................................... $11,894 $34,862 $49,392
======= ======= =======
</TABLE>

Total expenses increased $14.5 million, or 41.7%, to $49.4 million, in 1997
from $34.9 million in 1996 and $11.9 million in 1995. Total insurance costs,
which includes net losses and loss expenses incurred and insurance premium
acquisition costs, increased $3.7 million to $12.3 million in 1997 from $8.6
million in 1996. The increase in total insurance costs from 1996 to 1997 was
primarily a result of the increase in net premiums earned during those periods
and adverse loss development on one particular program that covers bodily
injury and property risks in the construction industry. Total operating
expenses increased $10.8 million, or 41.3%, to $37.1 million in 1997 from
$26.3 million in 1996 and $11.9 million in 1995. Salaries and benefits, the
largest component of operating expenses, increased $5.4 million to $18.5
million in 1997 from $13.1 million in 1996 while other general and
administration expenses increased $5.4 million, to $18.6 million, in 1997 from
$13.2 million in 1996. These increases are primarily the result of the general
expansion of the Company's business during

25
<PAGE>

1997 as reflected in the Company's growth in revenues. The Company has
expanded, and continues to actively seek opportunities to expand, its
operations in order to strengthen its control over the production sources of
its business and to broaden the services it provides to clients.

INCOME. Income before taxation increased $3.7 million, or 30.5%, to $15.9
million in 1997 from $12.2 million in 1996 which in turn was an increase of
$5.0 million from $7.2 million in 1995. Excluding gains arising from the
disposal of loss making subsidiaries during 1997, income before taxation
increased $3.2 million, or 26.6%, to $15.4 million in 1997 from $12.2 million
in 1996. Net income increased $3.1 million, or 31.0%, to $13.0 million in 1997
from $9.9 million in 1996 which in turn was an increase of $5.3 million from
$4.6 million in 1995.

Provision for income taxes increased $0.6 million to $2.9 million in 1997
compared to $2.3 million in 1996, representing effective tax rates of 18.4%
and 18.7%, respectively. The 1995 tax provision of $2.6 million represented an
effective tax rate of 35.8% which reflects the fact that the subsidiaries of
RIL are not included in the 1995 results. This decrease in the effective tax
rate between 1997 and 1996 was due to the relative increase in profits from
the Company's Bermuda subsidiaries, together with a decrease in corporate
income tax rates in the U.K. from 33% to 31%.

The components of the Company's income are illustrated below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1995 1996 1997
------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Risk management companies............................. $7,154 $11,947 $15,390
Underwriting companies................................ 0 252 528
------ ------- -------
Income before taxation............................... 7,154 12,199 15,918
Taxation.............................................. 2,560 2,281 2,925
------ ------- -------
Net income.......................................... $4,594 $ 9,918 $12,993
------ ------- -------
Effective tax rate.................................... 35.8% 18.7% 18.4%
====== ======= =======
</TABLE>

The Company's two business segments are risk management companies, which
comprise those companies that do not retain any underwriting risk, and
underwriting companies, which comprise those companies that do retain a degree
of risk. Underwriting companies include income from risk management fees
earned by them in the form of policy issuance fees. Investment income has been
allocated to the appropriate segment.

Diluted earnings per share increased to $1.53, in 1997 from $1.19 in 1996
and $1.07 in 1995. Excluding the profit on disposal of subsidiaries during
1997, diluted earnings per share increased to $1.47 in that year.

Basic earnings per share increased to $1.55 in 1997 from $1.22 in 1996 and
$1.07 in 1995. Excluding the profit on disposal of subsidiaries during 1997,
basic earnings per share increased to $1.49 in that year.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company held cash and marketable securities of $80.7
million compared to $71.1 million at December 31, 1997. In addition, the
Company held cash in fiduciary accounts relating to insurance client premiums
amounting to $77.0 million at March 31, 1998 compared to $60.2 million at
December 31, 1997. Of the $80.7 million of cash and marketable securities held
by the

26
<PAGE>

Company at March 31, 1998 (December 31, 1997--$71.7 million), $46.7 million
(December 31, 1997--$40.9 million) were held by subsidiaries whose payment of
dividends to the Company was subject to regulatory restrictions or possible
tax liabilities. At March 31, 1998, Realm National's investment portfolio (at
fair market value) totalled $21.0 million. The portfolio consisted primarily
of U.S. Treasury, short-term cash and A-rated corporate debt securities.

During the three-month period ending March 31, 1998, the Company's operating
activities generated $9.8 million of net cash, compared to generating $0.3
million of net cash during the corresponding three months of 1997. The cash
generated from operating activities varies according to the timing of
collections and payments of insurance and reinsurance balances.

Total assets increased to $446.7 million at March 31, 1998 from $406.3
million at December 31, 1997, principally as a result of increased business
activity. The Company had no outstanding debt as of March 31, 1998.

On March 30, 1998, the Company paid a dividend of $0.03 per share to
shareholders of record on March 23, 1998. The actual amount and timing of any
future ordinary share dividends is at the discretion of the Board of Directors
of the Company. The declaration and payment of any dividends is dependent upon
the profits and financial requirements of the Company and other factors,
including certain legal, regulatory and other restrictions. There can be no
assurance that the Company's dividend policy will not change or that the
Company will declare or pay any dividends in future periods.

27
<PAGE>

BUSINESS

THE COMPANY

The Company believes that its integrated approach, experienced personnel and
market position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions. The Company structures and markets comprehensive
programs to transfer risk from an insured to insurers and ultimately to
reinsurers in the workers' compensation market as well as other specialty
casualty lines. The Company is able to offer these programs primarily as a
result of the strong relationships and expertise it has developed through its
reinsurance brokering activities. Furthermore, although certain of the
Company's programs utilize an independent primary insurance carrier, the
Company is capable of providing or obtaining the services and products
required at each stage of the risk transfer process. The Company believes
these programs are cost-effective to the insured and provide additional
business to reinsurers with excess underwriting capacity. Thus, the Company is
able to provide retail agents and insureds with the advantages of being a
single source provider of risk management services and products, while also
maximizing its own revenues at each stage of the risk transfer process.

The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of alternative market insurance coverage given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. In recent years, the Company has applied its integrated
risk transfer approach to the development of insurance programs for other
specialty casualty lines.

28
<PAGE>

reinsurance programs. The Company soon began to develop and market its own
innovative services and products designed for employers seeking effective
methods of alleviating onerous insurance costs.

Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects. To
further these plans, the Company acquired an affiliated company, RIL, in
January 1996. For a description of the assets and liabilities of RIL at the
time of the purchase, see Note 3 to the Company's Consolidated Financial
Statements. The Company has expanded its businesses and services to include
managing general agency services, insurance underwriting, underwriting
management, claims administration, loss and safety control and premium
auditing, enabling it to diversify its revenues and income and increase its
overall control of the risk transfer process.

Immediately after the Acquisition in January 1996, the GS Funds made an
equity investment in the Company. Consistent with the Company's strategy of
providing services and products at multiple stages in the risk transfer
process, the Company used $9 million of the proceeds from this investment to
acquire Realm National in September 1996. For a description of the assets and
liabilities of Realm National at the time of the purchase, see Note 3 to the
Company's Consolidated Financial Statements. The Company is in the process of
integrating Realm National's insurance underwriting capabilities with the
Company's risk management services and will seek to earn additional income
through a combination of policy issuance fees and net premiums earned while
retaining a minimum amount of risk.

In December 1997, the Company and certain selling shareholders consummated
the IPO of 3,421,250 Ordinary Shares. Of these shares, 1,375,000 were sold by
the Company and 2,046,250 were sold by the selling shareholders. The net
proceeds received by the Company of approximately $26.8 million will be used
primarily to provide additional capital to Realm National, allowing the
Company to expand its underwriting activities.

For certain financial information concerning the Company's business segments
and a geographic breakdown of the Company's revenues, income and assets, see
Note 16 to the Company's Consolidated Financial Statements.

INDUSTRY OVERVIEW

The Company's operations focus primarily on the workers' compensation market
within the commercial insurance industry in the United States. The Company's
risk management services and products are designed to offer an alternative to
traditional workers' compensation insurance. Consequently, the Company
competes with traditional providers of workers' compensation insurance as well
as alternative market providers.

Many commercial insurance buyers seek alternative means of coverage due to
the cyclical nature of the commercial insurance market in the United States
which has, in recent years, resulted in unpredictable and severe swings in the
pricing and availability of coverage. Increasing numbers of buyers recognize
that an effective way to stabilize insurance costs is to retain a portion of
the risk, which traditionally has been fully transferred to insurers. This
trend has led to the development of the alternative market. The alternative
market provides insureds with risk management and financing

29
<PAGE>

vehicles, including captive insurance companies, risk retention groups, rent-
a-captive programs, self-insurance plans, policyholder owned insurance groups,
large-deductible and retrospectively-rated programs, and other non-traditional
insurance products. These risk management and financing vehicles enable the
insured to transfer risk to the various participants in the risk transfer
process in order to obtain the most attractive pricing and coverage terms
under various market conditions. The ability of alternative market providers
to offer coverage terms and attractive pricing depends, in part, upon their
obtaining reinsurance coverage for these vehicles. In the current soft
insurance market, reinsurers with excess underwriting capacity have
increasingly expanded their participation in the risk transfer process through
these vehicles.

Generally, a goal of alternative insurance products is for the insured to
retain, in some manner, those loss events that occur frequently, are low in
severity and are relatively predictable. By retaining such risks, the insured
can (i) obtain a desired level of coverage at an attractive premium; (ii)
eliminate or reduce the transaction costs associated with transferring these
loss events to an insurer, which costs can exceed 30% of the insured's gross
insurance premium; (iii) retain the investment income produced by the funds
set aside to cover these loss events; and (iv) avoid the cyclical nature of
the price demanded by the commercial insurance market to insure these events.
Employers' liability under workers' compensation statutes closely fits this
loss profile, and as a result alternative insurance products have been widely
accepted in the workers' compensation risk management market. Insurance
products in which the insured retains some of the risk also highlight the
benefits of aggressive loss prevention and effective claims management by
aligning the interests of the insurer and the insured to reduce costs. In
recent years, the Company has applied its integrated risk transfer approach to
the development of alternative market insurance programs for other specialty
casualty lines.

BUSINESS STRATEGY

INCREASE MARKET PENETRATION AND EXTEND AGENCY NETWORK

The Company, through its managing general agency network, typically receives
net fee income from the insurance carrier of between 13% and 17% of the
insured's gross premium on the underlying policy for providing underwriting
services, policy administration and premium accounting, and claims adjusting
and administrative services. Business originated in the managing general
agency network is central to the Company's business strategy since the
managing general agencies are able to direct the services and products
provided to the insured. The Company intends to increase the market
penetration of its existing agency network by concentrating its marketing
efforts on the most productive agents and by continuing to use agency
incentive and promotional programs to encourage increased levels of new
business development. In addition, the Company intends to continue to increase
the number of independent producing agents distributing the Company's services
and products.

EXPAND CURRENT INSURANCE OPERATIONS

30
<PAGE>

(typically 7% of the insured's gross premiums) and/or net premiums earned. The
Company is in the process of increasing Realm National's capital base and
expanding the number of states in which Realm National is licensed.

EXPAND PRODUCT OFFERINGS THROUGH EXISTING DISTRIBUTION NETWORK

The Company seeks to expand its product offerings by developing services and
products that meet the financial and risk management objectives of its
clients. For example, in response to rising workers' compensation costs, the
Company was one of the pioneers in the development of alternative non-
subscriber programs, which the Company began to market and sell in Texas in
the early 1990s. To better serve client needs, the Company has expanded its
service and product offerings to include loss control and audit services,
premium auditing and claims administration capabilities. The Company intends
to continue to develop new services and products to be marketed through its
agency distribution network.

EXPAND AND DEVELOP PROGRAM BUSINESS

The Company structures and markets comprehensive programs to transfer risk
from an insured to insurers and ultimately to reinsurers in the workers'
compensation market as well as for other specialty casualty lines. These
programs enable the Company to provide a range of risk management services and
products for retail agents, while also maximizing the Company's revenues at
each stage of the risk transfer process. The Company intends to utilize its
existing reinsurance business relationships to expand the number of programs
it offers and also intends to increase the sale of insurance policies issued
under existing programs through its agency network. The Company expects the
growth of its program business to increase its revenues generated from
specialty casualty lines relative to its revenues generated from the workers'
compensation market.

INCREASE REINSURANCE BROKERING REVENUES

The Company's reinsurance brokering subsidiaries arrange for the reinsurance
programs associated with the Company's products and also arrange reinsurance
programs for numerous other U.S. and European insurance companies. The Company
earns commissions for providing these services. The Company's reinsurance
brokering subsidiaries are located in the key markets of the U.S., Bermuda and
London. The Company expects that Realm National's expansion will generate
additional business for the Company's reinsurance brokering operations.

SELECTIVELY PURSUE ACQUISITIONS

The Company is continuously looking to expand its business by selectively
acquiring general agencies and books of insurance business. Given the
Company's ability to earn fees throughout the risk transfer process, the
Company believes that the selective acquisition of general agencies and books
of insurance business can generate significant additional profits relative to
the costs of such acquisitions. In January 1997, the Company acquired a book
of insurance business of approximately $20 million of annual written premiums
from a managing general agency for approximately $1.2 million. The Company
expects to earn multiple fees from this book of insurance business, including
managing general agency fees, reinsurance brokerage commissions and other
service fees.

RISK TRANSFER AND MANAGEMENT

As a provider of alternative market services and products, the Company seeks
to develop cost-effective risk transfer solutions for clients with specific
insurance or reinsurance needs. Through customized programs, the Company's
clients are able to participate in certain types of risks and retain certain
levels of risk while insuring or reinsuring the remaining risk. The Company
receives fees and commissions for its services and products and may receive a
portion of the underwriting profit or loss generated from its programs.

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<PAGE>

The following diagram and discussion illustrate, in summary form, a typical
risk transfer process wherein the Company participates and generates revenues
from services and products provided at various stages in the risk transfer
process. The amount and type of the revenues generated by the Company depends
on the nature of the risk management services and products provided by the
Company, as well as the point at which the business originates in the risk
transfer process. For example, the Company's participation in the risk
transfer process may begin with a retail agent seeking primary insurance
coverage through one of the Company's managing general agency subsidiaries, or
may begin with an insurance company or reinsurance company seeking reinsurance
coverage through the Company's reinsurance brokering operations.

THE RISK
TRANSFER FUNCTIONS TYPE OF REVENUE COMPANY PROVIDER
PROCESS
- -------------------------------------------------------------------------------

Insured
(Employer)

Retail Agent

Underwriting, Fees and MGAs in Texas,
Policy Commissions Florida and New
Administration, York
Premium
Collection and
Claims
Managing Management
General
Agent ("MGA")
Captive Fees and MGAs and
Management Commissions Realm Captive
Mgmt.

Direct Insurance Underwriting Realm National
Coverage Profit
and Investment
Income
Primary
Insurance Policy Issuance Fees Realm National
Carrier
Premium Fees North American
Auditing, and Risk
Accident and
Loss Control

Reinsurance Placement of Commissions Stirling Cooke
Broker Risk Brown
Brokers

Managing Underwriting and Fees and MGUs in Bermuda
General Premium Commissions
Underwriter Collection
("MGU")

Reinsurance Reinsurance Underwriting CIRCL
Company Coverage Profit and
Investment
Income

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<PAGE>

MANAGING GENERAL AGENT

Typically, when an employer seeks to purchase commercial insurance coverage,
such as workers' compensation insurance or other alternative market products,
it will instruct a local retail insurance agent to survey the market and
obtain the desired coverage at acceptable terms. The retail agent has
established relationships with representatives of insurance carriers known as
managing general agents that have expertise in the relevant property and
casualty program and the ability to offer the requested coverage. Managing
general agents ("MGAs") are authorized to underwrite risks, issue policies,
administer claims and accept associated premiums on behalf of various primary
insurance carriers. The Company's MGA network is an important entry point for
much of the Company's business and typically provides an initial net fee-based
revenue opportunity of between 13% and 17% of the insured's gross premium on
the underlying policy. The Company's MGAs earn fees and commissions for
providing underwriting services, policy administration and premium accounting,
and claims adjusting and administration services. In addition, once an MGA has
secured an account, numerous opportunities exist for the Company to generate
additional revenues at other stages in the risk transfer process, as
illustrated in the preceding diagram.

Through its MGA network, the Company also markets its captive and rent-a-
captive arrangements to larger employers or associations (generating $1
million or more in standard premium) wishing to use this alternative market
strategy. In these circumstances, the Company earns an MGA fee and, through
its subsidiary Realm Captive Management, a captive program administration fee.

PRIMARY INSURANCE CARRIER AND RELATED SERVICES

PRIMARY INSURANCE CARRIER. Once an MGA has accepted risk on behalf of an
insurance carrier, it issues a policy to the insured, collects the required
premium, retains its agreed fees and/or commissions and remits the balance of
the premium to the insurance carrier. The insurance carrier may receive an
issuance fee and/or may retain a portion of the premium to cover its RETAINED
RISK. The balance of the premium typically passes to the insurance carrier's
participating reinsurers through a prearranged reinsurance contract.

The Company currently uses independent primary insurance carriers in
connection with most of its existing workers' compensation business, and
expects these arrangements to continue for much of this existing business.
However, through Realm National, the Company also acts as an issuing carrier
for a portion of its new business and receives a combination of policy
issuance fees (typically 7% of the insured's gross premiums) and net premiums
earned. Furthermore, Realm National has provided the Company with the
opportunity to generate business and receive premiums and fees from sources
outside the Company's MGA network as non-affiliated MGAs also place business
with Realm National. The Company expects the revenues to be generated through
the integration of Realm National into the Company's existing businesses to be
an important component of future earnings growth.

Realm National had shareholders' equity of approximately $21.5 million at
March 31, 1998, gross premiums written of approximately $13.6 million in the
three months ended March 31, 1998 and a B+ (Very Good) rating from A.M. Best
Company. Prior to its acquisition by the Company, Realm National primarily
issued property and casualty insurance in a limited number of states.
Subsequent to its acquisition by the Company in September 1996, Realm
National's gross premiums written were $4.0 million (NET PREMIUMS WRITTEN were
$0.8 million) in 1996, substantially all of which were related to property
insurance. For the year ended December 31, 1997, Realm National's gross
premiums written were $21.7 million (net premiums written were $4.0 million),
of which $9.7 million were related to property insurance and $12.0 million
were related to workers' compensation insurance. The Company is in the process
of expanding Realm National's business to include workers' compensation and
other specialty casualty insurance lines in each of the 20 states in which
Realm National is currently licensed to offer property and casualty insurance.
The Company intends to license Realm National in

33
<PAGE>

substantially all of the remaining states and the District of Columbia. In
order to obtain a license in a given state, Realm National must complete an
application and demonstrate compliance with state licensing requirements. The
applicable insurance regulatory authority reviews the application, which
review may take from three months to two or more years. If all requirements
are met, a license is issued.

In determining whether to issue a license to do business in a state, the
state's insurance regulatory agency is required by statute or regulation to
consider a number of factors, largely for the purpose of protecting
policyholders within the state. Typically, the application process will
involve a review of the applicant's recent audited and statutory financial
statements, and in many states one or more years of operating projections, to
assess the financial strength of the applicant; biographical information
concerning the experience and fitness of directors, officers and major
shareholders; reports of recent examinations as to the applicant's compliance
record, finances and market practices in its state of domicile; proposed
policy forms and rate schedules; and the applicant's experience in
underwriting the line or lines of business to be offered.

RELATED SERVICES. The Company also provides premium auditing, claims
administration and loss control services to Realm National and other issuing
carriers through its subsidiary North American Risk. The Company charges a fee
for providing these services. The Company believes these services are an
important component of its business and allow the Company to provide its
customers with a full range of products.

REINSURANCE BROKERING

Generally, in the risk transfer process, alternative market insurance
carriers will not offer products directly to the retail agent or insured
unless they have effective reinsurance programs in place. The economics and
quality of these reinsurance arrangements affect the insurance carrier's
ability to compete with other insurance products. Insurance carriers use the
services of reinsurance brokers or other intermediaries to arrange these
reinsurance programs. The Company's reinsurance brokering subsidiary, Stirling
Cooke Brown Reinsurance Brokers Limited ("SCBRIB"), is a reinsurance broker
for alternative and traditional workers' compensation, accident, health, and
specialty casualty lines. SCBRIB operates in the reinsurance markets of
London, the U.S. and Bermuda. Through SCBRIB, the Company generates fee and
commission-based revenues without assuming risk. The Company believes that
SCBRIB gives it a competitive advantage over other industry participants and
allows it to structure more cost-effective alternative programs which are then
marketed by its MGAs. SCBRIB also arranges RETROCESSIONAL REINSURANCE coverage
for reinsurers.

MANAGING GENERAL UNDERWRITER

The Company owns a number of reinsurance carrier representatives known as
managing general underwriters ("MGUs"). These MGUs are authorized to
underwrite reinsurance contracts on behalf of a number of reinsurance carriers
and to accept the associated premium. MGUs earn fees and commissions for
providing underwriting and other services related to the reinsurance contract,
including reinsurance claims administration and other services.

REINSURANCE COMPANY

The Company has a Bermuda-based reinsurance company, CIRCL, which reinsures
a portion of the underwriting risk on business provided to or by the Company
and receives a reinsurance premium to cover that risk. CIRCL accepts a portion
of the reinsurance risk from an independent insurance carrier on programs
managed by the Company, and then purchases reinsurance protection to minimize
its risk. CIRCL primarily reinsures workers' compensation, and associated
property and general liability risks. CIRCL had gross premiums assumed of
approximately $4.8 million for the three months ended

34
<PAGE>

March 31, 1998. CIRCL's gross premiums assumed were $12.5 million (net
premiums assumed were $9.3 million) in 1996, of which $9.5 million were
related to workers' compensation insurance and $3.0 million were related to
property and general liability insurance. For the year ended December 31,
1997, CIRCL's gross premiums assumed were $14.1 million (net premiums assumed
were $9.2 million), of which $13.1 million were related to workers'
compensation insurance and $1.0 million were related to property and general
liability insurance.

MARKETING

The Company markets and originates business at various stages in the risk
transfer process, through its MGAs, Realm National and its insurance and
reinsurance brokering activities.

MGAS

The Company markets its workers' compensation products and other specialty
lines to retail agents in the U.S. through its three Company-owned MGAs and
through other affiliates. Individual MGA offices market their services and
products through sales representatives, targeted direct mail, local and
regional advertising, seminars, and trade and industry conventions. The
Company advertises in U.S. and international trade journals, and has also
contributed articles to a quarterly trade magazine circulated to agents and
policyholders. Additionally, the Company participates as an exhibitor in the
annual Risk and Insurance Management Society conventions.

Given its general reliance on retail agents as an important source of
business production, the Company places emphasis on building and maintaining
relationships with individual retail agents, and on expanding its network of
retail producers. To encourage loyalty from the retail agents to the Company's
MGAs, the Company seeks to provide a high level of service, offer insurance
products that satisfy the needs of clients and reward increased levels of
production through incentive compensation schedules. The Company believes that
it has successfully developed a reputation for providing quality service,
cost-effective products and strong marketing support which has enabled it to
develop strong relationships with its retail agents and commercial customers.

PRIMARY INSURANCE CARRIERS

The Company's MGAs market insurance products on behalf of both Realm
National and independent primary insurance carriers, primarily Clarendon and
Legion. In addition, Realm National's insurance products are marketed to
independent agents and other procurers of insurance through other unaffiliated
MGA networks. The Company expects Realm National's marketing efforts to
increase as it becomes licensed in additional states.

INSURANCE AND REINSURANCE BROKERING

The Company markets its insurance and reinsurance brokering capabilities in
a number of specialty insurance markets, both alternative and traditional. The
Company focuses its insurance brokering marketing efforts on wholesale and
retail agents, and its reinsurance brokering marketing efforts on a number of
primary insurance and reinsurance companies.

COMPETITION

The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with providers of traditional insurance
coverage and with other providers of alternative market services (including
domestic and foreign insurance companies, reinsurers, insurance brokers,
captive insurance companies, rent-a-captives, self-insurance plans, risk
retention groups, state funds, assigned risk pools

35
<PAGE>

and other risk-financing mechanisms). Many of the Company's competitors have
significantly greater financial resources, longer operating histories, better
financial ratings and offer a broader line of insurance products than the
Company. The Company believes that the key factors to effectively compete in
the risk management market are price, the ability to tailor programs to the
needs of the insured and the ability to rapidly develop new solutions to
address changing market needs. The Company believes that its services and
products are competitively priced, and that its combination of MGA, insurance
and reinsurance services and products enables it to rapidly develop tailored
programs and act as a single source provider of risk management services and
products. See "Risk Factors--Competition; Cyclicality of Insurance and
Reinsurance Businesses".

Realm National is rated B+ (Very Good) by A.M. Best Company and in certain
circumstances may be at a competitive disadvantage to insurance carriers with
higher ratings. The Company's MGAs also represent carriers with higher ratings
from A.M. Best Company, ensuring that the Company's MGAs are not negatively
impacted in circumstances where Realm National is not selected as insurance
carrier due to its rating.

REGULATION

The Company's subsidiaries that are engaged in the underwriting of insurance
(primarily Realm National and CIRCL) are subject to regulation by government
agencies in the states and foreign jurisdictions in which they do business.
The nature and extent of such regulation vary from jurisdiction to
jurisdiction, but typically involve prior approval of the acquisition of
control of an insurance company or of any company controlling an insurance
company; regulation of certain transactions entered into by an insurance
company with any of its affiliates; approval of premium rates, forms and
policies used for many lines of insurance; standards of solvency and minimum
amounts of capital and surplus which must be maintained; establishment of
reserves required to be maintained for unearned premium, losses and loss
expense or for other purposes; limitations on types and amounts of
investments; restrictions on the size of risks which may be insured by a
single company; licensing of insurers and agents; deposits of securities for
the benefit of policyholders; and the filing of periodic reports with respect
to financial condition and other matters.

In addition, state regulatory examiners perform periodic examinations of
insurance companies. Such regulation is generally intended for the protection
of policyholders rather than security holders. In April, 1997, the New York
Insurance Department issued a report on the examination of Realm National's
predecessor, Lloyds New York Insurance Company, covering the period 1991
through 1995. The examination was limited to financial statements and general
business practices. No material deficiencies were found in the financial
statements. However, Realm National was penalized for the failure of the
predecessor is management to provide the Insurance Department prior notice of
reinsurance agreements with affiliates. The Company believes its subsidiaries
are in compliance, in all material respects, with all applicable government
regulations.

In addition to the oversight of the Company's insurance subsidiaries, the
Company, as the ultimate parent of a New York domiciled insurer (Realm
National), is also subject to regulation under the New York Insurance Holding
Company System Regulatory Act (the "Holding Company Act"). The Holding Company
Act contains certain reporting requirements including those requiring the
Company, as the ultimate parent company, to file information relating to its
capital structure, ownership, and financial condition and general business
operations of its insurance subsidiaries. The Holding Company Act contains
special reporting and prior approval requirements with respect to transactions
among affiliates.

Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that define and
extend the risks and benefits for which insurance is

36
<PAGE>

sought and provided. These include redefinitions of risk exposure in areas
such as products liability, environmental damage, and employee benefits,
including workers' compensation and disability benefits. In addition,
individual state insurance departments may prevent premium rates for some
classes of insurers from reflecting the level of risk assumed by the insurer
for those classes. Such developments may result in adverse effects on the
profitability of various lines of insurance. In some cases, these adverse
effects on profitability can be reduced through repricing of coverages, if
permitted by applicable regulations, or limitation or cessation of the
affected business.

Certain of the Company's subsidiaries are also subject to regulation as
insurance intermediaries. Under the applicable regulations, the intermediary
is responsible as a fiduciary for funds received for the account of the
parties to the insurance or reinsurance transaction and is required to hold
such funds in appropriate bank accounts subject to restrictions on withdrawals
and prohibitions on commingling. The Company's insurance intermediaries
include several MGAs. MGAs produce, underwrite, and manage claims or negotiate
reinsurance for a specific portion of an insurance company's business in
certain states, and they are subject to regulation under state law regarding
licensure, fiduciary obligations with respect to premium and concerning the
general management of the insurer's business.

The activities of Stirling Cooke Brown Insurance Brokers Limited as an
insurance broker in the U.K. require it to be authorized under the Insurance
Brokers (Registration) Act of 1977 by the Insurance Brokers Registration
Council (the "Council"). Authorization by this body involves continuing
compliance with rules made by the Council, which require, among other things,
that the Company maintain a minimum level of working capital, that it allocate
not more than a specified level of its business to any particular insurance
company or group of insurance companies, that it supply reports to the
Council, and that it conduct its business in accordance with the conduct of
business rules published by the Council. It is a condition to the
authorization from the Council that a majority of the directors of SCBIBL are
and remain registered as insurance brokers in the U.K.

INSURANCE REGULATION CONCERNING CHANGE OR ACQUISITION OF CONTROL

Realm National is organized under the insurance laws of the State of New
York (the "Insurance Code of New York"). The Insurance Code of New York
provides that the acquisition or change of "control" of a domestic insurer or
any person that controls a domestic insurer cannot be consummated without the
prior approval of the relevant insurance regulatory authority. A person
seeking to acquire control, directly or indirectly, of a domestic insurance
company or any person controlling a domestic insurance company must generally
file with the relevant insurance regulatory authority an application for
change of control (commonly known as a "Form A") containing certain
information required by statute and published regulations and provide a copy
of such Form A to the domestic insurer. Under the Insurance Code of New York,
control is presumed to exist if any person, directly or indirectly, owns,
controls, holds with power to vote or holds proxies representing ten percent
or more of the voting securities of any other person.

In addition, many state insurance regulatory laws contain provisions that
require pre-notification to state agencies of a change in control of a non-
domestic admitted insurance company in that state. While such pre-notification
statutes do not authorize the state agency to disapprove the change of
control, such statutes do authorize issuance of a cease and desist order with
respect to the non-domestic admitted insurer if certain conditions exist such
as undue market concentration.

The foregoing requirements may deter, delay or prevent certain transactions
affecting the control of the Company or the ownership of Ordinary Shares,
including transactions that could be advantageous to the shareholders of the
Company.

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<PAGE>

MEMBERSHIP IN INSOLVENCY FUNDS AND ASSOCIATIONS

Most states require property and casualty insurers licensed to transact
insurance in the state to become members of insolvency funds or associations
that generally protect policyholders against the insolvency of such insurers.
Members of the fund or association must contribute to the payment of certain
claims made against insolvent insurers. Maximum contributions required by law
in any one year vary between 1% and 2% of annual premiums written by a member
in that state. Assessments from insolvency funds paid by Realm National were
immaterial in 1995, 1996, and 1997. The cost of most of these assessments is
recoverable through future policy surcharges and premium tax deductions.

Realm National is also required to participate in various mandatory
insurance facilities or in funding mandatory pools, which are generally
designed to provide insurance coverage for consumers who are unable to obtain
insurance in the voluntary insurance market. One such pool is the multi-state
workers' compensation pool operated by the National Council on Compensation
Insurance. These pools typically require all companies writing applicable
lines of insurance in the state for which the pool has been established to
fund deficiencies experienced by the pool based upon each company's relative
premium writings in that state, with any excess funding typically distributed
to the participating companies on the same basis. To the extent that these
assessments are not covered by Realm National's reinsurance treaties, they may
have an adverse effect on Realm National. Total assessments incurred by Realm
National from all such facilities for 1995, 1996, and 1997 were immaterial.

RESTRICTIONS ON DIVIDENDS

Realm National is subject to various state statutory and regulatory
restrictions, generally applicable to each insurance company in its state of
incorporation, which limit the amount of dividends or distributions payable by
an insurance company to its shareholders. By agreement with the New York
Department of Insurance, Realm National is restricted from declaring dividends
for a two-year period from September 5, 1996, the date upon which its
acquisition by the Company was completed. The restrictions are generally based
on certain levels of surplus, investment income, and operating income, as
determined under statutory accounting practices.

The Insurance Code of New York regulates the distribution of dividends and
other payments to the Company by Realm National. Under the applicable New York
statute, unless prior regulatory approval is obtained, an insurer may not
declare or distribute any dividend to shareholders which, together with all
dividends declared or distributed by it during the preceding twelve months,
exceeds the lesser of (i) 10% of its surplus to policyholders as shown by its
last statement on file with the New York Department of Insurance, or (ii) 100%
of adjusted net investment income during such period. Such restrictions or any
additional subsequently imposed restrictions may in the future affect the
Company's ability to pay principal and interest on its debt, expenses, and any
cash dividends to its shareholders. Future dividends from the Company's
subsidiaries may also be limited by business considerations.

Additionally, CIRCL is subject to certain regulations that may restrict its
ability to pay dividends. See "--Bermuda Regulation".

NAIC FORMULAS

The National Association of Insurance Commissioners has adopted a
methodology for assessing the adequacy of statutory surplus of property and
casualty insurers which includes a risk-based capital ("RBC") requirement.
Insurance companies are required to calculate and report information under a
risk-based formula which attempts to measure statutory capital and surplus
needs based on the risks in a company's mix of products and investment
portfolio. The formula is designed to allow state

38
<PAGE>

insurance regulators to identify potential weakly capitalized companies. Under
the formula, a company determines its RBC by taking into account certain risks
related to the insurer's assets (including risks related to its investment
portfolio and ceded reinsurance) and the insurer's liabilities (including
underwriting risks related to the nature and experience of its insurance
business). The RBC rules provide for different levels of regulatory attention
depending on the ratio of a company's total adjusted capital to its
"authorized control level" of RBC. Under the formula, a higher ratio reflects
a greater adequacy of capital. Based on calculations made by the Company, the
RBC level for the Company's insurance subsidiaries exceeds levels that would
trigger regulatory attention. At December 31, 1997, Realm National's RBC ratio
was approximately 1,624%, and the threshold requiring minimum regulatory
involvement was 200%. Therefore, the Company's capital exceeds all
requirements of the Risk-Based Capital Model Act. The NAIC has also developed
an Insurance Regulatory Information System ("IRIS") to assist state insurance
departments in their oversight of the financial condition of insurance
companies operating in their respective states. IRIS identifies 11 industry
ratios and specifies "usual values" for each ratio. Departure from the usual
values in four or more ratios generally leads to inquiries from individual
state insurance commissioners. Management believes that Realm National's IRIS
ratios are such as to not attract such regulatory attention.

EFFECT OF FEDERAL LEGISLATION

Although the U.S. federal government does not directly regulate the business
of insurance, federal initiatives often affect the insurance industry in a
variety of ways. Current and proposed federal measures which may significantly
affect the insurance industry include federal government participation in
asbestos and other product liability claims, pension regulation (ERISA),
examination of the taxation of insurers and reinsurers, minimum levels of
liability insurance, and automobile safety regulations.

BERMUDA REGULATION

THE INSURANCE ACT 1978, AS AMENDED, AND RELATED REGULATIONS. As a holding
company, the Company is not subject to Bermuda insurance regulations. However,
the Insurance Act 1978, as amended (the "Insurance Act"), which regulates the
insurance business of CIRCL, an insurance subsidiary of the Company, provides
that no person shall carry on insurance business in or from within Bermuda
unless registered as an insurer under the Insurance Act by the Minister of
Finance (the "Minister"). The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and such other
conditions as the Minister may impose from time to time.

The Insurance Act provides a minimum liquidity ratio for general business.
An insurer engaged in general business is required to maintain the value of
its relevant assets at not less than 75% of the amount of its relevant
liabilities. Relevant assets include cash and time deposits, quoted
investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable,
reinsurance balances receivable and funds held by ceding reinsurers. There are
certain categories of assets which, unless specifically permitted by the
Minister, do not automatically qualify as relevant assets such as unquoted
equity securities, investments in and advances to affiliates, real estate and
collateral loans. The relevant liabilities are total general business
insurance reserves and total other liabilities less deferred income tax and
sundry liabilities (by interpretation, those not specifically defined),
letters of credit and guarantees.

An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda to oversee the
business of the insurer and to report to the Minister and the Registrar of
Companies in respect of certain events. Unless the approval of the Minister is
obtained, an insurer may not terminate the appointment of its principal
representative, and the principal representative may not cease to act as such,
unless 30 days' notice in writing to the Minister is given of the intention to
do so. Within 30 days of the principal representative's knowing or having
reason to

39
<PAGE>

believe that the insurer the representative represents is likely to become
insolvent or that an "event" has occurred, the principal representative must
provide a written report to the Minister setting out all the particulars of
the case that are available to the representative. Examples of such an "event"
include failure by the insurer to comply substantially with a condition
imposed upon the insurer by the Minister relating to a solvency margin or a
liquidity or other ratio.

The Minister may appoint an inspector with extensive powers to investigate
the affairs of an insurer if the Minister believes that an investigation is
required in the interest of the insurer's policyholders or persons who may
become policyholders. In order to verify or supplement information otherwise
provided to him, the Minister may direct an insurer to produce documents or
information relating to matters connected with the insurer's business.

If it appears to the Minister that there is a risk of the insurer becoming
insolvent, the Minister may direct the insurer not to take on any new
insurance business; not to vary any insurance contract if the effect would be
to increase the insurer's liabilities; not to make certain investments; to
realize certain investments; to maintain in Bermuda, or transfer to the
custody of a Bermuda bank, certain assets; and to limit its premium income.

In general, the regulation of insurers in Bermuda relies heavily upon
auditors, loss reserve specialists, directors, and managers, who must certify
that an insurer meets minimum capital and solvency requirements. Every
registered insurer must appoint a government approved auditor who will
annually audit and report on the Statutory Financial Statements and the
Statutory Financial Return of the insurer.

CIRCL is registered as a Class 3 insurer and, as such: (i) is required to
maintain a minimum statutory capital and surplus equal to the greatest of: (a)
$1 million; (b) 20% of the first $6 million of its net premiums written plus
15% of its net premiums written over $6 million; and (c) 15% of its net
outstanding losses and loss expenses; (ii) is limited in declaring or paying
any dividends during any financial year with respect to a specified minimum
solvency margin or minimum liquidity ratio or if the declaration or payment of
such dividends would cause it to fail to meet such margin or ratio; (iii) is
prohibited, without the approval of the Minister, from reducing by 15% or more
its total statutory capital, as set out in its previous year's financial
statements; and (iv) is required to report its failure to meet its minimum
solvency margin to the Minister within 30 days after becoming aware of such
failure or having reason to believe that such failure has occurred. CIRCL is
also required to obtain an annual loss reserve opinion issued by a government
approved loss reserve specialist.

The Bermuda government actively encourages foreign investment in "exempted"
entities like CIRCL that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, CIRCL is exempted from taxes on its income until
March 28, 2016 and is not subject to tax on its dividends or to any foreign
exchange controls in Bermuda. In addition, there currently is no capital gains
tax in Bermuda, and profits can be accumulated by CIRCL, as required, without
limitation.

EXTRATERRITORIAL REGULATION OF CIRCL

As indicated above, CIRCL is registered as an insurer and is subject to
regulation and supervision in Bermuda. CIRCL is not admitted or authorized to
do business in any jurisdiction except Bermuda. The insurance laws of the
various states of the United States do not directly regulate the sale of
reinsurance within their jurisdictions by alien insurers, such as CIRCL.
Nevertheless, the provision of reinsurance by alien reinsurers, such as CIRCL,
to insurance companies domiciled or licensed in United States jurisdictions is
indirectly regulated by state "credit for reinsurance" laws that operate to
deny financial statement credit to ceding insurers unless the non-admitted
alien reinsurer posts acceptable security for ceded liabilities and agrees to
certain contract provisions (e.g., insolvency and

40
<PAGE>

intermediary clauses). Although the insurance laws of United States
jurisdictions generally exempt the business of reinsurance from "doing
business" laws, CIRCL conducts its business at its principal offices in
Bermuda and does not maintain an office in the United States, and its
personnel do not solicit, advertise, settle claims or conduct other insurance
activities in the United States. All policies are issued and delivered and
premiums are received outside the United States. CIRCL does not believe that
it is subject to the insurance laws of any state in the United States.

From time to time, there have been congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers.
While none of these proposals has been adopted to date on either the federal
or state level, there can be no assurance that federal or state legislation
will not be enacted subjecting CIRCL to supervision and regulation in the
United States, which could have a material adverse effect on the Company. In
addition, no assurance can be given that if CIRCL were to become subject to
any laws of the United States or any state thereof or of any other country at
any time in the future, it would be in compliance with such laws.

CIRCL does not intend to maintain an office or to solicit, advertise, settle
claims or conduct other insurance activities in any jurisdiction other than
Bermuda where the conduct of such activities would require that CIRCL be so
admitted. CIRCL is not registered as an insurer in England or in any other
jurisdiction. The Company believes that CIRCL is not required to be registered
as an insurance company in the United Kingdom.

OUTSTANDING LOSSES AND LOSS EXPENSES

The Company owns Realm National, a primary insurance carrier, and CIRCL, a
Bermuda-based reinsurance company. CIRCL was acquired in January 1996 and
Realm National was acquired in September 1996. Both of these companies
maintain loss reserves to reflect anticipated future claims payments. The
Company establishes reserves for losses and loss adjustment expenses related
to claims which have been reported on the basis of the evaluations of
independent claims adjusters and the Company's own claims staff. In addition,
reserves are established for losses which have occurred but have not yet been
reported and for adverse development of reserves on reported losses by the
Company. The estimate of claims arising for accidents which have not yet been
reported is based upon the Company's and the insurance industry's experience
together with statistical information with respect to the probable number and
nature of such claims. The Company engages independent actuaries to assist in
this process.

41
<PAGE>

The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses:

RECONCILIATION OF OUTSTANDING LOSSES AND LOSS EXPENSES

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance beginning of year.............................. $ -- $ 24,301
Less outstanding losses recoverable.................... -- (16,588)
Net balance for CIRCL, at acquisition.................. 1,270 --
Net balance for Realm National, at acquisition......... 1,687 --
----------- -----------
Net balance............................................ 2,957 7,713
----------- -----------
Incurred related to:
Current year......................................... 6,515 10,174
Prior years.......................................... 250 777
----------- -----------
Total incurred..................................... 6,765 10,951
----------- -----------
Paid related to:
Current year......................................... 1,334 3,560
Prior years.......................................... 675 3,449
----------- -----------
Total paid......................................... 2,009 7,009
----------- -----------
Net balance............................................ 7,713 11,655
Plus outstanding losses recoverable.................... 16,588 24,621
----------- -----------
Balance at end of year................................. $ 24,301 $ 36,276
=========== ===========
</TABLE>

The adverse development during 1997 on prior years primarily represents an
increase in claims frequency on one particular program that covers bodily
injury and property risks in the construction industry.

The Company's underwriting loss ratio (i.e., the ratio of net losses and net
loss expenses to net assumed premium earned) for 1997 was 92.9% (1996--77.3%).

The Company believes that the provision for outstanding losses and loss
expenses is adequate to cover the ultimate net cost of losses and loss
expenses incurred, however, such a provision is necessarily an estimate and
may ultimately be settled for a significantly greater or lesser amount. The
Company has limited historical loss experience available to serve as a
reliable basis for the estimation of ultimate losses. It is at least
reasonably possible that management will revise the estimate of outstanding
losses and loss expenses significantly in the near term. Any subsequent
differences arising are recorded in the period in which they are determined.

The previous table presents a reconciliation of reserves in accordance with
generally accepted accounting principles ("GAAP"). The following table
reconciles the difference between the Company's portion of these reserves and
those contained in regulatory filings made by the Company's subsidiaries in
accordance with statutory accounting practices ("SAP").

42
<PAGE>

RECONCILIATION OF SAP AND GAAP RESERVES

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
----------------
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Reserves for losses and loss adjustment expenses, end of year
SAP......................................................... $ 7,843 $11,806
Gross-up for ceded reinsurance reserves...................... 16,588 24,621
Provision for salvage receivable not included on a SAP basis. (29) (128)
Provision for loss portfolio transfer not included in SAP
reserves.................................................... (101) (23)
------- -------
Reserves for losses and loss adjustment expenses, end of year
GAAP........................................................ $24,301 $36,276
======= =======
</TABLE>

RELATIONSHIPS WITH INDEPENDENT PRIMARY INSURANCE CARRIERS

The Company's MGAs market insurance products and programs developed by the
Company on behalf of independent insurance carriers, primarily Clarendon and
Legion. In addition, the Company's brokering and reinsurance brokering
operations, managing general underwriters, and claims and loss control
servicing operations provide additional business and services to Clarendon and
Legion in respect of these products and other insurance and reinsurance
policies. In 1997, fees received from Clarendon accounted for approximately
51% of the Company's total revenues, while fees received from Legion accounted
for less than 10% of the Company's total revenues. Although the loss of either
Clarendon or Legion could have a material adverse effect on the Company, the
Company believes that Realm and other independent primary insurance carriers
have sufficient underwriting capacity to reduce the impact of such a loss. See
"Risk Factors--Dependence on Relationships with Independent Primary Insurance
Carriers".

EMPLOYEES

As of March 31, 1998, the Company had 308 employees. The service nature of
the Company's business makes its employees an important corporate asset. While
the market for qualified personnel is extremely competitive, the Company
believes that its relationship with its employees is good. None of the
Company's employees are represented by a union.

FACILITIES

The Company's principal executive offices are located in Hamilton, Bermuda.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments and the Company's Bermuda
subsidiaries. The following table sets forth additional information concerning
the Company's facilities:

<TABLE>
<CAPTION>
APPROXIMATE LEASE
PROPERTY SQUARE FEET EXPIRATION
-------- ----------- ---------------
<S> <C> <C>
Hamilton, Bermuda............................. 10,300 June 20, 2006
London, England............................... 12,500 August 10, 2009
Dallas, Texas................................. 14,700 August 31, 2003
New York, New York............................ 7,900 October 3, 2003
Sarasota, Florida............................. 12,350 June 28, 2008
Orlando, Florida.............................. 6,700 May 30, 1999
Fort Lauderdale, Florida...................... 11,100 January 1, 2000
Montgomery, Alabama........................... 5,000 June 30, 1999
Dallas, Texas................................. 8,400 August 31, 1999
</TABLE>

43
<PAGE>

All of the Company's facilities are leased. Aggregate lease payments for
1997 were $1.9 million. The Company anticipates that it will be able to extend
these leases as they expire or, if necessary or desirable, locate substitute
facilities on acceptable terms. See Note 17 to the Consolidated Financial
Statements for additional information regarding these leases.

LEGAL PROCEEDINGS

The Company is subject to litigation and arbitration in the ordinary course
of its business. While any proceeding contains an element of uncertainty,
management presently believes that the outcome of currently pending
proceedings will not have a material adverse effect on the Company.

44
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are listed below.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Chairman, President, Chief Executive Officer and
Nicholas Mark Cooke. 41 Director(1)
Nicholas Brown...... 39 Managing Director of Stirling Cooke Brown Insurance
Brokers Limited and Stirling Cooke Brown Reinsurance
Brokers Limited; Director(2)
George W. Jones..... 43 Chief Financial Officer and Director(3)
Warren W. Cabral.... 37 Vice President and Director(3)
Reuben Jeffery III.. 44 Director(2)
Michael Pruzan...... 33 Director (1)
</TABLE>
- --------
(1) Term expires at annual shareholders meeting in 2000.
(2) Term expires at annual shareholders meeting in 1999.
(3) Term expires at annual shareholders meeting in 2001.

NICHOLAS MARK COOKE has been Chief Executive Officer of the Company or its
predecessors since 1990 and Chairman and President, and a Director of the
Company since it began operations in January 1996. Prior to 1990, Mr. Cooke
was a director of two Lloyds brokers and has had continuous employment in the
insurance and reinsurance industry in the London market since 1976.

NICHOLAS BROWN has been a Director of the Company since it began operations
in January 1996. Mr. Brown has been Managing Director of Stirling Cooke Brown
Insurance Brokers Limited and of Stirling Cooke Brown Reinsurance Brokers
Limited, U.K. subsidiaries of the Company, and has been a Director of these
companies since 1992. Prior to 1992, Mr. Brown was a director of a Lloyds
broker and has had continuous employment in the insurance and reinsurance
industry in the London market since 1977.

GEORGE W. JONES has been Chief Financial Officer and a Director of the
Company since it began operations in January 1996, and Chief Financial Officer
and a Director of Stirling Cooke Brown (U.K.) Holdings Limited since 1992 and
its subsidiaries since 1988.

WARREN W. CABRAL has been Vice President and a Director of the Company since
it was founded in December 1995. Mr. Cabral is a partner in Appleby, Spurling
& Kempe, a Bermuda law firm that has provided legal services to the Company or
its predecessor since 1992.

REUBEN JEFFERY III has been a Director of the Company since it began
operations in January 1996. Mr. Jeffery has been a member of Goldman, Sachs &
Co.'s Financial Institutions Group since its inception and was named a
Managing Director of such group in 1992. Since 1997, Mr. Jeffery has been a
Managing Director of Goldman Sachs Paris Inc. et Cie.

MICHAEL PRUZAN has been a Director of the Company since April 16, 1998. Mr.
Pruzan has worked with financial institutions in various capacities since
joining Goldman, Sachs & Co. in 1987. Mr. Pruzan has been a Vice President of
Goldman, Sachs & Co. since 1994.

PROVISIONS GOVERNING THE BOARD OF DIRECTORS

NUMBER AND TERMS OF DIRECTORS

The Board of Directors of the Company (the "Board") currently consists of
six members. Under the Bye-Laws, Directors are segregated into three classes,
with staggered terms whereby one class' term expires at each annual
shareholders meeting. Candidates for election to the Board will be nominated
by the Board and, subject to certain notice and other requirements, may be
nominated by shareholders.

45
<PAGE>

The Bye-Laws provide for a minimum of three and a maximum of eight Directors
and empower the Board to fix the exact number of Directors within these limits
and to appoint persons to fill any vacancies on the Board. Vacancies on the
Board are filled by action of a majority of the Board remaining in office,
with each such appointed Director holding office until the next following
annual shareholders' meeting at which the Class to which such Director is
appointed stands for election, and at which he or his successor will be
elected. Shareholders are not entitled to fill vacancies except upon annual
election. Directors may take action by a majority of their number present at a
duly called and held meeting at which a quorum is present. The quorum
necessary for the transaction of business by the Board may be fixed by the
Board and, unless so fixed at any other number, is two Directors. A Director
who expects to be unable to attend any meeting of the Board or any committee
thereof for any reason may appoint any person as an alternate Director to
attend and act in his place. A Director also may be represented at any meeting
of the Board or any committee by a proxy appointed by him.

The foregoing summarizes certain provisions of the Bye-Laws, which are
subject to Bermuda law. See "Description of Capital Shares".

BOARD COMMITTEES

The Audit Committee is responsible for recommending to the Board the
appointment of independent auditors, reviewing and approving the scope of the
annual audit activities of the auditors, approving the audit fee payable to
the auditors, reviewing audit results and approving related party
transactions. Messrs. Jones, Pruzan and Cabral have been appointed as members
of the Audit Committee.

The Compensation Committee is responsible for reviewing and recommending to
the Board the compensation structure for the Company's directors, officers and
other managerial personnel, including salaries, bonuses, participation in
incentive compensation and benefit plans, fringe benefits, non-cash
perquisites and other forms of compensation, and will administer the Company's
1997 Equity Incentive Plan. Messrs. Jeffery, Pruzan and Cabral have been
appointed as members of the Compensation Committee.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION

The following table sets forth certain information for the years ended
December 31, 1997 and 1996, respectively, concerning compensation paid to or
earned by the Company's Chief Executive Officer and the Company's other
executive officers. The persons named in the table are sometimes referred to
herein as the "named executive officers".

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Nicholas Mark Cooke.................... 1997 $346,875 -- $27,750
President and Chief Executive Officer 1996 $300,000 $300,000 $24,000
of the Company
Nicholas Brown......................... 1997 $370,781 $ 82,000 $47,500
Managing Director of Insurance Brokers 1996 $314,160 $405,243 $68,067
and Reinsurance Brokers
George W. Jones........................ 1997 $266,921 -- $21,353
Chief Financial Officer 1996 $152,109 -- $11,936
</TABLE>
- --------
(1) "Other Annual Compensation" relates to contributions to the Company's
Money Accumulation Pension Plan.

46
<PAGE>

STOCK OPTIONS

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information on options exercised during 1997
by the named executive officers. There were no unexercised options at December
31, 1997.

<TABLE>
<CAPTION>
VALUE
SHARES ACQUIRED REALIZED
ON EXERCISE (1)
--------------- ----------
<S> <C> <C>
Nicholas Mark Cooke............................ 120,000 $2,314,800
Nicholas Brown................................. 319,800 6,168,942
George W. Jones................................ 40,200 775,458
</TABLE>
- --------
(1) Represents the difference between the exercise price on the date of
exercise, June 30, 1997, and the initial public offering price of $22.00.
The Company has not determined the fair market value of the shares at the
date of exercise of the options. The fair market value at that date would
have been substantially less than at the date of the IPO.

OPTION GRANTS IN 1997

On November 25, 1997, the Company granted options to purchase 300,000
Ordinary Shares to certain employees. The options have an exercise price of
$22.00 per share which reflected the estimated fair market value of the shares
on the grant date. The options vest ratably over a three year period with 33
1/3% vesting at the end of each year. The options may be exercised at any time
prior to November 25, 2007.

None of the options granted were granted to any director or executive
officer of the Company.

DIRECTOR COMPENSATION

The directors of the Company receive no compensation for service as members
of either the Board or committees thereof, other than reimbursement for out-
of-pocket expenses. Warren W. Cabral, Vice President and a Director of the
Company, is a partner in a law firm that has provided legal services to the
Company in each year since 1992.

EMPLOYMENT CONTRACTS

Each of the named executive officers has an employment contract with a
subsidiary of the Company. Each employment contract runs through September 1,
2000, and thereafter for one-year terms unless terminated by either party on
twelve months prior written notice. The contracts provide for 1998 annual
salaries of $375,000, $375,000 and $275,000 for Messrs. Cooke, Brown and
Jones, respectively. Each contract also requires the applicable subsidiary to
pay for a car and for certain medical and pension benefits. Each executive
officer agrees to maintain the confidentiality of the Company's business
affairs both during and after his employment, to not solicit any employees of
the Company for one year after his termination, and to not compete with the
Company during his employment and for one year after his termination. Each
executive officer's employment automatically terminates if he ceases to be a
Director of the Company, and may be terminated by the Company if, among other
things, he becomes incapacitated, becomes of unsound mind, is prohibited by
law from being a Director of the Company, is guilty of misconduct or commits a
serious or persistent breach of his obligations to the Company or fails to
perform his duties competently as reasonably determined by the Board.

47
<PAGE>

1997 EQUITY INCENTIVE PLAN

GENERAL

The purpose of the Stirling Cooke Brown Holdings Limited 1997 Equity
Incentive Plan (the "Plan") is to promote the best interests of the Company
and its shareholders by providing key employees of the Company and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company. The Plan is intended to promote continuity of management and to
provide increased incentive and personal interest in the welfare of the
Company by those key employees who are primarily responsible for shaping and
carrying out the long-range plans of the Company and securing the Company's
continued growth and financial success.

ADMINISTRATION AND ELIGIBILITY

The Plan is required to be administered by a committee of the Company's
Board (the "Committee") consisting of no less than two "outside directors"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event that the Committee is not appointed, the
functions of the Committee will be exercised by those members of the Board who
qualify as "outside directors" within the meaning of Section 162(m), or if no
such members are so qualified, by the Board. The Compensation Committee has
been designated as the current administrator of the Plan. Among other
functions, the Committee has the authority to establish rules for the
administration of the Plan; to select the key employees of the Company and its
subsidiaries to whom awards will be granted; to determine the types of awards
to be granted to key employees and the number of shares covered by such
awards; and to set the terms and conditions of such awards. The Committee may
also determine whether the payment of any proceeds of any award shall or may
be deferred by a key employee participating in the Plan. Subject to the
express terms of the Plan, determinations and interpretations with respect
thereto will be in the sole discretion of the Committee, whose determinations
and interpretations will be binding on all parties.

Any key employee of the Company and its subsidiaries, including any
executive officer or employee-director of the Company who is not a member of
the Committee, is eligible to be granted awards by the Committee under the
Plan.

AWARDS UNDER THE PLAN; AVAILABLE SHARES

The Plan authorizes the granting to key employees of: (a) stock options,
which may be either incentive stock options meeting the requirements of
Section 422 of the Code ("ISOs") or non-qualified stock options; (b) stock
appreciation rights ("SARs"); (c) restricted stock; and (d) performance
shares. The Plan provides that up to a total of 500,000 Ordinary Shares
(subject to adjustment as described below) will be available for the granting
of awards thereunder. The Company has granted non-qualified stock options to
purchase an aggregate of 300,000 Ordinary Shares to certain employees. The
exercise price of such options is equal to the IPO price of $22.00, and the
named executive officers will not receive any of such options. Such options
expire in November 2007 and vest in equal one-third annual installments over
three years beginning in November 1998 and ending in November 2000.

If any Ordinary Shares subject to awards granted under the Plan, or to which
any award relates, are forfeited or if an award otherwise terminates, expires
or is canceled prior to the delivery of all of the Ordinary Shares or other
consideration issuable or payable pursuant to the award, such Ordinary Shares
will be available for the granting of new awards under the Plan. Any Ordinary
Shares delivered pursuant to an award may be either authorized and unissued
Ordinary Shares or treasury shares held by the Company.

48
<PAGE>

TERMS OF AWARDS

OPTIONS. Options granted under the Plan to key employees may be either ISOs
or non-qualified stock options. No individual key employee may be granted
options to purchase in excess of 100,000 Ordinary Shares under the Plan
(subject to adjustment as described below).

The exercise price per Ordinary Share subject to options granted to key
employees under the Plan will be determined by the Committee, provided that
the exercise price may not be less than 100% of the fair market value of an
Ordinary Share on the date of grant. The term of any option granted to a key
employee under the Plan will be as determined by the Committee, provided that
the term of an ISO may not exceed ten years from the date of its grant.
Options granted to key employees under the Plan will become exercisable in
such manner and within such period or periods and in such installments or
otherwise as determined by the Committee. Options may be exercised by payment
in full of the exercise price, either (at the discretion of the Committee) in
cash or in whole or in part by tendering Ordinary Shares or other
consideration having a fair market value on the date of exercise equal to the
option exercise price. All ISOs granted under the Plan will also be required
to comply with all other terms of Section 422 of the Code.

SARS. An SAR granted under the Plan will confer on the key employee holder a
right to receive, upon exercise thereof, the excess of (a) the fair market
value of one Ordinary Share on the date of exercise over (b) the grant price
of the SAR as specified by the Committee. The grant price of an SAR under the
Plan will not be less than 100% of the fair market value of an Ordinary Share
on the date of grant. The grant price, term, methods of exercise, methods of
settlement (including whether the holder of an SAR will be paid in cash,
Ordinary Shares or other consideration), and any other terms and conditions of
any SAR granted under the Plan will be determined by the Committee at the time
of grant. Pursuant to the terms of the Plan, no individual key employee may be
granted SARs thereunder with respect to in excess of 100,000 Ordinary Shares
(subject to adjustment as described below).

RESTRICTED STOCK. Restricted Ordinary Shares granted to key employees under
the Plan will be subject to such restrictions as the Committee may impose,
including any limitation on the right to vote such Ordinary Shares or receive
dividends thereon. The restrictions imposed on the Ordinary Shares may lapse
separately or in combination at such time or times, or in such installments or
otherwise, as the Committee may deem appropriate. Except as otherwise
determined by the Committee, upon termination of a key employee's employment
for any reason during the applicable restriction period, all Ordinary Shares
of restricted stock still subject to restriction will be subject to forfeiture
by the key employee.

The Plan limits the total number of Ordinary Shares of restricted stock that
may be awarded thereunder to 150,000 Ordinary Shares. In addition, no
individual key employee may be granted in excess of 100,000 shares of
restricted stock under the Plan. The foregoing numerical limitations on the
issuance of shares of restricted stock are subject to adjustment as described
below.

PERFORMANCE SHARES. The Plan also provides for the granting of performance
shares to key employees. The Committee will determine the applicable
performance period, the performance goal or goals (and the performance level
or levels related thereto) to be achieved during any performance period, the
proportion of payments, if any, to be made for performance between the minimum
and full performance levels for any performance goal and, if applicable, the
relative percentage weighting given to each of the selected performance goals,
the restrictions applicable to shares of restricted stock received upon
payment of performance shares if payment is made in such manner, and any other
terms, conditions and rights relating to the grant of performance shares.
Under the terms of the Plan, the Committee may select from various performance
goals, including return on equity, return on investment, return on net assets,
economic value added, earnings from operations, pre-tax profits, net earnings,
net earnings per Ordinary Share, net cash provided by operating activities,
market price for

49
<PAGE>

the Ordinary Shares and total shareholder return. In conjunction with
selecting the applicable performance goal or goals, the Committee will also
fix the relevant performance level or levels which must be achieved with
respect to the goal or goals in order for the performance shares to be earned
by the key employee. The performance goals selected by the Committee under the
Plan may, to the extent applicable, relate to a specific division or
subsidiary of the Company or apply on a Company-wide basis.

Following completion of the applicable performance period, payment on
performance shares granted to and earned by key employees will be made in
Ordinary Shares (which, at the discretion of the Committee, may be shares of
restricted stock) equal to the number of performance shares payable. The
Committee may provide that, during a performance period, key employees will be
paid cash amounts with respect to each performance share granted to such key
employees equal to the cash dividend paid on an Ordinary Share. Pursuant to
the terms of the Plan, no key employee may receive more than 100,000
performance shares thereunder (subject to adjustment as described below).

ADJUSTMENTS. If any dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Ordinary Shares or other
securities of the Company, issuance of warrants or other rights to purchase
Ordinary Shares or other securities of the Company, or other similar corporate
transaction or event affects the Ordinary Shares so that an adjustment is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee will generally have the authority to, in such manner as it deems
equitable, adjust (a) the number and type of shares subject to the Plan and
which thereafter may be made the subject of awards, (b) the number and type of
shares subject to outstanding awards, and (c) the grant, purchase or exercise
price with respect to any award, or may make provision for a cash payment to
the holder of an outstanding award.

LIMITS ON TRANSFERABILITY. Except as specifically provided for by the
Committee at the time an award is made, no award granted under the Plan (other
than an award of restricted stock on which the restrictions have lapsed) may
be assigned, sold, transferred or encumbered by any participant, otherwise
than by will, by designation of a beneficiary, or by the laws of descent and
distribution. Each award will be exercisable during the participant's lifetime
only by such participant or, if permissible under applicable law, by the
participant's guardian or legal representative.

AMENDMENT AND TERMINATION. The Board may amend, suspend or terminate the
Plan at any time, except that no such action may adversely affect any award
granted and then outstanding thereunder without the approval of the respective
participant. The Plan further provides that shareholder approval of any
amendment thereto must also be obtained if required by (a) the rules and/or
regulations promulgated under Section 16 of the Exchange Act (in order for the
Plan to remain qualified under Rule 16b-3), (b) the Code or any rules
promulgated thereunder (in order to allow for ISOs to be granted thereunder)
or (c) the quotation or listing requirements of any exchange or market on
which the Ordinary Shares is then traded (in order to maintain the trading of
the Ordinary Shares on such exchange or market).

WITHHOLDING. Not later than the date as of which an amount first becomes
includable in the gross income of a key employee for United States federal
income tax purposes with respect to any award under the Plan, the key employee
will be required to pay to the Company or one of its subsidiaries, or make
arrangements satisfactory to the Company or one of its subsidiaries regarding
the payment of, any United States federal, state, local or other taxes of any
kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations arising with
respect to awards under the Plan may be settled with Ordinary Shares (other
than shares of restricted stock), including Ordinary Shares that are part of,
or are received upon exercise of, the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan

50
<PAGE>

are conditional on such payment or arrangements, and the Company and its
subsidiaries will, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the key employee. The
Committee may establish such procedures as it deems appropriate for the
settling of withholding obligations with Ordinary Shares.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

STOCK OPTIONS. The grant of a stock option under the Plan will create no
United States income tax consequences to the key employee. A key employee who
is granted a non-qualified stock option will generally recognize ordinary
income at the time of exercise in an amount equal to the excess of the fair
market value of the Ordinary Shares at such time over the exercise price. The
Company will be entitled to a deduction in the same amount and at the same
time as ordinary income is recognized by the key employee. A subsequent
disposition of the Ordinary Shares will give rise to capital gain or loss to
the extent the amount realized from the sale differs from the key employee's
tax basis for the Ordinary Shares, i.e., the fair market value of the Ordinary
Shares on the date of exercise. This capital gain or loss will be a long-term
capital gain or loss if the Ordinary Shares have been held for more than one
year from the date of exercise.

In general, a key employee will recognize no United States income or gain as
a result of exercise of an ISO (except that the United States alternative
minimum tax may apply). Except as described below, any gain or loss realized
by the key employee on the disposition of the Ordinary Shares acquired
pursuant to the exercise of an ISO will be treated as a long-term capital gain
or loss and no deduction will be allowed to the Company. If the key employee
fails to hold the Ordinary Shares acquired pursuant to the exercise of an ISO
for at least two years from the date of grant of the ISO and one year from the
date of exercise, the key employee will recognize ordinary income at the time
of the disposition equal to the lesser of (a) the gain realized on the
disposition, or (b) the excess of the fair market value of the Ordinary Shares
on the date of exercise over the exercise price. The Company will be entitled
to a deduction in the same amount and at the same time as ordinary income is
recognized by the key employee. Any additional gain realized by the key
employee over the fair market value at the time of exercise will be treated as
a capital gain. This capital gain will be a long-term capital gain if the
Ordinary Shares have been held for more than one year from the date of
exercise.

STOCK APPRECIATION RIGHTS. The grant of an SAR will create no United States
income tax consequences for the key employee or the Company. Upon exercise of
an SAR, the key employee will recognize ordinary income equal to the amount of
any cash and the fair market value of any Ordinary Shares or other property
received, except that if the key employee receives an option or shares of
restricted stock upon exercise of an SAR, recognition of income may be
deferred in accordance with the rules applicable to such other awards. The
Company will be entitled to a deduction in the same amount and at the same
time as income is recognized by the key employee.

RESTRICTED STOCK. A key employee will not recognize income for United States
income tax purposes at the time an award of restricted stock is made under the
Plan, unless the election described below is made. However, a key employee who
has not made such an election will recognize ordinary income at the time the
restrictions on the stock lapse in an amount equal to the fair market value of
the restricted stock at such time. The Company will be entitled to a
corresponding deduction in the same amount and at the same time as the key
employee recognizes income. Any otherwise taxable disposition of the
restricted stock after the time the restrictions lapse will result in capital
gain or loss (long-term or short-term depending on the length of time the
restricted stock is held after the time the restrictions lapse). Dividends
paid in cash and received by a participant prior to the time the restrictions
lapse will constitute ordinary income to the participant in the year paid. The
Company will be entitled to a corresponding deduction for such dividends. Any
dividends paid in stock will be treated as an award of additional restricted
stock subject to the tax treatment described herein.

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<PAGE>

A key employee may, within 30 days after the date of the award of restricted
stock, elect to recognize ordinary income as of the date of the award in an
amount equal to the fair market value of such restricted stock on the date of
the award. The Company will be entitled to a corresponding deduction in the
same amount and at the same time as the key employee recognizes income. If the
election is made, any cash dividends received with respect to the restricted
stock will be treated as dividend income to the key employee in the year of
payment and will not be deductible by the Company. Any otherwise taxable
disposition of the restricted stock (other than by forfeiture) will result in
capital gain or loss (long-term or short-term depending on the holding
period). If the key employee who has made an election subsequently forfeits
the restricted stock, the key employee will not be entitled to deduct any
loss. In addition, the Company would then be required to include as ordinary
income the amount of the deduction it originally claimed with respect to such
shares.

PERFORMANCE SHARES. The grant of performance shares will create no United
States income tax consequences for the key employee or the Company. Upon the
receipt of Ordinary Shares at the end of the applicable performance period,
the key employee will recognize ordinary income equal to the fair market value
of the Ordinary Shares received, except that if the key employee receives
shares of restricted stock in payment of performance shares, recognition of
income may be deferred in accordance with the rules applicable to such
restricted stock. In addition, the key employee will recognize ordinary income
equal to the dividend equivalents paid on performance shares prior to or at
the end of the performance period. The Company will be entitled to a deduction
in the same amount and at the same time as income is recognized by the key
employee.

PLAN BENEFITS. No awards have been made to date under the Plan and the
Company cannot currently determine the awards that may be granted in the
future to key employees thereunder. Such determinations will be made from time
to time by the Committee.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Ordinary Shares as of July 20, 1998, by: (i) each
of the Company's directors and executive officers; (ii) all directors and
executive officers as a group; and (iii) each person known by the Company to
own beneficially more than 5% of the Ordinary Shares outstanding. Except as
otherwise noted, each of the holders listed below has sole voting and
investment power over the shares beneficially owned.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED (1) PERCENT
- ---- ------------ -------
<S> <C> <C>
Entities affiliated with The Goldman Sachs Group, L.P.(2). 2,181,775 22.1
Nicholas Brown(3)......................................... 823,473 8.4
Penelope Atteline Cooke(4)................................ 784,745 8.0
Nicholas Mark Cooke(5).................................... 553,572 5.6
George William Jones(6)................................... 429,176 4.4
Michael Pruzan (7)........................................ -- *
Reuben Jeffery III(8)..................................... -- *
Warren W. Cabral.......................................... -- *
All executive officers and directors as a group (6
persons)................................................. 1,806,221 18.4
</TABLE>
- --------
*Less than 1%.
(1) In accordance with Securities and Exchange Commission rules, each
beneficial owner's holdings have been calculated in assuming full exercise
of outstanding options exercisable by such owner within 60 days after June
1, 1998, but no exercise of outstanding options held by any other person.
For further information about the calculation of beneficial ownership, see
the footnotes below.
(2) Represents shares owned by the GS Funds, of which affiliates of The
Goldman Sachs Group, L.P. ("GS Group") are the general partner, managing
general partner or investment manager. Includes 1,399,330 shares
beneficially owned by GS Capital Partners II, L.P.; 92,419 shares
beneficially owned by Bridge Street Fund 1995 L.P.; 82,124 shares
beneficially owned by Stone Street Fund 1995, L.P.; 556,293 shares
beneficially owned by GS Capital Partners II Offshore, L.P.; and 51,609
shares beneficially owned by Goldman, Sachs & Co. Verwaltungs GmbH as
nominee for GS Capital Partners II Germany C.L.P. GS Group disclaims
beneficial ownership of the shares owned by the GS Funds to the extent
attributable to equity interests therein held by persons other than GS
Group and its affiliates. Each of the GS Funds shares voting and
investment power with certain of its respective affiliates. The address of
GS Group is 85 Broad Street, New York, New York 10004.
(3) Mr. Brown is the Director of Reinsurance of the Company and is a Director
of the Company. Mr. Brown's address is c/o the Company at Victoria Hall,
Third Floor, 11 Victoria Street, Hamilton, HM- 11, Bermuda.
(4) Ms. Cooke is Secretary of the Company and her address is c/o the Company
at Victoria Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11,
Bermuda. Ms. Cooke is married to Nicholas Mark Cooke. Ms. Cooke disclaims
beneficial ownership of 553,572 Ordinary Shares beneficially owned by
Nicholas Mark Cooke.
(5) Mr. Cooke is the Chairman, President and Chief Executive Officer and a
Director of the Company and his address is c/o the Company at Victoria
Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11, Bermuda. Mr. Cooke
is married to Penelope Atteline Cooke. Mr. Cooke disclaims beneficial
ownership of 784,745 Ordinary Shares beneficially owned by Penelope
Atteline Cooke.
(6) Mr. Jones is Chief Financial Officer and a Director of the Company and his
address is c/o the Company at Victoria Hall, Third Floor, 11 Victoria
Street, Hamilton, HM-11, Bermuda.
(7) Mr. Pruzan, who is a Vice President of Goldman, Sachs & Co., disclaims
beneficial ownership of the 2,181,775 Ordinary Shares owned by the GS
Funds, except to the extent of his pecuniary interest therein.
(8) Mr. Jeffery, who is a Managing Director of Goldman, Sachs & Co., disclaims
beneficial ownership of the 2,181,775 Ordinary Shares owned by the GS
Funds, except to the extent of his pecuniary interest therein.

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<PAGE>

CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS

Messrs. Jeffrey and Pruzan, directors of the Company, are employed by
Goldman, Sachs & Co., or certain of their affiliates. Goldman, Sachs & Co.
acted as a co-managing underwriter for the Company's IPO which was completed
in December 1997, from which the underwriters received aggregate underwriting
discounts of $5.3 million from the Company and selling shareholders.

Goldman, Sachs & Co. or certain of their affiliates maintain certain
contractual relationships with the Company and have provided, and currently
provide, investment banking services to the Company. Goldman, Sachs & Co. also
provide investment management services to Realm National pursuant to a
Corporate Account Agreement dated December 24, 1996 and have received
customary fees and expenses of approximately $52,000 during 1997 for such
services.

On June 30, 1997, Messrs. Cooke, Brown and Jones exercised their options to
purchase 120,000, 319,800 and 40,200 Ordinary Shares, respectively, of the
Company at an exercise price of $2.71 per share. On the same date the Company
loaned amounts of $324,900, $865,858 and $108,841, respectively, which are
equal to the aggregate exercise price of the options, to Messrs. Cooke, Brown
and Jones, respectively. Such loans were evidenced by promissory notes,
bearing interest at 7% per annum until maturity in June 1998, or earlier, in
the event of early repayment. The loans were repaid in full in December 1997
following the successful completion of the IPO of the Company's Ordinary
Shares.

Mr. Warren Cabral is a partner in Appleby, Spurling and Kempe, a Bermuda law
firm that has provided certain legal services to the Company, or its
predecessor, since 1992. During 1997, Appleby, Spurling and Kempe were paid
customary fees of $86,000 for the provisions of these services.

DESCRIPTION OF CAPITAL SHARES

The following description of the capital shares of the Company summarizes
certain provisions of the Memorandum of Association and the Bye-Laws of the
Company. Such summary does not purport to be complete or to give full effect
to Bermuda statutory or common law and in all respects is qualified by
reference to the applicable provisions of the Bermuda Companies Act 1981 (the
"Act") and is subject to and qualified in its entirety by reference to all of
the provisions of the Memorandum of Association and the Bye-Laws. Copies of
the Memorandum of Association and the Bye-Laws are filed as exhibits to the
Registration Statement of which this Prospectus is a part.

GENERAL

The authorized capital stock of the Company consists of 20,000,000 Ordinary
Shares, par value $.25 per share, and 5,000,000 preference shares, par value
$0.01 per share, the rights, preferences and powers of which may be designated
by the Board. As of March 20, 1998 there were 9,863,372 Ordinary Shares
outstanding. On July 20, 1998 there were approximately 650 holders of Ordinary
Shares.

ORDINARY SHARES

Holders of the Ordinary Shares have no pre-emptive, redemption, conversion
or sinking fund rights. Holders of Ordinary Shares are generally entitled to
one vote per share on all matters submitted to a vote of holders of Ordinary
Shares and do not have any cumulative voting rights. The Bye-Laws restrict the
voting rights of Ordinary Shares held by certain holders of 10% or more of the
outstanding Ordinary Shares. See "--The Bye-Laws". In the event of a
liquidation, dissolution or winding-up of the

54
<PAGE>

Company, the holders of Ordinary Shares are entitled to share equally and
ratably in the assets of the Company, if any, remaining after the payment of
all debts and liabilities of the Company. The outstanding Ordinary Shares are,
and the Ordinary Shares offered by the Company hereby when issued will be,
fully paid and nonassessable. Additional authorized but unissued Ordinary
Shares may be issued by the Board of the Company without the approval of the
shareholders.

Holders of the Ordinary Shares will receive such dividends, if any, as may
be declared by the Board out of funds legally available for such purposes.
Under the Act, dividends can only be paid out of the profits of the Company
available for that purpose. The Act defines the profits of a company available
for the payment of dividends as its accumulated, realized profits, so far as
not previously utilized by distribution or capitalization, less its
accumulated realized losses, so far as not previously written off in a
reduction or reorganization of capital duly made by the Company. Bermuda law
currently imposes no restrictions on the payment of dividends to residents of
other countries. Tax and insurance regulatory limitations on the payment of
dividends by the Company's subsidiaries might impair the ability of the
Company to pay dividends in the future. See "Business--Regulation--
Restrictions on Dividends".

PREFERRED SHARES

The Board is authorized to provide for the issuance of preferred shares in
one or more series and to fix the designations, preferences, powers, and
relative, participating, optional or other rights and restrictions thereof
(including without limitation the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference), to fix the number of
shares constituting any such series and to increase and decrease the number of
shares of any such series. The Company has no present plans to issue any
preferred shares.

THE BYE-LAWS

The provisions of the Company's Bye-Laws summarized in the succeeding
paragraphs may be deemed to have an anti-takeover effect and may delay, defer,
or prevent a tender offer or takeover attempt that a shareholder might
consider in such shareholder's best interest, including those attempts that
might result in shareholders receiving a premium over the market price for the
shares.

The Board of the Company is divided into three classes that are elected for
staggered three-year terms. Shareholders may only remove a director at a
general meeting of shareholders and only if (i) such director has received
fourteen days prior written notice of such intended removal prior to such
general meeting and (ii) such removal is approved by shareholders holding not
less than 75% of the shares entitled to vote at such meeting.

Pursuant to the Company's Bye-Laws, the Company's Board may divide its
preferred shares into several classes and attach thereto preferences,
designations, relative voting rights, dividend rights, liquidation and other
rights, preferences and limitations as may be fixed by the Board without any
further shareholder approval. Such rights, preferences, powers and limitations
as may be established could have the effect of impeding or discouraging the
acquisition of control of the Company.

The Act provides that the Bye-Laws may only be amended by a Board resolution
that is subsequently approved by the Company's shareholders. The Company's
Bye-Laws provide that (i) the Board has the authority to issue share purchase
rights to specific classes of shareholders, which may exclude certain persons
or groups holding large blocks of Ordinary Shares without the prior approval
of the Board; (ii) no person or group (other than the existing shareholders)
may exercise the right to vote more than 10% of the outstanding voting shares
of the Company without receiving the approval of the Board prior to the
acquiring the shares in excess of 10%; and (iii) certain "business
combinations" (as defined below) with certain "interested persons" (as defined
below) require the

55
<PAGE>

favorable vote at a shareholders' meeting of the holders of 75% or more of the
shares entitled to vote at such meeting, unless, among other things, such
interested person enters into certain agreements with the Company and a proxy
statement meeting certain requirements is mailed to holders of all shares
carrying voting rights. A "business combination" is (a) any scheme,
arrangement, reconstruction, amalgamation or similar business combination
involving the Company or any of its subsidiaries that is proposed or initiated
by an interested person or an affiliate of an interested person, (b) any sale,
purchase, lease, exchange, mortgage, pledge, transfer or other disposition or
other encumbrance of assets between the Company and an interested person
involving in excess of 5% of the consolidated book value of the Company prior
to such transaction and (c) certain other transactions or events, including
certain issuances or transfers of Company securities to an interested person,
the liquidation or dissolution of the Company, and certain reclassifications
of the Company's securities involving an interested person. An "interested
person" is generally any shareholder of the Company deemed to hold 10% or more
of the outstanding Ordinary Shares, except for the shareholders of the Company
holding in excess of such amount on July 30, 1997.

DIFFERENCES IN CORPORATE LAW

The Act differs in certain material respects from laws generally applicable
to United States corporations and their shareholders. Set forth below is a
summary of certain significant provisions of the Act (including modifications
adopted pursuant to the Bye-Laws) applicable to the Company, which differ in
certain respects from provisions of Delaware corporate law. The following
statements are summaries, and do not purport to deal with all aspects of
Bermuda law that may be relevant to the Company and its shareholders.

INTERESTED DIRECTORS

The Bye-Laws provide that any transaction entered into by the Company in
which a director has an interest is not voidable by the Company nor can such
director be liable to the Company for any profit realized pursuant to such
transaction provided the nature of the interest is disclosed at the first
opportunity at a meeting of directors, or in writing to the directors. Under
Delaware law, such transaction would not be voidable if (i) the material facts
as to such interested director's relationship or interests are disclosed or
are known to the board of directors and the board in good faith authorizes the
transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be
held liable for any transaction for which such director derived an improper
personal benefit.

MERGERS AND SIMILAR ARRANGEMENTS

The Company may acquire the business of another Bermuda company similarly
exempt from Bermuda taxes or a company incorporated outside Bermuda and carry
on such business when it is within the objects of its Memorandum of
Association. The Company may also amalgamate with another Bermuda company or
with a body incorporated outside Bermuda upon the approval of the board of
directors and the holders of 75% of the outstanding shares of the Company,
including any shares that would otherwise be non-voting shares. In the case of
an amalgamation, a shareholder may apply to a Bermuda court for a proper
valuation of such shareholder's shares if such shareholder is not satisfied
that fair value has been paid for such shares. The court ordinarily would not
set aside the transaction on that ground absent evidence of fraud or bad
faith. Under Delaware law, with certain exceptions, any merger, consolidation
or sale of all or substantially all the assets of a corporation must be
approved by the board of directors and the holders of a majority of the
outstanding shares entitled

56
<PAGE>

to vote. Under Delaware law, a stockholder of a corporation participating in
certain major corporate transactions may, under varying circumstances, be
entitled to appraisal rights pursuant to which such stockholder may receive
cash in the amount of the fair value of the shares held by such stockholder
(as determined by a court or by agreement of the corporation and the
stockholder) in lieu of the consideration such stockholder would otherwise
receive in the transaction. Delaware law does not provide stockholders of a
corporation with voting or appraisal rights when the corporation acquires
another business through the issuance of its stock or other consideration (i)
in exchange for the assets of the business to be acquired, (ii) in exchange
for the outstanding stock of the corporation to be acquired or (iii) in a
merger of the corporation to be acquired with a subsidiary of the acquiring
corporation.

TAKEOVERS

Bermuda law provides that where an offer is made for shares of another
company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the nontendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its discretion to enjoin
the required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the
holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any
stockholder vote, may merge with any 90% or more owned subsidiary. Upon any
such merger, dissenting stockholders of the subsidiary would have appraisal
rights.

SHAREHOLDER'S SUIT

A shareholder who considers that the affairs of the Company are being
conducted in a manner which is unfairly prejudicial or oppressive to the
interests of some of the shareholders may apply to the Bermuda court for
relief under the Act. The court may grant such relief as it considers fit.
Class actions and derivative actions are generally not available to
shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily
would be expected to follow English case law precedent, which would permit a
shareholder to commence an action in the name of the Company to remedy a wrong
done to the Company where the act complained of is alleged to be beyond the
corporate power of the Company or is illegal or would result in the violation
of the Memorandum of Association or Bye-Laws. Furthermore, consideration would
be given by the court to acts that are alleged to constitute a fraud against
the minority shareholders or where an act requires the approval of a greater
percentage of the Company's shareholders than actually approved it. The
winning party in such an action generally would be able to recover a portion
of attorneys' fees incurred in connection with such action. Class actions and
derivative actions generally are available to stockholders under Delaware law
for, among other things, breach of fiduciary duty, corporate waste and actions
not taken in accordance with applicable law. In such actions, the court has
discretion to permit the winning party to recover attorneys' fees incurred in
connection with such action.

INDEMNIFICATION OF DIRECTORS

The Company may indemnify its directors or officers in their capacity as
such in respect of any loss arising or liability attaching to them by virtue
of any rule of law in respect of any negligence, default, breach of duty or
breach of trust of which a director or officer may be guilty in relation to
the Company other than in respect of his own fraud or dishonesty. Under
Delaware law, a corporation may adopt a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
breaches of

57
<PAGE>

the director's duty of loyalty, for acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, for
improper payment of dividends or for any transaction from which the director
derived an improper personal benefit. Delaware law has provisions and
limitations similar to Bermuda regarding indemnification by a corporation of
its directors or officers, except that under Delaware law the statutory rights
to indemnification may not be as limited.

INSPECTION OF CORPORATE RECORDS

Members of the general public have the right to inspect the public documents
of the Company available at the office of the Registrar of Companies in
Bermuda, which will include the Memorandum of Association (including its
objects and powers) and any alteration to the Memorandum of Association and
documents relating to any increase or reduction of authorized capital. The
shareholders have the additional right to inspect or obtain copies of the Bye-
Laws, minutes of general meetings and audited financial statements of the
Company, which must be presented to the annual general meeting of
shareholders. The register of shareholders of the Company is also open to
inspection by shareholders without charge, and to members of the public for a
fee. The Company is required to keep at its registered office a register of
its directors and officers which is open for inspection by members of the
public without charge. Bermuda law does not, however, provide a general right
for shareholders to inspect or obtain copies of any other corporate records.
Delaware law permits any stockholder to inspect or obtain copies of a
corporation's stockholder list and its other books and records for any purpose
reasonably related to such person's interest as a stockholder. Delaware law
does not permit inspection by the public of the register of stockholders.

REGISTRATION RIGHTS

The GS Funds, which hold in the aggregate 2,181,775 Ordinary Shares, and
certain executives and employees of the Company, who hold in the aggregate
4,220,347 Ordinary Shares, are entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of the
Registration Rights Agreement, the GS Funds may demand registration, on five
separate occasions, of all or any of their Ordinary Shares and all other
parties to the Registration Rights Agreement have piggy-back rights to such
demand registration. All registration rights are subject to certain conditions
and limitations. With certain exceptions, the Company is required to bear the
expenses of the first three of such registrations. The registration rights of
each of the holders expire at such time that all registrable Ordinary Shares
held by such holder have been effectively registered and disposed of pursuant
to such registration or sold pursuant to Rule 144 under the Securities Act
("Rule 144"). Goldman, Sachs & Co. have the right to act as the lead managing
underwriter in any registration pursuant to the Registration Rights Agreement.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Ordinary Shares is
Firstar Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that market sales of
shares or the availability of such shares for sale will have on the market
price of the Ordinary Shares prevailing from time to time. Future sales of
substantial numbers of Ordinary Shares in the public market, however, could
adversely affect prevailing market prices and impair the Company's future
ability to raise capital through the sale of its equity securities.

As of the date of this Prospectus, the Company had outstanding 9,863,372
Ordinary Shares. Of these shares, the 3,421,250 sold in the IPO are freely
tradable without restriction or further registration

58
<PAGE>

under the Securities Act, except for any Ordinary Shares purchased by
"affiliates" (as defined under the Securities Act) of the Company. Ordinary
Shares purchased by affiliates may not be sold unless the sale is registered
under the Securities Act or unless they are sold pursuant to Rule 144 or
another exemption from registration.

In general, under Rule 144 as in effect on the date of this Prospectus, an
affiliate of the Company, or person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding Ordinary Shares of the
Company (approximately 98,000 shares as of March 31, 1998) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has
beneficially owned restricted shares for at least two years is entitled to
sell shares pursuant to Rule 144(k) without regard to the limitations above.

The GS Funds, which hold in the aggregate 2,181,775 Ordinary Shares, have
certain demand registration rights with respect to such shares and all other
parties to the Registration Rights Agreement have piggy-back rights to such
demand registration. See "Description of Capital Shares--Registration Rights".

Subject to applicable laws and regulations, Goldman, Sachs & Co. currently
make a market in the Ordinary Shares. However, they are not obligated to do so
and any market-making may be discontinued at any time without notice. In
addition, such market-making activity is subject to the limits imposed by the
Securities Act and the Exchange Act. The Company will maintain a registration
statement under the Securities Act as required in order to permit market-
making activities by Goldman, Sachs & Co.

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<PAGE>

CERTAIN TAX CONSIDERATIONS

The following discussion of taxation of the Company and the taxation of
certain shareholders of the Company is based upon current law, and summarizes
the principal Bermuda, United Kingdom and United States federal income tax
consequences of the Company's operations and of the ownership and disposition
of the Company's Ordinary Shares by certain persons under United States tax
laws. Legislative, judicial or administrative changes may be forthcoming that
could affect this summary.

This summary does not purport to be a complete analysis of all of the tax
considerations that may be applicable to a decision to acquire Ordinary Shares
of the Company and, unless explicitly noted to the contrary, deals only with
investors who are U.S. Persons (as defined below) who will hold the Ordinary
Shares as "capital assets" within the meaning of Section 1221 of the Code. In
addition, except as explicitly provided below, the summary does not apply to a
10% U.S. shareholder (as defined below) of the Company. The tax treatment of
any particular shareholder may vary depending on such shareholder's particular
tax situation or status. Consequently, each prospective shareholder is urged
to consult his or its own tax advisors as to the particular tax consequences
of the ownership and disposition of the Ordinary Shares to such shareholder,
including the effect and applicability of United States federal, state, local
and foreign income and other tax laws.

BERMUDA

The following statements as to Bermuda tax law are the opinion of Appleby,
Spurling & Kempe, Bermuda counsel to the Company, and are subject to the
qualifications and assumptions set forth in such statements. Under current
Bermuda law, there is no Bermuda income tax, withholding tax, capital gains
tax or capital transfer tax levied on the Company or its shareholders.

The Company and its Bermuda subsidiaries have obtained a written undertaking
from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act 1966 (as amended) that, in the event of there being enacted in
Bermuda any legislation imposing tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature
of estate duty or inheritance tax, such tax shall not, until March 28, 2016,
be applicable to the Company or any of its operations, or to the shares,
debentures or other obligations of the Company, except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or to any land leased or let to
the Company.

UNITED KINGDOM

The following statements as to the United Kingdom tax law are the opinion of
Richards Butler, United Kingdom counsel to the Company, and are subject to the
qualifications and assumptions set forth in such statements. In accordance
with common practice in the United Kingdom, the opinion of such counsel is
given "for the sole benefit of [the Company] . . . and may not be relied upon
by anyone else." The purpose of such limitation is to restrict the reliance of
unauthorized persons under the common law principles of the United Kingdom;
however, such limitation does not affect the rights of any person under
Section 11 of the Securities Act, or other provisions of state or federal
securities laws. Additionally, this discussion is intended only as a general
guide to the current tax position under the tax legislation of the United
Kingdom at the date of this document of the consequences of the Company's
operations carried on through, and the ownership of, U.K. resident
subsidiaries, and to the extraction of profits therefrom. It does not purport
to summarize the tax consequences of the ownership and disposition of the
Ordinary Shares. A shareholder who is in any doubt as to his tax position
should consult his professional advisers in the jurisdiction in which he is
resident.

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U.K. SUBSIDIARIES

Stirling Cooke Brown Holdings (U.K.) Limited and its U.K. resident
subsidiaries (the "U.K. Subsidiaries") are subject to corporation tax on their
worldwide income, profits and gains in the United Kingdom.

Under current U.K. legislation no tax is withheld from any dividend paid by
Stirling Cooke Brown Holdings (U.K.) Limited to the Company. However, when
dividends are paid Stirling Cooke Brown Holdings (U.K.) Limited must make a
prepayment of corporation tax to the Inland Revenue (advance corporation tax
or "ACT") at the rate of 20% of the aggregate of the dividend paid and the
ACT, equating to 25% of the cash dividend paid. Stirling Cooke Brown Holdings
(U.K.) Limited can set off this ACT against its mainstream corporation tax
liabilities subject to various limits and any excess ("Surplus ACT") may be
carried back to be set against earlier years' tax bills, carried forward to be
set off against future tax bills or surrendered to the U.K. Subsidiaries for
utilization by them. The Chancellor of the Exchequer has announced the
intention to abolish the requirement to make a payment of ACT with effect from
6th April, 1999. Stirling Cooke Brown Holdings (U.K.) Limited will be treated
as making payment of notional ACT ("Shadow ACT") on all distributions made
after that date. This Shadow ACT will govern the amount of Surplus ACT which
can be utilized in periods subsequent to 6th April, 1999.

Stirling Cooke Brown Holdings (U.K.) Limited may elect to pay a dividend as
a foreign income dividend ("FID"). In that event, ACT will still be payable to
the Inland Revenue, but Stirling Cooke Brown Holdings (U.K.) Limited may be
able to recover all or a portion of that ACT if the FID can be matched with
foreign source profits and it so elects and further elects to have the ACT
repaid to it. The FID regime referred to above has been abolished with effect
from 6th April, 1999.

The U.K. Subsidiaries must deduct tax at the specified rate (currently 20%)
from any payments of annual interest made by the U.K. Subsidiaries to the
Company and account to the Inland Revenue for such sums. If the amount of
interest is considered by the Inland Revenue to be excessive, they may treat
the excess over and above a reasonable commercial return or that which they
consider represents an amount which would not have been paid if the companies
had been companies between whom there was no relationship, arrangement or
other connection (whether formal or informal) as a distribution, in which case
ACT would be payable in respect of the amount of the distribution as set out
above, if made before 6th April, 1999.

The United Kingdom has not entered into a tax treaty with Bermuda.

UNITED KINGDOM INSURANCE PREMIUM TAX

The United Kingdom imposes an insurance premium tax ("IPT") on premiums paid
in respect of taxable insurance contracts. Premiums are taxed at a standard
rate of 4% but for some insurance contracts the rate is 17.5%. It is the duty
of the insurer to collect this tax and remit the IPT to the Inland Revenue.

UNITED STATES

The following discussion summarizes the principal United States federal tax
considerations relating to the taxation of the Company and its subsidiaries,
and to the ownership of Ordinary Shares. This discussion is based upon the
existing method of operations of the Company and its subsidiaries as described
in this Prospectus. It is also based on applicable provisions of the Code, the
regulations promulgated by the United States Treasury Department thereunder,
rulings of the United States Internal Revenue Service (the "Service") and
decisions of United States courts, all as currently existing and in effect.
Except for statements that begin with the words "The Company believes" or "The
Company anticipates," the statements made below are the opinion of Foley &
Lardner, U.S. counsel

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to the Company ("U.S. Counsel"), subject to the qualifications and assumptions
set forth in such statements. The statements as to the Company's actions,
beliefs and conclusions regarding the application of such tax laws to the
Company represent the views of the Company's management and do not represent
legal opinions of the Company or U.S. Counsel.

For purposes of this discussion, the term "Domestic Subsidiaries" means
those subsidiaries of the Company that are created or organized under the laws
of the United States or any state thereof, within the meaning of Section
7701(a)(4) of the Code, and the term "Foreign Subsidiaries" means those
subsidiaries of the Company that are not Domestic Subsidiaries. The term "U.S.
Person" means (i) an individual who is a citizen or resident of the United
States or any political subdivision thereof, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any state
thereof, or (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of its source. The term "Foreign
Person" means a person other than a U.S. Person. The term "United States
corporation" means a corporation created or organized in or under the laws of
the United States or any state thereof, and the term "foreign corporation"
means a corporation other than a United States corporation.

The Company has not applied for, and does not intend to apply for, a ruling
from the Service with regard to any of the matters discussed below. The
opinion of U.S. Counsel is not binding on the Service.

FEDERAL TAXES IMPOSED ON THE COMPANY AND ITS SUBSIDIARIES

UNITED STATES TAXATION OF DOMESTIC SUBSIDIARIES. The Domestic Subsidiaries
are subject to United States federal income tax on their worldwide income. The
highest marginal federal income tax rate currently is 35% for corporations.

UNITED STATES TAXATION OF FOREIGN COMPANIES WITH INCOME EFFECTIVELY
CONNECTED WITH THE CONDUCT OF A TRADE OR BUSINESS IN THE UNITED STATES. If a
foreign corporation is engaged in a trade or business in the United States,
then, unless otherwise provided under the terms of an applicable income tax
treaty: (i) the income of the corporation that is effectively connected with
this trade or business is subject to United States federal income tax (at a
current maximum rate of 35%); and (ii) the corporation is subject to an
additional 30% United States "branch profits tax" on its effectively connected
earnings and profits (with certain adjustments) that are deemed repatriated.
Although the federal income tax and branch profits tax imposed on effectively
connected income are generally computed on a "net basis" (after allowance for
deductions), no deductions are allowed to a foreign corporation for a taxable
year unless a federal income tax return is filed on a timely basis for that
taxable year.

The Company believes that neither it nor any of the Foreign Subsidiaries is
engaged in a trade or business in the United States. The Company and the
Foreign Subsidiaries have not and do not intend to file United States income
tax returns. Current law does not provide a comprehensive definition of the
activities that constitute being engaged in a trade or business in the United
States, and the determination is essentially factual in nature. There can be
no assurance that the Service could not contend successfully that the Company
and/or one or more Foreign Subsidiaries are engaged in a trade or business in
the United States. If the Company and/or one or more Foreign Subsidiaries were
found to be engaged in a trade or business in the United States, deficiencies
for federal income taxes and branch profits taxes (together with penalties and
interest) could be assessed against such company. In addition, a failure to
file federal income tax returns on a timely basis would result in a
disallowance of deductions, as described above.

The United States has entered into a tax treaty with Bermuda (the "Bermuda
Treaty") relating to certain "enterprises of insurance". An enterprise of
insurance is defined to be an enterprise the

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predominant business activity of which consists of issuing insurance contracts
or acting as a reinsurer. An entity that is a resident of Bermuda is not
entitled to the benefits of the Bermuda Treaty unless (i) more than 50% of the
beneficial interests in such entity are beneficially owned, directly or
indirectly, by individuals who are Bermuda residents or United States citizens
or residents, and (ii) the entity's income is not used in substantial part,
directly or indirectly, to make disproportionate distributions to, or to meet
certain liabilities to, persons who are not Bermuda residents or United States
citizens or residents (the "Bermuda Treaty Benefits Test").

A resident of Bermuda that is an "enterprise of insurance" and that is
entitled to the benefits of the Bermuda Treaty is not subject to United States
federal income tax or branch profits tax on its business profits, unless the
business profits are attributable to a United States permanent establishment
maintained by the resident. Because the Company is not itself engaged in an
insurance business, the Company is not an "enterprise of insurance" within the
meaning of the Bermuda Treaty. It is uncertain whether, upon completion of the
Offering or at any time thereafter, any Foreign Subsidiary that is
incorporated in Bermuda and that is an "enterprise of insurance" (such as
CIRCL) can satisfy the Bermuda Treaty Benefits Test. Even if a Foreign
Subsidiary (such as CIRCL) does satisfy the Bermuda Treaty Benefits Test and
even if the Foreign Subsidiary does not maintain a permanent establishment in
the United States, the Foreign Subsidiary may be subject to United States
federal income tax and branch profits tax on any investment income (whether
from United States sources or foreign sources) that is effectively connected
with a trade or business conducted in the United States. Furthermore, even if
a Foreign Subsidiary (such as CIRCL) does satisfy the Bermuda Treaty Benefits
Test, and even if this Foreign Subsidiary is exempt from United States tax on
its business profits (on the ground that the Foreign Subsidiary does not
maintain a United States permanent establishment), the Bermuda Treaty does not
prevent the United States from imposing a "second-tier" gross-basis tax on
dividends paid by this Foreign Subsidiary in the event that the Foreign
Subsidiary is engaged in a trade or business in the United States. In
particular, a portion of any dividends paid by CIRCL to CIRCL Holdings Ltd.
will be subject to the second-tier gross-basis United States tax (at a rate of
30%) if CIRCL is engaged in a trade or business in the United States but is
protected by the Bermuda Treaty from United States taxation on its business
profits.

Under the income tax treaty between the United Kingdom and the United States
(the "U.K. Treaty"), a Foreign Subsidiary that is resident in the United
Kingdom for United Kingdom tax purposes and that is entitled to the benefits
of the U.K. Treaty is not subject to United States federal income tax or
branch profits tax on its business profits, unless the business profits are
attributable to a permanent establishment maintained in the United States.

PERSONAL HOLDING COMPANY RULES. In general, a corporation is a "personal
holding company" (a "PHC") for a taxable year if (i) at any time during the
last half of the taxable year, more than 50% of its shares (by value) are
owned, directly or indirectly, by five or fewer individuals, and (ii) at least
60% of its "adjusted ordinary gross income" for the taxable year consists of
"personal holding company income" (such as dividends, interest, royalties and
certain other types of passive investment income). A corporation that is a PHC
for a taxable year is subject to a 39.6% federal tax on its undistributed
income for the taxable year, in addition to being subject to regular federal
income tax.

The Company believes that, for purposes of the PHC provisions, more than 50%
of the stock (by value) of the Company and of each subsidiary is likely to be
treated after the Offering as being owned, directly or indirectly, by five or
fewer individuals.

With respect to United States corporations (such as the Domestic
Subsidiaries) that are members of a group filing a consolidated federal income
tax return, the "60% income" test is generally applied to the group as a
whole, and no member of the group of United States corporations is considered
to meet the 60% income test unless the group meets the 60% income test. The
Company believes that the group of Domestic Subsidiaries has not met, and is
not expected to meet, the 60% income test. Accordingly, the Company believes
that no Domestic Subsidiary has been or is expected to be a PHC.

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In determining the "adjusted ordinary gross income" of a foreign
corporation, the only income that is taken into account is income that is
effectively connected with the conduct of a trade or business in the United
States, and income from United States sources. For example, if the Company
receives a dividend from a Domestic Subsidiary, and if the Company does not
receive any other income that is effectively connected with a United States
trade or business or that is derived from United States sources, 100% of the
Company's "adjusted ordinary gross income" for the taxable year will consist
of "personal holding company income", and the Company will be subject to the
PHC tax in the taxable year unless it redistributes to its shareholders the
amount received as a dividend from the Domestic Subsidiary.

The Company believes that, as a result of dividend distributions paid by it
and by its subsidiaries, neither the Company nor any subsidiary has had, or
will have, any "undistributed personal holding company income" for any taxable
year during which the respective corporation is a PHC.

UNITED STATES TAX ON U.S.-SOURCE INVESTMENT INCOME. If a foreign corporation
receives "fixed or determinable annual or periodical gains, profits and
income" (such as dividends and certain types of interest) from sources within
the United States, and if this income is not effectively connected with the
conduct of a United States trade or business (or is not attributable to a
United States permanent establishment, in the event that the recipient is
entitled to the benefits of a United States income tax treaty), such income is
generally subject to a "gross basis" United States tax. The rate of this tax
is 30%, unless the rate is reduced under an applicable tax treaty. The 30% tax
does not apply to "portfolio interest" (within the meaning of Sections 871(h)
and 881(c) of the Code). If a Domestic Subsidiary pays a dividend to the
Company, such dividend will be subject to the 30% United States tax.

UNITED STATES FEDERAL EXCISE TAX ON INSURANCE PREMIUMS. The United States
imposes a federal excise tax on premiums paid to foreign insurers or
reinsurers with respect to risks located in the United States. This excise tax
is imposed at the rate of 4% on premiums for direct coverage and 1% for
reinsurance coverage.

FEDERAL TAX CONSEQUENCES OF OWNERSHIP OF THE ORDINARY SHARES

This discussion summarizes the federal income tax consequences of the
ownership of Ordinary Shares that are held as capital assets within the
meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences that may be relevant to holders in light of their particular
circumstances or to holders subject to special rules (such as financial
institutions, insurance companies, broker-dealers, tax-exempt organizations,
or persons who hold Ordinary Shares as part of a straddle or conversion
transaction).

Prospective purchasers of Ordinary Shares should consult their own tax
advisors with regard to the application of the United States federal income
tax laws to their particular situations and any other tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.

U.S. PERSONS.

Dividends and Gains on Sale. Except as described below with respect to the
"controlled foreign corporation", "related person insurance income", and
"passive foreign investment company" rules, distributions by the Company to a
U.S. Person with respect to the Ordinary Shares will be treated as ordinary
dividend income to the extent of the Company's current and accumulated
earnings and profits. Such dividends will not be eligible for the dividend-
received deduction generally allowed under the Code to dividend recipients
that are United States corporations. The amount of any distribution in excess
of the Company's current and accumulated earnings and profits will first be
applied to reduce the holder's tax basis in the Ordinary Shares, and any
amount in excess of tax basis will be treated as

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gain from the sale or exchange of the Ordinary Shares. Except as described
below with respect to the "controlled foreign corporation", "related person
insurance income", and "passive foreign investment company" rules, any gain
recognized by a U.S. Person on a sale or exchange of Ordinary Shares (or on a
distribution treated as a sale or exchange) will be treated as capital gain.
Capital gains of corporations are taxable at the same rate as ordinary income.
With respect to non-corporate taxpayers, the excess of net long-term capital
gain over net short term capital loss may be taxed at a substantially lower
rate than ordinary income. A capital gain or loss is long-term if the asset
has been held for more than one year and short-term if held for one year or
less. As a result of the enactment of the Taxpayer Relief Act of 1997, the tax
rate that applies to long-term capital gains on certain types of assets held
for more than 18 months is lower than the tax rate that applies to long-term
capital gains on assets held for more than one year but not more than 18
months. In addition, the distinction between capital gain or loss and ordinary
income or loss is relevant for purposes of, among other things, limitations on
the deductibility of capital losses.

Indirect Taxation of 10% Shareholders of Controlled Foreign Corporations.
With respect to any foreign corporation that is a "controlled foreign
corporation" (a "CFC") for an uninterrupted period of 30 days or more during a
taxable year, each U.S. Person that, on the last day of the corporation's
taxable year, is a "10% U.S. Shareholder" (as defined below) and owns,
directly or indirectly through foreign entities, any shares in the foreign
corporation must include in its gross income for United States federal income
tax purposes a pro rata share of the corporation's "Subpart F" income for such
taxable year, whether or not such income is distributed. A "10% U.S.
Shareholder" is a U.S. Person that owns, directly or indirectly, shares
possessing 10% or more of the voting power in the foreign corporation. Subpart
F income includes insurance income (underwriting income and investment income)
relating to risks located outside the country in which the foreign corporation
is incorporated ("Subpart F Insurance Income"), and also includes passive
investment income (such as interest and dividends).

If a U.S. Person recognizes gain from the sale or exchange of Ordinary
Shares, and if at any time during the five years preceding the sale or
exchange such person was a 10% U.S. Shareholder of the Company at a time when
the Company was classified as a CFC, a portion of the gain will be
recharacterized under Section 1248 of the Code as dividend income, rather than
as capital gain. The amount of the gain that is so recharacterized will depend
on the amount of accumulated earnings and profits of the Company and its
Foreign Subsidiaries.

In general, a foreign corporation is classified as a CFC if more than 50% of
the corporation's shares (by vote or value) are owned directly or indirectly
by 10% U.S. Shareholders. A foreign insurance corporation that is not a CFC
under this general rule is treated as a CFC, however, for the sole purpose of
taking into account the corporation's Subpart F Insurance Income if (i) more
than 25% of such corporation's shares (by vote or value) are owned directly or
indirectly by 10% U.S. Shareholders, and (ii) the foreign corporation realizes
in excess of 75% of its gross premium income from the insuring or reinsuring
of risks outside the country in which the foreign corporation is incorporated.
The Company anticipates that over 75% of CIRCL's gross premium income will be
written on risks outside of Bermuda.

The Company anticipates that, because of the dispersion of ownership of its
shares, the Company will not be a CFC after the Offering. In any event, the
characterization of the Company as a CFC does not give rise to a tax on the
Company, and is relevant only to a 10% U.S. Shareholder of the Company. No
assurance can be given, however, that relationships among holders of shares,
or future changes in ownership, will not cause the Company to be or become a
CFC, with the result that any 10% U.S. Shareholder of the Company or of a
Foreign Subsidiary would be required to include in its gross income its pro
rata share of any Subpart F income of the Company or the Foreign Subsidiary.
Even if the Company or a Foreign Subsidiary is determined to be a CFC, no
purchaser of Ordinary Shares

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will be responsible for the payment of United States tax with respect to any
Subpart F income earned by the Company and the Foreign Subsidiaries, unless
such purchaser is a 10% U.S. Shareholder. Any 10% U.S. Shareholder of the
Company should consult its own tax advisor.

Indirect Taxation Attributable to RPII. If a foreign corporation earns
"related person insurance income" ("RPII"), and if 25% or more (by vote or
value) of the shares of the foreign corporation are owned directly or
indirectly by U.S. Persons for an uninterrupted period of 30 days or more
during the relevant taxable year, then unless one of the exceptions described
below applies, each U.S. Person that owns, directly or indirectly through
foreign entities, any stock in the foreign corporation on the last day of the
taxable year must include in its gross income for United States federal income
tax purposes its allocable share (calculated as if the only stock outstanding
were the stock held by U.S. Persons) of the RPII, whether or not such income
is distributed. RPII consists of insurance income (underwriting and investment
income) relating to policies issued for the benefit of (i) any U.S. Person
that owns, directly or indirectly through foreign entities, any shares in the
foreign corporation, or (ii) any person related to such a U.S. Person.

Under one exception to the RPII rules, no income inclusion is required if at
all times during the taxable year less than 20% of the voting power and value
of the shares in the foreign corporation are owned, directly or indirectly
through foreign entities, by persons who are, or who are related to persons
who are, directly or indirectly insured by the foreign corporation. Under
another exception to the RPII rules, no income inclusion is required if the
gross amount of RPII of the foreign corporation for the taxable year is less
than 20% of the gross insurance income of the foreign corporation.

The Company anticipates that in each taxable year ending after the Offering
the gross amount of any RPII earned by the Company and each Foreign Subsidiary
will be less than 20% of the gross insurance income earned by the respective
company. Nevertheless, there can be no assurance that RPII income inclusions
will be avoided with respect to holders of Ordinary Shares, particularly
because any Foreign Subsidiary that conducts a reinsurance business may not be
in a position to prove that the persons whose risks the Foreign Subsidiary
indirectly reinsures do not own, directly or indirectly, Ordinary Shares.

As described above with respect to the CFC rules, Section 1248 will apply on
a sale or exchange of Ordinary Shares by a U.S. Person (and will
recharacterize a portion of any gain on the sale or exchange as a dividend) if
at any time during the five years preceding the sale or exchange the U.S.
Person was a 10% U.S. Shareholder at a time when the Company was a CFC.
Section 953(c)(7) of the Code generally provides that Section 1248 also
applies if a U.S. Person sells or exchanges shares in a foreign corporation
that earns RPII and that, at any time in the five years preceding the sale or
exchange, was 25%-or-more owned (directly or indirectly) by U.S. Persons and
would have been taxed as an insurance company under Subchapter L of the Code
if the corporation were a domestic corporation. Section 1248 would apply in
such a case even if the RPII represents less than 20% of the corporation's
insurance income. Furthermore, it is possible that the Service could contend
successfully that Sections 953(c)(7) and 1248 also apply if the foreign
corporation whose shares are sold or exchanged by the U.S. Person has never
been engaged in the insurance business but is the parent of a foreign
corporation that is or has been engaged in an insurance business.

The Company anticipates that it will never be engaged in an insurance
business. Assuming that the Company itself never engages in an insurance
business in the future, the provisions of Section 953(c)(7) should not apply
under current law to any holder of Ordinary Shares. This conclusion is not
free from doubt, however. Because one or more of the Foreign Subsidiaries are
and will be engaged in an insurance business, it is possible that the Service
could contend successfully that Section 1248 should apply to a sale or
exchange of Ordinary Shares by a U.S. Person (which would result in a portion
of any gain on the sale or exchange being recharacterized as a dividend) if,
at any time during

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the five years preceding the sale or exchange, this U.S. Person owned,
directly or indirectly, shares in the Company at a time when 25% or more (by
vote or value) of shares in the Company were owned, directly or indirectly, by
U.S. Persons.

Passive Foreign Investment Company Rules. In general, a foreign corporation
is a "passive foreign investment company" ("PFIC") during a taxable year if
75% or more of its gross income for the taxable year constitutes "passive
income" or if 50% or more of its assets held during the taxable year produce,
or are held for the production of, passive income. In general, any U.S. Person
who holds, directly or indirectly, any Ordinary Shares will be subject to
penalty taxes (under Section 1291 of the Code) upon the disposition of, or
receipt of "excess distributions" with respect to, such Ordinary Shares if the
Company is a PFIC during the taxable year in which such income is realized by
the U.S. Person, or if the Company was a PFIC during any prior taxable year
that is included in whole or in part in the U.S. Person's "holding period"
(within the meaning of Section 1223 of the Code) for the Ordinary Shares. In
addition to the penalty taxes, there exist several other adverse tax
consequences to any U.S. Person that holds shares in a PFIC.

The penalty taxes and these other adverse tax consequences do not apply,
however, if the U.S. Person makes a "qualified electing fund" ("QEF") election
with respect to its Ordinary Shares for the first taxable year included in
whole or in part in the U.S. Person's "holding period" in which the Company is
a PFIC. If a QEF election is made by the U.S. Person, then with respect to
each taxable year that the Company is a PFIC, the U.S. Person will have to
include in its gross income for United States federal income tax purposes its
allocable share of the Company's earnings for such taxable year, whether or
not these earnings are distributed.

For purposes of the PFIC rules, "passive income" generally includes
interest, dividends, and other investment income. The PFIC statutory
provisions contain an express exception for income "derived in the active
conduct of an insurance business by a corporation which is predominantly
engaged in an insurance business . . ." (the "Insurance Company Exception").
This exception is intended to ensure that income derived by a bona fide
insurance company is not treated as passive income. However, to the extent
such income is attributable to financial reserves in excess of the reasonable
needs of the insurance business, it may be treated as passive income for
purposes of the PFIC rules. The PFIC statutory provisions also contain a look-
through rule that states that, for purposes of determining whether a foreign
corporation is a PFIC, such foreign corporation shall be treated as if it
"received directly its proportionate share of the income . . ." and as if it
"held its proportionate share of the assets . . ." of any other corporation in
which it owns at least 25% of the value of the stock.

The Company believes that, as a result of the Insurance Company Exception,
CIRCL is not a PFIC. The Company anticipates that CIRCL will not have
financial reserves in excess of the reasonable needs of its insurance
business, and will continue to meet the requirements of the Insurance Company
Exception. The Company anticipates further that, as a result of the look-
through rules, the Company will not be classified as a PFIC. Nevertheless,
there can be no assurance that the Company will not be classified as a PFIC.
The United States Treasury has not yet promulgated final regulations regarding
the application of the Insurance Company Exception and the look-through rules,
and there exists substantial uncertainty regarding the interpretation of these
rules. In addition, it is unclear whether the coverages or services provided
under a rent-a-captive program are to be characterized as "passive" activities
(rather than as non-passive management and related services) for PFIC
purposes.

Foreign Personal Holding Company Rules. In general, a foreign corporation is
a "foreign personal holding company" (a "FPHC") during a taxable year if (i)
at any time during the taxable year, more than 50% of the shares (by vote or
value) of the corporation are owned, directly or indirectly, by five or fewer
individuals who are U.S. Persons, and (ii) at least 50% of the gross income of
the corporation

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for the taxable year consists of "foreign personal holding company income"
(such as dividends, interest, royalties, and certain other types of passive
investment income). If a foreign corporation is a FPHC for a taxable year,
each U.S. Person who owns, directly or indirectly through foreign entities,
any stock of the corporation is required to recognize, as a dividend, the U.S.
Person's share of the undistributed FPHC income of the foreign corporation.

The Company believes that neither the Company nor any Foreign Subsidiary has
met or is expected to meet the stock ownership threshold requirement for
classification as a FPHC.

Foreign Tax Credit Treatment of Income Earned With Respect to Ordinary
Shares. If the Company is engaged in a trade or business in the United States
at any time during the three taxable years preceding the taxable year in which
it pays a dividend on its Ordinary Shares to a U.S. Person, and if 25% or more
of the Company's gross income during this three year period was effectively
connected with the United States trade or business, a portion of such dividend
will be treated as United States source income for purposes of computing the
foreign tax credit limitation of the U.S Person that receives the dividend.
Any portion of a dividend received by a U.S. Person that is not treated as
United States source income under the rule described above will nevertheless
be recharacterized in part as United States source income if U.S. Persons own,
directly or indirectly, 50% or more of the voting power or value of the shares
of the Company. In such an event, the amount that is so recharacterized will
depend on the amount of United States source income earned by the Company and
its subsidiaries. (This type of recharacterization will also apply to any
income inclusion to a U.S. Person under the CFC, RPII, and QEF rules with
respect to the Company or its Foreign Subsidiaries.) The Company anticipates
that a substantial part of the income earned by the Company and its
subsidiaries will be from United States sources.

The Company anticipates that substantially all of the dividends received
from the Company and any income inclusions applicable to a U.S. Person under
the CFC, RPII, and QEF rules that constitute foreign source income will
constitute either "passive" income or "financial services" income for foreign
tax credit limitation purposes. Thus, it may not be possible for most U.S.
Persons who hold Ordinary Shares to utilize excess foreign tax credits to
reduce United States tax on such income.

Form 5471 Reporting. Any U.S. Person who owns, directly or indirectly, any
shares on the last day of a taxable year of a foreign corporation must
generally file an information report on Form 5471 with respect to such
person's interest in the foreign corporation if: (i) the U.S. Person is a 10%
U.S. Shareholder of the foreign corporation, and the foreign corporation is a
CFC for an uninterrupted period of 30 days or more during the taxable year; or
(ii) 25% or more (by vote or value) of the shares of the foreign corporation
are owned directly or indirectly by U.S. Persons for an uninterrupted period
of 30 days or more during the taxable year, and the gross amount of RPII
earned by the foreign corporation during the taxable year represents 20% or
more of the foreign corporation's gross insurance income. The filing of a Form
5471 is also required in other situations, including the acquisition by a U.S.
Person of 5% or more of the value of the shares of a foreign corporation. The
Company will provide information to assist in the completion of Form 5471 in
situations where such form is required. However, the Company will not itself
determine whether or when such filing is required.

Backup Withholding. Information reporting to the Service by paying agents
and custodians located in the United States will be required with respect to
payments of dividends on the Ordinary Shares to U.S. Persons. A U.S. Person
who holds Ordinary Shares may be subject to backup withholding at a 31% rate
with respect to dividends paid by paying agents or custodians, or proceeds
received on the sale or exchange of Ordinary Shares through a broker, unless
the holder (i) demonstrates that it qualifies for an applicable exemption
(such as the exemption for holders that are corporations), or (ii) provides a
taxpayer identification number and complies with certain other requirements.
Holders of

68
<PAGE>

Ordinary Shares should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. The amount of any backup withholding from a
payment to a holder will generally be allowed as credit against such holder's
United States federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the Service.

FOREIGN PERSONS.

U.S. Income Tax. A holder of Ordinary Shares who is a Foreign Person (other
than a former United States citizen described in Section 877(a) of the Code or
a former resident of the United States described in Sections 877(e) or
7701(b)(10) of the Code) will not be subject to United States federal income
tax upon any dividend received on the Ordinary Shares, unless the dividend
income is effectively connected with a United States trade or business
conducted by the Foreign Person. In addition, such a Foreign Person will not
be subject to United States federal income tax upon any gain realized on the
sale or exchange of Ordinary Shares, unless (i) such gain is effectively
connected with a trade or business in the United States conducted by the
holder or (ii) in the case of an individual holder, the holder is present in
the United States for 183 days or more in the taxable year of the sale or
exchange, and either the holder has a "tax home" (as defined in Section
911(d)(3) of the Code) in the United States or the gain is attributable to an
office or other fixed place of business maintained in the United States by
such holder.

Backup Withholding. If a Foreign Person sells Ordinary Shares through a
United States office of a broker, the broker is required to file an
information report and is required to withhold 31% of the sale proceeds unless
the Foreign Person certifies its non-United States status or otherwise
establishes an exemption. If a Foreign Person sells Ordinary Shares through a
foreign office of a broker, backup withholding is not required; but
information reporting is required if the broker does not have documentary
evidence that the holder is a Foreign Person and if (i) the broker is a U.S.
Person, (ii) the broker is a CFC, or (iii) the broker derives 50% or more of
its gross income for a specified three year period from the conduct of a trade
or business in the United States.

Foreign Persons holding Ordinary Shares should consult their own tax
advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available.
Any amount withheld from payment to a Foreign Person holding Ordinary Shares
under the backup withholding rules will generally be allowed as credit against
such holder's United States federal income tax liability, if any, and may
entitle such holder to a refund, provided that the required information is
furnished to the Service.

U.S. Estate Tax. Any Ordinary Shares held by an individual who is neither a
United States citizen, nor a former United States citizen, nor a resident
(within the meaning of Section 2101 of the Code) of the United States will be
exempt from the United States estate tax.

* * * * *

The foregoing discussion is based upon current law and is for general
information only. The tax treatment of a holder of Ordinary Shares may vary
depending on the holder's particular tax situation. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could be
retroactive and could affect the tax consequences to holders of Ordinary
Shares.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF ACQUIRING,
OWNING AND DISPOSING OF THE ORDINARY SHARES.

69
<PAGE>

PLAN OF DISTRIBUTION

This Prospectus may be used by Goldman, Sachs & Co. in connection with
offers and sales related to market-making transactions in the Ordinary Shares
effected from time to time. Goldman, Sachs & Co. may act as principal or agent
in such transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation in
the form of discounts and commissions, including from both counterparts when
it acts as agent for both. Such sales will be made at prevailing market prices
at the time of sale, at prices related thereto or at negotiated prices.

For a description of certain relationships and transactions between Goldman,
Sachs & Co. and their affiliates and the Company, see "Management", "Certain
Relationships and Related Party Transactions" and "Principal Shareholders".

The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently make a market
in the Ordinary Shares. However, they are not obligated to do so and any
market-making may be discontinued at any time without notice. In addition,
such market-making activity is subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will be sustained. See "Risk Factors--Possible Volatility of Ordinary
Shares Price and the Securities Markets".

Goldman, Sachs & Co. have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
without the prior specific written approval of such transactions by the
customer.

The Company has agreed to indemnify Goldman, Sachs & Co. against certain
liabilities in connection with this Prospectus, including liabilities under
the Securities Act.

EXPERTS

The financial statements and schedules of Stirling Cooke Brown Holdings
Limited as of December 31, 1996 and 1997, and for each of the years in the
three year period ended December 31, 1997, have been included herein and in
the registration statement in reliance upon the reports of KPMG Peat Marwick,
independent chartered accountants, appearing elsewhere herein and in the
registration statement, and upon the authority of said firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the Ordinary Shares under Bermuda law has been passed upon
for the Company by its Bermuda counsel, Appleby, Spurling & Kempe, Hamilton,
Bermuda. Warren Cabral, a Partner of Appleby, Spurling & Kempe, is an officer
and a director of the Company. See "Management". Certain legal matters have
been passed upon for the Company with respect to matters of United States
federal law by Foley & Lardner, Milwaukee, Wisconsin, and for the Company by
Appleby, Spurling & Kempe with respect to matters of Bermuda law and Richards
Butler, London, with respect to matters involving the laws of the United
Kingdom.

70
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (herein, together with all
amendments thereto, called the "Registration Statement") under the Securities
Act with respect to the Ordinary Shares offered hereby. Reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. This Prospectus,
which is a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Ordinary Shares offered hereby, reference is made to
the Registration Statement and to the financial statements, schedules, and
exhibits filed as a part thereof. The Registration Statement, including all
schedules and exhibits thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the
Commission's regional offices at 7 World Trade Center, 13th floor, New York,
New York and 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates or may be accessed electronically by means of the Commission's home page
on the Internet at http://www.sec.gov.

Statements contained in this Prospectus concerning the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or otherwise with the Commission, each
such statement being qualified in all respects by such reference.

The Company believes that, as of the date of this Prospectus, it is a
"foreign private issuer" as defined in Rule 3b-4 promulgated under the
Exchange Act. As such, the Company is exempt from certain rules and reporting
requirements under the Exchange Act, including the proxy rules under Section
14 and the short-swing profit rules under Section 16.

The Company has also filed this Prospectus with the Bermuda Registrar of
Companies in compliance with Part III of the Bermuda Companies Act 1981.

71
<PAGE>

GLOSSARY OF SELECTED INSURANCE TERMS

Alternative market........... The segment of the insurance market that has
developed in response to volatility in the cost
and availability of traditional insurance
coverages. The alternative market consists of
retrospectively rated programs, deductible
policies and various risk financing mechanisms
including self insurance, captives, rent-a-
captives, risk retention groups and government
pools and trusts.

Assigned risk pool........... A state mandated workers' compensation
insurance program whereby all workers'
compensation insurers in such state are
required to share in the provision of workers'
compensation insurance to those employers in
the state who are unable to obtain such
insurance in the open market.

Captive...................... An insurance or reinsurance company that is
controlled by the insured or a group of
insureds, and is formed for the purpose of
insuring or reinsuring risks associated with
the activities of its shareholders or members.

Claims adjusting............. The service, provided on behalf of insurers, of
examining the circumstances giving rise to a
claim under a policy of insurance, determining
the validity or otherwise of the claim,
deciding the amount of benefits payable and
associated claim costs in accordance with
policy conditions as a result of the claims
events, paying valid claims, and calculating
the level of reserving required of an insurer
to pay future benefits and associated claim
costs as a result of valid claims.

Independent producing agent.. See definition of "retail agent".

Loss expense................. The expense of investigating, adjusting,
defending and settling claims including legal
and other fees and the portion of general
expenses allocated to claim settlement costs.

Loss reserves................ Liabilities established by insurers and
reinsurers to reflect the estimated cost of
claims payments that the insurer or reinsurer
ultimately will be required to pay in respect
of insurance or reinsurance it has written.
Reserves are estimated for losses and loss
expenses, and consist of case reserves for
specific known losses and incurred but not
reported (IBNR) reserves based on claims
history and statistical data.

Managing general agency A person, firm or corporation that has
("MGA")..................... supervisory responsibility for the local agency
and field operations of an insurance company or
is authorized by an insurance company to accept
and process on its behalf insurance policies
sold by other agents. A managing general agency
may typically perform any of the following acts
for an insurance company: underwrite and accept
risks to be bound by the insurance company;
receive and process reports and accounts;
receive and be responsible for balances; adjust
claims; and appoint or direct other agents.

72
<PAGE>

Managing General Underwriter
("MGU").....................
A person, firm or corporation that is
authorized by a reinsurer to accept and process
on its behalf a reinsurance contract. A
managing general underwriter may typically
perform any of the following acts for a
reinsurer: underwrite and accept risks to be
bound by the reinsurer; receive and process
reports and accounts; receive and be
responsible for balances; perform claims
management.

Net premiums earned.......... The pro rata portion of the written premium
covering that part of the policy term that
expired during a specified accounting period
and therefore is recognized for accounting
purposes as income in that period less premiums
ceded to reinsurers with respect to such
period.

Net premiums written......... Gross premiums written during a given period
less premiums ceded to reinsurers during such
period.

Non-subscriber programs...... Programs designed for employers in the state of
Texas that have elected to opt out of or not
subscribe to the insurance provisions of the
Texas Workers' Compensation Act. It is not
mandatory for employers to purchase workers'
compensation insurance in Texas, and there are
a number of occupational accident insurance
coverages available in that state as
alternatives to workers' compensation
insurance.

Policy administration........ The performance of all the tasks surrounding
the production of policy documents, delivery of
policy documents to the insured at the
inception of a policy period, production and
delivery to the insured of any amendments to
the documents during the course of the policy
period, due performance of any undertakings in
the policy documents in connection with renewal
or cancellation of the policy, filing of policy
documents with state departments of insurance
or departments of labor as may be required, and
the maintenance of accurate records of all
policies for the insurer.

Premium accounting........... The reporting and remitting to the insurance
carrier of all premium monies and adjustments
due an insurer in respect of all insurance
policies for risks accepted on behalf of that
insurer.

Program business or Structured insurance products that are each
programs.................... designed for a particular group of insureds.
Each program has its own rates, underwriting
guidelines and reinsurance arrangements,
specialized for that program in order to meet
the particular needs of such group.

Reinsurance.................. A transaction in which one party ("reinsurer"),
in consideration of payment of a premium,
agrees to indemnify another party ("reinsured")
for a specified part or all of the reinsured's
risk under a policy or policies of insurance
written or assumed by the reinsured. The
reinsured may be referred to as the "ceding
company". The purchase of reinsurance does not
legally discharge the ceding company from its
liability to its

73
<PAGE>

insurers. Reinsurance of all or a portion of a
single insurance policy is known as
"facultative reinsurance"; reinsurance of all
or a portion of a specified group of policies
is known as "treaty reinsurance".

Reinsurance brokering........ The design and/or arranging, for a fee or
commission, of a program which transfers risk
and associated premium from an insurance
company or reinsurance company to another
reinsurance company.

Rent-a-captive............... An insurance or reinsurance company formed for
the purpose of insuring risks associated with
the activities of a group of unrelated
shareholders and which is controlled not by its
insurers but by an insured, a broker or an
entity seeking to profit from operating the
rent-a-captive.

Retail agent or independent
producing agent.............
A person, firm or corporation appointed and
authorized by a managing general agent or
insurer to transact insurance business on
behalf of such managing general agent or
insurer. A retail agent typically deals
directly with the insured (i.e. retails the
insurance business) while a managing general
agent typically only deals through retail
agents (i.e., wholesales the insurance
business). An independent producing agent is an
unaffiliated retail agent producing insurance
business to a managing general agent.

Retained risk................ The portion of risk which is not transferred by
the insured or the reinsured to an insurer or
reinsurer.

Retrocessional reinsurance... A type of reinsurance whereby a reinsurer cedes
to another reinsurer, the retrocessionaire, all
or part of the reinsurance that the first
reinsurer has assumed. Retrocessional
reinsurance does not legally discharge the
ceding reinsurer from its liability with
respect to its obligations to the reinsured.
Reinsurance companies cede risks to
retrocessionaires for reasons similar to those
that cause primary insurers to purchase
reinsurance: to reduce net liability on
individual risks, to protect against
catastrophic losses, to stabilize financial
ratios and to obtain additional underwriting
capacity.

Soft insurance market........ The period of the insurance market cycle which
is characterized by excessive capital and
competition, resulting in an increased
availability of coverage and decreased prices.

Specialty casualty lines..... Insurance primarily intended to cover entities
against certain types of damages and economic
losses arising out of certain actions or
omissions. Specialty casualty lines typically
include certain types of property damage
coverage, combined general liability coverage
and various professional indemnity coverages.

Underwriting profit or loss.. The amount of earned premiums less all
associated losses and expenses (including
additions to reserves) for a given period.
Underwriting profit or loss does not include
investment income associated with the
investment of insurance premiums or realized
gains and losses.

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<PAGE>

Workers' compensation........ Workers' compensation is a statutory system
that provides funds for medical treatment and
wage replacement for employees injured on the
job. Under workers' compensation laws,
employees do not have the right to sue
employers under common law for damages suffered
in workplace accidents, but in exchange receive
a specified and statutorily guaranteed set of
benefits, regardless of fault. It is mandatory
in all but two states (New Jersey and Texas)
for employers to provide workers' compensation,
which they generally do by purchasing workers'
compensation insurance from the commercial
insurance market, from a state fund, or from an
assigned risk pool, or by qualifying as self-
insurers.

75
<PAGE>

INDEX TO FINANCIAL STATEMENTS

STIRLING COOKE BROWN HOLDINGS LIMITED AND SUBSIDIARIES

<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-3
Consolidated Statements of Income and Comprehensive Income for the Years
Ended December 31, 1995, 1996 and 1997................................. F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1995, 1996 and 1997................................................ F-7

UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of March 31, 1998............... F-29
Unaudited Consolidated Statements of Income and Comprehensive Income for
the
Three Months Ended March 31, 1997 and 1998............................. F-30
Unaudited Consolidated Statements of Changes in Shareholders' Equity for
the Three Months Ended March 31, 1997 and 1998......................... F-31
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1998.......................................... F-32
Notes to Unaudited Consolidated Financial Statements for the Three
Months Ended March 31, 1997 and 1998................................... F-33
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
Stirling Cooke Brown Holdings Limited

We have audited the consolidated financial statements of Stirling Cooke
Brown Holdings Limited and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with United States 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stirling
Cooke Brown Holdings Limited and subsidiaries as at December 31, 1996 and 1997
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with United
States generally accepted accounting principles.

/s/ KPMG Peat Marwick

KPMG Peat Marwick
Hamilton, Bermuda
March 16, 1998

F-2
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Marketable securities, at fair value (Note 6)
Debt securities (amortized cost, 1996--$18,982, 1997--
$14,882)................................................ $ 19,033 $ 14,971
Equity securities (cost, 1996--$3,295, 1997--$454)....... 3,466 486
Short term investments (amortized cost,1996--$120, 1997--
$5,579)................................................. 120 5,579
-------- --------
Total marketable securities................................ 22,619 21,036
Cash and cash equivalents (Note 4)......................... 15,602 50,631
Fiduciary funds-restricted (Notes 4 and 5)................. 50,240 60,224
Insurance and reinsurance balances receivable (affiliates,
1996--$1,814,
1997--$8,118) (Note 4 and 19)............................. 103,755 213,332
Outstanding losses recoverable from reinsurers (Notes 9 and
10)....................................................... 16,588 24,621
Deferred acquisition costs................................. 171 579
Deferred reinsurance premiums ceded (Note 9)............... 7,223 12,503
Deferred tax asset (Note 13)............................... 264 1,109
Goodwill (Note 2(i))....................................... 8,124 8,613
Other assets (Note 7)...................................... 6,451 10,926
Assets related to deposit liabilities (Note 8)............. 4,047 2,756
-------- --------
Total assets........................................... $235,084 $406,330
======== ========
LIABILITIES
Outstanding losses and loss expenses (Note 10)............. $ 24,301 $ 36,276
Unearned premiums.......................................... 12,515 19,187
Deferred income............................................ 1,793 2,853
Insurance and reinsurance balances payable (affiliates,
1996--$3,656,
1997--$16,187) (Note 19).................................. 141,483 251,713
Funds withheld............................................. 1,384 1,314
Accounts payable and accrued liabilities................... 3,927 6,170
Income taxes payable (Note 13)............................. 2,176 2,958
Deposit liabilities (Note 8)............................... 4,047 2,756
-------- --------
Total liabilities...................................... 191,626 323,227
-------- --------
Ordinary shares subject to redemption (1996--2,000,000,
1997--0)
(Note 11)................................................. 14,457 --
-------- --------
SHAREHOLDERS' EQUITY
Share capital
Authorized 20,000,000 ordinary shares of par value $.25
each. Issued and fully paid 6,000,000 and 9,863,372
ordinary shares (Note 11)................................. 1,500 2,466
Additional paid in capital................................. 12,319 54,167
Accumulated other comprehensive income (Note 6)............ 147 63
Retained earnings.......................................... 15,973 27,074
-------- --------
29,939 83,770
Less: Ordinary shares in treasury (1996--202,784, 1997--
40,000) at cost (Note 11)................................. (938) (667)
-------- --------
Total shareholders' equity............................. 29,001 83,103
-------- --------
Total liabilities, ordinary shares subject to
redemption and shareholders' equity................... $235,084 $406,330
======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES
Risk management fees (Note 2 (f))................... $17,084 $34,061 $45,664
Net premiums earned (Note 9)........................ -- 8,754 11,790
Net investment income (Note 6)...................... 1,964 3,405 5,782
Other income........................................ -- 841 2,074
------- ------- -------
Total revenues.................................... 19,048 47,061 65,310
------- ------- -------
EXPENSES
Net losses and loss expenses incurred (Notes 2(e)
and 10)............................................ -- 6,765 10,951
Acquisition costs................................... -- 1,837 1,344
Depreciation and amortization of capital assets..... 659 1,018 1,199
Amortization of goodwill............................ -- 423 707
Salaries and benefits............................... 6,066 13,106 18,503
Other operating expenses............................ 5,169 11,713 16,688
------- ------- -------
Total expenses.................................... 11,894 34,862 49,392
------- ------- -------
Income before taxation.............................. 7,154 12,199 15,918
Taxation (Note 13).................................. 2,560 2,281 2,925
------- ------- -------
Net income.......................................... $ 4,594 $ 9,918 $12,993
======= ======= =======
Other comprehensive income (loss), net of tax:
Unrealized holding gains arising during the year,
(net of tax of $0, $75, and $131)................ 0 147 188
Less: reclassification adjustment for realized
gains included in net income (net of tax of $0,
$0, and $167).................................... 0 0 (272)
------- ------- -------
Other comprehensive income (loss), net of tax..... 0 147 (84)
------- ------- -------
Comprehensive income.............................. 0 10,065 12,909
======= ======= =======
Net income per share (Note 14)...................... $ 1.07 $ 1.22 $ 1.55
======= ======= =======
Net income per share assuming dilution (Note 14).... $ 1.07 $ 1.19 $ 1.53
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
ORDINARY SHARES OF PAR VALUE $0.25 EACH
Balance at beginning of year...................... $ 1,000 $ 1,000 $ 1,500
Issuance of shares................................ -- 500 344
Options exercised................................. -- -- 150
Cancellation of ordinary shares in treasury....... -- -- (100)
Reclassification of ordinary shares subject to
redemption....................................... -- -- 572
------- ------- -------
Balance at end of year............................ $ 1,000 $ 1,500 $ 2,466
------- ------- -------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year...................... $ -- $ -- $12,319
Issuance of shares................................ -- 12,319 26,488
Proceeds from exercise of options in excess of
par.............................................. -- -- 1,475
Issuance of shares (conversion of Class A)........ -- -- (72)
Reclassification of ordinary shares subject to
redemption....................................... -- -- 13,957
------- ------- -------
Balance at end of year............................ $ -- $12,319 $54,167
------- ------- -------
NOTES RECEIVABLE
Balance at beginning of year...................... $ -- $ -- $ --
Receivable on exercise of options................. -- -- (1,625)
Repayment of notes................................ -- -- 1,625
------- ------- -------
Balance at end of year............................ $ -- $ -- $ --
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year...................... $ -- $ -- $ 147
Other comprehensive income (loss)................. -- 147 (84)
------- ------- -------
Balance at end of year............................ $ -- $ 147 $ 63
------- ------- -------
RETAINED EARNINGS
Balance at beginning of year...................... $ 3,596 $ 6,055 $15,973
Net income........................................ 4,594 9,918 12,993
Dividends......................................... (2,135) -- --
Cancellation of ordinary shares in treasury....... -- -- (1,892)
------- ------- -------
Balance at end of year............................ $ 6,055 $15,973 $27,074
------- ------- -------
TREASURY STOCK
Balance at beginning of year...................... $ -- $ -- $ (938)
Purchase of ordinary shares in treasury........... -- (938) (1,807)
Sale of ordinary shares from treasury............. -- -- 86
Cancellation of ordinary shares in treasury....... -- -- 1,992
------- ------- -------
Balance at end of year............................ $ -- $ (938) $ (667)
------- ------- -------
Total shareholders' equity........................ $ 7,055 $29,001 $83,103
======= ======= =======
</TABLE>

Dividends per share were $0.53, $0 and $0 for the years ended December 31,
1995, 1996 and 1997, respectively.

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 4,594 $ 9,918 $ 12,993
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of capital
assets....................................... 659 1,018 1,199
Net gain on sale of subsidiaries.............. -- -- (478)
Amortization of goodwill...................... -- 423 707
Amortization of marketable securities......... -- (10) 197
Net realized gains on sale of marketable
securities................................... -- -- (438)
Equity in income of affiliates................ -- (282) (1,266)
Changes in non cash operating assets and
liabilities:
Fiduciary funds............................... (9,883) (18,349) (13,245)
Insurance and reinsurance balances
receivable................................... (30,884) (31,023) (117,197)
Outstanding losses recoverable from
reinsurers................................... -- (5,159) (8,033)
Deferred acquisition costs.................... -- 1,436 (408)
Deferred reinsurance premiums ceded........... -- (762) (5,281)
Other assets.................................. (185) (942) (3,620)
Deferred tax asset............................ -- 141 (801)
Assets related to deposit liabilities......... -- (579) 1,292
Outstanding losses and loss expenses.......... -- 9,916 11,975
Unearned premiums............................. -- 938 6,672
Insurance and reinsurance balances payable.... 37,793 47,065 120,887
Funds withheld................................ -- (355) (69)
Accounts payable and accrued liabilities...... 136 893 2,431
Income taxes payable.......................... 972 (559) 782
Deferred income............................... -- 522 1,060
Deposit liabilities........................... -- 579 (1,292)
-------- -------- ---------
Net cash provided by operating activities... 3,202 14,829 8,067
-------- -------- ---------
INVESTING ACTIVITIES
Purchase of capital assets.................... (807) (1,446) (1,619)
Sale of capital assets........................ -- 58 88
Purchase of debt securities................... -- (13,751) (318)
Purchase of equity securities................. -- (39) (3,977)
Purchase of short-term investments, net....... -- (120) (5,459)
Proceeds on sale of debt securities........... -- 2,273 4,190
Proceeds on sale of equity securities......... -- 15 7,262
Purchase of subsidiaries, net of cash
acquired..................................... -- (290) (1,197)
Cash received of upon sale of subsidiaries.... -- -- 861
Investments in affiliates..................... -- (134) (198)
Dividends received from affiliates............ -- -- 593
-------- -------- ---------
Cash (used) provided by investing
activities................................. (807) (13,434) 226
-------- -------- ---------
FINANCING ACTIVITIES
Dividends..................................... (2,135) -- --
Net proceeds of subscription to share capital
subject to redemption........................ -- 14,457 --
Net proceeds from subscriptions to share
capital...................................... -- -- 26,832
Proceeds from exercise of options............. -- -- 1,625
Purchase of ordinary shares in treasury....... -- (938) (1,807)
Sales of ordinary shares in treasury.......... -- -- 86
-------- -------- ---------
Cash (used) provided by financing
activities................................. (2,135) 13,519 26,736
-------- -------- ---------
Increase in cash and cash equivalents.......... 260 14,914 35,029
Cash and cash equivalents at beginning of year. $ 428 $ 688 $ 15,602
-------- -------- ---------
Cash and cash equivalents at end of year....... $ 688 $ 15,602 $ 50,631
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for income taxes.. $ 1,588 $ 1,928 $ 3,755
======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE DATA)

1. GENERAL

Stirling Cooke Brown Holdings Limited (the "Company") was incorporated in
Bermuda on December 12, 1995. The Company is a holding company engaged,
through its subsidiaries, in providing insurance services primarily in the
United States, Bermuda and Europe. The Company's activities include insurance
and reinsurance brokering, underwriting management, risk management, claims
control, loss and safety prevention, third party administration and managed
care services. In January 1996, the Company acquired all the outstanding
common shares of Realm Investments Ltd. in exchange for 1,999,980 of its newly
issued ordinary shares. The Company also acquired, in September 1996, its own
United States domiciled insurance company Realm National Insurance Company
("Realm National") which, together with the Company's Bermuda based
reinsurance company, writes insurance and reinsurance business. The Company
specializes in the North American occupational accident and workers'
compensation alternative risk transfer markets.

The Company did not conduct any business from the date of its incorporation
until January 1996. In January 1996, under the terms of a share purchase
agreement, the Company exchanged 4,000,020 of its newly issued ordinary shares
for 100% of the outstanding share capital of Stirling Cooke Brown Holdings
(UK) Limited. Stirling Cooke Brown Holdings (UK) Limited was incorporated in
England on February 5, 1990 and formerly acted as the ultimate holding company
for a number of United Kingdom subsidiaries involved in the insurance
brokering industry.

Stirling Cooke Brown Holdings (UK) Limited was the predecessor entity of the
Company. Accordingly, the consolidated financial statements of the Company for
the year ended December 31, 1995 are those of Stirling Cooke Brown Holdings
(UK) Limited.

On December 2, 1997, the Company and certain Selling Shareholders
consummated an initial public offering of 3,421,250 ordinary shares. Of these
shares, 1,375,000 were sold by the Company and 2,046,250 were sold by Selling
Shareholders. The net proceeds received by the Company of $26,832 will be used
primarily to provide additional capital to Realm National to facilitate that
company's plans to expand its underwriting activities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following are the significant
accounting policies adopted by the Company:

a) Basis of presentation

These consolidated financial statements include the financial statements of
the Company and all of its majority owned subsidiaries (collectively referred
to as the "Company"). All significant intercompany balances and transactions
have been eliminated on consolidation. The results of a number of subsidiaries
have been included from the dates of their acquisition.

F-7
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

b) Marketable securities

Marketable securities comprise investments in debt and equity securities and
short term investments. All investments are classified as available for sale
and are carried at fair value. The difference between fair value and cost is
included as a separate component of shareholders' equity, net of applicable
deferred income taxes. Bond discounts and premiums are amortized over the
remaining term of the securities. Such amortization is included as a component
of net investment income in the consolidated statements of income. Realized
gains and losses are determined on the basis of specific identification.
Investment income is recorded as earned and accrued to the balance sheet date.

c) Premiums written, assumed and ceded

Premiums written and assumed are recorded on the accruals basis and included
in income on a pro-rata basis over the life of the policies or reinsurance
agreements to which they relate, with the unearned portion deferred in the
consolidated balance sheets. Adjustment premiums arising from premium audits
are recorded in the period in which they are determined. Reinsurance premiums
ceded are similarly pro-rated over the terms of the reinsurance contract with
the unearned portion being deferred in the consolidated balance sheets as
deferred reinsurance premiums ceded.

d) Acquisition costs

Acquisition costs associated with the acquisition of new or renewal
business, including commissions and brokerage, are deferred and amortized to
income over the periods in which the premiums are earned. The method followed
in determining the deferred acquisition expenses limits the amount of the
deferral to its realizable value by giving consideration to losses and
expenses expected to be incurred as premiums are earned. Future investment
income is anticipated in determining whether a premium deficiency exists.

e) Losses and loss expenses

Losses and related loss adjustment expenses are charged to income as they
are incurred and are net of losses recovered and recoverable of $0, $6,775 and
$16,866 for the years ended December 31, 1995, 1996 and 1997 respectively.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the underlying liability associated with the reinsured policy. Outstanding
losses recoverable are shown separately on the consolidated balance sheets.

Reserves are established for losses and loss expenses relating to claims
which have been reported. In addition, reserves are established, in
consultation with the Company's independent actuaries, for losses which have
occurred but have not yet been reported to the Company and for adverse
development of reserves on reported losses. Management believes that the
resulting provision for outstanding losses and loss expenses is adequate to
cover the ultimate net cost of losses and loss expenses incurred, however,
such a provision is necessarily an estimate and may ultimately be settled for
a significantly greater or lesser amount. The Company has limited historical
loss experience available to serve as a reliable basis for the estimation of
ultimate losses. It is at least reasonably possible that management will
revise the estimate of outstanding losses and loss expenses significantly in
the near term. Any subsequent differences arising are recorded in the period
in which they are determined.

F-8
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

f) Risk management fees

The components of the Company's risk management fees are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------
DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Brokerage fees and commissions................... $17,084 $20,117 $23,965
Managing general agency fees..................... -- 6,016 11,391
Underwriting management fees..................... -- 4,045 4,022
Program and captive management fees.............. -- 1,625 2,876
Loss control and audit fees...................... -- 2,039 2,627
Policy issuance fees............................. -- 219 783
------- ------- -------
Total risk management fees................... $17,084 $34,061 $45,664
======= ======= =======
</TABLE>

(i) Brokerage fees and commissions are recorded and earned as premiums
are billed since substantially all placement services have been provided at
that time. Any subsequent adjustments, including adjustments due to policy
cancellations, premium rate adjustments and profit commissions are
recognized in risk management fees when advised by the client.

(ii) Managing general agency fees are reported net of commission expense
to agents and are initially recorded as of the effective date of the
related insurance policy. Fee income on installment premiums is recognized
periodically when the installment is billed. Such fees are recognized in
income over the period that services are performed in accordance with the
Company's contractual obligations, typically ranging up to five years,
based on the Company's estimation of expected claims handling requirements
in each accounting period. Such estimation is based upon the Company's
claims handling experience over recent years. Any subsequent adjustments,
including adjustments due to policy cancellation and premium adjustments,
are recorded when advised by the client or agent. The portion that will be
earned in the future is deferred and reported as deferred income in the
consolidated balance sheets.

(iii) Underwriting management fees are initially recorded when premium is
billed in accordance with terms of trade. Fee income on installment
premiums is recognized periodically when the installment is billed. Fees
are recognized in income over the period that services are performed in
accordance with the Company's contractual obligations. Such fees are
recognized in income over the period that contractual services are
performed, typically up to five years, based on the Company's estimation of
expected claims handling requirements in each accounting period. Such
estimation is based upon the Company's claims handling experience over
recent years. Any subsequent adjustments, including adjustments due to
policy cancellations, and premium adjustments are recorded when advised by
the client or agent. The portion of recorded management fees that will be
earned in the future is deferred and reported as deferred income in the
consolidated balance sheets.

(iv) Program and captive management fees are initially recorded as of the
effective date of the insurance policy or, in the case of installment
premiums, when the installment is billed and are recognized in income over
the period of the underlying policy (which is typically one year) in
proportion to the level of services provided in accordance with the
Company's contractual obligations. Any subsequent adjustments are
recognized in income when advised by the client or agent. The portion of
recorded management fees that will be earned in the future is deferred and
reported as deferred income in the consolidated balance sheets.

F-9
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(v) Loss control and audit fees comprise claims administration handling,
loss and safety control fees and premium audit fees. Such fees are recorded
as the fees are billed and are recognized in income over the period that
services are performed in accordance with the Company's contractual
obligations, typically ranging up to five years depending on the type of
service provided, based on the Company's estimation of expected claims
handling requirements in each accounting period. Such estimation is based
upon the Company's claims handling experience over recent years. The
proportion that will be earned in the future is deferred and reported as
deferred income in the consolidated balance sheets.

(vi) Policy issuance fees are recorded as the premium is written and
earned over the applicable policy period. The unearned portion is included
in deferred income in the consolidated balance sheet.

g) Cash and cash equivalents

The Company considers time deposits with original maturity dates of three
months or less to be equivalent to cash. Fiduciary funds are restricted from
use and are not considered cash equivalents.

h) Investments in affiliates

The Company's investments in affiliated companies which are not majority
owned or controlled are accounted for using the equity method if the Company
is able to exert significant influence upon such affiliated companies. Other
investments in affiliates are carried at cost. Investments in affiliates of
$526 and $1,350 for the years ended December 31, 1996 and 1997, respectively,
are recorded in other assets. The Company's equity share in the net income of
affiliates, for the years ended December 31, 1995, 1996 and 1997 of $0, $282
and $1,266, respectively, is included in other income. Dividends received from
affiliated companies of $0, $0 and $593 during 1995, 1996 and 1997,
respectively, are recorded as a reduction in the carrying value of the
investment.

i) Goodwill

Goodwill in the amount of $8,124 and $8,613 at December 31, 1996, and 1997,
respectively, represents the excess of purchase price over fair value of net
assets acquired. Goodwill is amortized on a straight-line basis over the
expected periods to be benefited, generally 5 to 20 years. Accumulated
amortization at December 31, 1996 and 1997 is $423 and $1,130, respectively.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.

j) Capital assets and depreciation

Capital assets are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over four to five
years, which is the estimated useful lives of the related assets.

F-10
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

k) Earnings per share

Earnings per share have been calculated in accordance with Statement of
Financial Accounting Standards No. 128. All prior years have been restated to
conform with the current presentation. Net income per share is calculated by
dividing income available to ordinary shareholders by the weighted average
number of ordinary shares outstanding. The ordinary shares which were subject
to redemption are included in the computation of the weighted average number
of outstanding ordinary shares since they have identical rights. Shares held
in treasury are not considered outstanding for purposes of the computation.
Income per ordinary share assuming dilution is computed by dividing income
available to ordinary shareholders by the weighted average number of ordinary
shares and potentially dilutive securities such as stock options. The dilutive
effect of options are reflected in the computation by application of the
treasury stock method.

In accordance with SEC Staff Accounting Bulletin 98, ordinary shares which
were issued in connection with the conversion of 25 class "A" non-voting
shares are considered outstanding for all periods presented for purposes of
both basic and diluted presentations.

l) Income taxes

Under the asset and liability method used by the Company, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the consolidated financial
statements carrying amounts of existing assets and liabilities and their
respective tax bases. A valuation allowance is provided for a portion or all
of the deferred tax assets when it is more likely than not that such portion
or all such deferred assets will not be realized.

m) Foreign exchange

The United States Dollar is the Company's functional currency. Foreign
currency monetary assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Fixed assets and deferred income are
translated at their historical exchange rates. Foreign currency revenues and
expenses are translated at the exchange rates in effect at the date of the
transaction. Net exchange gains of $0, $559 and $311 are included in other
income for the years ended December 31, 1995, 1996 and 1997, respectively.

n) Derivative financial instruments

The Company is party to certain derivative financial instruments, being
forward foreign exchange contracts which are used to manage foreign currency
exposures on non-U.S. dollar denominated assets and liabilities. The Company
does not engage in derivatives for any other purpose. Forward foreign exchange
contracts are recorded at their fair value. The fair values of open contracts
at the balance sheet dates are based on the quoted market prices of forward
contracts with similar maturities. Changes in fair values are recognized in
other income as appropriate in the period in which the changes occur. Amounts
receivable or payable on open positions are recorded in other assets or
accounts payable and accrued liabilities as appropriate. See Note 15(c).

o) Stock compensation plans

The Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation", on January 1, 1996. As permitted by the statement, the Company
has elected to continue to account for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the fair value of the stock exceeds the exercise price of the
option at the measurement date. Any resulting compensation expense is recorded
over the shorter of the vesting or service period.

F-11
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

p) Accounting pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." These statements will be effective
for financial statements issued for periods beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components within a set of financial statements. This standard
was adopted in respect of the preparation of the accompanying financial
statements. SFAS No. 131 requires the Company to report financial and
descriptive information about its reportable operating segments. The Company
is currently reviewing the impact of this standard on its financial reporting.

In December 1997, AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-3. Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments.0 The accounting guidance of
this SOP focuses on the timing of recognition and measurement of liabilities
for insurance-related assessments. Guidance is also provided on recording
assets representing future recoveries of assessments through premium tax
offsets or policy surcharges. The SOP was issued to reduce diversity in
practice and to improve comparability and disclosure. The SOP is effective for
fiscal years beginning after December 15, 1998. The Company is currently
reviewing the impact of the adoption of this new SOP on its consolidated
financial statements.

3. ACQUISITIONS

In January 1996, the Company acquired all of the outstanding ordinary shares
of Realm Investments Ltd. in exchange for 1,999,980 newly issued ordinary
shares of the Company. The fair value assigned to the shares issued was
$12,819. Realm Investments Ltd. was incorporated in Bermuda on September 1,
1993 and acted as the holding company for a number of Bermuda and United
States subsidiaries involved in the insurance industry. Realm Investments Ltd.
was affiliated with the Company through common ownership and directors.

On September 5, 1996, the Company completed the acquisition of 100% of the
outstanding share capital of Lloyd's New York Insurance Company which
subsequently changed its name to Realm National Insurance Company ("Realm
National"). The total purchase price of $8,986 comprised a cash payment to the
former owners of $8,783 and legal and other costs associated with the
acquisition of $203. Realm National formerly provided property, marine and
agricultural coverages. In 1997, Realm National began writing insurance
policies in connection with the Company's workers' compensation programs. In
connection with the acquisition, the former owners and the Company entered
into a reserve indemnity agreement to guarantee the outstanding loss reserves
as of June 30, 1996. In 1997 this agreement was terminated for a total
consideration paid to the seller by the Company of $175. Other operating
expenses include $114 and $61 in 1996 and 1997, respectively in relation to
the guarantee.

During 1996, the Company incorporated a new subsidiary, North American Risk,
Inc., which effective July 1, 1996, acquired the assets and liabilities of
North American Risk Limited (a limited partnership) ("NAR") for a total cash
cost of $94.

The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired and the liabilities assumed based on the estimated fair values
at the dates of acquisition. The excess of purchase price over the estimated
fair values of the net assets acquired has been recorded as goodwill, which is
being amortized on a straight line basis over 20 years, 15 years and 5 years
for Realm Investments Ltd., Realm National and NAR, respectively.

F-12
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The estimated fair values of assets acquired and liabilities assumed are
summarized as follows:

<TABLE>
<CAPTION>
REALM REALM
INVESTMENTS NATIONAL NAR
----------- -------- -----
<S> <C> <C> <C>
Cash............................................... $ 6,893 $ 1,621 $ 276
Marketable securities.............................. -- 10,764 --
Fiduciary funds-restricted......................... 7,846 -- --
Insurance balances receivable...................... 18,378 2,485 270
Outstanding losses recoverable from reinsurers..... 2,286 10,623 --
Deferred acquisition expenses...................... 1,582 26 --
Deferred reinsurance premiums ceded................ 600 5,861 --
Other assets and prepayments....................... 642 112 12
Deferred tax asset................................. 55 426 --
Assets related to deposit liabilities.............. 3,468 -- --
Capital assets..................................... 623 52 94
Intangible assets.................................. 7,698 766 83
Outstanding losses and loss expenses............... (2,076) (12,309) --
Unearned premiums.................................. (4,090) (7,487) --
Deferred income.................................... (1,012) -- --
Insurance and reinsurance balances payable......... (2) (1,927) (445)
5,320)
Funds withheld..................................... -- (1,739) --
Deposit liabilities................................ (3,468) -- --
Other liabilities.................................. (1,286) (288) (196)
------- -------- -----
$12,819 $ 8,986 $ 94
======= ======== =====
</TABLE>

Operating results of Realm Investments Ltd., Realm National, and NAR are
included in the Company's consolidated results of operations from the
effective dates of the acquisitions which were January 1, 1996, September 5,
1996, and July 1, 1996, respectively.

4. CONTINGENT LIABILITIES

In the normal course of reinsurance operations the Company's bankers have
issued letters of credit totalling $7,015 and $12,226 at December 31, 1996 and
1997, respectively in favor of the ceding insurance companies. At December 31,
1996 and 1997, $7,015 and $12,226 of cash and cash equivalents were pledged as
collateral for these letters of credit, respectively.

One of the Company's subsidiaries is registered with the Society of Lloyd's
as a registered Lloyd's Broker. As required by Lloyd's Brokers Byelaw (No. 5
of 1988), the subsidiary has entered into a trust deed under which all
insurance broking account assets are subject to a floating lien held in trust
for the Society of Lloyd's for the benefit of the insurance creditors.
Insurance and reinsurance balances payable covered by the floating lien at
December 31, 1996 and 1997, amounted to $80,070 and $95,279, respectively,
including relevant creditors of other subsidiaries. The purpose of the trust
deed is to provide security to the Lloyds Broker's insurance creditors in the
event of the Brokers insolvency by creating a charge over the Broker's
insurance transaction assets. The lien becomes enforceable only in the event
the Lloyds Broker becomes insolvent or breaches Lloyds solvency rules or
regulations. The assets which were subject to this floating lien at December
31, 1996 and 1997 were:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Fiduciary funds.......................................... $13,925 $13,872
Insurance and reinsurance balances receivable............ 67,749 83,937
------- -------
$81,674 $97,809
======= =======
</TABLE>

F-13
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

These amounts were derived from the financial statements of the Lloyds
Broker. The lien had no impact on the Broker's operating statements or cash
flows during the periods.

5. FIDUCIARY FUNDS

In its various capacities as an insurance intermediary, the Company collects
premiums from insureds and other intermediaries, and after deducting its risk
management fee and, where appropriate, surplus lines taxes and stamping fees,
remits the premium to the respective insurance company or underwriter. Pending
the remittance of such funds to the insurance company or underwriter in
accordance with the applicable insurance contract, the Company holds collected
funds in its own segregated bank accounts and is entitled to any accrued
interest on such funds. The obligation to remit these funds is recorded as
insurance and reinsurance balances payable on the Company's balance sheet. The
period for which the Company holds such funds is dependent upon the date the
insured remits the payment of the premium to the Company and the date the
Company is required to forward such payment to the insurer.

6. MARKETABLE SECURITIES

a) The cost/amortized cost and estimated fair value of marketable securities
held as available for sale are as follows:

<TABLE>
<CAPTION>
1996
-----------------------------------------
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies............................ $ 6,963 $ 75 $-- $ 7,038
Foreign government................... 1,063 1 3 1,061
Obligations of states and political
subdivisions........................ 1,090 -- -- 1,090
Corporate securities................. 9,866 -- 22 9,844
------- ---- ---- -------
Debt securities...................... 18,982 76 25 19,033
Equity securities.................... 3,295 236 65 3,466
Short term investments............... 120 -- -- 120
------- ---- ---- -------
Total............................ $22,397 $312 $ 90 $22,619
======= ==== ==== =======
<CAPTION>
1997
-----------------------------------------
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies............................ $ 5,082 $107 $-- $ 5,189
Foreign government................... 1,032 1 20 1,013
Obligations of states and political
subdivisions........................ 75 -- -- 75
Corporate securities................. 8,693 2 1 8,694
------- ---- ---- -------
Debt securities...................... 14,882 110 21 14,971
Equity securities.................... 454 32 -- 486
Short term investments............... 5,579 -- -- 5,579
------- ---- ---- -------
Total............................ $20,915 $142 $ 21 $21,036
======= ==== ==== =======
</TABLE>

A deferred tax liability of $75 and $39 at December 31, 1996 and 1997,
respectively, has been provided against unrealized gains on marketable
securities held as "available for sale" which has been presented net as a
component of accumulated other comprehensive income within shareholders'
equity.

F-14
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

b) The amortized cost and estimated fair value of debt securities by
contractual maturity are shown in the following table. Actual 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>
1997
-------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less............................... $10,114 $10,096
Due after one year through five years................. 4,744 4,850
Due after five years through ten years................ 24 25
------- -------
$14,882 $14,971
======= =======
</TABLE>

c) Proceeds from sales of investments in debt securities during 1996 and
1997 were $2,273 and $4,190, respectively. Proceeds from sales of investments
in equity securities during 1996 and 1997 were $15 and $7,262, respectively.
There were no realized gains or losses on the sale of marketable securities
during 1996. There was $5 of realized losses and $443 of realized gains during
1997.

d) At December 31, 1996 and 1997, debt securities having an amortized cost
of $2,563 and $2,925, respectively, were on deposit with government
authorities as required by law.

e) At December 31, 1996 and 1997, there were no individual investments,
other than investments in U.S. Government securities, which exceeded 10% of
shareholders' equity.

f) Net investment income by source is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Debt securities...................................... $ -- $ 134 $1,029
Common stock......................................... -- 67 70
Cash, cash equivalents and short-term investments.... 1,964 3,216 4,754
Other................................................ -- 1 2
------ ------ ------
Total investment income.............................. 1,964 3,418 5,855
Less applicable expenses............................. -- 13 73
------ ------ ------
Net investment income................................ $1,964 $3,405 $5,782
====== ====== ======
</TABLE>

7. OTHER ASSETS

a) Capital assets

Included within other assets are capital assets as follows:

<TABLE>
<CAPTION>
1996
--------------------------
NET
ACCUMULATED BOOK
COST DEPRECIATION VALUE
------ ------------ ------
<S> <C> <C> <C>
Furniture and fixtures......................... $1,217 $ 502 $ 715
Computer equipment............................. 2,542 1,229 1,313
Office equipment............................... 649 256 393
Motor vehicles................................. 1,092 500 592
------ ------ ------
Total...................................... $5,500 $2,487 $3,013
====== ====== ======
<CAPTION>
1997
--------------------------
NET
ACCUMULATED BOOK
COST DEPRECIATION VALUE
------ ------------ ------
<S> <C> <C> <C>
Furniture and fixtures......................... $1,266 $ 580 $ 686
Computer equipment............................. 3,305 1,664 1,641
Office equipment............................... 700 341 359
Motor vehicles................................. 950 491 459
------ ------ ------
Total...................................... $6,221 $3,076 $3,145
====== ====== ======
</TABLE>

F-15
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

b) Investment in affiliates

Included within other assets are investments in affiliates. Summarized
condensed financial information of a Bermuda based underwriting management
company, a 39% owned affiliate, which is accounted for by the equity method,
is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12, 1995
(DATE OF
INCORPORATION)
TO DECEMBER 31,
1995 AND YEARS
ENDED DECEMBER 31,
1996 AND 1997
-------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Underwriting management fees....................... $ 9 $1,191 $3,959
Interest income.................................... -- 63 88
Net (loss) income.................................. (55) 633 3,294
Company's share of net (loss) income............... $(21) $ 247 $1,285
==== ====== ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ -------
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................. $ 664 $ 1,224
Fiduciary cash............................................ 3,738 2,267
Insurance balances receivable............................. 4,710 12,821
Other assets.............................................. 90 60
------ -------
Total assets.......................................... $9,202 $16,372
====== =======
Insurance balances payable................................ $8,181 $13,179
Deferred income........................................... 122 496
Other liabilities......................................... 165 56
Shareholders' equity...................................... 734 2,641
------ -------
Total liabilities and shareholders' equity............ $9,202 $16,372
------ -------
Company's share of shareholders' equity................... $ 286 $ 1,030
====== =======
</TABLE>

The Company received dividends from this affiliate of $0, $0, and $593
during 1995, 1996 and 1997, respectively.

8. DEPOSIT LIABILITIES AND RELATED ASSETS

Certain of the Company's reinsurance contracts, referred to as rent-a-
captive programs, do not satisfy the conditions for reinsurance accounting as
the maximum exposure to loss is fully funded by premium, cash and other
collateral and indemnity agreements. Accordingly, these contracts are
accounted for as deposit liabilities. The assets related to these programs
represent funds under management as the insured retains the risks and rewards
of ownership. Such assets are recorded as assets related to deposit
liabilities in the consolidated balance sheets. These assets comprised cash
and short-term deposits at December 31, 1996 and 1997. The Company receives a
fee based on a percentage of premiums written and investment income earned for
structuring and providing ongoing management of the programs.

In addition, deposit liabilities and related assets include $2,216 and
$2,459 of deposits received from customers as security for the timely payment
of premiums for workers' compensation insurance at December 31, 1996 and 1997,
respectively. The deposit is restricted from use by the Company, and is the
property of the customer. The deposit is refunded to the customer after the
policy expires or is canceled and all claims related to the insurance policy
have been settled. The interest income earned by these restricted deposit
accounts is the property of the customer, and is therefore excluded from the
Company's operating results.

F-16
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. REINSURANCE ASSUMED AND CEDED

The Company accounts for reinsurance assumed and ceded in accordance with
SFAS 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts". Net premiums earned are the result of the following:

<TABLE>
<CAPTION>
1995 1996 1997
---- ------ -------
<S> <C> <C> <C>
Premiums written.................................... $-- $4,009 $21,743
Premiums assumed.................................... -- 12,467 14,115
Change in unearned premiums......................... -- (938) (6,672)
---- ------ -------
Premiums earned..................................... -- 15,538 29,186
---- ------ -------
Premiums ceded...................................... -- 7,546 22,677
Change in deferred reinsurance premiums ceded....... -- (762) (5,281)
---- ------ -------
Net premiums ceded.................................. -- 6,784 17,396
---- ------ -------
Net premiums earned................................. $-- $8,754 $11,790
==== ====== =======
</TABLE>

The Company, in the ordinary course of business, reinsures certain risks
with other companies. Such arrangements serve to enhance the Company's
capacity to write business and limit the Company's maximum loss on large or
unusually hazardous risks.

Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. At December 31, 1996 and 1997 there were no allowances
for uncollectible amounts. The Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.

At December 31, 1996 and December 31, 1997, there were no amounts due from
any individual reinsurer in excess of 10% of the Company's shareholders'
equity.

The Company recognizes reinsurance recoveries when the associated loss is
booked.

Since its acquisition Realm National has written property and workers
compensation business. Realm National's workers' compensation business is
subject to quota share reinsurance whereby it retains 25% of the first $1,000.
Realm National's retention under the quota share treaty is further protected
by common account excess coverage in excess of $3. Realm National purchases
excess loss coverage on an occurrence basis up to $200,000.

Realm National has also purchased a standard property reinsurance program
whereby Realm National retains 25% of the first $1,000 on any one risk and
purchased facultative per risk reinsurance for limits above $1,000 to
$200,000. In addition, Realm National's net retained line is further protected
by a per risk excess of loss cover which reduces the maximum loss on any one
risk to $125.

Comp Indemnity Reinsurance Company ("CIRCL"), a subsidiary of Realm
Investments Ltd., assumes various quota shares of workers' compensation,
employers' liability on both a primary and excess basis, bodily injury,
difference in conditions, general liability risks, and property written on a
treaty basis. CIRCL's exposure under the reinsurance contracts assumed is
limited in most instances to $250 and $1,000 per occurrence for workers'
compensation and employers liability, respectively and is subject to an annual
aggregate limit based on various percentages of original gross written premium
income. CIRCL further limits its exposure through the purchase of reinsurance
protection for certain risks covering losses in excess of $10 and $50 per
occurrence for workers' compensation and employers' liability.

F-17
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. OUTSTANDING LOSSES AND LOSS EXPENSES

Outstanding losses and loss expenses relate to the insurance activities of
CIRCL and Realm National, which were acquired in January 1996 and September
1996, respectively.

The changes in outstanding losses and loss expenses are summarized as
follows:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Balance beginning of year................................ $ -- $24,301
Less outstanding losses recoverable...................... -- (16,588)
Net balance for CIRCL, at acquisition.................... 1,270 --
Net balance for Realm National, at acquisition........... 1,687 --
------- -------
Net balance.............................................. 2,957 7,713
------- -------
Incurred related to:
Current year........................................... 6,515 10,174
Prior years............................................ 250 777
------- -------
Total incurred......................................... 6,765 10,951
------- -------
Paid related to:
Current year........................................... 1,334 3,560
Prior years............................................ 675 3,449
------- -------
Total paid........................................... 2,009 7,009
------- -------
Net balance.............................................. 7,713 11,655
Plus outstanding losses recoverable...................... 16,588 24,621
------- -------
Balance at end of year................................. $24,301 $36,276
======= =======
</TABLE>

11. SHARE CAPITAL AND ADDITIONAL PAID IN CAPITAL

The Company's authorized share capital at December 31, 1997 comprised
20,000,000 ordinary shares of par value $0.25 each of which 9,863,372 ordinary
shares were issued and fully-paid at that date. The Company's authorized share
capital at December 31, 1996 comprised 8,048,000 ordinary shares of par value
$0.25 each and 25 Class "A" non-voting shares with a par value of $1 each, of
which 8,000,000 ordinary shares and 25 Class "A" non-voting shares were issued
and fully-paid at that date.

As discussed in Notes 1 and 3 to the consolidated financial statements,
during 1996, the Company issued 1,999,980 shares in exchange for 100% of the
share capital of Realm Investments Ltd. The fair value assigned to the shares
issued was $12,819. The excess of the fair value of the shares issued over par
value was recorded in additional paid in capital. This represents a non-cash
financing and investing activity for the purpose of the statements of cash
flows. The Company also issued 2,000,000 ordinary shares and 25 Class "A" non-
voting shares to a private investor group. Contemporaneously, the private
investor group also acquired additional ordinary shares from existing
shareholders on a pro-rata basis, such that the private investor group's total
ownership represented 32.5% of the total number of issued ordinary share
capital at that time.

F-18
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The 2,000,000 ordinary shares and related 25 Class "A" shares issued to the
private investor group were subject to a put option whereby, after 2004, the
holders of such shares could request that the Company repurchase the shares
for fair market value at that date. As such shares were subject to redemption
at the option of the holder, the aggregate subscription price was classified
outside of shareholders' equity as at December 31, 1996. The put option
expired upon the consummation by the Company of an Initial Public Offering
("IPO") in December 1997 and accordingly the shares were reclassified into
shareholders' equity at that date.

Treasury stock is recorded at cost as a deduction from shareholders' equity.
During 1996 the Company repurchased 202,784 of its ordinary shares from one of
its founding shareholders at a price negotiated between the Company and the
shareholder. The shares were held as treasury stock at December 31, 1996.

In April 1997, the Company purchased a further 213,732 of its ordinary
shares from a founding shareholder for a total cost of $1,141. Such shares
were recorded as treasury stock at cost.

In June 1997, the Company reissued 16,000 ordinary shares of its treasury
stock for a total subscription price of $86.

On June 30, 1997, the remaining 400,516 ordinary shares held in treasury at
that date were cancelled. The excess cost of treasury shares over their par
value was recorded as a deduction from retained earnings.

On June 30, 1997, the Company increased its authorized share capital to
20,000,000 ordinary shares of par value $0.25 each and effected a four for one
stock split whereby each of the Company's ordinary shares of par value $1.00
each was divided into four ordinary shares of par value $0.25 each.

On June 30, 1997, the shareholders exercised their options to purchase
600,000 ordinary shares in the Company (see Note 12 to the consolidated
financial statements) at an exercise price of $2.71 per share.
Contemporaneously, 288,888 ordinary shares of par value of $0.25 each were
issued to the holders of the Class "A" shares pursuant to certain anti-
dilution rights, and the Class "A" shares were repurchased by the Company for
nominal consideration. The $72 excess of the par value of the ordinary shares
issued over the original par value of the Class "A" shares was recorded as a
deduction from additional paid in capital. On the same date the Company loaned
the shareholders $1,625, an amount equal to the aggregate exercise price of
the options. Such loans were evidenced by promissory notes, bearing interest
at 7% per annum until maturity in June 1998 or earlier in the event of early
repayment. Included within notes receivable was $325, $866 and $109 due from
Messrs. Cooke, Brown and Jones, respectively. The loans were repaid in full in
December 1997 following the successful completion of the IPO of the Company's
ordinary shares.

On December 2, 1997, the Company and certain Selling Shareholders
consummated the IPO of 3,421,250 ordinary shares at $22 per share. Of these
shares 1,375,000 were sold by the Company and 2,046,250 were sold by Selling
Shareholders. The Company received net proceeds of $26,832 after deducting
underwriting commissions of $2,117 and expenses of $1,301 relating to the
issue.

In December 1997, under a put and call option originally granted in April
1997, the Company purchased 40,000 ordinary shares for a total cost of $667.
These shares were held as treasury stock at December 31, 1997.

F-19
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. STOCK OPTIONS

Employees have been granted options to purchase Ordinary Shares in the
Company. These options have been issued in two series:

i) Options issued to Employees--Shareholders

On June 29, 1995, the Company granted 600,000 options to certain
employee shareholders. The terms of the options were subsequently
amended in 1996 to reflect the share exchange factor in the Share
Purchase Agreement between the Company and Stirling Cooke Brown
Holdings (UK) Limited discussed in Note 1.

The options had an exercise price of $2.71 per share, which reflected
the estimated fair value of the shares at the original grant date as
updated for the exchange factor. The options were fully vested at the
grant date and were able to be exercised at any time prior to January
23, 2003.

On June 30, 1997, the shareholders exercised these options and
purchased 600,000 ordinary shares in the Company at an exercise price
of $2.71.

(ii) Options issued under Equity Incentive Plan

On November 25, 1997 the Company granted 300,000 options to certain
employees.

The options have an exercise price of $22.00 per share, which
reflected the estimated fair value of the shares at the grant date. The
options vest ratably over a three year period and may be exercised at
any time prior to November 25, 2007.

All of these options were outstanding at December 31, 1997 and none
had vested at December 31, 1997.

In accordance with the provisions of FASB Statement No. 123, the Company
applies APB Opinion 25 and related interpretations in accounting for its stock
option plans and accordingly, recognizes compensation cost based on the
intrinsic value of the options at the grant date. If the Company had elected
to recognize compensation cost based on the fair value of the options granted
at the grant date as prescribed by SFAS 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net income--as reported............................ $4,594 $9,918 $12,993
Net income--pro forma.............................. $4,336 $9,918 $12,926
Net income per share--as reported.................. $ 1.07 $ 1.22 $ 1.55
Net income per share--pro forma.................... $ 1.01 $ 1.22 $ 1.54
Net income per share assuming dilution--as
reported.......................................... $ 1.07 $ 1.19 $ 1.53
Net income per share assuming dilution--pro forma.. $ 1.01 $ 1.19 $ 1.52
</TABLE>

These pro forma compensation costs may not be representative of those to be
expected in future years. As the options were granted on November 25, 1997,
only approximately one month's compensation cost has been expensed within the
pro-forma net income for the year ended December 31, 1997.

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used in 1997:

<TABLE>
<S> <C>
Expected dividend yield........................................... 0.55%
Expected stock price volatility................................... 30.00%
Risk-free interest rate........................................... 5.00%
Expected life of options.......................................... 4 years
</TABLE>

F-20
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The fair value of the options granted during 1997 was $6.59 per share
(1995--$0.43 per share, 1996--$0)

13. TAXATION

Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of any
such taxes being imposed the Company will be exempted from taxation until the
year 2016.

Total income tax expense for the years ended December 31, 1995, 1996 and
1997 was allocated as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income from continuing operations................... $2,560 $2,281 $2,925
Accumulated other comprehensive income.............. -- 75 (36)
------ ------ ------
$2,560 $2,356 $2,889
====== ====== ======
</TABLE>

Income tax expense attributable to income from continuing operations
consists of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1995
U.S. Federal and State......................... $ -- $ -- $ --
Foreign (U.K.)................................. $2,560 -- 2,560
------ ----- ------
$2,560 $ -- $2,560
====== ===== ======
Year ended December 31, 1996
U.S. Federal and State......................... $ 627 $(339) $ 288
Foreign (U.K.)................................. $1,993 -- 1,993
------ ----- ------
$2,620 $(339) $2,281
====== ===== ======
Year ended December 31, 1997
U.S. Federal and State......................... $ 934 $(809) $ 125
Foreign (U.K.)................................. 2,800 -- 2,800
------ ----- ------
$3,734 $(809) $2,925
====== ===== ======
</TABLE>

Income tax expense attributable to income from continuing operations was
$2,560, $2,281 and $2,925 for the years ended December 31, 1995, 1996 and 1997
respectively, and differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before taxation as a result of the
following:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Computed expected tax expense...................... $2,432 $4,148 $5,412
Foreign income not subject to US taxes............. -- (1,813) (2,305)
Income subject to tax at foreign rates............. 128 (55) (200)
Change in valuation allowance...................... -- 190 (86)
Miscellaneous permanent differences................ -- 56 98
Acquired temporary difference...................... -- (320) --
State taxes........................................ -- 75 80
Utilization of acquired net operating losses....... -- -- (74)
------ ------ ------
Actual tax expense................................. $2,560 $2,281 $2,925
====== ====== ======
</TABLE>

F-21
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1996, the Company established a valuation allowance relating
to acquired deferred tax benefits. The realization of the tax benefits
attributable to these acquired temporary differences will be applied to reduce
(i) goodwill related to the acquisition, (ii) other acquired intangibles and
(iii) income from other continuing operations.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities at December 31,
1996 and 1997, are presented below:
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $339 $ 687
Discount on unearned premiums and outstanding loss
reserves................................................ 190 104
Deferred interest deductions............................... -- 316
Other...................................................... -- 145
Valuation allowance........................................ (190) (104)
---- ------
339 1,148
Deferred tax liabilities:
Unrealized investment gains................................ (75) (39)
---- ------
Net deferred tax asset..................................... $264 $1,109
==== ======
</TABLE>

Valuation allowances of $190 and $104 have been established against the
deferred tax asset as of December 31, 1996 and 1997, respectively. The
ultimate realization of this deferred tax asset depends on the ability of the
Company and its subsidiaries to generate sufficient taxable income during the
periods in which those temporary differences become deductible.

The Company has not recognized a deferred tax liability for the
undistributed earnings of its United States subsidiaries. (A 30% tax is
generally imposed in the United States on dividends paid by United States
corporations to non-United States shareholders). The Company does not expect
those unremitted earnings to become taxable in the foreseeable future. A
deferred tax liability will be recognized when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as the
receipt of dividends. The deferred tax liability relating to these unremitted
earnings which is not recognized by the Company is approximately $0, $200 and
$542 at December 31, 1995, 1996, 1997, respectively.

14. EARNINGS PER SHARE

Earnings per share have been calculated in accordance with SFAS 128:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net Income................................. $ 4,594 $ 9,918 $ 12,993
--------- --------- ---------
Weighted average number of ordinary shares
outstanding............................... 4,288,908 8,100,782 8,383,482
--------- --------- ---------
Net income per share....................... $ 1.07 $ 1.22 $ 1.55
========= ========= =========
Income available to ordinary shareholders.. $ 4,594 $ 9,918 $ 12,993
--------- --------- ---------
Weighted average number of ordinary shares
outstanding............................... 4,288,908 8,100,782 8,383,482
Plus: incremental shares from assumed
exercise of options....................... 15,190 205,828 131,991
--------- --------- ---------
Adjusted weighted average number of
ordinary shares outstanding............... 4,304,098 8,306,610 8,515,473
--------- --------- ---------
Net income per share assuming dilution..... $ 1.07 $ 1.19 $ 1.53
========= ========= =========
</TABLE>

F-22
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

See Notes 11 and 12 to the consolidated financial statements for further
discussion of share capital and share option transactions.

15. FINANCIAL INSTRUMENTS

a) Fair value

The carrying values of all financial instruments, as defined by SFAS 107 and
as recorded in the consolidated balance sheets approximate their fair value.
The Company does not have any significant off-balance sheet financial
instruments. The following methods and assumptions were used by the Company in
estimating fair values:

Cash and cash equivalents and fiduciary funds: The fair values for these
instruments approximate their carrying amounts because of the short maturity
of such instruments.

Marketable securities: The fair values of debt and equity securities are
based on quoted market prices and dealer quotes at the consolidated balance
sheet dates.

Deposit liabilities and related assets: Underlying assets comprise mainly
cash and deposits. The fair values of these assets and related liabilities
approximate their carrying value due to the short maturity of these
instruments.

Forward foreign exchange contracts: The fair values of such contracts are
based on quoted forward rates available for the remaining duration of the
contracts at the balance sheet dates.

Other assets and liabilities: The fair values of all other financial
instruments, as defined by SFAS 107, approximate their carrying values due to
their short-term nature.

The estimates of fair values presented herein are subjective in nature and
are not necessarily indicative of the amounts that the Company would actually
realize in a current market exchange. Any differences would not be expected to
be material. Certain instruments such as prepaid expenses, other assets,
goodwill and deferred expenses, deferred fee income and outstanding losses and
loss expenses are excluded from fair value disclosure. Thus the total fair
value amounts cannot be aggregated to determine the underlying economic value
of the Company.

b) Concentrations of credit risk and allowance for doubtful accounts

The Company's financial instruments exposed to possible concentrations of
credit risk consist primarily of its cash and cash equivalents, outstanding
losses recoverable from reinsurers and insurance and reinsurance balances
receivable.

The Company maintains a substantial portion of its cash and cash equivalents
in two financial institutions which the Company considers of high credit
quality.

Concentrations of credit risk with respect to other financial instruments
are limited due to the large number of reinsurers, agents and customers
comprising the Company's receivable base. Management does not anticipate
significant credit losses from such financial instruments. As at December 31,
1996 and 1997, there were no significant allowances for doubtful accounts.

c) Forward foreign exchange contracts

The Company's functional currency is the U.S. dollar; however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on non-U.S.
dollar denominated transactions.

F-23
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

To manage the Company's exposure to these risks, the Company enters into
forward foreign exchange contracts in the currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company had a notional principal amount
outstanding of (Pounds)2,000 and (Pounds)1,000, at December 31, 1996 and 1997,
respectively, relating to contracts to buy British Pounds Sterling in the
future. There were no significant unrealized gains or losses on forward
exchange contracts for the year ended December 31, 1995. Net unrealized gains
on the forward exchange contracts for the year ended December 31, 1996 and
1997 amounted to $170 and $83, respectively and have been accrued in other
income and included in other assets in the consolidated balance sheets. A net
realized gain (loss) of $0, $465 and $(22) is included in other income in the
consolidated statements of income in respect of such contracts during the
years ended December 31, 1995, 1996 and 1997, respectively.

16. SEGMENTAL INFORMATION

a) The Company's two business segments are risk management companies, which
comprise those companies that do not retain any underwriting risk, and
underwriting companies, which comprise those companies that do retain a degree
of risk. Underwriting companies include revenues from net premiums earned and
risk management fees earned in the form of policy issuance fees. Investment
income has been allocated to the appropriate segment.

<TABLE>
<CAPTION>
INCOME
BEFORE ASSETS AT DEPRECIATION AND CAPITAL
REVENUES TAXATION DECEMBER 31 AMORTIZATION(I) EXPENDITURES
-------- -------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Risk management
companies............. $19,048 $ 7,154 $103,273 $ 659 $ 807
Underwriting
companies(ii)......... -- -- -- -- --
Adjustments and
eliminations.......... -- -- -- -- --
------- ------- -------- ------ ------
Total Consolidated.... $19,048 $ 7,154 $103,273 $ 659 $ 807
======= ======= ======== ====== ======
YEAR ENDED DECEMBER 31,
1996
Risk management
companies............. $37,448 $11,947 $167,278 $1,415 $1,445
Underwriting
companies(ii)......... 9,613 252 68,209 26 1
Adjustments and
eliminations.......... -- -- (403) -- --
------- ------- -------- ------ ------
Total Consolidated.... $47,061 $12,199 $235,084 $1,441 $1,446
======= ======= ======== ====== ======
YEAR ENDED DECEMBER 31,
1997
Risk management
companies............. $50,529 $15,390 $314,035 $1,823 $1,524
Underwriting
companies(ii)......... 14,781 528 98,526 83 95
Adjustments and
eliminations.......... -- -- (6,231) -- --
------- ------- -------- ------ ------
Total Consolidated.... $65,310 $15,918 $406,330 $1,906 $1,619
======= ======= ======== ====== ======
</TABLE>
- --------
(i) Includes amortization of goodwill and depreciation of capital assets.
(ii) Underwriting includes all of the revenues and assets of the Company's
risk taking subsidiaries including policy issuance fees.

F-24
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The revenue of each industry segment is comprised of revenues from
unaffiliated customers. Interest income is included in revenue if the asset on
which the interest is earned is included among the segment's identifiable
assets.

b) Summarized financial information by geographic location of subsidiary for
the years ended December 31, 1995, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
ADJUSTMENTS
U.K. & AND
BERMUDA EUROPE U.S.A. ELIMINATIONS CONSOLIDATED
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Revenues............... $ 1,197 $ 17,851 -- -- $ 19,048
======== ======== ======= ======== ========
Income before taxation. $ 88 $ 7,066 -- -- $ 7,154
======== ======== ======= ======== ========
Identifiable assets.... $ 8,439 $111,488 -- $(16,654) $103,273
======== ======== ======= ======== ========
YEAR ENDED DECEMBER 31,
1996
Revenues............... $ 16,336 $ 19,191 $11,534 -- $ 47,061
======== ======== ======= ======== ========
Income before taxation. $ 5,227 $ 5,928 $ 1,044 -- $ 12,199
======== ======== ======= ======== ========
Identifiable assets.... $ 68,306 $139,494 $60,825 $(33,541) $235,084
======== ======== ======= ======== ========
YEAR ENDED DECEMBER 31,
1997
Revenues............... $ 20,926 $ 22,122 $22,262 -- $ 65,310
======== ======== ======= ======== ========
Income before taxation. $ 6,393 $ 8,476 $ 1,049 -- $ 15,918
======== ======== ======= ======== ========
Identifiable assets.... $119,066 $250,668 $85,006 $(48,410) $406,330
======== ======== ======= ======== ========
</TABLE>

Income before taxation is total revenues less operating expenses.

Identifiable assets by geographic segment are those assets that are used in
the Company's operations in each segment.

c) The Company's managing general agencies market insurance products and
programs developed by the Company on behalf of independent insurance carriers.
In addition, the Company through its brokering and reinsurance brokering
operations, managing general underwriters, claims and loss control servicing
operations provides additional business and services to certain of these
independent insurance carriers in respect of these products and other
insurance and reinsurance policies. For the year ended December 31, 1996 and
1997 fees received from one independent insurance carrier accounted for
approximately 55% and 51%, respectively, of the Company's total revenues.
Although the loss of this carrier could have a material adverse effect on the
Company, the Company believes that Realm National and other independent
insurance carriers have sufficient underwriting capacity to reduce the impact
of such a loss.

F-25
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

17. COMMITMENTS

Future minimum lease payments under non-cancelable operating leases as at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................. $ 2,484
1999............................. 2,220
2000............................. 2,065
2001............................. 1,783
2002............................. 1,557
2003 and thereafter.............. 5,875
-------
$15,984
=======
</TABLE>

Total rental expense for the years ended December 31, 1995, 1996 and 1997,
was $612, $1,319 and $1,894, respectively.

Certain lease commitments are subject to annual adjustment under escalation
clauses, for real estate taxes and the landlord's operating expenses. Such
adjustments will not be material to the Company.

18. STATUTORY SURPLUS AND DIVIDEND RESTRICTIONS

The Company's ability to pay dividends is subject to certain restrictions
including the following:

a) The Company is subject to a 30% withholding tax on certain dividends
and interest received from its United States subsidiaries.

b) Under New York law, Realm National may pay cash dividends only from
earned surplus determined on a statutory basis. Further, Realm National is
restricted (on the basis of the lower of 10% of statutory surplus at the
end of the preceding twelve month period or 100% of the adjusted net
investment income for the preceding twelve month period) as to the amount
of dividends it may declare or pay in any twelve month period without the
approval of the Insurance Department of the State of New York.

Realm National did not have any earned surplus available for the payment
of dividends in 1996 and 1997 due to its statutory-basis accumulated
deficit. Additionally, $101 and $21 of statutory surplus has been
segregated as special funds as of December 31, 1996 and 1997 and will not
become available for dividend payments until earned.

Realm National's total surplus and net income determined on a United
States statutory basis are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Total surplus at December 31............................. $19,924 $18,991
Net income for year ended December 31.................... $ 154 $ 370
</TABLE>

By agreement with the Insurance Department of the State of New York,
Realm National is restricted from declaring dividends for a two year period
from September 5, 1996 the date upon which its acquisition by the Company
was completed.

c) The NAIC has a model law which establishes certain minimum risk-based
capital ("RBC") requirements for property-casualty insurance companies. The
RBC calculation serves as a benchmark for the regulation of insurance
companies by state insurance regulators. The calculation specifies various
formulas and weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk and are
set forth in the RBC requirements. The capital of Realm National as of
December 31, 1996 and 1997 exceeded the amount calculated using the RBC
requirements.

F-26
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

d) Realm National is licensed by the Insurance Department of the State of
New York (the "Department") to write Special Risk insurance. Special Risk
business represents business that is sold at rates that are not subject to
prior approval of the Department. The Department's rules and regulations
limit the amount of Special Risk business that a company may write based on
the aggregate writings of the company. In 1994, Realm National disposed of
its agricultural and ocean marine books of business as a condition
precedent to the sale of Realm National to a prospective buyer. As a
result, Realm National was no longer in compliance with the Department's
limitation on Special Risk premium writings. Realm National has received a
waiver of such limitations from the Department through September 5, 1997.
Realm National's license has been renewed through August of 1998.

e) The Company's Bermuda insurance subsidiary, CIRCL, is required by its
license to maintain capital and surplus greater than a minimum statutory
amount determined as the greater of a percentage of outstanding losses and
loss expenses (net of reinsurance recoverable) or a given fraction of net
written premiums. At December 31, 1996 and 1997, respectively, CIRCL was
required to maintain a minimum statutory capital and surplus of $1,520 and
$1,680. Accordingly, approximately $680 of contributed surplus and retained
earnings is restricted from distribution.

CIRCL's total surplus and net income (loss) determined on a Bermuda
statutory basis is as follows:

<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Total surplus at December 31.............................. $2,319 $2,261
Net income (loss) for year ended December 31.............. $1,688 $ (85)
</TABLE>

CIRCL is also required to maintain a minimum liquidity ratio whereby the
value of its relevant assets are not less than 75% of the amount of its
relevant liabilities. Certain categories of assets do not qualify as
relevant assets under the statute. At December 31, 1996 and 1997,
respectively, CIRCL was required to maintain relevant assets of at least
$9,412 and $17,900. At that date relevant assets were approximately $14,932
and $23,900 and the minimum liquidity ratio was therefore met.

19. RELATED PARTY TRANSACTIONS

a) As set out in Note 3, in January 1996 the Company acquired Realm
Investments Ltd. Prior to the acquisition, the Company earned brokerage fees
from its business dealings with Realm Investments Ltd.

b) Amounts due from/to affiliates are interest free and unsecured with no
fixed terms of repayment.

c) Goldman, Sachs & Co. acted as a co-managing underwriter for the Company's
IPO completed in December 1997, from which the underwriters received aggregate
underwriting discounts of $5.3 million from the Company and selling
shareholders.

Goldman, Sachs & Co. or certain of their affiliates maintain certain
contractual relationships with the Company and have provided, and currently
provide investment banking services to the Company. Goldman, Sachs & Co. also
provide investment management services to Realm National pursuant to a
Corporate Account Agreement dated December 24, 1996 and received customary
fees and expenses of approximately $52 during 1997 for such services.

F-27
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

20. LITIGATION

The Company is subject to litigation and arbitration in the ordinary course
of business.

While any proceeding contains an element of uncertainty, management
presently believes the outcome of currently pending proceedings will not have
a material adverse effect on the Company.

21. QUARTERLY FINANCIAL DATA--UNAUDITED

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(I)
------- ------- ------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Total revenues............................. $ 9,877 $10,675 $13,350 $13,159
Net income................................. 2,630 2,330 3,162 1,796
Net income per share....................... 0.34 0.28 0.38 0.22
Net income per share assuming dilution..... $ 0.33 $ 0.27 $ 0.37 $ 0.22
YEAR ENDED DECEMBER 31, 1997
Total revenues............................. $14,345 $16,645 $17,019 $17,301
Net income................................. 2,820 3,172 3,590 3,411
Net income per share....................... 0.35 0.40 0.42 0.38
Net income per share assuming dilution..... $ 0.34 $ 0.39 $ 0.42 $ 0.38
</TABLE>
- --------
(i) Total revenues and net income includes $478 net gain on the sale of
subsidiaries during the fourth quarter of 1997.

F-28
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

UNAUDITED CONSOLIDATED BALANCE SHEET

MARCH 31, 1998
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)

<TABLE>
<CAPTION>
1998
--------
<S> <C>
ASSETS
Marketable securities, at fair value
Debt securities (amortized cost--$9,422)............................ $ 9,526
Equity securities (cost--$454)...................................... 493
Short term investments (amortized cost--$11,006).................... 11,006
--------
Total marketable securities........................................... 21,025
Cash and cash equivalents............................................. 59,642
Fiduciary funds-restricted............................................ 76,999
Insurance and reinsurance balances receivable (affiliates--$8,578).... 213,909
Outstanding losses recoverable from reinsurers........................ 30,295
Deferred acquisition costs............................................ 1,739
Deferred reinsurance premiums ceded................................... 17,737
Deferred tax asset.................................................... 1,415
Goodwill.............................................................. 8,437
Other assets.......................................................... 12,419
Assets related to deposit liabilities................................. 3,056
--------
Total assets...................................................... $446,673
========
LIABILITIES
Outstanding losses and loss expenses.................................. $ 44,272
Unearned premiums..................................................... 25,628
Deferred income....................................................... 3,137
Insurance and reinsurance balances payable (affiliates--$17,705)...... 271,730
Funds withheld........................................................ 1,492
Accounts payable and accrued liabilities.............................. 6,564
Income taxes payable.................................................. 3,968
Deposit liabilities................................................... 3,056
--------
Total liabilities................................................. 359,847
--------
SHAREHOLDERS' EQUITY
Share capital
Authorized 20,000,000 Ordinary Shares of par value $0.25 each
Issued and fully paid 9,863,372 Ordinary Shares...................... 2,466
Additional paid in capital............................................ 54,167
Accumulated other comprehensive income................................ 95
Retained earnings..................................................... 30,765
--------
87,493
Less: 40,000 Ordinary shares in treasury at cost...................... (667)
--------
Total shareholders' equity........................................ 86,826
--------
Total liabilities and shareholders' equity........................ $446,673
========
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-29
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
REVENUES
Risk management fees........................................ $10,266 $12,775
Net premiums earned......................................... 2,694 4,486
Net investment income....................................... 1,212 1,966
Other income................................................ 173 716
------- -------
Total revenues.......................................... 14,345 19,943
------- -------
EXPENSES
Net losses and loss expenses incurred....................... 2,376 4,767
Acquisition costs........................................... 360 566
Depreciation and amortization of capital assets............. 283 351
Amortization of goodwill.................................... 176 177
Salaries and benefits....................................... 4,058 4,665
Other operating expenses.................................... 3,532 4,537
------- -------
Total expenses.......................................... 10,785 15,063
------- -------
Income before taxation...................................... 3,560 4,880
Taxation.................................................... 740 893
------- -------
Net income.................................................. $ 2,820 $ 3,987
======= =======
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities................... (302) 32
Less: reclassification adjustments for gains included in
net income............................................... 112 0
------- -------
Other comprehensive (loss) income......................... (190) 32
------- -------
Comprehensive income...................................... 2,630 4,019
======= =======
Net income per share........................................ $ 0.35 $ 0.41
======= =======
Net income per share assuming dilution...................... $ 0.34 $ 0.40
======= =======
Dividends per share......................................... $ 0.00 $ 0.03
======= =======
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-30
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
ORDINARY SHARES OF PAR VALUE $0.25 EACH
Balance at beginning of period............................. $ 1,500 $ 2,466
------- -------
Balance at end of period................................... $ 1,500 $ 2,466
------- -------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............................. $12,319 $54,167
------- -------
Balance at end of period................................... $12,319 $54,167
------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period............................. $ 147 $ 63
Change in unrealized (loss) gain on marketable securities.. (302) 32
------- -------
Balance at end of period................................... $ (155) $ 95
------- -------
RETAINED EARNINGS
Balance at beginning of period............................. $15,973 $27,074
Net income................................................. 2,820 3,987
Dividends.................................................. - (296)
------- -------
Balance at end of period................................... $18,793 $30,765
------- -------
TREASURY STOCK
Balance at beginning of period............................. $ (938) $ (667)
------- -------
Balance at end of period................................... $ (938) $ (667)
------- -------
Total shareholders' equity................................. $31,519 $86,826
======= =======
</TABLE>

Dividends per share were $0 and $0.03 for the three months ended March 31,
1997 and 1998, respectively.

See accompanying notes to unaudited consolidated financial statements.

F-31
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 2,820 $ 3,987
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of capital assets.......... 283 351
Amortization of goodwill................................. 176 177
Amortization of marketable securities.................... 22 32
Net realized gains on sale of marketable securities...... (181) 0
Equity in income of affiliates........................... (161) (663)
Changes in non cash operating assets and liabilities:
Fiduciary funds.......................................... 1,000 (16,774)
Insurance and reinsurance balances receivable............ (125,922) (576)
Outstanding losses recoverable from reinsurers........... (2,376) (5,674)
Deferred acquisition costs............................... (76) (1,160)
Deferred reinsurance premiums ceded...................... 207 (5,234)
Other assets............................................. (910) (697)
Deferred tax asset....................................... (647) (296)
Assets related to deposit liabilities.................... 256 (300)
Outstanding losses and loss expenses..................... 3,997 7,995
Unearned premiums........................................ (500) 6,441
Insurance and reinsurance balances payable............... 120,071 20,016
Funds withheld........................................... 26 180
Accounts payable and accrued liabilities................. 1,496 392
Income taxes payable..................................... 673 1,010
Deferred income.......................................... 421 284
Deposit liabilities...................................... (256) 300
-------- -------
Net cash provided by operating activities.............. 307 9,791
-------- -------
INVESTING ACTIVITIES
Purchase of capital assets............................... (310) (532)
Sale of capital assets................................... 13 47
Purchase of equity securities............................ (3,331) 0
Purchase of short-term investments, net.................. (1,765) (5,427)
Proceeds on maturity of debt securities.................. 2,086 5,428
Proceeds on sale of debt securities...................... 41 0
Proceeds on sale of equity securities.................... 3,545 0
Purchase of subsidiaries, net of cash acquired........... (1,197) 0
-------- -------
Cash used by investing activities...................... (918) (484)
-------- -------
FINANCING ACTIVITIES
Dividends................................................ 0 (296)
-------- -------
Cash used by financing activities...................... 0 (296)
-------- -------
(Decrease) increase in cash and cash equivalents........... (499) 9,011
Cash and cash equivalents at beginning of period........... 15,602 50,631
-------- -------
Cash and cash equivalents at end of period................. $ 15,103 $59,642
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes............. $ 215 $ 530
======== =======
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-32
<PAGE>

STIRLING COOKE BROWN HOLDINGS LIMITED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997 AND 1998
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE DATA)

1. INTERIM ACCOUNTING POLICY

In the opinion of management of Stirling Cooke Brown Holdings Limited (the
"Company"), the accompanying unaudited consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
1998 and the results of operations and cash flows for the three months ended
March 31, 1997 and 1998. Although the Company believes that the disclosure in
these financial statements is adequate to make the information presented not
misleading certain information and footnote information normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. Interim statements are subject to
possible adjustments in connection with the annual audit of the Company's
financial statements for the full year. Results of operations for the three
months ended March 31, 1998 are not necessarily indicative of what operating
results may be for the full year. In addition, these unaudited consolidated
financial statements and notes thereto should be read in conjunction with the
audited consolidated financial statements presented herein.

2. COMPREHENSIVE INCOME

During the quarter ended March 31, 1998, the Company adopted the reporting
and disclosure requirements of SFAS No. 130 "Reporting Comprehensive Income".

F-33
<PAGE>

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICI-
TATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities Under United States Laws.............. 3
Forward-Looking Statements................................................ 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 10
The Company............................................................... 15
Price Range of Ordinary Shares............................................ 16
Market for Ordinary Shares................................................ 16
Dividend Policy........................................................... 17
Capitalization............................................................ 17
Selected Consolidated Financial and Operating Data........................ 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 28
Management................................................................ 45
Principal Shareholders.................................................... 53
Certain Relationships and Related Party Transactions...................... 54
Description of Capital Shares............................................. 54
Shares Eligible for Future Sale........................................... 58
Certain Tax Considerations................................................ 60
Plan of Distribution...................................................... 70
Experts................................................................... 70
Legal Matters............................................................. 70
Additional Information.................................................... 71
Glossary of Selected Insurance Terms...................................... 72
Index to Financial Statements............................................. F-1
</TABLE>

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

STIRLING COOKE BROWN
HOLDINGS LIMITED

ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)

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

PROSPECTUS

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

GOLDMAN, SACHS & CO.

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