AMERINST INSURANCE GROUP LTD, S-4/A, 1999-01-19

AMERINST INSURANCE GROUP LTD
S-4/A, 1999-01-19
INSURANCE CARRIERS, NEC

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As filed with the Securities and Exchange Commission on January 19, 1999

Registration No. 333-64929
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------

AMERINST INSURANCE GROUP, LTD.
(Exact name of registrant as specified in its charter)

Bermuda 6711 Applied For
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation) Code Number)

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

AmerInst Insurance Group, Ltd.

No. 2 Reid Street
Hamilton, Bermuda HM11

(441) 292-4364

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

Bruce Fenton Copy to:
President Mark H. Berens, Esq.
AmerInst Insurance Group, Ltd. John E. Lowe, Esq.
c/o Triangle Insurance Management, Ltd. Altheimer & Gray
P.O. Box HM 1838 10 South Wacker Drive
Hamilton, Bermuda HM11 Suite 4000
(441) 292-4364 Chicago, Illinois 60606

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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1. Appropriate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

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

If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]

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

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.

================================================================================
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AmerInst Insurance Group, Inc.
P.O. Box 1330
Montpelier, VT 05601

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

January , 1999

Notice is hereby given that a special meeting of the stockholders of
AmerInst Insurance Group, Inc., a Delaware corporation ("AIIG"), will be held
at 10:00 a.m., Chicago, Illinois time on February 26, 1999, at 10 South Wacker
Drive, Suite 4000, Chicago, Illinois (the "Special Meeting"). The Special
Meeting is being held to consider and vote on a proposal to approve (i) the
Exchange Agreement dated as of January 20, 1999, between AmerInst Insurance
Group, Ltd. (the "Company") and AIIG, pursuant to which AIIG will transfer all
of its assets and liabilities to the Company solely in exchange for newly-
issued shares of common shares of the Company (the "Exchange") and (ii) the
dissolution and liquidation of AIIG, pursuant to which holders of common stock
of AIIG will receive Company common shares (the "Dissolution" and, together
with the Exchange, the "Transaction"). The Company is a newly organized
Bermuda company, formed to facilitate the change of domicile of AIIG from
Delaware to Bermuda. Upon consummation of the Transaction, each outstanding
share of AIIG common stock will be exchanged into one Company common share.
The Transaction is more fully described in the accompanying Prospectus/Proxy
Statement. The stockholders of AIIG may also transact such other business as
may be properly brought before the Special Meeting or any adjournments or
postponements thereof.

The Transaction will be consummated only if certain conditions are
satisfied, including the approval by the holders of at least a majority of the
outstanding shares of AIIG common stock. The stockholders of AIIG will not
have the right to dissent from the Transaction and receive payment for their
shares.

Only stockholders of record at the close of business on January 22, 1999
will be entitled to notice of, and to vote (or to grant proxies to vote) at,
the Special Meeting.

You are cordially invited and urged to attend the Special Meeting. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE YOUR
PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE PREPAID ENVELOPE OR BY
FACSIMILE TO MORROW & CO., (212) 754-8300. IF YOU ATTEND THE SPECIAL MEETING
AND WISH TO VOTE IN PERSON, YOUR PROXY WILL NOT BE USED. PLEASE DO NOT SEND
CERTIFICATES FOR YOUR SHARES OF AIIG COMMON STOCK WITH YOUR PROXY CARD.

By Order of the Board of Directors

Jerome A. Harris
Secretary

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SUBJECT TO COMPLETION, DATED JANUARY , 1999

AmerInst Insurance Group, Ltd.
Clarendon House,
2 Church Street
Hamilton, Bermuda HM11

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

332,331 Common Shares

PROSPECTUS/PROXY STATEMENT

January , 1999

AmerInst Insurance Group, Ltd., a newly organized Bermuda company (the
"Company"), was formed to facilitate the change of domicile of AmerInst
Insurance Group, Inc., a Delaware corporation ("AIIG"), from Delaware to
Bermuda. A Special Meeting of the AIIG stockholders (the "Special Meeting")
will be held to consider and vote on a proposal to approve (i) the Exchange
Agreement, dated as of January 20, 1999, between the Company and AIIG (the
"Exchange Agreement"), pursuant to which AIIG will transfer all of its assets
and liabilities to the Company solely in exchange for newly-issued common
shares, par value $1.00 ("Company Common Shares"), of the Company (the
"Exchange") and (ii) the dissolution and liquidation of AIIG, pursuant to
which holders of common stock of AIIG ("AIIG Common Stock") will receive
Company Common Shares (the "Dissolution" and, together with the Exchange, the
"Transaction") on a share-for-share basis for shares of AIIG Common Stock held
at the time of the Dissolution. The Transaction is a part of a series of
transactions involving subsidiaries of AIIG and of the Company, which are more
fully described under "Restructuring of the Company."

This Prospectus/Proxy Statement constitutes (a) the proxy statement of AIIG
with respect to the solicitation of proxies by the Board of Directors of AIIG
for use at the Special Meeting of stockholders of AIIG to be held at 10 South
Wacker Drive, Suite 4000, Chicago, Illinois, on February 26, 1999, at 10:00
a.m., Chicago, Illinois, time (or at any adjournments or postponements
thereof), to consider and vote on the proposal to approve the Exchange
Agreement and the Dissolution, and (b) the prospectus of the Company with
respect to the issuance of Company Common Shares to AIIG stockholders upon the
consummation of AIIG's Dissolution.

The Exchange and the Dissolution will be consummated only if certain
conditions are satisfied, including the approval of the Exchange Agreement and
the Dissolution by the affirmative vote of the holders of at least a majority
of the outstanding shares of AIIG Common Stock. See "Exchange Agreement--
Conditions to the Consummation of the Exchange."

For a discussion of certain factors that should be considered in connection
with the Transaction and an investment in the Company, see "Risk Factors"
beginning on Page 14.

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

This Prospectus/Proxy Statement is first being mailed to the stockholders
of AIIG on or about January , 1999.

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/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

AVAILABLE INFORMATION

AIIG has been and is currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance therewith, AIIG files, and the Company will file, reports, proxy
and information statements, and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy and information
statements, and other information can be inspected and copied at the offices
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of such material can be obtained
from the Public Reference Section at the principal office of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains an Internet website at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company and AIIG, that file electronically with the SEC.

The Company has filed with the SEC a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Company Common Shares offered hereby. This Prospectus/Proxy
Statement, which constitutes a part of that Registration Statement, does not
contain all the information set forth in that Registration Statement and the
exhibits relating thereto. Statements contained herein concerning the
provisions of documents are necessarily summaries of those documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.

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

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
statements in the Summary, under the captions "Risks and Adverse Effects,"
"Change of Domicile," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Proxy
Statement/Prospectus contain or may contain information that is forward
looking, including, without limitation: statements regarding the effect of the
Transaction and the Restructuring, the Company's future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by
a variety of risks and factors including, without limitation: international,
national and local economic conditions; the condition of the insurance and
reinsurance market; the general level of interest rates and changes thereof;
terms of governmental regulations that will affect AIC Limited and Investco
(each as defined herein) and interpretations of those regulations; the
competitive environment in which AIC Limited and Investco operate; and
financial risks. Readers should carefully review the Company's and AIIG's
financial statements and the notes thereto, as well as the risk factors
described herein.

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

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus/Proxy Statement,
and if given or made, such information or representations must not be relied
upon as having been authorized. This Prospectus/Proxy Statement does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the Company Common Shares to which it relates or an
offer to or solicitation of any person in any jurisdiction in which such offer
or solicitation is unlawful. Neither the delivery or this Prospectus/Proxy
Statement nor any sale made hereunder shall under any circumstances imply that
information contained herein is correct at any time subsequent to its date.

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

The Company, certain of its directors, and certain experts named herein are
residents of Bermuda, and all or a substantial portion of the assets of the
Company and of such persons are or may be located outside the United States.
As a result, it may be difficult for investors to enforce in United States
courts judgments obtained against such persons in United States courts
predicated upon the civil liability provisions of the Securities Act.

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The Company may be served with process in the United States by serving The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, its United States agent appointed for that purpose. The
Company has been advised by its Bermuda counsel, Conyers, Dill & Pearman, that
there is doubt as to whether Bermudian courts would enforce (a) judgments of
United States courts predicated upon the civil liability provisions of the
Securities Act against the Company or its officers and directors and certain
experts named herein who are located outside the United States or (b) in
original actions, liabilities against the Company or such persons predicated
upon the Securities Act.

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

For Bermuda purposes only: The minimum subscription which must be raised by
the Exchange in order to provide the sums required to cover the matter
referred to in Section 28 of the Bermuda Companies Act of 1981 is nil.

3
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY.................................................................... 6
Change of Domicile....................................................... 6
The Parties to the Exchange.............................................. 8
Special Meeting.......................................................... 8
Rights of Dissenting Stockholders........................................ 10
Comparative Rights of Shareholders....................................... 10
Certain Tax Considerations............................................... 10
Accounting Treatment of the Exchange..................................... 10
Exchange Agreement....................................................... 11
Risks and Adverse Effects................................................ 11
Summary Historical Financial Data........................................ 12
Dividends and Restrictions on Ownership of Securities.................... 12
RISK FACTORS............................................................... 14
Unprofitable, Unstable Market; Dependence on Investment Return........... 14
Dependence on Primary Insurer............................................ 14
No Contractual Right to Participation in the AICPA Plan.................. 14
Dependence Upon Parties Unrelated to the Company......................... 14
No Guarantee of Insurance Coverage....................................... 15
No Market for, and Restrictions on Transfers of, Shares.................. 15
Potential Conflicts of Interest.......................................... 15
Potential Unavailability of Reinsurance.................................. 15
Adverse U.S. Tax Consequences............................................ 16
CHANGE OF DOMICILE......................................................... 16
Introduction............................................................. 16
Reasons for the Change of Domicile and Restructuring..................... 16
Comparative Rights of Shareholders....................................... 17
Rights of Dissenting Stockholders........................................ 23
Restrictions on Resales of Company Common Shares by AIIG Stockholders.... 23
Accounting Treatment of the Exchange..................................... 23
EXCHANGE AGREEMENT......................................................... 23
General.................................................................. 23
Effective Time of Exchange............................................... 24
Conditions to the Consummation of the Exchange........................... 24
Termination.............................................................. 24
THE DISSOLUTION............................................................ 25
General.................................................................. 25
Effective Time of Dissolution............................................ 25
Third Party Consents..................................................... 25
Exchange of Share Certificates........................................... 25
VOTING AND PROXY INFORMATION............................................... 25
Special Meeting.......................................................... 25
Record Date.............................................................. 25
Vote Required for Approval............................................... 26
Proxies.................................................................. 26
Solicitation of Proxies.................................................. 26
Proposals of Stockholders................................................ 27
</TABLE>

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<TABLE>
<CAPTION>
Page
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<S> <C>
SELECTED FINANCIAL INFORMATION............................................ 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION................................................................ 29
Results of Operation.................................................... 29
Liquidity and Capital Resources......................................... 31
Property/Casualty Losses and Loss Adjustment Expenses................... 32
NAIC Codification of Statutory Accounting Practices..................... 35
SECURITY OWNERSHIP........................................................ 35
BUSINESS OF AIIG.......................................................... 35
General................................................................. 35
Third-party Managers and Service Providers.............................. 36
Professional Liability Coverage......................................... 36
Competition............................................................. 37
Licensing and Regulation................................................ 37
Customers............................................................... 37
Employees............................................................... 38
Loss Reserves........................................................... 38
Properties.............................................................. 38
Legal Proceedings....................................................... 38
BUSINESS OF THE COMPANY................................................... 38
General................................................................. 38
Bermuda Regulation...................................................... 38
RESTRUCTURING OF THE COMPANY.............................................. 41
CERTAIN TAX CONSIDERATIONS................................................ 41
United States Federal Income Tax Consequences........................... 42
Bermuda Tax Consequences................................................ 45
MANAGEMENT OF THE COMPANY AND AIIG........................................ 46
Committees of the Board of Directors.................................... 48
Executive and Director Compensation..................................... 48
CERTAIN TRANSACTIONS AND RELATIONSHIPS.................................... 49
DESCRIPTION OF SHARE CAPITAL.............................................. 49
Company Common Shares................................................... 49
Share Transfer Restrictions............................................. 50
Stock Ownership Policy.................................................. 50
MARKET PRICES, DIVIDENDS AND DISTRIBUTIONS................................ 52
Company Common Shares................................................... 52
AIIG Common Stock....................................................... 52
LEGAL OPINIONS............................................................ 52
EXPERTS................................................................... 53
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDIX A--MEMORANDUM OF ASSOCIATION OF THE COMPANY
APPENDIX B--BYE-LAWS OF THE COMPANY
APPENDIX C--EXCHANGE AGREEMENT
</TABLE>

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SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this
Prospectus/Proxy Statement, including the Appendices, and in the documents
incorporated herein by reference. Certain capitalized terms used in this
Summary have the meaning as defined elsewhere in this Prospectus/Proxy
Statement.

Change of Domicile

General

The Board of Directors of AIIG has determined that it is in the best
interests of AIIG and its stockholders to change AIIG's domicile from Delaware
to Bermuda. It is proposed that the change of domicile be effected pursuant to
the Exchange Agreement and the Dissolution. The Company is a newly organized
Bermuda company wholly owned by AIIG that was formed to facilitate the change
of domicile. As a result of the Transaction, stockholders of AIIG will become
shareholders of the Company. Such persons are described herein as
"stockholders" with respect to their holding of shares of AIIG common stock
prior to the Transaction, and as "shareholders" with respect to their holding
of Company Common Shares following the Transaction. The change of domicile to
Bermuda will not have any material effect on the relative equity or voting
interests of AIIG's stockholders, but will, however, result in certain changes
in their rights as shareholders of the Company. See "Change of Domicile." The
operations of AIIG and its subsidiary will relocate to Bermuda. Neither the
Company nor any of its subsidiaries will maintain an office or place of
business in the United States.

The Exchange

AIIG and the Company have entered into the Exchange Agreement, which
provides that AIIG will exchange all of its assets and liabilities solely for
newly-issued shares of Company Common Stock. Upon consummation of the Exchange,
the Company will remain a wholly-owned subsidiary of AIIG. See "Exchange
Agreement."

The Dissolution

Immediately after the Exchange, AIIG will be dissolved, pursuant to the
Dissolution, and each share of AIIG Common Stock outstanding immediately prior
to the consummation of the Dissolution will be automatically deemed exchanged
for one Company Common Share. See "The Dissolution."

The Restructuring

In connection with the Transaction, the Company intends to change the
corporate structure of its business (the "Restructuring"). Other than the
Exchange and the Dissolution, the Restructuring does not require the approval
of the stockholders of AIIG. It is currently anticipated that the Restructuring
will be consummated in the following steps:

(i) AmerInst Insurance Company, a wholly-owned subsidiary of AIIG
("AIC"), has distributed to AIIG a cash dividend of approximately $20,000,
to be used solely to fund (a) the capitalization required for the formation
of the new entities described below; and (b) the expenses of the
Restructuring.

(ii) AIC will form a new wholly-owned subsidiary, AmerInst Mezco, Ltd.,
under the laws of Bermuda ("Mezco"). Mezco will be funded by AIC with
investment securities in an amount sufficient for the later capitalization
of a Bermuda insurance company.

(iii) AIC will distribute all of the shares of Mezco to AIIG as a
dividend.

(iv) Mezco will form a new wholly-owned subsidiary, AmerInst Insurance
Company, Ltd., under the laws of Bermuda ("AIC Limited").

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(v) AIC will retrocede to AIC Limited all of its insurance treaty
liability under past treaties, and will pay to AIC Limited in connection
therewith a premium determined on the basis of actuarial projections,
appropriately discounted based on the expected payout patterns, intended to
reflect an arms' length fair market value for such retrocession. The
payment of the premium may be wholly or partially in the form of a transfer
of investment securities at market value.

(vi) AIC Limited will form a new wholly-owned subsidiary, AmerInst
Investment Company, Ltd., under the laws of Bermuda ("Investco") and
contribute to Investco substantially all the assets received by AIC Limited
in steps (iv) and (v).

(vii) AIC will be liquidated, with its remaining assets and liabilities
distributed to AIIG.

(viii) Pursuant to the Exchange, AIIG will exchange all of its assets
(including the shares of Mezco) and liabilities with the Company solely for
Company Common Shares, and the currently outstanding Company Common Shares
will be cancelled.

(ix) Pursuant to the Dissolution, AIIG will be dissolved, with holders
of shares of AIIG Common Stock receiving the Company Common Shares
previously issued to AIIG in Step (viii) on a share-for-share basis.

(x) A replacement treaty for the CNA Treaty will be entered into between
AIC Limited and CNA.

Steps (viii) and (ix) will be accomplished on the same date. Preceding steps
will be accomplished prior to such date and subsequent steps will be
accomplished after such date.

The steps of the Restructuring described above are contingent on various
matters, such as the approval by the holders of a majority of the shares of
AIIG Common Stock of the Transaction; the conclusion of a final arrangement
with CNA for assigning or replacing the existing quota share treaty; and all
required approvals of the Illinois Department of Insurance, the Minister of
Finance in Bermuda (the "MOF") and the Controller of Foreign Exchange in
Bermuda (the "CFE"). The steps as described above are subject to revision due
to changed conditions or requirements of the regulatory authorities or other
third parties. See "Restructuring of the Company."

Reasons for Change of Domicile and Restructuring

The Board of Directors of AIIG has concluded that the change of domicile and
the related Restructuring (as described below) will permit AIIG to reorganize
its business activities to take maximum advantage of legal, financing and tax
environments. See "Change of Domicile--Reasons for the Change of Domicile and
Restructuring."

There are several reasons that the Board of Directors considered in
recommending the restructuring and the change in domicile.

Based on current case law, Bermuda companies law permits a subsidiary such
as Investco to purchase and sell shares of its parent. This will permit
Investco to purchase shares of shareholders who have died or retired from the
practice of accounting, as AIIG currently does. In addition, the Company
currently anticipates that, following the consummation of the Transaction,
Investco will put in place a new program by which those shareholders of the
Company who wish to have all of their Company Common Shares purchased by
Investco could do so, at prices and at times to be approved by the Company's
Board of Directors and in the Board's sole discretion. The substantial
elimination of double income taxation, described below, is expected to enhance
the ability of Investco to purchase and sell shares of the Company owned by
shareholders by providing additional available cash. The amount of funds of
Investco to be used for such purpose will be determined from time to time by
the Company's Board of Directors. The Board presently intends to make such
determination at least annually. Such purchases and sales would increase
liquidity of the Company's shares compared to the present

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situation for AIIG shares. It is to be understood that because of the
volatility of the results of reinsurance operations, no commitment can be made
concerning the amount or frequency of any such purchases.

Under existing U.S. Federal tax law, domestic corporations such as AIIG and
AIC incur corporate income tax on their net income. Any distribution to
stockholders of AIIG is subject to income tax a second time, to the recipient.
In contrast, the net income of the Company, Mezco, AIC Limited and Investco
will not be subject to corporate income tax in Bermuda, and, except for
possible U.S. tax on dividends, certain interest and certain other income
items, such entities will not be subject to U.S. Federal corporate income tax.
The shareholders of the Company will be directly subject to U.S. Federal income
tax on certain of AIC Limited's income, but to the extent such previously taxed
income is actually distributed to them as a dividend, no additional U.S.
Federal income tax will be incurred. Thus, double taxation will be eliminated
(except on dividends and certain interest received by the Company, Mezco, AIC
Limited or Investco from U.S. payors). However, AIC Limited will be subject to
a 1% U.S. Federal excise tax on gross premiums received for reinsuring United
States risks.

Bermuda is a major reinsurance and financial center. Location in Bermuda
will expose the Company to a deeper, more efficient and more cost-effective
reinsurance market. This benefit is anticipated to be important in connection
with cyclical hardenings of the reinsurance market. In the event of a hard
insurance market, location in Bermuda could enhance the ability of AIC Limited
to issue professional liability policies directly to accounting firms and
individual practitioners which are shareholders of the Company. Although the
Transaction will result in certain expenses (e.g., travel costs for meetings of
the Board) being increased, AIIG's Board of Directors believes that such
additional costs will be substantially less than the expected income tax
savings.

The Board of Directors of AIIG has unanimously approved the proposed
Transaction and recommends that stockholders vote FOR the approval of the
Exchange Agreement and the Dissolution. See "Change of Domicile--Reasons for
Change of Domicile and Restructuring."

The Parties to the Exchange

AIIG

AIIG, through its subsidiary, AIC, a reinsurance company, was formed to
exert a stabilizing influence on the terms, pricing and availability of
accountants' professional liability insurance for the benefit of accounting
firms who are stockholders of AIIG. AIIG's principal offices are located at
P.O. Box 1330, Montpelier, Vermont 05601 (R.R. No. 3, Airport Road, Berlin,
Vermont 05602), and its telephone number is (802) 229-5042. See "Business of
AIIG", "Index to Financial Statements", "Selected Financial Information
Regarding AIIG" and "AIIG Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company

The Company is a recently organized Bermuda company formed to facilitate the
change of domicile of AIIG from Delaware to Bermuda. The Company is, and after
the Exchange, the Company will remain, a wholly-owned subsidiary of AIIG, until
the Distribution, which will occur on the same day as the Exchange. After the
Dissolution of AIIG, the Company will continue to conduct the businesses in
which AIIG is now engaged, through its indirect wholly-owned subsidiary AIC
Limited, acting as a reinsurer, and through AIC Limited's wholly-owned
subsidiary Investco, which will own and manage an investment portfolio. The
Company will also directly manage an investment portfolio. The Company's
registered office is located at Clarendon House, 2 Church Street, Hamilton,
Bermuda HM11 and its telephone number is (441) 295-1422.

Special Meeting

Time, Date, Place and Purpose

The Special Meeting of the stockholders of AIIG will be held at 10:00 a.m.,
Chicago, Illinois, time on February 26, 1999, at 10 South Wacker Drive, Suite
4000, Chicago, Illinois, to consider and vote on the proposal

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to approve the Exchange Agreement, the Dissolution and any other matters that
may properly come before such meeting. The presence, in person or by proxy, of
the stockholders holding a majority of the outstanding AIIG Common Stock will
constitute a quorum. See "Voting and Proxy Information."

Record Date

Only AIIG stockholders of record at the close of business on January 22,
1999, as shown on AIIG's records, will be entitled to vote, or to grant proxies
to vote, at the Special Meeting. See "Voting and Proxy Information--Record
Date."

Vote Required for Approval

Approval of the Exchange Agreement and the Dissolution requires the
affirmative vote of the stockholders of AIIG who hold at least a majority of
the outstanding AIIG Common Stock. Abstentions and broker "non-votes" will be
treated as a vote against the approval of the Exchange Agreement and the
Dissolution. As of the record date described above, there were 332,331 shares
of AIIG Common Stock outstanding and entitled to vote. As of the record date,
the directors and executive officers of AIIG and affiliates of such persons
directly owned, in the aggregate, 1,533 shares (less than 1%) of the total
number of shares of AIIG Common Stock outstanding. See "Voting and Proxy
Information--Vote Required for Approval."

Proxies

Each AIIG stockholder as of the record date will receive a Proxy Card
("Proxy"). A stockholder of AIIG may grant a proxy to vote for or against, or
to abstain from voting on, the proposal to approve the Exchange Agreement and
the Dissolution by marking his/her Proxy Card appropriately, executing it in
the space provided, and, in the case of holders of AIIG Common Stock appearing
on the stock records of AIIG, returning it to the Proxy Solicitor in the
enclosed postage prepaid envelope or by telecopy to (212) 754-8300. AIIG
stockholders who hold AIIG Common Stock in the name of a bank, broker or other
nominee should follow the instructions provided by their bank, broker or
nominee on voting their shares. The Proxy Solicitor with respect to AIIG Common
Stock is Morrow & Co. See "Voting and Proxy Information--Solicitation of
Proxies."

To be effective, a Proxy must be received prior to the Special Meeting. Any
properly executed proxy will be voted in accordance with the specification
indicated on such Proxy. A properly executed and returned Proxy in which no
specification is made will be voted FOR the proposals to approve the Exchange
Agreement and the Dissolution.

If any other matters are properly presented at the Special Meeting for
consideration, including consideration of a motion to adjourn the meeting to
another time and/or place (including adjournment for the purpose of soliciting
additional proxies), the persons named in the Proxy and acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.

Revocation

In the case of holders of AIIG Common Stock appearing on the stock records
of AIIG, a Proxy may be revoked at any time prior to its exercise by (a) giving
written notice of such revocation to the Proxy Solicitor, (b) appearing and
voting in person at the Special Meeting, or (c) properly completing and
executing a later-dated proxy and delivering it to the Proxy Solicitor before
or at the Special Meeting. Presence without voting at the Special Meeting will
not automatically revoke a proxy, and any revocation during the meeting will
not affect votes previously taken. AIIG stockholders who hold their AIIG Common
Stock in the name of a bank, broker or other nominee should follow the
instructions provided by their bank, broker or nominee in revoking their
previously voted shares. See "Voting and Proxy Information--Proxies."

9
<PAGE>

Rights of Dissenting Stockholders

Under applicable Delaware law, holders of AIIG Common Stock will not have
the right to exercise dissenters' rights with respect to the Transaction or to
receive payment for their shares of AIIG Common Stock.

Comparative Rights of Shareholders

The principal attributes of the AIIG Common Stock and the Company Common
Shares will be similar. However, there are certain substantive differences
between the rights of shareholders under Delaware law and Bermuda law. There
are also substantive differences between AIIG's Certificate of Incorporation
and Bylaws and the Company's Memorandum of Association and Bye-Laws. See
"Change of Domicile--Comparative Rights of Shareholders."

Certain Tax Considerations

The following is a brief summary of the tax consequences of the Transaction
and the Restructuring and does not constitute a tax or other legal opinion or
advice to any person. Stockholders of AIIG should consult and rely solely on
their own tax advisers. A more detailed summary of certain tax consequences of
the Transaction and the Restructuring is set out under "Certain Tax
Considerations."

United States Federal Income Tax Consequences. For United States Federal
income tax purposes, the Restructuring, including the Transaction, will be tax-
free to the stockholders, the Company, Mezco, AIC Limited and Investco. AIIG
and AIC will recognize gain on any asset transferred to the extent its fair
market value exceeds its tax basis. Various reporting requirements will be
imposed on shareholders. See "Certain Tax Considerations."

United States Federal Excise Tax Consequences. AIC Limited will be subject
to a U.S. Federal excise tax of 1% on gross premiums received for reinsuring
United States risks, including risks incident to the retrocession transaction.

Bermuda Tax Consequences. At the present time there is no Bermuda income or
profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax imposed on a Bermuda company or its shareholders, other
than shareholders ordinarily resident in Bermuda. Each of the Company, AIC
Limited and Investco will obtain an assurance from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection Act of 1966 that, in the
event that any legislation is enacted in Bermuda 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 be
applicable until March 2016 to the Company, AIC Limited or Investco or to any
of their operations or to their shares, debentures or other obligations except
insofar as such tax applies to (i) persons ordinarily resident in Bermuda
holding such shares, debentures or other obligations or (ii) any land leased or
let to the Company, AIC Limited or Investco. Therefore, there will be no
Bermuda tax consequences for shareholders of the Company with respect to the
Restructuring or on the operations of the Company and its subsidiaries or with
respect to subsequent dividends or distributions in respect of the Company
Common Shares.

Accounting Treatment of the Exchange

The transfer of the assets and liabilities of AIIG to the Company pursuant
to the Exchange will be accounted for at historic cost, as the Transaction will
not result in a change in control of voting interest.

10
<PAGE>

Exchange Agreement

Effective Time of Exchange

The Exchange shall become effective (the "Effective Time") at such time as
the parties thereto shall agree, reasonably promptly after approval of the
Exchange Agreement by AIIG stockholders. See "Exchange Agreement--Effective
Time of Exchange."

Conditions to the Consummation of the Exchange

The respective obligations of AIIG and the Company to consummate the
Exchange are subject to certain conditions, including approval of the Exchange
Agreement by the stockholders of AIIG, receipt by AIIG, AIC, Mezco and the
Company of authorization by the Illinois Department of Insurance, the MOF and
the CFE, receipt of opinions of counsel as to certain tax and legal matters,
and certain other conditions customary in transactions of this nature. See
"Exchange Agreement--Conditions to the Consummation of the Exchange."

Third Party Consents

No consent, approval or authorization of or filing with any governmental
authority or third person or entity is required in connection with the
consummation of the Exchange, other than (a) approval of AIIG's stockholders in
accordance with the laws of the State of Delaware, (b) filing with the
Secretary of State of Delaware the Certificate of Dissolution of AIIG; (c)
filing with the Registrar of Companies of Bermuda a copy of this
Prospectus/Proxy Statement; (d) obtaining the consent of the CFE for the
issuance and transfer of Company Common Shares and Investco's share capital;
(e) obtaining the consent of the MOF to the incorporation of AIC Limited and
Investco; (f) obtaining the consent of the MOF registering the Company and
Investco as insurers; (g) obtaining the consent of the Illinois Department of
Insurance in connection with Steps (i), (iii) and (v) under "Change of
Domicile--The Restructuring" above; and (h) such approvals and authorizations
of regulatory agencies as the Board of Directors of AIIG may determine are
appropriate for the consummation of the Restructuring, of which the Exchange is
a part. See "Exchange Agreement--Third Party Consents." As described herein,
other consents are required for consummation of other portions of the
Restructuring. See "Restructuring of the Company."

Exchange of Share Certificates

Harris Trust and Savings Bank will act as exchange agent (the "Exchange
Agent") in connection with the Transaction. Promptly after the Effective Time,
the Exchange Agent will send transmittal forms and instructions to AIIG
stockholders to be used in forwarding certificates evidencing their shares of
AIIG Common Stock for surrender and exchange for certificates representing the
same number of Company Common Shares. Such instructions will include procedures
concerning lost certificates. AIIG stockholders are requested not to surrender
their certificates until such transmittal forms and instructions are received.
Until so surrendered, the certificates representing shares of AIIG Common Stock
will be deemed to represent Company Common Shares. See "Exchange Agreement--
Exchange of Share Certificates."

Termination

The Exchange Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual consent of AIIG and the Company; or (b) by either AIIG or
the Company if (i) the Exchange shall not have been consummated by December 31,
1998, or (ii) any statute, regulation or rule shall have been enacted or
promulgated by any government or governmental agency which makes the
consummation of the Exchange illegal. See "Exchange Agreement--Termination."

Risks and Adverse Effects

See "Risk Factors" for a discussion of certain factors to be considered in
connection with the Exchange, including certain adverse tax consequences.

11
<PAGE>

Summary Historical Financial Data

The following table sets forth a summary of certain selected historical
financial data for AIIG which is based on and should be read in conjunction
with AIIG's consolidated financial statements and notes thereto, which are
included in this Proxy Statement/Prospectus. In the opinion of management, the
unaudited consolidated financial information included herein has been prepared
on the same basis as the audited financial information included herein and
includes all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations as of and for the nine-month periods ended September 30, 1998 and
1997. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
for the year ended December 31, 1998. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements of
AIIG and notes thereto included in this Proxy Statement/Prospectus.

AMERINST INSURANCE GROUP, INC.

Summary Financial Data

<TABLE>
<CAPTION>
Nine Months Ended
September 30, Twelve Months Ended December 31,
------------------------ -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Premiums Earned......... $ 4,497,820 $ 3,407,213 $ 5,852,286 $ 5,386,388 $ 5,494,413 $ 6,276,395 $ 6,437,120
Net Investment Income... 1,627,661 1,793,221 2,572,539 2,394,377 2,195,451 2,156,374 2,493,421
Total Revenues.......... $ 6,460,315 $ 5,380,937 $ 8,424,825 $ 7,780,765 $ 7,689,864 $ 8,432,769 $ 8,930,541
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss)....... $ (351,736) $ 112,829 $ 1,331,171 $ 2,086,778 $ 3,096,985 $ 3,801,325 $ 1,458,486
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss) Per
Share.................. $ (1.06) $ .34 $ 3.99 $ 6.24 $ 9.24 $ 11.26 $ 4.31
=========== =========== =========== =========== =========== =========== ===========
Cash dividends declared
per common share....... $ 1.95 $ 1.95 $ 2.60 $ 2.60 $ 1.30 $ -- $ --
=========== =========== =========== =========== =========== =========== ===========
Balance Sheet Data:
Investments............. $41,794,068 $41,893,845 $41,683,579 $39,636,771 $36,865,013 $15,642,358 $15,521,231
Funds Held by
Reinsurers............. -- -- -- -- -- 25,041,311 25,480,127
Other Assets............ 6,384,344 5,797,091 5,747,550 5,820,502 9,804,663 8,570,677 6,304,630
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............ $48,178,412 $47,690,936 $47,431,129 $45,457,273 $46,669,676 $49,254,346 $47,305,988
=========== =========== =========== =========== =========== =========== ===========
Unpaid Losses and Loss
Adjustment Expenses.... $23,666,481 $21,961,232 $20,802,873 $20,299,937 $21,789,036 $25,335,230 $27,047,417
Unearned Premiums....... 2,536,423 2,606,422 2,809,115 2,144,027 2,095,462 2,053,900 2,730,117
Other Liabilities....... 2,464,524 2,879,994 2,700,777 2,921,784 3,725,385 7,368,133 5,344,818
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities....... 28,667,428 27,447,648 26,312,765 25,365,748 27,609,883 34,757,263 35,122,352
Stockholders' Equity.... 19,510,984 20,243,288 21,118,364 20,091,525 19,059,793 14,497,083 12,183,636
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity... $48,178,412 $47,690,936 $47,431,129 $45,457,273 $46,669,676 $49,254,346 $47,305,988
=========== =========== =========== =========== =========== =========== ===========
</TABLE>

Dividends and Restrictions on Ownership of Securities

AIIG Common Stock

There is no established public trading market for the common stock of AIIG.
AIIG's Certificate of Incorporation provides that all transfers of shares of
AIIG common stock must be approved by AIIG's Board of Directors or a committee
thereof. AIIG's Board of Directors has appointed a Stockholder Relations
Committee for purposes of reviewing and approving applications for transfer.
All transferees must meet the qualifications for Stock Ownership contained in
AIIG's Stock Ownership Policy, which is described in detail herein under
"Description of Share Capital--Stock Ownership Policy."

12
<PAGE>

Since its inception, AIIG has redeemed the shares of individuals who have
died or retired from the practice of public accounting. Such redemptions are
made at 75% of book value as of the end of the preceding year.

AIIG has established an information exchange whereby any stockholder
desiring to sell or purchase shares can list the number of shares and the
intended price. This list is updated and distributed regularly, so that
stockholders on the list can make direct contact with others.

As of January 22, 1999, AIIG had 2,570 holders of record of its common
stock. During 1996, AIIG paid cash dividends of $869,661 representing four
quarterly payments of $0.65 per share. During 1997, AIIG paid cash dividends of
$867,735, representing four quarterly payments of $0.65 per share. During 1998,
AIIG paid cash dividends of $216,683 on March 13, 1998 to holders of record of
AIIG Common Stock on March 1, 1998, $216,376.55 on June 15, 1998 to holders of
record of AIIG Common Stock on June 1, 1998, $216,320 on September 15, 1998 to
holders of record of AIIG Common Stock on September 1, 1998 and $216,208.20 on
December 15, 1998 to holders of record of AIIG Common Stock on December 1, 1998
(each payment representing $0.65 per share of AIIG Common Stock). The
declaration of dividends by AIIG's Board of Directors is dependent upon AIIG's
and AIC's capacity to insure or reinsure business, profitability, financial
condition, and other factors which the Board of Directors may deem appropriate.
For a description of the restrictions which Illinois law imposes on AIC's
ability to pay dividends, see "Business of AIIG". See "Market Prices, Dividends
and Distributions."

Company Common Shares

There will be no public market for Company Common Shares either before or
after consummation of the Transaction. Immediately following the consummation
of the Transaction, the Company Common Shares will be subject to the same
restrictions as are currently applicable to shares of AIIG Common Stock under
the Stock Ownership Policy. Until surrendered, the certificates representing
shares of AIIG Common Stock will be deemed to represent Company Common Shares.

13
<PAGE>

RISK FACTORS

Before voting on the proposal to approve the Exchange Agreement, AIIG
stockholders should carefully read this entire Prospectus/Proxy Statement and
should give particular attention to the following risks and adverse effects:

Unprofitable, Unstable Market; Dependence on Investment Return

Accountants' professional liability insurance is a volatile risk with
fluctuations both in the frequency and severity of claims, particularly the
latter. This is aggravated by the casualty insurance cycle, which over a
period of years varies from a hard market with high or increasing premiums
charged for risk, to a soft market with low or decreasing premiums being
charged. The interaction of volatility and insurance cycle variation results
in a high degree of unpredictability of underwriting income from year to year.
As a reinsurer, AIC Limited will be directly influenced by the premium
competition in the primary market. As a quota share reinsurer, it is directly
dependent on the underwriting results of CNA, its cedent.

In comparison to the unstable underwriting income, the investment income of
AIC Limited and Investco is more stable and predictable, although it too is
subject to variation due to fluctuations of market interest rates on its fixed
income portfolio, and of stock prices on its equity portfolio. There is no
assurance that such investment income will be sufficient to offset potential
underwriting losses or that the capital of the Company and its subsidiaries
will be sufficient to absorb adverse underwriting and/or investment results.

Dependence on Primary Insurer

AIC Limited's underwriting profitability will be substantially dependent
upon the policy pricing, risk selection and claims administration functions
exclusively controlled and performed by CNA, the primary insurer for the AICPA
Professional Liability Insurance Plan (the "AICPA Plan"). CNA is anticipated
to be AIC Limited's sole cedent. See "Business of AIIG."

Because AIC Limited will not be admitted as an insurer in Illinois, CNA has
the right to require AIC Limited to procure a letter of credit issued by a
U.S. bank in an amount equal to the total unearned premiums for a fiscal year
plus CNA's share of AIC Limited's loss reserves.

No Contractual Right to Participation in the AICPA Plan

Although representatives of the American Institute of Certified Public
Accountants (the "AICPA") participated to a limited extent in the organization
of AIIG and AIC, and certain of the directors of AIIG were also members of the
AICPA Professional Liability Insurance Plan Committee (the "PLIP Committee")
at the time of the organization of AIIG and AIC in 1986, the AICPA has not
been, and is not now, responsible for the control, management or obligations
of AIIG or AIC, nor will it be responsible for the control, management or
obligations of the Company, AIC Limited or Investco. None of the Company, AIC
Limited or Investco has any contractual right to act as a reinsurer or in any
other capacity incident to the AICPA Plan.

Dependence Upon Parties Unrelated to the Company

Because the Company, AIC Limited and Investco will have no full-time
employees in the foreseeable future, the underwriting and investment
activities of the Company, AIC Limited and Investco will depend substantially
upon the services of outside parties. Certain of the parties with whom the
Company, AIC Limited and Investco are expected to do business are related to
each other and also have relationships with the AICPA Plan and thus potential
conflicts of interest exist. See "Business--Third Party Managers and Service
Providers."

14
<PAGE>

No Guarantee of Insurance Coverage

The ownership of Company Common Shares by an accounting firm or individual
practitioner will not guarantee that such firm or individual will thereafter
be able to obtain professional liability insurance under the AICPA Plan or
other policies reinsured by AIC Limited, or that such insurance will be
competitively priced. In order to be eligible for coverage under the Plan, a
firm or individual practice must be an acceptable risk under applicable
underwriting criteria in effect from time to time.

No Market for, and Restrictions on Transfers of, Shares

There is currently no market for the Company Common Shares and it is
unlikely that a market will develop. The Company does not intend to list the
Company Common Shares on any stock exchange or automated quotation system.
Under the Company's Bye-Laws, its Board of Directors has the authority to
prohibit all transfers of Shares, although the Stock Ownership Policy
currently provides that transfers among Eligible Firms will be permitted
absent unusual circumstances. See "Description of Share Capital--Share
Transfer Restrictions." Further, because an integral part of the value of
Company Common Shares is the commitment of the Company to utilize the
insurance capacity of AIC Limited for the benefit of the Company's
stockholders, it is unlikely that any individual or entity other than sole
practitioners and accounting firms would be interested in purchasing Company
Common Shares.

Although one of the purposes of the Restructuring is to facilitate the
purchase and sale of the Company's shares by Investco, although currently
AIIG's policy is to purchase shares only from stockholders who have died or
retired from the practice of accounting, and although the Company's Board of
Directors currently anticipates putting in place a program whereby
shareholders who wish to have all of their Company Common Shares purchased by
Investco could do so, at prices and at times to be approved by the Company's
Board of Directors and in the Board's sole discretion, the Company's
shareholders will have no right to have their Company Common Shares purchased
by the Company or Investco. Any purchases would require the authorization of
the Company's Board of Directors, conditioned (as determined by the Board in
its discretion) on adequate capital and surplus for both the Company and
Investco. See "Description of Share Capital--Stock Ownership Policy."

Transfers of Company Common Shares will also be subject to the approval of
the Bermuda CFE. See "Description of Share Capital--Share Transfer
Restrictions."

Potential Conflicts of Interest

Certain of the directors of AIIG also were members of the PLIP Committee at
the time of the formation of AIIG and AIC in 1986. Presently no directors of
AIIG, and no directors of the Company, are members of the PLIP Committee. It
is possible, though unlikely, that in the future one or more directors will
also be members of the PLIP Committee. As a result of having such dual
positions, such persons may have certain potential conflicts of interest at
that time. The conflicts of interest would most likely arise in connection
with decisions relating to AIC Limited's reinsurance of CNA incident to the
AICPA Plan and the use of AIC Limited's capacity to reinsure professional
liability coverage extended to firms and individual practitioners who are not
shareholders of the Company.

Potential Unavailability of Reinsurance

In order to limit the effect of large and multiple losses upon the
Company's financial condition, AIC Limited may, in the future, seek
reinsurance for its own account. From time to time, market conditions have
limited the availability of reinsurance, and in some cases have prevented
insurers and reinsurers from obtaining the types and amounts of reinsurance
which they consider adequate for their business needs. There can be no
assurance that AIC Limited will be able to obtain the desired amounts of
reinsurance, or, if it is able to obtain such reinsurance, that it will be
able to negotiate terms sufficiently favorable to operate profitably. See
"Business--Retrocession Agreements."

15
<PAGE>

Adverse U.S. Tax Consequences

As more fully discussed elsewhere in this Proxy Statement/Prospectus, no
gain should be recognized for U.S. Federal income tax purposes to the
stockholders of AIIG on the exchange of AIIG stock for Company stock in the
Transaction. This treatment is based upon certain interpretations of the tax
laws. If such interpretations were incorrect, the exchange could be a taxable
event, in which event the stockholders of AIIG would recognize gain in an
amount equal to the excess of the fair market value of the Company stock
received in the exchange over the tax basis of the AIIG stock surrendered. In
such event, the transaction may result in additional tax without generating
any cash to pay that tax.

Shareholders of the Company will be subject to reporting requirements in
connection with the Transaction and their holding of Company stock. Failure to
comply with such reporting requirements may result in the imposition of
penalties.

The statutes, cases, regulations, rulings, and other pronouncements which
constitute the authorities in the U.S. Federal income tax law are subject to
change, and such change may have retroactive effect. It cannot be predicted
whether, when, in what forms, and with what effective dates the tax laws may
be changed.

CHANGE OF DOMICILE

Introduction

The Board of Directors of AIIG has concluded that it is in AIIG's best
interests to transfer AIIG's domicile from Delaware to Bermuda. It is proposed
that the change of domicile be effected pursuant to the Exchange Agreement and
the Dissolution. As a result of the Exchange, the Company will remain a
wholly-owned subsidiary of AIIG. Upon the Dissolution of AIIG, its
stockholders will become shareholders of the Company and AIIG will cease to
exist as a separate entity. The Company and its subsidiaries, AIC Limited and
Investco, will continue the operations as previously conducted by AIIG and its
subsidiary, AIC. The change of domicile to Bermuda will not have any material
effect on the relative equity or voting interests of AIIG's stockholders, but
will, however, result in certain changes in their rights as shareholders of
the Company. See "--Comparative Rights of Shareholders."

In connection with the Transaction, the Company intends to change the
corporate structure of its businesses as described under "Restructuring of the
Company."

Reasons for the Change of Domicile and Restructuring

There are several reasons that the Board of Directors considered in
recommending the restructuring and the change in domicile.

16
<PAGE>

Under existing U.S. Federal tax law, domestic corporations such as AIIG and
AIC incur corporate income tax on their net income. Any distribution to
stockholders of AIIG is subject to income tax a second time, to the recipient.
In contrast, the net income of the Company, Mezco, AIC Limited and Investco
will not be subject to Bermuda corporate income tax, and, except for possible
U.S. tax on dividends, certain interest and certain other income items, such
entities will not be subject to U.S. Federal corporate income tax. The
shareholders of the Company will be directly subject to U.S. Federal income
tax on certain of the income of the Company and its subsidiaries, but to the
extent such previously taxed income is actually distributed to them as a
dividend, no additional U.S. Federal income tax will be incurred. Thus, double
taxation will be eliminated (except on dividends and certain interest received
by the Company, Mezco, AIC Limited or Investco from U.S. payors). However, AIC
Limited will be subject to a 1% U.S. Federal excise tax on gross premiums
received for reinsuring United States risks.

Bermuda is a major reinsurance and financial center. Location in Bermuda
will expose the Company to a deeper, more efficient and more cost-effective
reinsurance market. This benefit is anticipated to be important in connection
with cyclical hardenings of the reinsurance market. In the event of a hard
insurance market, location in Bermuda could enhance the ability of AIC Limited
to issue professional liability policies directly to accounting firms and
individual practitioners which are shareholders of the Company. Although the
Transaction will result in certain expenses (e.g., travel costs for meetings
of the Board) being increased, AIIG's Board of Directors believes that such
additional costs will be substantially less than the expected income tax
savings.

The Board of Directors of AIIG has unanimously approved the proposed
Transaction and recommends that stockholders vote FOR the approval of the
Exchange Agreement and the Dissolution.

Comparative Rights of Shareholders

The rights of the stockholders of AIIG are governed by the Delaware General
Corporation Law (the "DGCL") and AIIG's Certificate of Incorporation and
AIIG's Bylaws. Upon completion of the Transaction, the rights of the Company's
shareholders will be governed by (a) the Bermuda Companies Act of 1981, as
amended, (b) certain statutes governing Bermuda companies generally, (c) the
Company's Memorandum of Association and (d) the Company's Bye-Laws (the
Memorandum of Association and Bye-Laws may be collectively referred to as the
"Charter Documents"). Much of the companies law of Bermuda is modeled after
that of England, and differs in certain respects from corporate laws generally
applicable to Delaware corporations and their stockholders.

The following is a summary of certain changes in the rights of stockholders
resulting from the Transaction described in this Prospectus/Proxy Statement,
and does not purport to be complete or to cover all of the respects in which
Bermuda companies law may differ from laws generally applicable to Delaware
corporations and their stockholders. Stockholders are advised to review
carefully the Bermuda Memorandum of Association and the Bermuda Bye-Laws,
which are attached to this Prospectus/Proxy Statement as Appendices A and B,
respectively. This summary is qualified in its entirety thereby.

The following is a summary of significant differences that may affect the
interests of AIIG and its stockholders. Certain of these changes, discussed
below, will be effected automatically as a result of the Transaction.

Voting Rights and Quorum Requirements

The Company. Under Bermuda law, in the absence of any other agreement to
the contrary, the voting rights of shareholders are regulated by the Company's
Bye-Laws. The Company's Bye-Laws specify that two persons present in person
and representing throughout the meeting, in person or by proxy, in excess of
one-third of the total issued voting shares in the Company shall form a quorum
for the transaction of business.

Any shareholder of the Company who is present at a meeting may vote in
person, as may any corporation which is present by a duly authorized
representative. The Company's Bye-Laws also permit votes by proxy,

17
<PAGE>

provided the instrument appointing the proxy, together with such evidence of
its due execution, is satisfactory to the Company's Board of Directors, is
delivered to the Company's registered office (or at any other place specified
in the notice convening the meeting or adjourned meetings) prior to the
meeting or, in the case of a poll taken subsequently to the date of the
meeting, before the time appointed for the taking of that poll. There is no
required record date for meetings under Bermuda law, but a record date may be
fixed by the Company's Board of Directors.

Under the Company's Bye-Laws (subject to any rights or restrictions
otherwise afforded to any Company shares), shareholders of the Company are
entitled to one vote per Company Common Share.

AIIG. Under the DGCL and the AIIG Bylaws, each holder of record of AIIG
Common Stock is entitled to one vote per share. Pursuant to AIIG's Bylaws, the
presence, in person or by proxy, of the holders of record of one-third of the
outstanding shares of capital stock constitutes a quorum. The holders of a
majority of the shares present in person or represented by proxy may adjourn
the meeting if a quorum is not present or represented thereat. Under the DGCL,
any stockholder entitled to vote at a meeting of stockholders may authorize
another person or persons to act for him by proxy. Unless the proxy provides
for a longer period, no proxy may be voted or acted upon after three years
from its date. Proxies may be transmitted by telegram, cablegram or other
means of electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service or like agent
duly authorized by the person who will be the holder of the proxy to receive
such transmission, provided that such proxy either sets forth or is submitted
with information from which it can be determined that the telegram, cablegram
or other electronic transmission was authorized by the stockholder. Pursuant
to AIIG's Certificate of Incorporation and Bylaws, the election of directors
need not be by ballot.

Voting Rights With Respect to Extraordinary Corporate Transactions

The Company. Bermuda law permits amalgamation between two or more Bermuda
companies (or between a Bermuda company and one or more Bermuda or foreign
companies and, subject to any requirement of the bye-laws of any of such
companies, generally requires the approval, in the case of the amalgamation of
non-affiliated companies, of a majority vote of three-fourths of shareholders
of each such company voting, in person or by proxy, at a meeting called for
that purpose and the quorum shall be one-third of the issued shares. A 90%
vote may be required where such a transaction amounts to a scheme or contract
under Section 102 of the Companies Act. A majority vote (i.e., a majority of
the votes cast) of shareholders is required to increase the authorized capital
of a Bermuda company, but unless such increase is required, and subject to any
provision of the bye-laws to the contrary, no shareholder approval is required
for the issue of shares by an acquiring company in a share-for-share exchange,
asset purchase, or, subject to the limitations set forth below, other forms of
reorganization.

AIIG. Under Delaware law, approval of mergers and consolidations and of
sales, leases or exchanges of all or substantially all of the property or
assets of a company, requires the approval of the holders of a majority of the
outstanding shares entitled to vote, except that no vote of stockholders of
the company surviving a merger is necessary if (i) the merger does not amend
the certificate of incorporation of the company, (ii) each outstanding share
immediately prior to the effective date of the merger is to be an identical
share after the merger, and (iii) either no common shares of the company and
no securities or obligations convertible into common shares are to be issued
in the merger, or the common shares to be issued in the merger plus common
shares initially issuable on conversion of other securities issued in the
merger does not exceed 20% of the common shares of the company immediately
before the effective date of the merger.

Dissenters' Rights

The Company. Under Bermuda law, a dissenting shareholder of a company
participating in certain transactions may, under varying circumstances,
receive cash in the amount of the fair market value of his shares (as
determined by a court), in lieu of the consideration he or she would otherwise
receive in any such transactions. Bermuda law generally does not condition
dissenters' rights to circumstances in which a vote of the shareholders of the
surviving company is required. Bermuda law, in general, provides for
dissenters' rights in an

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amalgamation between non-affiliated companies, a scheme of arrangement, a
reconstruction and certain other transactions. For a more thorough discussion
of dissenters' rights under Bermuda law, see "--Rights of Dissenting
Shareholders."

AIIG. Stockholders are entitled to demand appraisal of their shares in the
case of mergers or consolidations, except where (i) they are stockholders of
the surviving company and the merger did not require their approval under the
DGCL, or (ii) the company shares are either listed on a national securities
exchange or on the NASDAQ National Market System or held of record by more
than 2,000 stockholders. Appraisal rights are available in either (i) or (ii)
above, however, if the stockholders are required by the terms of the merger or
consolidations to accept any consideration other than (a) shares of the
company surviving or resulting from the merger or consolidation, (b) shares of
another company which are either listed on a national securities exchange or
held of record by more than 2,000 stockholders, (c) cash in lieu of fractional
shares, or (d) any combination of the foregoing. Appraisal rights are not
available in the case of a sale, lease, exchange or other disposition by a
company of all or substantially all of its property and assets.

Derivative Suits

The Company. In certain very limited circumstances an action can be brought
by minority shareholders, on behalf of the Company, seeking to enforce a right
of action vested in or derived from the Company. However, such a derivative
action will not be permitted where there is an alternative action available
which would provide an adequate remedy. Any property or damages recovered by
derivative action go to the Company, not to the plaintiff shareholders. The
Companies Act enables a shareholder who complains that the affairs of a
company are being or have been conducted in a manner oppressive or prejudicial
to some part of the shareholders, including himself, to petition the court,
which may, if it is of the opinion that to wind up a company would unfairly
prejudice those shareholders, but that otherwise the facts would justify a
winding up order on just and equitable grounds, make such order as it thinks
fit. The Companies Act also provides that a company may be wound up by the
court if the court is of the opinion that it is just and equitable to do so.
The latter provision is also available to minority shareholders seeking relief
from the oppressive conduct of the majority, and the court has wide discretion
to make such order as it may think fit. Except as mentioned above, claims
against a Bermuda company by its shareholders must be based on the general law
of contract or tort of Bermuda. A statutory right of action is conferred on
subscribers to shares of a Bermuda company against persons (including
directors and officers) responsible for the issue of a prospectus in respect
of damage suffered by reason of an untrue statement therein, but this confers
no right of action against the company itself. In addition, the company itself
(as opposed to its shareholders) may take action against the officers
(including directors) of a Bermuda company for breach of their statutory and
fiduciary duty to act honestly and in good faith with a view to the best
interests of the company.

AIIG. Derivative actions may be brought in Delaware by a stockholder on
behalf of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must state in the complaint that he or she was a stockholder of
the corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he or she first makes demand on
the corporation that it bring suit and such demand has been refused, unless it
is shown that such demand would have been futile. No suit may be brought
against any officer, director, or stockholder for any debt of a corporation
for which he or she is an officer, director, or stockholder, until judgment is
obtained therefor against the corporation and execution thereon returned.

Special Meetings of Shareholders

The Company. Under Bermuda law, a special general meeting of shareholders
may be convened by the Board of Directors at any time and must be convened
upon the requisition of shareholders holding not less than one-tenth of the
paid-in capital of the company carrying the right to vote at general meetings.
The Company's Bye-Laws provide that a special general meeting of shareholders
may be requisitioned by the holders of 10% of the outstanding shares of the
Company's voting securities.

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AIIG. Stockholders generally do not have the right to call meetings of
stockholders unless such right is granted in the certificate of incorporation
or Bylaws. However, if a company fails to hold its annual meeting within a
period of 30 days after the date designated therefor, or if no date has been
designated for a period of 13 months after its last annual meeting, the
Delaware Court of Chancery may order a meeting to be held upon the application
of a stockholder or director. The AIIG Certificate and the AIIG Bylaws provide
that stockholders may not call a special meeting and that only the President
of AIIG or, if directed by the Board of Directors, the Secretary of AIIG, may
call a special meeting of stockholders.

Amendments to Charter

The Company. Amendments to the memorandum of association and bye-laws of a
Bermuda company must be submitted to a general meeting of the shareholders and
shall be effective only to the extent approved by the shareholders at such
meeting. The Company's Charter and Bye-Laws may be amended by a vote of the
holders of a majority of the votes cast at a meeting at which a quorum is
present, unless otherwise provided in such documents.

AIIG. Amendments to the certificate of incorporation of a Delaware
corporation require the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon; except that if the certificate of
incorporation requires the vote of a greater number or proportion of the
directors or of the holders of any class of stock than is required by Delaware
law with respect to any matter, the provision of the certificate of
incorporation may not be amended, altered or repealed except by such greater
vote. The AIIG Certificate requires a 75% vote to amend certain of its
provisions. The provisions that can only be amended by such 75% vote are
provisions that (i) limit the transferability of shares of AIIG Common Stock;
(ii) allow the Board of Directors to set the number of directors; (iii)
classify the Board of Directors into three classes; (iv) permit directors to
fill any vacancies in the Board of Directors; (v) provide for the service of
"qualified directors" (persons who are current or former members of the AICPA
Professional Liability Insurance Committee or otherwise knowledgeable in
accountants' professional liability insurance matters) on the Board of
Directors; or (vi) require such a 75% vote. The other provisions of the AIIG
Certificate may be amended by the affirmative vote of both (a) a majority of
the members of the Board of Directors then in office and (b) a majority of the
voting power of all of the shares of capital stock of the Company entitled to
vote generally in the election of directors voting together as a single class.

Anti-Takeover Statutes

The Company. Bermuda does not currently have a tender offer statute.
However, The Companies Act provides that where an offer is made for shares in
a company by another company and, within four months of the offer, the holders
of not less than 90% in value of the shares that are the subject of such offer
accept it, the offeror may by notice, given within two months after the
expiration of the four months, require that dissenting shareholders may
transfer their shares under the terms of the offer. Dissenting shareholders
may apply to a court within one month of the notice objecting to the transfer,
and the court may give such order as it thinks fit. The Companies Act also
provides that the holders of not less than 95% of the shares of any class of
shares in a company may give notice to the remaining shareholder or class of
shareholders of the intention to acquire their shares on the terms set out in
the notice. Recipients of the notice have a right to apply to the Bermuda
courts for an appraisal.

AIIG. Generally, Section 203 of the DGCL prohibits a publicly-held Delaware
company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board of directors
and by

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the affirmative vote of at least 66 2/3% of the outstanding voting shares that
are not owned by the interested stockholder. An "interested stockholder" is a
person who, together with affiliates or associates, owns (or within three
years, did own) 15% or more of the company's voting stock.

Limitations on Director Liability

The Company. Under Bermuda law, a director must observe the statutory duty
of care which requires such director to act honestly and in good faith with a
view to the best interests of the company and exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. Bermuda law renders void any provision in the bye-laws or any
contract between a company and any such director exempting him from or
indemnifying him against any liability in respect of fraud or dishonesty of
which he or she may be guilty in relation to the company.

AIIG. Under Delaware law, a company may include in its certificate of
incorporation, a provision eliminating or limiting the liability of a director
to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that a company may not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) certain acts concerning unlawful payments of dividends or stock
purchases or redemptions under Section 174 of the DGCL, or (iv) for any
transactions from which a director derived an improper personal benefit. The
AIIG Certificate contains certain provisions limiting the liability of
directors to the extent permitted under the DGCL.

Indemnification of Directors and Officers

The Company. Under Bermuda law, a company is permitted to indemnify its
officers and directors, out of the funds of the company, against any liability
incurred by them in defending any proceedings, whether civil or criminal, in
which judgment is given in their favor, or in which they are acquitted, or
where, under relevant Bermuda legislation, relief from liability is granted to
them by the court. The Company's Bye-laws generally provide that the officers
and directors of the Company and their heirs shall be indemnified and held
harmless out of the assets and profits of the Company from and against all
actions, costs, charges, losses, damages and expenses which they or their
heirs may incur by reason of any act done or omitted in the execution of their
duty in their respective offices; provided, that the Company shall not be
obligated to extend such indemnity to any matter in respect of any fraud or
dishonesty which may attach to any of such persons. The Bye-Laws also contain
a waiver of action against the directors and officers by the shareholders
which does not extend to any matter in respect of any fraud or dishonesty
which may attach to any such director or officer.

AIIG. Under Delaware law, a company is permitted to indemnify its officers,
directors and certain others against any liability incurred in any civil,
criminal, administrative or investigative proceeding if such individual acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the company and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In addition, under Delaware law, to the extent that a director,
officer, employee or agent of a company has been successful on the merits or
otherwise in defense of any proceeding referred to above or in defense of any
claim, issue or matter therein, he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. The AIIG Certificate contains provisions requiring the
indemnification of officers and directors to the fullest extent permitted by
Delaware law.

Inspection of Books and Records; Shareholder Lists

The Company. Bermuda law provides the general public with a right of
inspection of a Bermuda company's public documents at the office of the
Registrar of Companies in Bermuda, and provides a Bermuda company's
shareholders with a right of inspection of such company's bye-laws, minutes of
general (shareholder) meetings, and audited financial statements. The register
of shareholders is also open to inspection by shareholders free of charge and,
upon payment of a small fee, by any other person. A Bermuda company is
required to maintain its

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share register in Bermuda. A Bermuda 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.

AIIG. Any stockholder of record, in person or by attorney or other agents,
upon written demand under oath stating the purpose thereof, has the right
during the company's usual hours for business to inspect, for any proper
purpose, the company's stock ledger, a list of its stockholders, and its other
books and records, and to make copies or extracts therefrom.

Preemptive Rights

The Company. Under Bermuda law, no shareholder has a preemptive right to
subscribe for additional issues of a company's shares unless, and to the
extent that, such right is expressly granted to such shareholder under the
bye-laws of a company or under any contract between such shareholder and the
company. The Company's Bye-Laws do not provide for preemptive rights and the
Company is not a party to any contract with any holder of Company Common
Shares providing such rights.

AIIG. Under Delaware law, no stockholder has a preemptive right to
subscribe to additional issues of a corporation's stock unless, and to the
extent that, such right is expressly granted to such stockholder in the
corporation's certificate of incorporation. The AIIG Certificate does not
provide for preemptive rights.

Dividends

The Company. Bermuda law does not permit payment of dividends or
distributions of contributed surplus by a company if there are reasonable
grounds for believing that the company, after the payment is made, would be
unable to pay its liabilities as they become due, or the realizable value of
the company's assets would be less, as a result of the payment, than the
aggregate of its liabilities and its issued share capital and share premium
accounts. The excess of the consideration paid on issue of shares over the
aggregate par value of such shares must (except in certain limited
circumstances) be credited to a share premium account. Share premium may be
distributed in certain limited circumstances, for example to pay up unissued
shares which may be distributed to shareholders in proportion to their
holdings, but is otherwise subject to limitation. AIC Limited, as a registered
insurer, must maintain a solvency margin of surplus assets over liabilities in
accordance with the Insurance Act 1978 of Bermuda which may limit dividend
payments from time to time.

AIIG. Delaware law generally allows dividends to be paid out of surplus of
the corporation or out of the net profit of the corporation for the current
fiscal year and/or the prior fiscal year. No dividends may be paid if they
would result in the capital of the corporation being less than the capital
represented by the preferred shares of the corporation.

Number And Qualifications of Directors; Size of Board

The Company. Under Bermuda law, the minimum number of directors on the
board of directors of a company is two, although the minimum number of
directors may be set higher and the maximum number of directors may also be
set in accordance with the bye-laws of such company. The exact number of
directors is usually fixed by the shareholders in general meeting. Only the
shareholders may increase or decrease the number of director seats last
approved by the shareholders. The Company's Bye-Laws provide that the number
of directors which constitute the Company Board of Directors shall not be less
than three (3) nor more than nine (9), and that the specific number of
directors constituting the Board shall be determined from time to time by the
shareholders in general meeting. The size of the Company Board is currently
fixed at five. Only the shareholders may change the size of the Company Board.

AIIG. Under Delaware law, the minimum number of directors is one. The
number of directors constituting the board of directors of a Delaware
corporation may be specified in the bylaws or the certificate of
incorporation.

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Accordingly, unless the certificate of incorporation provides otherwise, the
directors may change the number of directors constituting the board by
amending the bylaws. If the number of directors is specified in the
certificate of incorporation, then any change in the number of directors must
be made pursuant to a certificate of amendment approved by the stockholders.
The number of directors for AIIG is set in its Bylaws which provide that the
number of directors which constitute AIIG's Board shall be five (5).

Removal of Directors

The Company. Subject to its bye-laws, the shareholders of a Bermuda company
may, at a special general meeting called for the purpose, remove any director
or the entire board of directors provided that notice of the meeting shall be
served on the director or directors concerned not less than fourteen days
before such meeting. Any director subject to such notice shall be entitled to
be heard at the meeting. The Company's Bye-Laws provide that the removal of a
Director other than for cause requires the affirmative vote of seventy-five
percent (75%) of the voting power of all outstanding Company Common Shares.

AIIG. The DGCL provides that unless a corporation's certificate of
incorporation provides otherwise, in the case of a corporation whose board is
classified, the holders of a majority of the shares entitled to vote in an
election of directors may remove any director or the entire board of directors
only for cause. The AIIG Bylaws provide that any director or the entire board
of directors may be removed at any time by the affirmative vote of the holders
of at least a majority of the voting power of all of the shares of capital
stock of the Company then entitled to vote at an election of directors, except
as provided by law or the Certificate of Incorporation.

Rights of Dissenting Stockholders

In connection with the Transaction, stockholders of AIIG will not have
rights of dissent and appraisal with respect to their shares of AIIG Common
Stock under the Delaware General Corporation Law.

Restrictions on Resales of Company Common Shares by AIIG Stockholders

All Company Common Shares received by AIIG stockholders will be tradable,
subject to the restrictions contained in the Charter Documents (including
restrictions relating to required approval of the Company's Board of Directors
and the Bermuda CFE), except that Company Common Shares received by persons
who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of AIIG prior to the Exchange may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of the Company) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of AIIG generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and would ordinarily include directors, executive
officers and principal stockholders of such party.

Accounting Treatment of the Exchange

The transfer of the assets and liabilities of AIIG to the Company pursuant
to the Exchange will be accounted for at historic cost, as the Transaction
will not result in a change in control of voting interest.

EXCHANGE AGREEMENT

General

AIIG and the Company have entered into the Exchange Agreement which
provides that AIIG will transfer all of its assets and liabilities to the
Company solely in exchange for newly-issued shares of common shares of the
Company. Upon consummation of the Exchange, and until the Dissolution (which
will occur on the same day as consummation of the Exchange) is effected, the
Company will remain a wholly-owned subsidiary of AIIG.

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Effective Time of Exchange

The Exchange shall become effective reasonably promptly on the date
determined by AIIG (the "Effective Time") after (a) approval of the Exchange
Agreement by the stockholders of AIIG, (b) the issuance of Company Common
Shares to AIIG shall have been listed in the Register of Members in accordance
with the Company's Bye-Laws, and (c) the satisfaction or waiver of the other
conditions set forth below. See "--Conditions to the Consummation of the
Exchange." It is anticipated that the Effective Time will occur promptly after
the Special Meeting of AIIG stockholders, scheduled to be held on February 26,
1999.

Conditions to the Consummation of the Exchange

Conditions to Obligation of AIIG

The obligation of AIIG to effect the Exchange is subject to the
satisfaction of certain conditions at or prior to the Effective Time,
including: (a) each of the representations and warranties of the Company
contained in the Exchange Agreement shall be true in all material respects as
of the date of the Effective Time with the same force and effect as though
made at the Effective Time, and the Company shall have performed or complied
in all material respects with its agreements and covenants required by the
Exchange Agreement; (b) the Exchange Agreement shall have been approved and
adopted by the stockholders of AIIG in accordance with the laws of the State
of Delaware; (c) there shall not be any suit, action, or other proceeding
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with the Exchange Agreement or which might materially and adversely
affect the value of the assets and business of the Company; (d) there shall
not have occurred any material adverse change in the business or financial
position or value of the assets of the Company; (e) an opinion of Conyers,
Dill & Pearman as to certain tax and legal matters shall have been received;
(f) the Registration Statement, of which this Prospectus/Proxy Statement is a
part, shall have become effective; and (g) certain regulatory authorizations
shall have been received.

Conditions to Obligation of the Company

The obligation of the Company to effect the Exchange is subject to the
satisfaction of certain conditions at or prior to the Effective Time,
including: (a) each of the representations and warranties of AIIG contained in
the Exchange Agreement shall be true and correct in all material respects as
of the date of the Effective Time with the same force and effect as though
made at the Effective Time, and AIIG shall have performed or complied in all
material respects with its agreements and covenants required by the Exchange
Agreement; (b) the Exchange Agreement shall have been approved and adopted by
the stockholders of AIIG in accordance with the laws of the State of Delaware;
(c) there shall not be any suit, action, or other proceeding pending or
threatened before any court or governmental agency in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
the Exchange Agreement or which might materially and adversely affect the
value of the assets and business of AIIG; (d) there shall not have occurred
any material adverse change in the business or financial position or value of
assets of AIIG; (e) an opinion of Altheimer & Gray as to certain tax and legal
matters shall have been received; (f) the Registration Statement, of which
this Prospectus/Proxy Statement is a part, shall have become effective; and
(g) certain regulatory authorizations shall have been received.

The Exchange Agreement also provides that subject to certain limitations,
any term or provision of the Exchange Agreement may be waived in whole or in
part by the party which is entitled to the benefits thereof.

Termination

The Exchange Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual consent of AIIG and the Company; or (b) by either AIIG or
the Company if (i) the Exchange shall not have been consummated by December
31, 1999, or (ii) any statute, rule or regulation shall have been enacted or
promulgated by any government or governmental agency which makes the
consummation of the Exchange illegal or impractical.

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THE DISSOLUTION

General

AIIG and the Company anticipate that immediately following the Effective
Time on the same date, AIIG will be dissolved, and the holders of shares of
AIIG Common Stock will receive, on a share-for-share basis, Company Common
Shares. Upon consummation of the Dissolution, AIIG will cease to exist as a
separate entity.

Effective Time of Dissolution

The Dissolution shall become effective upon (a) approval of the Dissolution
by the stockholders of AIIG, (b) the transfer of Company Common Shares to the
holders of shares of AIIG Common Stock shall have been listed in the Register
of Members in accordance with the Company's Bye-Laws, and (c) the filing of a
Certificate of Dissolution with the Secretary of State of the State of
Delaware. It is anticipated that the Dissolution will become effective
promptly after and on the same date as the Effective Time.

Third Party Consents

No consent, approval or authorization of or filing with any governmental
authority or other person or entity is required in connection with the
consummation of the Dissolution, other than those listed above with respect to
the Exchange. See "Exchange Agreement--Third Party Consents."

Exchange of Share Certificates

Harris Trust and Savings Bank will act as exchange agent (the "Exchange
Agent") for the Transaction. Promptly after the Effective Time, the Exchange
Agent will send transmittal forms and instructions to AIIG stockholders to be
used in forwarding certificates evidencing their shares of AIIG Common Stock
for surrender and exchange for certificates representing the same number of
Company Common Shares. Such instructions will include procedures concerning
lost certificates. AIIG stockholders are requested not to surrender their
certificates until such transmittal forms and instructions are received. Until
so surrendered, the certificates representing shares of AIIG Common Stock will
be deemed to represent Company Common Shares.

VOTING AND PROXY INFORMATION

Special Meeting

The Special Meeting of the AIIG stockholders will be held at 10:00 a.m.,
Chicago, Illinois local time on February 26, 1999, at 10 South Wacker Drive,
Suite 4000, Chicago, Illinois to consider and vote on the proposal to approve
the Exchange Agreement and the Dissolution and any other matters that may
properly come before such meeting. The presence, in person or by proxy, of the
stockholders holding a majority of the outstanding AIIG Common Stock will
constitute a quorum.

The vote of any AIIG stockholder who is represented at the Special Meeting
by proxy will be cast as specified in the proxy or, if no vote is specified in
a duly executed and delivered proxy, such vote will be cast FOR the proposal.
Any AIIG stockholder of record who is present at the Special Meeting in person
will be entitled to vote at the meeting regardless of whether he has
previously granted a proxy with respect thereto.

The Board of Directors of AIIG has unanimously approved the proposed
Transaction and recommends that stockholders vote FOR the approval of the
Exchange Agreement and the Dissolution.

Record Date

Only AIIG stockholders of record at the close of business on January 22,
1999, as shown on AIIG's records, will be entitled to vote, or to grant
proxies to vote, at the Special Meeting.

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Vote Required for Approval

Approval of the Exchange Agreement requires the favorable vote of the
stockholders of AIIG who hold at least a majority of the outstanding AIIG
Common Stock. Abstentions and broker "non-votes" will in effect be treated as
a vote against the approval of the Exchange Agreement. As of the record date
described above, there were 332,331 shares of AIIG Common Stock outstanding
and entitled to vote. As of the record date, the directors and executive
officers of AIIG and affiliates of such persons directly owned, in the
aggregate, 1,533 shares (less than 1%) of the total number of shares of AIIG
Common Stock outstanding.

Proxies

General

Each AIIG stockholder as of the record date will receive a Proxy. A
stockholder of AIIG may grant a proxy to vote for or against, or to abstain
from voting on, the proposal to approve the Exchange Agreement by marking
his/her Proxy appropriately, executing it in the space provided, and, for
holders of AIIG Common Stock appearing on the stock records of AIIG, returning
it to the Proxy Solicitor in the enclosed postage-prepaid envelope or by
telecopy at (212) 754-8300. AIIG stockholders who hold their AIIG Common Stock
in the name of a bank, broker or other nominee should follow the instructions
provided by their bank, broker or nominee on voting their shares. The Proxy
Solicitor for AIIG Common Stock in connection with the Special Meeting is
Morrow & Co.

To be effective, a Proxy must be received before or during the Special
Meeting. Any properly executed proxy will be voted in accordance with the
specification indicated on such Proxy. A properly executed and returned Proxy
in which no specification is made will be voted FOR the proposal to approve
the Exchange Agreement and the Dissolution.

If any other matters are properly presented at the Special Meeting for
consideration including consideration of a motion to adjourn the meeting to
another time and/or place (including adjournment for the purpose of soliciting
additional proxies), the persons named in the Proxy and acting thereunder will
have discretion to vote on such matters in accordance with their best
judgment.

Revocation

In the case of holders of AIIG Common Stock appearing on the stock records
of AIIG, a Proxy may be revoked at any time prior to its exercise by (a)
giving written notice of such revocation to the Proxy Solicitor, (b) appearing
and voting in person at the Special Meeting, or (c) properly completing and
executing a later-dated proxy and delivering it to the Proxy Solicitor at or
before the Special Meeting. Presence without voting at the Special Meeting
will not automatically revoke a proxy, and any revocation during the meeting
will not affect votes previously taken. AIIG stockholders who hold their AIIG
Common Stock in the name of a bank, broker or other nominee should follow the
instructions provided by their bank, broker or nominee in revoking any proxies
previously granted with respect to shares.

Validity

All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of Proxy Cards will be determined by the AIIG Board
of Directors. Any such determination will be final and binding. The AIIG Board
of Directors will have the right to waive any irregularities or conditions as
to the manner of voting. AIIG may accept proxies by any reasonable form of
communication so long as the proxy holder's intention is reasonably clear and
it can be reasonably assured that the communication is authorized by the AIIG
stockholder.

Solicitation of Proxies

Proxies are being solicited from the AIIG stockholders by the AIIG Board of
Directors. Directors and officers of AIIG may solicit proxies to vote for the
approval of the Exchange Agreement by use of the mails, in

26
<PAGE>

person, or by telephone, telegram or other means. Such directors and officers
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation. In
addition, AIIG has retained Morrow & Co., Inc. ("Morrow") for solicitation and
advisory services in connection with the solicitation. Morrow will receive a
fee of $12,000 plus reimbursement of reasonable out-of-pocket expenses. AIIG
has also agreed to indemnify Morrow against certain liabilities and expenses
resulting from its performance of solicitation services.

Proposals of Stockholders

A holder of Company Common Shares who intends to present a proposal at the
1999 Annual Meeting of Stockholders for inclusion in the Company's 1999 proxy
statement and proxy card relating to such meeting must have submitted such
proposal by December 11, 1998.

27
<PAGE>

SELECTED FINANCIAL INFORMATION

The following summary sets forth selected financial data with respect to
AIIG for the five fiscal years ended December 31, 1997 and for the nine months
ended September 30, 1998 and 1997.

The balance sheet and income statement data for the years ended December
31, 1993, 1994, 1995, 1996 and 1997 have been derived from AIIG's audited
consolidated financial statements. The selected consolidated information as of
and for the nine-month periods ended September 30, 1998 and 1997 is derived
from the unaudited consolidated financial statements of AIIG included herein.
In the opinion of management, the unaudited consolidated financial information
included herein has been prepared on the same basis as the audited financial
information included herein and includes all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the
financial position and results of operations as of and for the nine-month
periods ended September 30, 1998 and 1997. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998.

The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements of AIIG and notes thereto
included in this Proxy Statement/Prospectus.

SELECTED FINANCIAL STATEMENT DATA

<TABLE>
<CAPTION>
As of and for the
Nine Months Ended
September 30, As of and for the Year Ended December 31,
------------------------ -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Premiums Earned......... $ 4,497,820 $ 3,407,213 $ 5,852,286 $ 5,386,388 $ 5,494,413 $ 6,276,395 $ 6,437,120
Net Investment Income... 1,627,661 1,793,221 2,572,539 2,394,477 2,195,451 2,156,374 2,493,421
Total Revenue........... $ 6,460,315 $ 5,380,937 $ 8,424,825 $ 7,780,765 $ 7,689,864 $ 8,432,769 $ 8,930,541
=========== =========== =========== =========== =========== =========== ===========
Net Income.............. $ (351,736) $ 112,829 $ 1,331,171 $ 2,086,778 $ 3,096,985 $ 3,801,325 $ 1,458,486
=========== =========== =========== =========== =========== =========== ===========
Net Income Per Share.... $ (1.06) $ .34 $ 3.99 $ 6.24 $ 9.24 $ 11.26 $ 4.31
=========== =========== =========== =========== =========== =========== ===========
Cash dividends declared
per common share....... $ 1.95 $ 1.95 $ 2.60 $ 2.60 $ 1.30 $ -- $ --
=========== =========== =========== =========== =========== =========== ===========
Balance Sheet Data:
Investments............. $41,794,068 $41,893,845 $41,683,579 $39,636,771 $36,865,013 $15,642,358 $15,521,231
Funds Held by
Reinsurers............. -- -- -- -- 25,041,311 25,480,127
----------- -----------
Other Assets............ $ 6,384,344 $ 5,797,091 5,747,550 5,820,502 9,804,663 8,570,677 6,304,630
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets............ $48,178,412 $47,690,936 $47,431,129 $45,457,273 $46,669,676 $49,254,346 $47,305,988
=========== =========== =========== =========== =========== =========== ===========
Losses and Loss
Adjustment Expenses.... $23,666,481 $21,961,232 $20,802,873 $20,299,937 $21,789,036 $25,335,230 $27,047,417
Unearned Premium
Reserves............... 2,536,423 2,606,422 2,809,115 2,144,027 2,095,462 2,053,900 2,730,117
Other Liabilities....... 2,464,524 2,879,994 2,700,777 2,921,784 3,725,385 7,368,133 5,344,818
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities....... 28,667,428 27,447,648 26,312,765 25,365,748 27,609,883 34,757,263 35,122,352
Stockholders' Equity.... 19,510,984 20,243,288 21,118,364 20,091,525 19,059,793 14,497,083 12,183,636
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity... $48,178,412 $47,690,936 $47,431,129 $45,457,273 $46,669,676 $49,254,346 $47,305,988
=========== =========== =========== =========== =========== =========== ===========
</TABLE>

28
<PAGE>

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

Results of Operation

Nine months ended September 30, 1998 compared to nine months ended September
30, 1997:

A net loss of $351,736 was recorded for the nine months ended September 30,
1998, compared to net income of $112,829 in the same period of 1997. The
decrease is primarily attributable to the increase in earned premiums and
associated increase in losses incurred, as more fully described below.

Sales of investment securities during the nine months ended September 30,
1998 resulted in realized capital gains of $334,834 as compared to gains of
$180,503 in the same period in 1997. Net investment income for the nine months
ended September 30, 1998 amounted to $1,627,661 compared to $1,793,221 for the
same period of 1997. Investment yield for the nine month period ended
September 30, 1998, consisting of interest and dividend income, was
approximately 5.0% compared to 5.7% for the same period of 1997. The decrease
in investment yield from the 1997 period is attributable to an increase in
holdings of tax free municipal securities and an increase in equity securities
which generate less realized investment income.

Earned premiums for the nine month period ended September 30, 1998 amounted
to $4,497,820 as compared to $3,407,213 for the same period of 1997. The
change of $1,090,607 represents a 32% increase. The increase in earned
premiums resulted from an increase in the number of insureds along with
changes in the rating structure. The effects of these changes began to impact
premium levels in the fourth quarter of 1997 and have continued throughout
1998.

The loss ratio for the first nine months of 1998 and 1997 was 119%. Prior
to July 1, 1998, the loss ratio had been established at 120%. Effective July
1, 1998, the loss ratio has been reduced to 100%. The majority of premiums
earned for the nine month period ended September 30, 1998 relate to the July
1, 1997-98 treaty period and as a result the loss ratio remains close to 120%.
These loss ratios represent management's current estimated effective loss
ratio selected in consultation with AIIG's independent consulting actuary to
apply to current premiums assumed and earned. Losses incurred through
September 30, 1998 do not reflect any development of prior year reserves.
AIIG's overall loss ratio for the year ended December 31, 1997 was 81%.
However, as mentioned above, excluding the effects of favorable development,
the loss ratio for the period July 1, 1997-98 was established at 120%.
Management expects to make its determination whether an adjustment to reserves
for prior years is appropriate in connection with the preparation of the
financial statements as of and for the year ended December 31, 1998.

These fluctuations in premiums, losses and expenses combined to result in a
net underwriting loss of $2,751,659 for the nine month period ended September
30, 1998 as compared to a loss of $2,153,274 for the same period of 1997.
Underwriting losses during the period exceeded 1997 primarily due to the
increase in earned premiums and associated increase in losses incurred (120%
loss ratio for the July 1, 1997-98 period).

1997 Compared to 1996; 1996 Compared to 1995

Net income decreased by 36% in 1997 to $1,331,171 from $2,086,778 in 1996.
Net income for 1996 decreased by 33% from $3,096,985 reported in 1995.

Premiums earned increased by 9% in 1997 to $5,852,286 from $5,386,388 in
1996. Premiums earned for 1996 decreased by 2% from $5,494,413 reported in
1995. In 1997, 1996, and 1995 premiums earned includes $720,298, $693,976 and
$611,916, respectively resulting from reductions in the ultimate estimated
premium ceded pursuant to retrocession agreements in effect during 1989
through mid-1993. Ultimate premiums are dependent on loss experience under the
agreements and are recalculated as ultimate losses are reevaluated. Excluding
the effect of the reduction of estimated ultimate premiums ceded, 1997
premiums earned increased by 9% as compared to 1996 premiums earned, and 1995
premiums earned decreased by 4% from 1994. The increase in earned premiums in
1997 resulted from an increase in the number of insureds, attracted through a
"step plan"

29
<PAGE>

in which new insureds are offered premium discounts for favorable loss
history. The step plan was initiated during 1995, but has only recently had
significant impact. The ultimate estimated premium ceded pursuant to
retrocession agreements for 1997 and 1996 are as follows:

The reduction in earned premiums in 1996, excluding the effect of the
reduction of estimated ultimate premiums ceded, primarily reflects the
increased competition in the accountants professional liability market which
has created downward pressure on premiums.

Net investment income, including realized capital gains and losses,
includes amounts earned on AIIG's investment portfolio, cash on deposit and
funds held pursuant to reinsurance agreements. During 1995, the investments
comprising funds held were released to AIIG and were then placed by AIIG into
a trust account for the benefit of Virginia Surety Company. Net investment
income increased by $178,162 or 7% in 1997 to $2,572,539 from $2,394,377 in
1996. 1996 net investment income increased by $198,926 or 9% from the
$2,195,451 reported in 1995. Net investment income in 1997 includes net
realized capital gains of $305,252 as compared to net realized capital gains
in 1996 of $1,765, a net change of $303,487. Net realized capital losses in
1995 were $312,657. Capital losses are used to offset capital gains of prior
and future years and recover related income taxes. Average invested assets
including cash equivalents increased by $1,297,437, or 3%, to $41,374,745 in
1997, compared to $40,077,308 in 1996. In 1996 average invested assets
decreased by 2% from $40,842,132 in 1995. Investment yield including realized
capital gains and losses in 1997 was 6.2% as compared to 6.0% in 1996 and 5.4%
in 1995. Excluding realized gains and losses, the yield was 5.50% in 1997,
6.0% in 1996 and 6.1% in 1995. The changes in the yields excluding realized
gains and losses reflect the relatively stable interest rates during the last
three years, coupled with the effects of an increase in the portion of
invested assets in equity and tax exempt securities.

Unrealized gain on investments net of tax is $1,016,956 at December 31,
1997 as compared to $424,621 at December 31, 1996. AIIG considers all of its
investment portfolio to be available for sale and accordingly all investments
are reported at market value, with changes in net unrealized gains and losses
reflected as an adjustment to stockholders' equity. The increase in net
unrealized gain as of December 31, 1997 as compared to 1996 is primarily
attributable to the increase in the proportion of invested assets in equity
securities which experienced significant market value increases during 1997.

The composition of the investment portfolio at December 31, 1997 and 1996
is as follows:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government
agencies.................................................... 11% 19%
Mortgage backed securities................................... 38 51
Obligations of State and political subdivisions.............. 33 24
Equity securities............................................ 18 6
--- ---
100% 100%
=== ===
</TABLE>

AIIG continues to invest in high grade debt and equity securities.

Losses and loss adjustment expenses incurred increased by 75% to $4,748,833
in 1997 from $2,717,884 in 1996. In 1996 losses and loss adjustment expense
increased by 83% from $1,489,667 in 1995. The increases in

30
<PAGE>

losses and loss adjustment expense are a function of the loss ratio for the
current underwriting year and favorable developments of prior years'
estimates. Favorable development of prior years' estimates of losses and loss
adjustment expense were approximately $1,411,000 in 1997, $2,917,000 in 1996
and $3,307,000 in 1995. In 1997, the loss ratio was increased to 120% from
105% in 1996, and in 1996, the loss ratio was increased to 105% from 87% in
1995. The foregoing developments and loss ratio increases resulted in the
increases in losses and loss adjustment expenses described above. As
adjustments to prior estimates of losses and loss adjustment expenses become
known, such adjustments are included in current operations. AIIG's loss ratio,
calculated as the ratio of losses and loss adjustment expense to premiums
earned, is 81% in 1997, 50% in 1996 and 27% in 1995. The ratio calculated
using only losses and loss adjustment expenses incurred for the current year
(excluding the effects of favorable development and excluding reductions to
retrocession premiums) is 120% in 1997, 105% in 1996, 87% in 1995.

Policy acquisition costs of $1,462,733 were expensed in 1997 as compared to
$1,302,327 in 1996, an increase of 12%. Policy acquisition costs expensed in
1996 reflect an increase of 20% from $1,084,577 in 1995. Such costs as a
percentage of premiums earned are 25% in 1997, 24% in 1996 and 20% in 1995,
and result primarily from ceding commissions paid to ceding companies
determined contractually pursuant to reinsurance agreements.

Operating and management expenses decreased by 15% in 1997 to $619,684 from
$727,780 in 1996. In 1996 operating and management expenses decreased by 7%
from $786,037 in 1995.

The effective tax rate was 16% in 1997, 31% in 1996 and 28% in 1995. These
rates differ from the statutory Federal rate primarily due to the effects of
tax exempt income offset by State income taxes. Gross tax exempt investment
income increased by 110% in 1997 to $527,600 from $250,913 in 1996. Gross 1996
tax exempt investment income increased by 10% from $227,407 in 1995.

AIIG and AIC do not have any employees. All operations of AIIG are
performed by service providers and business partners, including a management
company, under the direction of AIIG's Board of Directors.

Liquidity and Capital Resources

AIIG's cash needs consist of settlement of losses and expenses under its
reinsurance treaties and funding day-to-day operations. Management expects to
be able to meet these cash needs from cash flows arising from its investment
portfolio. Because substantially all of AIIG's assets are marketable
securities, AIIG has sufficient flexibility to provide for unbudgeted cash
needs which may arise without resorting to borrowing.

As of September 30, 1998, total invested assets amounted to $41,794,068, an
increase of $110,489 or .3% from $41,683,579 at December 31, 1997. Cash
balances decreased from $1,081,736 at December 31, 1997 to $1,068,940 at
September 30, 1998, a decrease of 1.2%. The balance of cash and cash
equivalents varies depending on the maturities of fixed term investments and
on the level of funds invested in money market mutual funds. The ratio of cash
and invested assets to total liabilities and stockholders' equity at September
30, 1998 was .89 to 1, compared to a ratio of .90 to 1 at December 31, 1997.

Assumed reinsurance premiums receivable represents current assumed premiums
receivable less commissions payable to the fronting carriers. This balance
decreased from $1,146,379 at December 31, 1997 to $1,112,977 at September 30,
1998, a decrease of 2.9%. This balance fluctuates primarily due to the timing
of renewal premium written.

AIIG saw an important increase in premiums written in 1997. Gross premium
written increased by $1,056,098 in 1997, or 22.3%. This increase is also
reflected in a corresponding increase in assumed premium receivable (23%) and
unearned premium (31%). The increase in premiums has also resulted in a direct
increase in policy acquisition costs, fixed commission paid to CNA as part of
its quota share agreement, and loss reserves. Loss reserves are set at 120% of
premiums per the recommendation of the Company's independent actuary.

31
<PAGE>

Premiums earned also increased by 8%, which is by a lower percentage, as a
large portion of the increase in premiums written occurred in the latter part
of the year, as reflected by the increase in unearned premium (31%).

Reinsurance recoveries represent AIIG's estimate of losses to be reimbursed
by its reinsurer from future loss payments. AIIG has entered into a
retrocession agreement with Virginia Surety Company (VSC), its reinsurer, for
the years 1989-1993, where all losses in excess of $250,000 were ceded. AIIG
records its reinsurance recoveries based on the reports prepared by its
independent actuary. The actuary suggested a significant decrease in its
analysis as of December 31, 1997 as reflected in the decrease in reinsurance
recoveries receivable (51%).

Reinsurance balances payable represent AIIG's estimate of the premiums due
to the company's reinsurer, VSC, as calculated based on ultimate loss reserves
per the retrocession agreement. Ultimate loss reserves were adjusted downward
by the actuary in 1997, which resulted in a decrease in reinsurance balances
payable.

Prepaid expenses and other assets increased by 107% in 1997. This is due to
the fact that the Company incurred expenses in researching, studying and
preparing for its possible redomestication to Bermuda. The expenses totaling
$95,798 were capitalized and have been included in other assets.

Deferred policy acquisition costs, representing the deferral of ceding
commissions expense related to premiums not yet earned, increased from
December 31, 1997 along with the increase in unearned premiums. The current
ceding commission rate, which became effective August 1, 1995, is 28.5%.

The Registrant paid its fourteenth consecutive quarterly dividend of $0.65
per share during the fourth quarter of 1998.

During 1997 and 1996, the Board of Directors declared quarterly dividends
of $0.65 per share totaling $867,735 and $869,661 during 1997 and 1996,
respectively. During 1995, the Board of Directors declared two quarterly
dividends of $0.65 per share totaling $435,412. Continuation of quarterly
dividend payments is subject to the Board of Directors' continuing evaluation
of AIIG's level of surplus vis a vis its capacity to accept business. It is an
objective of AIIG to build surplus in anticipation of the next "hard market",
that is to say, the next period in which accountants' professional liability
insurance becomes difficult or impossible to obtain at affordable prices and
to retain flexibility for any future business expansions. Due to regulatory
restrictions on the payment of dividends, $18,200,893 of AIIG's separately
determined GAAP basis stockholders' equity of $19,940,953 is unavailable for
distribution as dividends in 1998 without prior regulatory approval.

Property/Casualty Losses and Loss Adjustment Expenses

The consolidated financial statements include the established liability for
unpaid losses and loss adjustment expenses (LAE) of AIIG's property/casualty
(P/C) insurance operations. The liabilities for losses and loss adjustment
expenses are determined utilizing both case-basis evaluations and statistical
projections, and represent estimates of the ultimate net cost of all unpaid
losses and LAE incurred through December 31 of each year. These estimates are
subject to the effect of trends in future claim severity and frequency. The
estimates are continually reviewed, and as experience develops and new
information becomes known, the liability is adjusted as appropriate. Such
adjustments are reflected in current operations.

The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. Future average severities are
projected based on historical trends adjusted for anticipated changes in
underwriting standards, policy provisions and general economic trends. These
anticipated trends are monitored based on actual development and are modified
if necessary.

32
<PAGE>

The following table shows the development of the estimated liability for
the previous nine years of AIIG's P/C operations:

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(Thousands of Dollars)

Amounts prior to 1993 restated to conform with SFAS 113

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Liability for Loss
and LAE Reserves....... $1,895 $8,085 $15,182 $20,260 $25,287 $27,047 $25,335 $21,789 $20,300 $20,803
Reinsurance Recoverable
for Unpaid Loss and LAE
Reserves............... -- -- 502 761 969 4,764 4,071 3,160 2,020 1,040
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Net Liability for Unpaid
Losses and LAE
reserves............... $1,895 $8,085 $14,680 $19,499 $24,318 $22,283 $21,264 $18,629 $18,280 $19,763
====== ====== ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Losses Reestimated as
of:
One Year Later......... $1,897 $8,705 $14,779 $19,963 $23,004 $18,099 $17,957 $15,709 $16,869
Two Years Later........ 1,897 8,145 12,667 15,264 20,133 15,064 15,042 14,299
Three Years Later...... 1,780 6,796 9,862 13,101 17,782 12,196 13,635
Four Years Later....... 1,405 5,199 8,696 11,725 15,520 10,811
Five Years Later....... 1,065 4,782 7,753 10,158 14,825
Six Years Later........ 995 4,536 6,879 10,081
Seven Years Later...... 936 4,031 6,761
Eight Years Later...... 819 4,016
Nine Years Later....... 819
Cumulative Redundancy
(Deficiency)........... 1,076 4,069 7,919 9,418 9,493 12,196 7,629 4,330 1,411
Cumulative Amount Paid
Through:
One Year Later......... 73 415 2,548 4,158 6,100 1,555 4,007 2,885 3,036
Two Years Later........ 208 1,710 3,653 5,464 7,860 5,128 6,469 4,791
Three Years Later...... 595 2,349 4,147 6,255 10,370 6,765 7,721
Four Years Later....... 617 2,716 4,380 7,744 11,436 7,666
Five Years Later....... 676 2,927 5,422 8,303 11,878
Six Years Later........ 659 3,317 5,540 8,501
Seven Years Later...... 668 3,380 5,764
Eight Years Later...... 670 3,467
Nine Years Later....... 674
</TABLE>

The above table presents the development of balance sheet liabilities for
1988 through 1997 as of year end 1997. The top line of the table shows the
original recorded unpaid liability for losses and LAE recorded at the balance
sheet date for each of the indicated years.

This liability represents the estimated amount of losses and LAE for claims
arising in all prior years, both paid and unpaid at the balance sheet date,
including losses that had been incurred, but not yet reported to AIIG. The
upper portion of the table shows the experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims.

The "cumulative redundancy (deficiency)" represents the aggregate change in
the estimates over all prior years. For example, the 1994 liability has
developed a $7,629,000 redundancy which has been reflected in income in
subsequent years as the reserves were reestimated.

33
<PAGE>

The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. For example, the 1995 year end liability was originally $21,264,000. As
of December 31, 1997, AIIG had paid $7,721,000 of the currently estimated
$13,635,000 of losses and LAE that had been incurred for 1994 and prior years
through the end of 1997; thus an estimated $5,914,000 in losses incurred
through 1994 remain unpaid as of the current financial statement date.

In evaluating this information, it should be understood that each amount
includes the effects of all changes in amounts for prior periods. This table
does not present accident or policy year development data, which readers may
be more accustomed to analyzing. Conditions and trends that have affected
development of liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies based on this table.

Year 2000 Readiness

AIIG is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
Systems that do not properly recognize such information could generate
erroneous data or fail.

AIIG's operations are conducted through its management company, Vermont
Insurance Management, Inc. ("VIM"). VIM has informed AIIG that it is using
both internal and external resources to identify, correct and test its
financial, information and operational systems for Year 2000 compliance. VIM
is assessing its internal systems for Year 2000 compliance and has made
inquiries of third parties with whom AIIG has material relationships to assess
the potential impact on AIIG's operations if key third parties are not
successful in converting their systems in a timely manner. VIM has completed
its assessment of its hardware systems and is still in the process of
reviewing its software systems, and anticipates that its review of its
internal systems will be complete by March 31, 1999. VIM anticipates that any
necessary remediation will be completed by June 1999 and that any necessary
testing will be completed by September 30, 1999. Based on its review efforts
to date, VIM does not anticipate any material disruption to AIIG's business
from its internal systems. The costs of remediation to its systems will be
borne by VIM or its affiliates.

VIM has not yet received responses to all of its third party inquiries, but
AIIG believes that the primary concern regarding the Year 2000 problem is with
its primary insurance carrier, CNA. The majority of insurance transactions
affecting AIIG are originated by CNA operating systems, with quarterly
reporting to AIIG. Representatives of CNA have informed AIIG that CNA has been
Year 2000 compliant since December 1, 1998. If CNA is unable to become Year
2000 compliant, AIIG believes that the impact on its business is likely to be
material. Presently, AIIG's only business is that of reinsurance, so that it
anticipates that Year 2000 noncompliance by third parties will be disruptive
primarily from a reporting and informational standpoint.

AIIG's expectations about the impact of the Year 2000 problem on its
business are subject to a number of uncertainties that could cause actual
results to differ materially. Such factors include the following: (i) AIIG's
service providers may not be successful in properly identifying all systems
and programs that contain two-digit year codes; (ii) the nature and number of
systems which require reprogramming, upgrading or replacement may exceed the
service providers' expectations in terms of complexity and scope; (iii) AIIG's
service providers may not be able to complete all remediation and testing
necessary in a timely manner; (iv) AIIG has no control over the ability of
third parties to achieve Year 2000 compliance; and (v) the impact of the Year
2000 problem on CNA may be of such magnitude that it may adversely affect
AIIG's business or eliminate its sole source of insurance business.

34
<PAGE>

NAIC Codification of Statutory Accounting Practices

See Note F to the Consolidated Financial Statements regarding an
anticipated codification of statutory accounting practices by the National
Association of Insurance Commissioners.

SECURITY OWNERSHIP

The Company is a recently organized Bermuda company formed by AIIG to
facilitate the change of domicile of AIIG from Delaware to Bermuda. 12,000
Company Common Shares are currently outstanding, all of which are owned by
AIIG. In the Exchange, AIIG will transfer its assets and liabilities to the
Company in return for Company Common Shares so that at the Effective Time of
the Exchange, the number of Company Common Shares outstanding is the same as
the number of shares of AIIG Common Stock outstanding. Upon the Dissolution,
each share of AIIG Common Stock outstanding immediately prior to the
consummation of the Dissolution will be automatically deemed exchanged for a
Company Common Share. Accordingly, upon consummation of the Transaction, the
share ownership of the Company will be identical to the share ownership of
AIIG immediately prior to the Transaction. The following table sets forth as
of December 31, 1998, the beneficial ownership of AIIG Common Stock of each of
the directors, nominees for directors and officers and all officers and
directors of AIIG as a group. No person known to the Company as of December
31, 1998 is the "beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of more than 5% of the Company's Common
Stock. Unless otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Except as otherwise noted, all information in the table and the
accompanying footnotes is given as of December 31, 1998, and has been supplied
by each of the persons included in the table.

<TABLE>
<CAPTION>
Number of Shares of Common
Name of Director Stock Beneficially Owned
---------------- --------------------------
<S> <C>
Norman C. Batchelder, CPA..................... 22
Bruce W. Breitweiser, CPA (1)................. 294
Ronald S. Katch, CPA (2)...................... 400
Jerome A. Harris, CPA (3)..................... 817
David N. Thompson, CPA........................ 0
All Directors and Officers as a Group (5
Persons)..................................... 1,533
</TABLE>
- --------
(1) Shares are held by IAA Trust Co. as trustee of the 401(k) Savings Plan of
Dunbar, Breitweiser & Company for the benefit of Bruce W. Breitweiser.
(2) Katch, Tyson & Company, CPAs, of which Mr. Katch is a partner, is the
record and beneficial owner of the shares shown and has sole voting and
investment power with respect to such shares.
(3) Checkers, Simon & Rosner, LLP, of which Mr. Harris is a partner, is the
record and beneficial owner of the shares shown and has sole voting and
investment power with respect to such shares.

BUSINESS OF AIIG

General

AIIG was incorporated under the laws of Delaware on September 9, 1987.
AIIG's principal offices are located at P.O. Box 1330, Montpelier, Vermont
05601 (RR No. 3, Airport Road, Berlin, Vermont 05602).

The primary purpose for the formation and operation of AIIG and its wholly
owned subsidiary, AIC, was to establish, for the benefit of accounting firms
which are stockholders of AIIG, an insurance company which over time can exert
a stabilizing influence, primarily through the reinsurance capacity of AIC, on
the design, pricing and availability of accountants' professional liability
insurance. AIC's sole current business activity is to act as a reinsurer of
professional liability insurance policies which are issued under the AICPA
Plan. The AICPA Plan

35
<PAGE>

offers professional liability coverage to accounting firms in all 50 States.
Currently, approximately 17,000 accounting firms are insured under the Plan.
In the future, AIC or the Company may want to expand the business conducted
currently by AIC, subject to obtaining any required regulatory approvals, to
include the reinsurance of other lines of coverage.

The reinsurance activity of AIC depends upon agreements entered into with
outside parties. From the inception of AIC through mid-1993, Crum and Forster
Managers Corporation, through its affiliates (collectively "CFMC"), was the
primary insurer for the AICPA Plan, and Virginia Surety Company, Inc. ("VSC"),
was a reinsurer for the AICPA Plan. AIC was a reinsurer of VSC for the years
1989-1993. In 1988, AIC reinsured CFMC directly. In August 1993, the AICPA
Plan endorsed the CNA insurance group as its insurance carrier, replacing CFMC
as the primary insurer. AIC then began a reinsurance relationship with CNA,
taking a 10% participation of the first $1 million of liability of each policy
written under the plan. Since its inception, AIC's reinsurance participation
has ranged from 10% to 12.5% of the first $1 million of underlying coverage.

Third-party Managers and Service Providers

USA Risk Group, through Vermont Insurance Management, Inc., provides the
day-to-day services necessary in the administration of AIIG's and AIC's
business.

The Country Club Bank of Kansas City, Missouri, has been engaged by AIIG
for portfolio management and Harris Associates L.P. has been engaged by AIC to
provide discretionary investment advice. Each operates pursuant to guidelines
approved by AIIG's Board of Directors.

Liscord, Ward & Roy, Inc., an independent casualty actuarial consulting
firm, has been retained by AIC to render advice regarding actuarial matters.

The law firms of Lord, Bissell & Brook and Altheimer & Gray have been
retained to render advice on legal matters.

Johnson Lambert & Co. has been retained by AIIG as its independent auditor
to audit its financial statements.

Professional Liability Coverage

The professional liability policy issued by CFMC or CNA and ultimately
reinsured by AIC (the "Policy") is a Professional Liability Company Indemnity
Policy form.

The coverage provided under the Policy is on a "claims made" basis, which
means the Policy covers only those losses resulting from claims asserted
against the insured during the policy period. The insuring clause of the
Policy, which indemnifies for losses caused by acts, errors or omissions in
the insured's performance of professional accounting services for others, is
in three parts:

Clause A indemnifies the accounting firm insured and, unless excluded by
endorsements, any predecessor firms;

Clause B indemnifies any accountant or accounting firm while performing
professional accounting services under contract with the insured; and

Clause C indemnifies any former or new partner, officer, director or
employee of the firm or predecessor firms.

In almost every State, the Policy provides that costs of defense and
related reasonable expenses incurred in defending a claim are included within
the Policy limits of liability, and payment of such items by the insurer
reduces the insurer's remaining limit of liability for payment of damage
awards or settlements. There are a few States in which defense costs may not
be included within the Policy limit, and therefore are "in addition" to it.

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<PAGE>

The Plan carrier often charges additional premium to cover this exposure.
Settlements are made only with the written consent of the insured. However, if
the insured contests the settlement recommended by the insurer, the Policy
will only cover costs that do not exceed the amount for which the claim could
have been settled, subject to the applicable limit of liability (whichever is
less).

Competition

The AICPA Plan's current major competition comes from three large,
established insurance companies, including the Plan's former carrier, CFMC. A
number of smaller companies compete in the field, but none have significant
nationwide market share. Many of these companies charge lower premiums than
the Plan, which may provide different terms of coverage. The Plan's principal
competitive strength is its commitment to the use of large, financially strong
and experienced primary insurers which enhance the Plan's capacity to continue
to be a stable and dependable source of coverage and to pay losses as they
arise.

Licensing and Regulation

The rates and terms of reinsurance agreements generally are not subject to
regulation by any governmental authority. This is in contrast to direct
insurance policies, the rates and terms of which generally are regulated by,
or subject to notice to, State insurance departments. As a practical matter,
however, the rates charged by primary insurers place a limit upon the rates
that can be charged by reinsurers.

AIIG and AIC are subject to regulation under the insurance laws, including
the insurance holding company law of Illinois, where AIC is domiciled. If AIC
engages in activities that would require it to become licensed as an insurer
in other States, AIIG and AIC would become subject to the insurance laws in
such other States as well. Insurance laws vary from State to State, but
generally require insurance holding companies and their insurance subsidiaries
to register and file certain reports, including information concerning their
capital structure, ownership, financial condition and general business
operations, and require prior approval of changes in control, payments of
certain dividends and other material intercompany transfers of assets, and
transactions between insurance companies, their parents and affiliates.

State insurance holding company statutes also impose standards on certain
transactions with related companies, which stipulate, among other
requirements, that all transactions be fair and reasonable and that
transactions exceeding specified limits receive prior regulatory approval. AIC
is required to file annual statutory statements and is subject to statutory
restrictions concerning the types and quality of investments and the size of
risks that it may reinsure. Additionally, AIC is subject to financial
examinations by the Illinois Department of Insurance.

AIC's ability to pay dividends to AIIG is subject to the provisions of the
Illinois insurance law, which provide that insurance companies may not pay a
dividend except out of cumulative earned surplus determined in accordance with
statutory insurance accounting principles. In addition, insurance companies
may not pay an "extraordinary" dividend or make an "extraordinary"
distribution unless thirty days' prior written notice is given to the Illinois
Director of Insurance and the Director does not disapprove the proposed
dividend or distribution. An "extraordinary" dividend or distribution is a
dividend or distribution of cash or other property having a fair market value,
which together with that of other dividends or distributions made within the
preceding 12 months, exceeds the greater of: (1) 10% of the insurer's surplus
as regards policyholders as of the December 31 immediately preceding the date
of the dividend or distribution, or (2) 100% of its net income for the annual
period ending on such preceding December 31.

Customers

AIC's only source of income, other than its premiums from its treaty with
CNA, is its investment portfolio.

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<PAGE>

Employees

AIIG and AIC have no employees. See Note D to the Consolidated Financial
Statements.

Loss Reserves

For information concerning AIC's loss reserves, changes in aggregate
reserves for the last three years, and loss reserve development as of the end
of each of the last ten years, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation," and Notes A and B to the
Consolidated Financial Statements.

Properties

Neither AIIG nor AIC owns or leases material properties. Substantially all
of the business of AIIG and AIC is conducted from the offices of USA Risk
Group.

Legal Proceedings

There are no legal proceedings to which AIIG or AIC is a party.

BUSINESS OF THE COMPANY

General

The Company is a recently organized Bermuda company formed by AIIG to
facilitate the change of domicile of AIIG from Delaware to Bermuda. After
consummation of the Transaction, AIIG will cease to exist and the Company
will, directly and through its subsidiaries Mezco, AIC Limited and Investco,
continue to conduct the operations in which AIIG and AIC are now engaged. See
"Business of AIIG". Other than matters relating to corporate organization,
capitalization and matters incidental to the Transaction, the Company will not
have engaged in any business activity prior to the Transaction.

The Exchange and Dissolution will be subject to several approvals of the
Illinois Department of Insurance. See "Restructuring of the Company". The
retrocession contemplated as step (v) will require approval of the Department,
as will the Exchange under step (viii) and the Dissolution under step (ix).
While there can be no assurances, based on discussions with the Department, it
is expected that the necessary approvals will be obtained on a timely basis.

Deloitte & Touche has been retained as independent auditors for the
Company.

Bermuda Regulation

AIC Limited, as a licensed Bermuda insurance company, will be subject to
regulation under The Insurance Act 1978, as amended, and related regulations
(the "Bermuda Act"), which provides that no person shall conduct insurance
business (including reinsurance) in or from Bermuda unless registered as an
insurer under the Bermuda Act by the MOF. In deciding whether to grant
registration, the MOF has discretion to act as he thinks fit in the public
interest. The MOF is required by the Bermuda Act to determine whether an
applicant for registration is a fit and proper body to be engaged in insurance
business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise. In connection with registration, the MOF may impose
conditions relating to the writing of certain types of insurance business.

An Insurance Advisory Committee appointed by the MOF advises him on matters
connected with the discharge of his functions and sub-committees thereof
supervise and review the law and practice of insurance in Bermuda including
reviews of accounting and administrative procedures.

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<PAGE>

The Bermuda Act requires, among other things, Bermuda insurance companies
to meet and maintain certain standards of solvency, to file periodic reports
in accordance with the Bermuda Statutory Accounting Rules, to produce annual
audited financial statements and to maintain a minimum level of statutory
capital and surplus. In general, the regulation of insurers in Bermuda relies
heavily upon the auditors, directors and managers of the Bermuda insurer, each
of which must certify each year that the insurer meets the solvency and
capital requirements of the Bermuda Act. Furthermore, the MOF is granted
powers to supervise, investigate and intervene in the affairs of insurance
companies. Significant aspects of the Bermuda insurance regulatory framework
are set forth below.

Cancellation of an Insurer's Registration. An insurer's registration may be
canceled by the MOF on certain grounds specified in the Bermuda Act, including
the failure of the insurer to comply with the obligations of the Bermuda Act
or if, in the opinion of the MOF after consultation with the Insurance
Advisory Committee, the insurer has not been carrying on business in
accordance with sound insurance principles.

Independent Approved Auditor: Statutory Financial Statements: Statutory
Financial Return. Every registered insurer must appoint an independent auditor
approved by the Minister who will annually audit and report on the statutory
financial statements and the statutory financial return of the insurer, which
are required to be filed annually with the Registrar of Companies of Bermuda
(the "Registrar"), who is the chief administrative officer under the Bermuda
Act. The approved auditor may be the same person or firm that audits the
insurer's financial statements and reports for presentation to its
shareholders.

An insurer must prepare annual statutory financial statements. The
statutory financial statements are not prepared in accordance with GAAP and
are distinct from the financial statements prepared for presentation to the
insurer's shareholders under the Companies Act 1981, as amended, of Bermuda
(the "Companies Act"). The insurer is required to submit the annual statutory
financial statements as part of the annual statutory financial return.

An insurer is required to file with the Registrar a statutory financial
return that includes, among other matters, a report of the approved
independent auditor on the statutory financial statements of the insurer, a
declaration of the statutory ratios and a related solvency certificate.

Minimum Solvency Margin. The Bermuda Act provides that the statutory assets
of an insurer must exceed its statutory liabilities by an amount greater than
the prescribed minimum solvency margin.

Pursuant to the Bermuda Act, AIC Limited will be registered as a Class 3
insurer and, as such: (i) will be required to maintain a minimum of solvency
margin equal to the greatest of : (x) $1,000,000, (y) 20% of net premiums
written up to $6,000,000 plus 15% of net premiums written over $6,000,000, and
(z) 15% of loss reserves; (ii) will be required to file annually with the
Registrar a statutory financial return together with a copy of its respective
statutory financial statements and an opinion of a loss reserve specialist in
respect of its loss and loss expense provisions within four months following
the end of the relevant financial year; (iii) will be prohibited from
declaring or paying any dividends during any financial year if it is in breach
of its 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 (if it fails to meet its minimum solvency margin or minimum
liquidity ratio on the last day of any financial year, the insurer will be
prohibited, without the approval of the MOF from declaring or paying and
dividends during the next financial year); (iv) will be prohibited, without
the approval of the MOF from reducing by 15% or more its total statutory
capital, as set out in its previous year's financial statements; and (v) if it
appears to the MOF that there is a risk of AIC Limited becoming insolvent or
that it is in breach of the Bermuda Act or any conditions imposed upon its
registration, the MOF may, in addition to the restrictions specified above,
direct AIC Limited not to declare or pay any dividends or any other
distributions or may restrict it from making such payments to such extent as
the MOF may think fit.

Minimum Liquidity Ratio. The Bermuda 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 as not less than 75%

39
<PAGE>

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, account and premiums
receivable and reinsurance balances receivable. There are certain categories
of assets which, unless specifically permitted by the MOF, do not
automatically qualify as advances to affiliates and 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). Based upon the foregoing,
AIC Limited's holding in Investco will require the specific approval of the
MOF.

Supervision, Investigation and Intervention. The MOF may appoint an
inspector with extensive powers to investigate the affairs of an insurer if
the MOF 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 MOF may direct
an insurer to produce documents or information in relation to matters
connected with the insurer's business.

If it appears to the MOF that there is a risk of an insurer becoming
insolvent or, if the insurer is in breach of the Bermuda Act and the
regulations or of any condition imposed on its regulation as an insurer, the
MOF may direct the insurer in certain respects, including 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, or transfer to and to keep in the
custody of, a specified bank, certain assets; not to declare or pay any
dividends or other distributions or to restrict the making of such payments;
and/or to limit its premium income.

An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For the purpose of
the Bermuda Act, the principal office of the Company will be located at
Phoenix Building, 2 Reid Street, Hamilton, Bermuda. The principal
representation will be USA Offshore Management Ltd. Without a reason
acceptable to the MOF 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 MOF is given of the
intention to do so. It is the duty of the principal representative, within 30
days of his reaching the view that there is a likelihood of the insurer for
which he acts becoming insolvent or its coming to his knowledge, or his having
reason to believe, that an "event" has occurred, to make a report in writing
to the MOF setting out all the particulars of the case that are available to
him. Examples of such an "event" include failure by the insurer to comply
substantially with a condition imposed upon the insurer by the MOF relating to
a solvency margin or a liquidity or other ratio.

The business of the Company, Mezco, AIC Limited and Investco following the
Transaction will be conducted from offices in Hamilton, Bermuda. USA Offshore
Management Ltd., an affiliate of USA Risk Group, Inc., is expected to second
Ms. Janice Witkowski and Mr. Bruce Fenton to serve as directors of AIC Limited
and Investco. AIC Limited will conduct the casualty insurance underwriting
business and the Company currently conducted by AIC and Investco and the
Company will conduct investment business for their own accounts through
independent commission agents, brokers and custodians in the U.S. or other
investment markets as needed and appropriate. Neither Investco nor the Company
will operate as an investment manager or as a broker dealer requiring
registration under investment advisory or securities broker regulations in the
U.S., Bermuda or otherwise. The directors and officers of AIC Limited will
negotiate reinsurance treaties for acceptance in Bermuda. Among other matters,
the following business functions will be conducted from the Bermuda offices at
which the officers of AIC Limited and Investco will be located: (i)
communications with shareholders of the Company, including the providing of
financial reports; (ii) communications with the general public of a nature
other than advertising; (iii) solicitation of the sale by the Company, AIC
Limited or Investco of shares in any of such entities; (iv) accepting
subscriptions of new shareholders of the Company; (v) maintenance of principal
corporate records and original books of account; (vi) audit of original books
of account; (vii) disbursement of funds in payment of dividends, claims, legal
fees, accounting fees, and officers' and directors' fees and salaries; (viii)
publication or furnishing the offering and redemption prices of shares issued
by any member of the group as well as maintenance of lists of interested
buyers and sellers of shares of any member of the group; (ix) arrangement for
and conduct of meetings of the shareholders and directors of the Company, AIC
Limited and Investco; and (x) execution of redemptions of shares of stock of
the Company, AIC Limited and Investco. The Company will not maintain an office
or place of business in the United States.

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<PAGE>

RESTRUCTURING OF THE COMPANY

The Transaction forms a part of a change in the structure of AIIG's
businesses (the "Restructuring"). Other than the Exchange and the Dissolution,
the Restructuring does not require the approval of the stockholders of AIIG.
It is currently anticipated that the Restructuring will be consummated in the
following steps:

(i) AmerInst Insurance Company, a wholly-owned subsidiary of AIIG
("AIC"), has distributed to AIIG a cash dividend, of approximately $20,000,
to be used solely to fund (a) the capitalization required for the formation
of the new entities described below; and (b) the expenses of the
Restructuring.

(iii) AIC will distribute all of the shares of Mezco to AIIG as a
dividend.

(iv) Mezco will form a new wholly-owned subsidiary, AmerInst Insurance
Company, Ltd., under the laws of Bermuda ("AIC Limited").

(vii) AIC will be liquidated, with its remaining assets and liabilities
distributed to AIIG.

(x) A replacement treaty for the CNA Treaty will be entered into between
AIC Limited and CNA.

Steps (viii) and (ix) will be accomplished on the same date. Preceding steps
will be accomplished prior to such date and subsequent steps will be
accomplished after such date.

Following the Restructuring, Mezco, AIC Limited and Investco, will become
wholly-owned direct and indirect subsidiaries of the Company, and neither AIIG
nor AIC will continue to exist as separate entities.

CERTAIN TAX CONSIDERATIONS

The following is a summary of the material Bermudian and United States tax
consequences generally applicable to AIIG and its stockholders of the
Exchange, the Dissolution and the Restructuring.

The summary of United States and Bermudian tax consequences is general in
nature and is not intended to constitute a complete analysis of all the
relevant tax consequences to any particular stockholder. Each stockholder
should consult and rely on such stockholder's own tax advisors.

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<PAGE>

United States Federal Income Tax Consequences

The following discussion is a summary of the material anticipated United
States ("U.S.") Federal income tax consequences of the Restructuring,
including the Transaction. Although the tax laws are technical and complex,
this summary is stated in general terms only, with the consequence that
certain details and various rules, including various intricacies and
deviations from general rules, are not discussed. The summary is based on
existing statutes, regulations, cases, and rulings, and no assurance can be
given that such authorities will not be changed (possibly with retroactive
effect). The summary does not consider all tax considerations that may be
applicable, including, for example (except as indicated), State, local, and
foreign income taxes, the alternative minimum tax, and taxes other than income
taxes. The summary does not consider the tax consequences to stockholders
which are not U.S. citizens or residents, U.S. corporations, or otherwise
treated as U.S. persons for U.S. Federal income tax purposes or which are tax-
exempt entities. This discussion has been prepared by Altheimer & Gray, U.S.
tax counsel to AIIG, and is based on various assumptions and representations,
including representations by management of AIIG. This summary and counsel's
opinion do not have any binding effect, including on the U.S. Internal Revenue
Service ("IRS") and other taxing authorities and on courts. Stockholders
should consult and rely on their own tax advisors.

U.S. Federal Income Tax Consequences at the Corporate Level

In the Restructuring, all of the assets of AIIG and AIC will be transferred
to the Company, Mezco, AIC Limited and Investco. Gain will be recognized by
AIIG and AIC on such transfers of assets, as measured, on an asset-by-asset
basis, by the excess of the fair market value of each asset over its tax
basis. No loss will be recognized on the transfer of an asset whose basis
exceeds its fair market value.

The Company, Mezco, AIC Limited and Investco should have no U.S. Federal
income tax liability by reason of the Restructuring. Thereafter, it is
anticipated that the Company, Mezco, AIC Limited and Investco will be operated
in a manner that will be free from U.S. Federal income tax, except that it is
expected that dividends and certain interest paid by U.S. payors will be
subject to tax at the rate of 30% of the gross amount of such items. Such tax
will be subject to withholding by the payor, but will be payable directly by
the Company, Mezco, AIC Limited and Investco to the extent that such
withholding is not sufficient to pay such tax.

Although it is intended that the Company, Mezco, AIC Limited and Investco
will be operated in a manner free from U.S. Federal income tax (except as
discussed above), no assurance can be given that such intentions will not
change or that the operations of the Company, Mezco, AIC Limited and Investco
will not so be subject to U.S. Federal income tax.

U.S. Federal Excise Tax Consequences at the Company Level

AIC Limited will be subject to a 1% U.S. Federal excise tax on gross
premiums received from reinsuring U.S. risks, including those incident to the
proposed retrocession transaction.

U.S. Federal Income Tax Consequences of the Restructuring to the Stockholders

The Transaction will constitute a reorganization within the meaning of
section 368(a)(1)(F) of the Code. Accordingly, with respect to each
stockholder of AIIG, no gain or loss will be recognized on the exchange of
AIIG stock for Company Common Shares in the Transaction; the tax basis of the
Company Common Shares received will be the same as the AIIG stock surrendered
in exchange therefor; and the holding period of the Company Common Shares
received will include the holding period of the AIIG stock surrendered in
exchange therefor, provided that the AIIG stock surrendered was a capital
asset in the hands of such stockholder.

Section 367(a) of the Code and the regulations thereunder prescribe certain
rules incident to the transfer of property by a U.S. person to a foreign
corporation. In the Transaction, the stockholders will surrender their AIIG
stock to AIIG (a U.S. domestic corporation) in exchange for Company Common
Shares. Accordingly, section 367(a) will not apply to the exchange of AIIG
stock for Company Common Shares by the stockholders.

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<PAGE>

Post-Restructuring U.S. Federal Income Tax Consequences to Shareholders

Current income inclusions under subpart F. Under the subpart F provisions
(i.e., sections 951 through 964 of the Code), a "United States shareholder" of
a "controlled foreign corporation" must include in gross income a pro rata
share of certain income of the corporation, after reduction for appropriate
deductions, for the taxable year. A "United States shareholder" is a U.S.
person--i.e., a U.S. citizen, resident, domestic corporation, or other
domestic entity--that owns stock possessing 10% or more of the voting power of
the corporation, and a "controlled foreign corporation" is a foreign
corporation more than 50% of the stock of which, by vote or value, is owned by
"United States shareholders." Various stock ownership attribution rules apply
under the subpart F provisions. Due to anticipated share holdings, it is not
expected that the Company, Mezco, AIC Limited or Investco will be a
"controlled foreign corporation" for general purposes. However, as discussed
below, special rules apply with respect to insurance income.

If a foreign corporation receives premiums for insuring risks outside its
domicile during a taxable year that exceed 75% of the gross amount of all
premiums received in that year, then, for purposes of the subpart F provisions
for inclusion of insurance income from non-domicile risks, the foreign
corporation is a controlled foreign corporation if 25% or more (rather than
the usual more than 50%), by vote or value, of its shares are owned by "United
States shareholders." None of the existing stockholders of AIIG owns 10% or
more of the voting power of AIIG, and it is not expected that any shareholder
of the Company will own the requisite 10%, directly or indirectly.
Accordingly, it is not expected that the Company will be a controlled foreign
corporation for purposes of insurance income generally. However, special rules
discussed below apply to "related person insurance income."

The term "related person insurance income" means insurance income (from the
insuring of risks outside the country of incorporation) attributable to a
policy of insurance or reinsurance with respect to which the person (directly
or indirectly) insured is a "United States shareholder" in the foreign
corporation or is a related person to such shareholder. For purposes of the
inclusion by shareholders of "related person insurance income" of the foreign
corporation under the subpart F provisions, the term "United States
shareholder" means a U.S. person owning any stock (rather than 10% or more of
the voting stock) in such corporation, and the term "controlled foreign
corporation" means a foreign corporation 25% or more (rather than the usual
more than 50%) of whose stock, by vote or value, is owned by "United States
shareholders." However, these special rules for "related person insurance
income" do not apply if less than 20% (by both vote and value) of the stock of
the foreign corporation is owned by persons who are directly or indirectly
insured by such corporation or who are related persons to such insured
persons, or if the foreign corporation's "related person insurance income" for
the taxable year (determined on a gross basis) is less than 20% of its total
insurance income (as so determined). It is anticipated that AIC Limited will
have "related person insurance income" includable under the subpart F
provisions in the gross income of the Company's shareholders.

In applying the foregoing principles, investment income may be allocated or
apportioned among different kinds of insurance income, including related
person insurance income, and treated as a part of such income.

The passive foreign investment company provisions. The passive foreign
investment company ("PFIC") provisions (i.e., sections 1291 through 1298 of
the Code) are designed to reduce or eliminate in certain cases the deferral
and conversion tax benefits that would otherwise result to U.S. persons who
hold stock in a foreign corporation engaged primarily in passive investments
but who are not otherwise subject, with respect to such stock, to the subpart
F or other current income inclusion provisions. A deferral tax benefit is one
that defers the recognition of income to a time later than that considered for
this purpose to be appropriate. A conversion tax benefit is one that converts
into capital gain certain income considered for this purpose appropriately to
be treated as ordinary income. Where the PFIC provisions apply, the deferral
tax benefit may be reduced or eliminated by means of an additional tax, in the
nature of an interest charge for the deferred taxes, imposed on the
shareholder with respect to all or a portion of the dividends or other
distributions on, or of the gain on a sale or other disposition of, PFIC
stock. Such portion is the amount deemed under the rules to be attributable to
earnings accumulated or value arising in certain prior years. In addition, the
conversion tax benefit may be reduced or

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<PAGE>

eliminated in such cases by treating such portion of the gain on a sale as
ordinary income rather than capital gain. The PFIC rules do not apply if the
foreign corporation is not a "passive foreign investment company," i.e., in
general, is not a foreign corporation in which (i) 75% or more of its gross
income for the taxable year is passive income; or (ii) 50% or more by value,
of the average percentage of the assets of the corporation in the taxable year
produces passive income or is held for the production of passive income. In
applying these rules, in the case of subsidiaries, certain so-called "look-
through" rules apply. Also, income derived in the active conduct of an
insurance or reinsurance business generally is not passive income. Therefore,
it is anticipated that shareholders will not in fact be subject to the PFIC
provisions with respect to the Company, Mezco, AIC Limited or Investco.
However, shareholders should consult and rely solely on their own tax advisors
with respect to the application of the PFIC provisions to them.

Actual distributions and sales. Actual distributions to shareholders with
respect to stock of the Company will be treated as dividends (i.e., ordinary
income) to the extent of the Company's then current or accumulated earnings
and profits. Any remaining distributions will be treated first as recovery of
the shareholder's tax basis in the stock of the Company and then as gain on
the sale of such stock. Appropriate adjustments will be made for any
distributions of amounts previously included in a shareholder's gross income
by reason of subpart F, so as to avoid double taxation of the same income.

On the sale by a shareholder of stock of the Company, gain or loss will be
recognized and measured as the difference between the amount realized on the
sale and the shareholder's adjusted basis in his stock. In general, assuming
such stock is a capital asset in his hands, the gain or loss will be capital
gain or loss. The maximum marginal individual Federal income tax rate for
long-term capital gains is 20% for capital assets held more than 12 months.
Short-term capital gains (i.e., on capital assets held not more than 12
months) are taxed at the same rates as ordinary income. The maximum marginal
Federal individual ordinary income tax rate is 39.6%. For corporations,
capital gains and ordinary income are taxed at the same rates. The maximum
marginal corporate Federal income tax rate is 35%. Subject to various
carryover rules, for a taxable year, capital losses are allowed only to the
extent of capital gains plus, in the case of certain individuals, an amount up
to $3,000.

In general, a sale of Company stock to the Company, Mezco, AIC Limited or
Investco should be treated as a sale, but in certain circumstances where the
shareholder has not reduced his overall interest, the proceeds of such sale
may be treated as received in a distribution, rather than a sale.

Notwithstanding the foregoing, certain provisions may apply to characterize
as ordinary income all or a portion of gain that would otherwise be
characterized as capital gain. For example, as stated above, it is anticipated
that shareholders will be subject to current income inclusion on their pro
rata shares of AIC Limited's "related person insurance income" (or may be so
subject but for exceptions to such current income inclusion rule). In such
event, as an additional consequence, gain on the sale by a shareholder of
stock of the Company may be recharacterized as a dividend to the extent of
such shareholder's pro rata share of certain earnings of the Company. It is
not anticipated that other recharacterization provisions would apply to the
gain on a sale or other disposition of Company stock. However, shareholders
should consult and rely solely on their own tax advisors regarding the tax
treatment of distributions on and dispositions of Company stock.

Foreign Taxes Paid or Accrued. It is not expected that any foreign (i.e.,
non-U.S.) income taxes would be imposed on the Company, Mezco, AIC Limited or
Investco, nor is it expected that foreign income taxes will be imposed
(including by way of withholding) on dividends or other distributions on
Company stock. Nevertheless, if such foreign income taxes are imposed, they
may be deducted by a shareholder in computing his taxable income, or may be
credited by him against his U.S. Federal income taxes payable, in both cases
subject to various limitations and restrictions imposed by the Code.

Certain Reporting Requirements for Shareholders

In addition to the return and reporting requirements imposed on taxpayers
generally, the Code and the regulations thereunder prescribe additional
requirements that may be applicable to shareholders.

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<PAGE>

Treasury Regulation ("Reg.") (S) 1.367(b)-1 and Reg. (S) 7.367(b)-1,
relating to certain exchanges involving foreign corporations, requires in
certain cases that an exchanging shareholder must file a notice with the IRS
on or before the due date (including extensions) of his return for the taxable
year containing the date of the exchange. The notice must contain information
relating to the exchange as set forth in the regulations. If the filing
requirements are not met, the exchange may be treated as a taxable exchange,
notwithstanding the discussion above to the contrary. It appears that Reg. (S)
1.367(b)-1 and Reg. (S) 7.367(b)-1 do not apply if the exchanging shareholder
does not transfer stock of a foreign corporation and does not directly or
indirectly transfer property to a foreign corporation. Accordingly, it appears
that shareholders of AIIG should not be subject to the filing requirements of
these regulations with respect to their exchange of AIIG stock for Company
stock. However, these regulations may be ambiguous, and for protective
purposes shareholders may wish to file the notice.

A similar information-furnishing requirement that may apply to the exchange
is set forth in section 6038B of the Code and the regulations thereunder,
relating to certain transfers by U.S. persons, including certain transfers of
property to a foreign corporation. Such requirement, if it applies, is that
the U.S. person must file a Form 926 (Return by Transferor of Property to a
Foreign Corporation, Foreign Estate or Trust, or Foreign Partnership) with the
IRS office where he is required to file, and not later than the due date
(including extensions) of, his U.S. Federal income tax return for the taxable
year containing the date of the transfer. The penalty for failure to comply
with section 6038B of the Code, unless the U.S. person shows that such failure
is due to reasonable cause and not to willful neglect, is 10% of the fair
market value of the property at the time of the exchange, subject to a maximum
penalty of $100,000. It appears that Section 6038B and the regulation
thereunder should not apply to shareholders of AIIG on the exchange of their
AIIG stock for Company stock. However, for protective purposes, shareholders
may wish to comply with the information-furnishing requirements set forth in
section 6038B of the Code and regulations thereunder.

Under section 3406 of the Code and the regulations thereunder, a
shareholder of AIIG may be subject to backup withholding at the rate of 31% of
the "reportable payment," i.e., "gross proceeds," on the exchange of his AIIG
stock unless he timely furnishes the paying agent or broker with his TIN
(i.e., taxpayer identification number) and other information required
thereunder. Any amount withheld will be creditable against the shareholder's
U.S. Federal income tax. Presumably, the "reportable payment" or "gross
proceeds" would be the fair market value of the Company stock received in
exchange for AIIG stock, although the Code and regulations are not clear. Nor
is it clear how withholding would be effected since the consideration received
is stock rather than cash. Shareholders are strongly urged to comply with the
TIN and other information furnishing requirements of section 3406 of the Code
and the regulations thereunder.

Under section 6038 and section 6046 of the Code and the regulations
thereunder, each U.S. person who is a shareholder of the Company will be
required to file annually with respect to AIC Limited a Form 5471 (Information
Return of U.S. Persons with Respect to Certain Foreign Corporations). Form
5471 is due on or before the shareholder's U.S. Federal income tax return is
due, and copies must be filed both with the IRS office where such income tax
return is filed and with the Internal Revenue Service Center, Philadelphia, PA
19255. If certain information is supplied by one or more shareholders on their
Forms 5471, other shareholders need not supply such information. Penalties are
imposed for failure to comply with the filing requirements of section 6038 and
section 6046 and the regulations thereunder. For example, a failure to file a
Form 5471 may result in a $10,000 penalty (subject to additional penalties of
up to $50,000 where the failure continues after notification by the IRS).

As with tax matters generally, shareholders should consult and rely solely
on their own tax advisors with respect to the return, reporting, and filing
requirements and penalties applicable to them.

Bermuda Tax Consequences

The following discussion has been prepared by Conyers, Dill & Pearman,
Bermuda counsel to AIIG and the Company.

45
<PAGE>

At the present time there is no Bermuda income or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
imposed on a Bermuda company or its shareholders, other than shareholders
ordinarily resident in Bermuda. Each of the Company, Mezco, AIC Limited and
Investco will obtain prior to the consummation of the Exchange an assurance
from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act of 1966 that, in the event that any legislation is enacted in
Bermuda 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 2016 be applicable to the
Company, Mezco, AIC Limited or Investco or to any of their operations or to
their shares, debentures or other obligations except insofar as such tax
applies to (i) persons ordinarily resident in Bermuda holding such shares,
debentures or other obligations or (ii) any land leased or let to the Company,
Mezco, AIC Limited or Investco. Therefore, there will be no Bermuda tax
consequences with respect to the Exchange or the Restructuring or with respect
to subsequent dividends or other distributions in respect of Company Common
Shares.

As an exempted company, the Company is subject to a Bermuda registration
fee based upon its authorized share capital and the premium on its issued
shares, which is estimated to be US$5,340 per annum, based on an assessable
capital of US$500,000. In addition, AIC Limited will be subject to
registration fees under the Insurance Act 1978 of Bermuda of US$2,500 per
annum.

MANAGEMENT OF THE COMPANY AND AIIG

In order to insure that persons with professional liability insurance
knowledge are represented on AIIG's Board of Directors, AIIG's Certificate of
Incorporation requires that at least half of each class of directors be either
current or former members of the PLIP Committee of the AICPA, or persons
otherwise knowledgeable, as determined by the Board, in accountants'
professional liability insurance matters ("Qualified Directors"). The Board
has designated each of Mr. Breitweiser and Mr. Katch as a Qualified Director
candidate.

Listed below is the name, age, officer position with AIIG, principal
business experience during the last five years, and other information
regarding each director and officer of AIIG.

Norman C. Batchelder.......
Age 70. President, Chairman of the Board and
Director of AIIG since it was formed in September
of 1987. Former Executive Director of the New
Hampshire Society of CPAs. Former Partner of
Smith, Batchelder & Rugg, CPAs, Lebanon, New
Hampshire. Former member and Chairman of the
AICPA Professional Liability Insurance Plan
Committee and Former President of the New
Hampshire Society of CPAs.

Bruce W. Breitweiser.......
Age 50. Vice President of AIIG since 1993.
Director of AIIG since November 21, 1991.
Managing Partner of Dunbar, Breitweiser &
Company, LLP, Bloomington, Illinois.

Jerome A. Harris........... Age 55. Secretary and Assistant Treasurer of AIIG
since May 1998. Assistant Secretary and Assistant
Treasurer of AIIG from December 1995 through May
1998. Director of AIIG since May of 1995.
Managing Partner of Checkers, Simon & Rosner,
LLP, Chicago, Illinois. Senior Managing Director
of American Express Tax and Business Services.
Founding and past board member and past member of
the Executive Committee of the Accountants
Liability Assurance Company Ltd. Former Chairman
of the Illinois CPA Society Insurance Liability
Task Force.

46
<PAGE>

Ronald S. Katch............
Age 65. Treasurer of AIIG since 1991. Director of
AIIG since it was formed in September of 1987.
Managing Partner of Katch, Tyson & Company, CPAs,
Northfield, Illinois. Former member and Chairman
of the AICPA Professional Liability Insurance
Plan Committee.

David N. Thompson..........
Age 48. Director of AIIG since May 1998. Senior
Vice President--Mergers and Acquisitions,
Meadowbrook Insurance Group, Inc., a national
insurance company, since 1998, and Chairman and
Chief Executive Officer of E-Insure Services,
Inc., an Internet insurance marketplace since
1996. From 1993 to 1994, President and Chief
Executive Officer of Specialty Programs, Ltd., an
insurance acquisition and consulting company.
Prior thereto he held various positions, most
recently as Chairman, President and Chief
Executive Officer, with Crum & Forster Managers
Group, an underwriter of property and casualty
insurance and the predecessor to Coregis
Insurance Company. Mr. Thompson is a CPA.

Except as indicated above, no director of AIIG is a director of any company
with a class of securities registered pursuant to Section 12 of the Exchange
Act, or subject to the requirements of Section 15(d) of the Exchange Act or
any company registered as an investment company under the Investment Company
Act of 1940. Mr. Charles B. Larson served as a director of AIIG from September
1987 until May 1998.

In addition to the foregoing, the Board of Directors of the Company will
include the following two individuals, both of whom are residents of Bermuda:

Bruce Fenton.......... Age 40. President of the Company since January
1999. Qualified as a Chartered Accountant in 1982
after articling with Ernst & Young in Auckland,
New Zealand. After spending time auditing in New
Zealand, London and Bermuda joined Continental
Risk Services Ltd. in Bermuda in 1986 and was
promoted to Vice President/Chief Financial
Officer. Joined Triangle Insurance Management
Ltd. in 1990 as President and in the period to
1999 has been responsible for the management and
marketing functions of the company. Mr. Fenton is
of British/Bermudian nationality.

Janice Witkowski...... Age 39. Vice President and Treasurer of the
Company since January 1999. Chartered Accountant
since 1983. Articled with Coopers & Lybrand in
Toronto, Canada before joining Arthur Young,
Bermuda in 1984. In 1986 joined Marsh & McLennan
(Bermuda) Ltd. as an Account Manager and in 1989
was promoted to Vice President. Joined Triangle
Insurance Management Ltd. as a Vice President in
1992 and in the period to 1999 has been
responsible for the development and incorporation
of several new captive programs. Implemented
management systems and procedures to ensure that
the company will continue to provide the very
best service to its clients at all times. Ms.
Witkowski is of British/Bermudian nationality.

47
<PAGE>

Mr. Fenton will serve as President of the Company and Ms. Witkowski will
serve as Vice President and Treasurer of the Company.

Committees of the Board of Directors

There are seven committees of the Board of Directors of AIIG constituted as
follows:

<TABLE>
<CAPTION>
Committee Members
--------- -------
<S> <C>
Stockholder Relations Committee............... Mr. Katch and Mr. Batchelder
Audit Committee............................... Mr. Breitweiser and Mr. Harris
Finance and Actuarial Committee............... Mr. Harris and Mr. Thompson
Investment Committee.......................... Mr. Breitweiser and Mr. Katch
Underwriting and Reinsurance Committee........ Mr. Batchelder and Mr. Harris
Public Relations Committee.................... Mr. Batchelder
Nominating Committee.......................... Mr. Breitweiser and Mr. Katch
</TABLE>

The seven committees respectively have and may exercise the full power of the
Board of Directors, subject to certain limitations imposed by law, as to all
matters relating to the ownership, transfer or redemption of AIIG's Common
Stock; the annual audit of AIIG's financial statements and the review and
approval of AIIG's fiscal year budget; review of financial and actuarial
matters affecting AIIG; AIIG's investment activity; the review and negotiation
of reinsurance contracts; the coordination of press releases and other
communications with the public; and the consideration of nominees to the Board
of Directors.

During 1997, the Audit Committee met three times, the Investment Committee
met four times, the Public Relations Committee met one time and the Nominating
Committee met one time. During 1997, the Stockholder Relations Committee and
the Underwriting and Reinsurance Committee conducted their business without a
formal meeting. The Finance and Actuarial Committee was constituted in 1998.
The Board held seven meetings in 1997. Each Director attended at least 75% of
the meetings of the Board of Directors and of meetings held by each committee
of the Board on which such Director served.

During April and May 1998, an Executive Committee consisting of Messrs.
Batchelder, Breitweiser, Harris and Katch was appointed with full power and
authority to act on behalf of the Board in the management of the business and
affairs of AIIG, except as otherwise provided under the DGCL. The Executive
Committee was dissolved in May 1998.

The Company will establish committees of its Board of Directors, which
committees are anticipated to have identical members and functions as the
committees of the Board of Directors of AIIG immediately prior to the
Effective Time, with the addition of Bermuda resident directors, as determined
appropriate by the Board.

Executive and Director Compensation

The Company has not paid compensation to any person before the date of this
Prospectus/Proxy Statement and is not expected to do so prior to the Effective
Time. The Company anticipates that the aggregate compensation received by
persons serving as officers and directors of the Company will be the same as
the compensation currently paid to such persons by AIIG. After the Effective
Time, the Company will pay the persons serving as directors the same
compensation as currently received from AIIG and the compensation currently
paid by AIIG will cease.

Directors of AIIG receive an annual retainer of $10,000. They are also paid
$600 per half day for each Board meeting and $125 per hour for each committee
meeting attended during the calendar year. The Directors of AIIG fill all
officer positions of AIIG without salary or any other compensation. Directors
are entitled to receive reimbursement for reasonable expenses incurred in
attending Board or committee meetings of AIIG or when otherwise acting on
behalf of AIIG.

None of the directors of the Company received compensation from AIIG
exceeding $60,000 during AIIG's 1997 fiscal year. The total compensation of
all directors in 1997 was $143,415 which includes $5,600 paid in 1997
attributable to Board or committee meetings attended in 1996.

48
<PAGE>

CERTAIN TRANSACTIONS AND RELATIONSHIPS

Since 1967 the AICPA has sponsored the AICPA Plan. The initial business of
AIC has been to act as a reinsurer of professional liability insurance
policies having effective dates on or after April 1, 1988, which are issued by
the primary insurer under the AICPA Plan.

The AICPA Plan Committee evaluates the AICPA Plan periodically in order to
effect changes that the Committee believes will result in a stable and
competitively priced source of professional liability insurance coverage for
its members. To this end, the AICPA Plan Committee was involved in the
organization of AIIG and AIC, including the selection of the initial directors
of AIIG. However, the AICPA does not direct the affairs of, is not responsible
for any obligations of, nor does it receive any direct economic benefit from,
either AIIG or AIC, nor will the AICPA direct the affairs of, be responsible
for any obligations of, or receive any direct economic benefit from, the
Company, Mezco, AIC Limited or Investco.

Although AIC has entered into reinsurance agreements with the primary
insurer under the Plan, and intends to cooperate with the AICPA in the
provision, through such reinsurance agreements and otherwise, of reinsurance
capacity for the AICPA Plan, AIC has no contractual right, and AIC Limited
will have no contractual right, to long-term involvement in the AICPA Plan.
Similarly, other than as provided by the aforementioned reinsurance
agreements, AIC is not obligated, and AIC Limited will not be obligated, to
use its reinsurance capacity as part of the AICPA Plan and may, in the
discretion of its Board of Directors, provide reinsurance for accountants'
professional liability coverage in programs not sponsored by the AICPA.

DESCRIPTION OF SHARE CAPITAL

The authorized capital of the Company consists of 12,000 common shares, par
value $1.00 per share, and the Company anticipates that, prior to consummation
of the Exchange, the authorized capital of the Company will be increased to
500,000 Company Common Shares. The following description of the share capital
of the Company does not purport to be complete or to give full effect to the
provisions of statutory or common law and is subject in all respects to the
applicable provisions of the Company's Memorandum of Association (a copy of
which is attached to this Prospectus/Proxy statement as Appendix A) and the
Company's Bye-Laws (a copy of which is attached to this Prospectus/Proxy
statement as Appendix B), and the information herein is qualified in its
entirety by this reference.

Company Common Shares

The Company is authorized to issue 12,000 Company Common Shares, all of
which were issued and outstanding as of the date of this Prospectus/Proxy
Statement. As of that date, AIIG owned all of the issued and outstanding
Company Common Shares. The Company anticipates that, prior to consummation of
the Exchange, the number of Company Common Shares authorized for issuance will
be increased to 500,000.

The holders of Company Common Shares are entitled to one vote for each
share held on all matters submitted to a vote of common shareholders. The
Company Common Shares do not have cumulative voting rights, which means that
the holders of a majority of the Company Common Shares outstanding can elect
all the directors and the holders of the remaining shares will not be able to
elect any directors.

Each Company Common Share is entitled to participate equally in dividends,
as and when declared by the Company's Board of Directors, and in the
distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding preference shares which might be issued. The
Company Common Shares have no preemptive or conversion rights, redemption
rights, or sinking fund provisions. The outstanding Company Common Shares are,
and the Company Common Shares to be issued in the Exchange will be, duly
authorized, validly issued, fully paid and nonassessable.

There are no Bermuda limitations on the right of non-resident or foreign
owners to hold or to vote the Company Common Shares.

49
<PAGE>

Share Transfer Restrictions

Shareholders will have no right to have their Company Common Shares
repurchased by the Company. Any repurchases will require the approval of the
Company's Board of Directors, would be made in limited circumstances and would
be conditioned on the availability (as determined by the Board in its
discretion) of adequate capital and surplus for both the Company and Investco.

Since its inception, AIIG has redeemed the shares of individuals who have
died or retired from the practice of public accounting. Initially, the
redemptions were at book value, but since April 1996, they have been at 75% of
book value. In addition, the Company currently anticipates that, following the
consummation of the Transaction, Investco will put in place a new program by
which those shareholders of the Company who wish to have all of their Company
Common Shares purchased by Investco could do so, at prices and at times to be
approved by the Company's Board of Directors and in the Board's sole
discretion. The Company's Board of Directors anticipates that initially, such
purchases will be made at 50% of book value.

The Company has established an information exchange whereby any shareholder
desiring to sell or purchase shares can list the number of shares and the
intended price. This list is updated and distributed regularly, so that those
on the list can make direct contact with others.

In addition to the foregoing, all transfers of Company Common Shares are
subject to approval by the Board of Directors of the Company and of the CFE of
Bermuda.

Stock Ownership Policy

The following is a description of the Stock Ownership Policy of AIIG, which
the Company anticipates it will adopt, to be applicable to holders of the
Company's Common Shares.

General Policy

The Stock Ownership Policy provides that the insurance capacity of AIC
should be utilized exclusively for the benefit of accounting firms which are
stockholders of AIIG in the event that the availability of accountants'
professional liability insurance becomes limited or the market for such
insurance is otherwise adversely affected; that a reasonable relationship
should be maintained between the investment that an accounting firm has in
AIIG and the amount of such firm's risks that AIC is insuring or reinsuring;
and that preference should be established for accounting firms that invested
initially in AIIG over firms that invested subsequently.

Guidelines

"Eligible Firms" are those accounting firms (including sole
proprietorships) which either (i) were, as of 1988, insured under the AICPA
Plan or (ii) have a professional staff of 250 or fewer CPAs and at least one
equity owner (proprietor, partner or stockholder) who is a member of either
the American Institute of Certified Public Accountants or a state CPA society.
The shares of common stock of AIIG offered in its initial offering were
offered exclusively to Eligible Firms. Eligible Firms that subscribed for
Shares by the termination date of such offering have been designated as
"Founding Firms," which status entitles such firms to lower minimum initial
investment requirements and lower additional investment requirements than
Eligible Firms which made, or will make, their initial investment in any later
offerings.

The Stock Ownership Policy provides that there is no current requirement to
make additional investments in AIIG. In the event that AIIG determines that
the insurance capacity of AIC will be available only to stockholders of AIIG,
in order to benefit from such capacity, a stockholder must have a sufficient
investment in AIIG to be deemed a "qualified" stockholder. A firm's
"investment" is defined to be equal to the greater of (i) the purchase price
originally paid to AIIG for the shares of AIIG's common stock held by the firm
(including shares acquired from other firms) or (ii) the book value of the
firm's shares. If the required investment level is

50
<PAGE>

not met, a firm will be required to purchase additional shares, either
directly from AIIG or from other stockholders, in order to have the insurance
capacity of AIC utilized for such firm's benefit. The failure to make
additional investments when required will result in the loss of a firm's
"qualified" status and a firm's "Founding Firm" status. Any offering by AIIG
of its shares of common stock in connection with this additional investment
requirement shall be made in accordance with the Securities Act of 1933 and
any applicable "Blue Sky" laws.

The Stock Ownership Policy provides that in order for a Founding Firm to be
considered a "qualified" stockholder at any given point in time, such firm
would be required to have an investment in AIIG equal to (i) if insured under
the AICPA Plan, at least 30% of such firm's insurance premiums for the then
current year or (ii) if not insured under the AICPA Plan, 0.6% of such firm's
revenues for its most recently completed twelve-month fiscal year. If a
Founding Firm's investment were less than the 30% or 0.6% levels, such firm
would need to raise its investment to a 50% or 1.0% level, respectively, to
remain qualified. In order for a Non-Founding Firm to be considered a
"qualified" stockholder at any given point in time, such firm would be
required to have an investment in AIIG equal to (i) if insured under the Plan,
at least 50% of such firm's insurance premiums for the current year or (ii) if
not insured under the Plan, 1.0% of such firm's revenues for its most recently
completed twelve-month fiscal year. If a Non-Founding Firm's investment were
less than the 50% or 1.0% levels, such firm would need to raise its investment
in AIIG to a 75% or 1.5% level, respectively, to remain qualified.

Pursuant to the Stock Ownership Policy, upon request of a stockholder, the
Board of AIIG will consent to transfers of Shares among Eligible Firms absent
unusual circumstances. Upon receipt by the Board of written evidence
satisfactory to the Board that a stockholder has been liquidated or dissolved,
the Board will consent to a transfer of Shares to such stockholder's partners
or stockholders if the stockholder establishes, to the satisfaction of the
Board, that it attempted diligently and in good faith to transfer the Shares
to an Eligible Firm and was unable to do so. Transfers by an individual
stockholder to a living trust, testamentary trust or other trust established
for the benefit of the stockholder's heirs, legatees or devisees may be
approved by the Board. Although the Board of Directors of AIIG has not
generally approved such transfers in the past, the Board currently anticipates
that such transfers will be approved more often in the future. Upon request of
a stockholder, the Board will approve the repurchase of Shares from a firm,
absent unusual circumstances and subject to the adequacy of capital and
surplus for AIIG and AIC, in the event such firm ceases to practice due to the
death, disability or retirement of its owners. All such repurchases will be
effected at a per share price equal to 75% of the book value per Share as
reflected in AIIG's audited year end balance sheet for the preceding fiscal
year. The repurchase price may be paid with cash or notes or a combination
thereof.

Notwithstanding any of the above, the Stock Ownership Policy provides that
directors shall be eligible to buy stock from any Eligible Firm. There shall
be no minimum purchase requirement. The purchase price of the stock shall be
negotiated between buyer and seller, and not determined by formula. Upon
termination of service as a member of the Board, AIIG has the option to
repurchase this stock at a per share price equal to 75% of the book value per
share as reflected in AIIG's audited year end balance sheet for the preceding
fiscal year. The repurchase price may be paid with cash or notes or a
combination thereof.

The Stock Ownership Policy provides that all interpretations of the
foregoing policies and guidelines shall be made by the Board of Directors of
AIIG and shall be conclusive. The foregoing general policies may be amended at
any time by an amendment to the Bylaws of AIIG (including amendment by the
Board of Directors of AIIG without approval of the AIIG's stockholders). The
foregoing guidelines may be amended at any time by a resolution of the Board
of Directors of AIIG without approval of AIIG's stockholders.

It is anticipated that the foregoing policy and guidelines will be
continued by the Company. See, however, discussions under "Reasons for the
Change of Domicile and Restructuring." In addition to the foregoing, the
Company currently anticipates that, following the consummation of the
Transaction, Investco will put in place a new program by which those
shareholders of the Company who wish to have all of their Company Common
Shares purchased by Investco could do so, at prices and at times to be
approved by the Company's Board of Directors and in the Board's sole
discretion. The Company's Board of Directors anticipates that initially, such
purchases will be made at 50% of book value.

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<PAGE>

MARKET PRICES, DIVIDENDS AND DISTRIBUTIONS

Company Common Shares

There is currently no established public trading market for the Company
Common Shares, and no preference shares are outstanding. Immediately following
the Transaction, the Company Common Shares will be subject to the same
restrictions as are described herein with respect to the AIIG Common Stock.
See "--AIIG Common Stock." Until surrendered, the certificates representing
shares of AIIG Common Stock will be deemed to represent Company Common Shares.

Prior to consummation of the Exchange, there are 12,000 Company Common
Shares outstanding. Following the consummation of the Transaction, there will
be approximately 332,331 Company Common Shares outstanding.

As a newly formed company with no current business operations, the Company
has never paid any dividends. After the Exchange, the Company expects to adopt
the dividend policy of AIIG. See "--AIIG Common Stock." Any payments of
dividends will depend on, among other factors, the earnings, cash flow,
financial condition, general business conditions, any applicable contractual
limitations and capital requirements of the Company. There are currently no
contractual limitations for the payment of dividends.

AIIG Common Stock

There is no established public trading market for the common stock of AIIG.
AIIG's Certificate of Incorporation provides that all transfers of shares of
AIIG common stock must be approved by AIIG's Board of Directors or a committee
thereof. AIIG's Board of Directors has appointed a Stockholder Relations
Committee for purposes of reviewing and approving applications for transfer.
All transferees must meet the qualifications for Stock Ownership contained in
AIIG's Stock Ownership Policy. See "Description of Share Capital--Stock
Ownership Policy."

As of January 22, 1998, AIIG had 2,570 holders of record of its common
stock. During 1997 and 1996, AIIG paid cash dividends of $867,735 and
$869,661, respectively, representing four quarterly payments of $0.65 per
share in each year. During 1998, AIIG paid cash dividends of $216,683 on March
13, 1998 to holders of record of AIIG Common Stock on March 1, 1998,
$216,376.55 on June 15, 1998 to holders of record of AIIG Common Stock on June
1, 1998, $216,320 on September 15, 1998 to holders of record of AIIG Common
Stock on September 1, 1998 and $216,208.20 on December 15, 1998 to holders of
record of AIIG Common Stock on December 1, 1998 (each payment representing
$0.65 per share of AIIG Common Stock). The declaration of dividends by AIIG's
Board of Directors is dependent upon AIIG's and AIC's capacity to insure or
reinsure business, profitability, financial condition, and other factors which
the Board of Directors may deem appropriate. For a description of the
restrictions which Illinois law imposes on AIC's ability to pay dividends, see
"Business of AIIG."

LEGAL OPINIONS

Certain legal matters in connection with Company Common Shares to be issued
in the Transaction have been passed upon for the Company by Conyers, Dill &
Pearman, Hamilton, Bermuda. Conyers, Dill & Pearman has also rendered an
opinion regarding the Bermuda tax consequences of the Transaction referred to
in "Certain Tax Considerations." The opinion regarding the United States
Federal tax consequences of the Exchange and Restructuring referred to in
"Certain Tax Considerations" has been rendered by Altheimer & Gray, Chicago,
Illinois.

52
<PAGE>

EXPERTS

The balance sheet of AmerInst Insurance Group, Ltd. as of September 30,
1998, has been audited by Deloitte & Touche, independent chartered
accountants, as set forth in their report thereon included herein, and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
AmerInst Insurance Group, Inc. as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, included in this
Prospectus and the financial statement schedule included in the Registration
Statement, have been so included herein in reliance upon the reports of
Johnson Lambert & Co., independent certified public accountants, appearing
elsewhere herein, given on the authority of said firm as experts in accounting
and auditing. The Company has retained Deloitte & Touche Ltd. rather than
Johnson Lambert & Co. based on Deloitte & Touche's expertise with respect to
Bermuda-domiciled entities. There have been no disputes with Johnson Lambert
with respect to any accounting matter.

53
<PAGE>

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF
AMERINST INSURANCE GROUP, INC.

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995........................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995.................................. F-5
Consolidated Statement of Cash Flows for Years Ended December 31, 1997,
1996 and 1995........................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Condensed Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997....................................................... F-15
Condensed Consolidated Statements of Income and Retained Earnings for the
Nine-Month Periods Ended September 30, 1998 and 1997.................... F-16
Condensed Consolidated Statements of Cash Flows for the Nine-Month
Periods Ended September 30, 1998 and 1997............................... F-17
Notes to Condensed Consolidated Financial Statements..................... F-18

BALANCE SHEET OF
AMERINST INSURANCE GROUP, LTD.

Report of Independent Accountants........................................ F-19
Balance Sheet as of September 30, 1998................................... F-20
Notes to the Balance Sheet............................................... F-21
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
AmerInst Insurance Group, Inc.

We have audited the accompanying consolidated balance sheets of AmerInst
Insurance Group, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the three years ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and the 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 financial statements referred to above present fairly,
in all material respects, the financial position of AmerInst Insurance Group,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the three years ended December 31, 1997 in conformity with
generally accepted accounting principles.

Johnson Lambert & Co.

Burlington, Vermont
February 13, 1998

F-2
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
----------- -----------
ASSETS
------
<S> <C> <C>
Investments:
Fixed maturity investments, at market value
(amortized cost $33,420,863 and $35,312,165)........ $34,065,619 $35,688,432
Short-term investments, at market value (approximate
cost)............................................... 1,687,461
Equity securities at market value (cost $6,721,873
and $1,991,963)..................................... 7,617,960 2,260,878
----------- -----------
Total investments.................................. 41,683,579 39,636,771
Cash and cash equivalents.............................. 1,081,736 347,404
Assumed reinsurance premiums receivable................ 1,146,379 929,798
Reinsurance recoveries receivable...................... 1,039,762 2,019,975
Accrued investment income.............................. 499,970 515,870
Deferred policy acquisition costs...................... 800,598 611,048
Deferred income tax asset.............................. 992,599 1,306,399
Prepaid expenses and other assets...................... 186,506 90,008
----------- -----------
Total assets....................................... $47,431,129 $45,457,273
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Unpaid losses and loss adjustment expenses............. $20,802,873 $20,299,937
Unearned premiums...................................... 2,809,115 2,144,027
Reinsurance balances payable........................... 1,984,442 2,152,056
Income taxes payable................................... 260,897 316,199
Accrued expenses and other liabilities................. 455,438 453,529
----------- -----------
Total liabilities.................................. 26,312,765 25,365,748
----------- -----------
Stockholders' equity
Common stock, $.01 par value, 2,000,000 shares
authorized;
1997--333,358 shares issued and outstanding
1996--334,180 shares issued and outstanding......... 3,334 3,342
Additional paid-in capital........................... 7,172,508 7,188,983
Retained earnings.................................... 12,925,566 12,474,579
Unrealized gains on investments, net of tax.......... 1,016,956 424,621
----------- -----------
Total stockholders' equity......................... 21,118,364 20,091,525
----------- -----------
Total liabilities and stockholders' equity......... $47,431,129 $45,457,273
=========== ===========
</TABLE>

See notes to the consolidated financial statements.

F-3
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Premiums earned............................. $5,852,286 $5,386,388 $5,494,413
Net investment income and net realized gains
and losses................................. 2,572,539 2,394,377 2,195,451
---------- ---------- ----------
Total revenues............................ 8,424,825 7,780,765 7,689,864
---------- ---------- ----------
Losses and expenses
Losses and loss adjustment expenses......... 4,748,833 2,717,884 1,489,667
Policy acquisition costs.................... 1,462,733 1,302,327 1,084,577
Operating and management expenses........... 619,684 727,780 786,037
---------- ---------- ----------
Total losses and expenses................. 6,831,250 4,747,991 3,360,281
---------- ---------- ----------
Income before income taxes.................. 1,593,575 3,032,774 4,329,583
Provision for income taxes.................... 262,404 945,996 1,232,598
---------- ---------- ----------
Net income................................ $1,331,171 $2,086,778 $3,096,985
========== ========== ==========
Basic earnings per share.................. $ 3.99 $ 6.24 $ 9.24
========== ========== ==========
Average common shares outstanding for the
year......................................... 333,870 334,558 335,294
========== ========== ==========
</TABLE>

See notes to the consolidated financial statements.

F-4
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Unrealized
Additional Gains (Losses) Total
Common Paid-In Retained on Investments, Treasury Stockholders'
Stock Capital Earnings Net of Tax Stock Equity
------ ---------- ----------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... $3,366 $7,248,608 $ 8,635,961 $(1,390,852) $ -- $14,497,083
Net income.............. 3,096,985 3,096,985
Change in net unrealized
gains and losses....... 1,966,216 1,966,216
Purchases of 1,693
shares of treasury
stock.................. (65,079) (65,079)
Retirement of 1,693
shares of treasury
stock.................. (17) (42,325) (22,737) 65,079
Cash dividends paid
($1.30 per share)...... (435,412) (435,412)
------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1995................... 3,349 7,206,283 11,274,797 575,364 -- 19,059,793
Net income.............. 2,086,778 2,086,778
Change in net unrealized
gains and losses....... (150,743) (150,743)
Purchases of 692 shares
of treasury stock...... (34,642) (34,642)
Retirement of 692 shares
of treasury stock...... (7) (17,300) (17,335) 34,642
Cash dividends paid
($2.60 per share)...... (869,661) (869,661)
------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1996................... 3,342 7,188,983 12,474,579 424,621 -- 20,091,525
Net income.............. 1,331,171 1,331,171
Change in net unrealized
gains and losses....... 592,335 592,335
Purchases of 822 shares
of treasury stock...... (28,932) (28,932)
Retirement of 822 shares
of treasury stock...... (8) (16,475) (12,449) 28,932
Cash dividends paid
($2.60 per share)...... (867,735) (867,735)
------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1997................... $3,334 $7,172,508 $12,925,566 $ 1,016,956 $ -- $21,118,364
====== ========== =========== =========== ======== ===========
</TABLE>

See notes to the consolidated financial statements.

F-5
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................... $ 1,331,171 $ 2,086,778 $ 3,096,985
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of net premiums and
discounts on investments........ 21,185 18,906 43,796
Net realized (gains) losses on
sales of investment............. (305,253) (1,765) 312,647
Deferred income taxes............ 7,995 (495,727) 817,999
Changes in assets and liabilities:
Assumed reinsurance premiums
receivable...................... (216,581) 196,628 (754,590)
Reinsurance recoveries
receivable...................... 980,213 1,139,586 911,439
Accrued investment income........ 15,900 75,303 (217,556)
Deferred policy acquisition
costs........................... (189,550) (48,573) (120,887)
Income taxes receivable/payable.. (55,302) 713,191 (3,765,309)
Prepaid expenses and other
assets.......................... (96,498) (9,758) (15,862)
Unpaid losses and loss adjustment
expenses........................ 502,936 (1,489,099) (3,546,094)
Unearned premiums................ 665,088 48,565 41,562
Reinsurance balances payable..... (167,614) (1,083,436) (687,903)
Accrued expenses and other
liabilities..................... 1,909 (36,364) 413,372
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 2,495,599 1,114,235 (3,470,401)
------------ ------------ ------------
Cash flows from investing activities
Purchases of investments........... (13,572,437) (22,603,360) (16,227,959)
Proceeds of sales and maturities of
investments....................... 11,010,362 20,761,301 22,430,109
Net (purchases) sales of short-term
investments....................... 1,697,475 (1,325,897) 244,016
------------ ------------ ------------
Net cash provided by (used in)
investing activities.......... (864,600) (3,167,956) 6,446,166
------------ ------------ ------------
Cash flows from financing activities
Dividends paid..................... (867,735) (869,661) (435,412)
Purchases of treasury stock........ (28,932) (34,642) (65,079)
------------ ------------ ------------
Net cash used in financing
activities.................... (896,667) (904,303) (500,491)
------------ ------------ ------------
Net change in cash and cash
equivalents......................... 734,332 (2,958,024) 2,475,274
Cash and cash equivalents, beginning
of year............................. 347,404 3,305,428 830,154
------------ ------------ ------------
Cash and cash equivalents, end of
year................................ $ 1,081,736 $ 347,404 $ 3,305,428
============ ============ ============
Supplemental data
Income taxes paid.................. $ 425,000 $ 728,505 $ 600,000
============ ============ ============
</TABLE>

See notes to the consolidated financial statements.

F-6
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A--Organization and Significant Accounting Policies

Organization:

AmerInst Insurance Group, Inc. (AIIG) was incorporated under the laws of
the State of Delaware on September 9, 1987. On February 29, 1988, AIIG sold
343,357 shares of its common stock at a price of $25 per share in a public
offering to accounting firms that were members of the American Institute of
Certified Public Accountants (AICPA) or a state CPA society. Proceeds of the
public offering (net of selling agent's commission and expenses, management
fees and other offering costs totaling $1,151,850) amounted to $7,432,075,
which consisted of $3,434 of paid-in share capital and $7,428,641 of
additional paid-in capital.

Basis of Presentation:

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP) and include
the accounts of AIIG and its wholly-owned subsidiary, AmerInst Insurance
Company (AIC). All material intercompany accounts and transactions have been
eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Recognition of Premium Revenue:

Premiums assumed are earned ratably over the terms of the underlying
policies to which they relate. Premiums assumed relating to the unexpired
portion of underlying policies in force at the balance sheet date are recorded
as unearned premiums. Premiums ceded pursuant to excess of loss retrocession
agreements are expensed over the calendar year term of the treaty and are
netted against earned premiums. Charges or credits resulting from adjustments
to provisional retrocession premiums ceded pursuant to the excess of loss
retrocession agreements are reflected as adjustments to ceded premiums based
upon estimated ultimate premiums. Management believes that recorded
retrocession premiums ceded represent its best estimates of such amounts;
however, as changes in the estimated ultimate losses and loss adjustment
expenses applicable to the first excess of loss retrocession agreements are
determined, the estimated ultimate ceded premiums will also change. As
adjustments to these estimates become necessary, such adjustments are
reflected in current operations.

Deferred Policy Acquisition Costs:

Ceding commissions related to assumed reinsurance agreements are deferred
and amortized over the terms of the underlying policies to which they relate.

Unpaid Losses and Loss Adjustment Expenses:

The liability for unpaid losses and loss adjustment expenses includes case
basis estimates of reported losses plus supplemental amounts calculated based
upon projections of AIC's historical loss experience supplemented with
industry data. In establishing its liability for unpaid losses and loss
adjustment expenses, AIC utilizes the findings of an independent consulting
actuary. Management believes that its aggregate liability for unpaid losses
and loss adjustment expenses at year-end represents its best estimate, based
upon the available data, of the amount necessary to cover the ultimate cost of
losses. However, because of the volatility inherent in professional liability
coverage, actual loss experience may not conform to the assumptions used in
determining the estimated

F-7
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

amounts for such liability at the balance sheet dates. Accordingly, the
ultimate liability could vary significantly from the amounts shown in the
financial statements. As adjustments to these estimates become necessary, such
adjustments are reflected in current operations. AIC does not discount its
loss reserves.

The anticipated effect of inflation is implicitly considered when
estimating liabilities for unpaid losses and loss adjustment expenses. Future
average severities are projected based on historical trends adjusted for
anticipated changes in underwriting standards, policy provisions, and general
economic trends. These anticipated trends are monitored based on actual
development and are modified if necessary.

Reinsurance Recoveries Receivable:

Reinsurance recoveries receivable is comprised of estimated amounts of
losses and loss adjustment expenses paid and unpaid which are expected to be
recoverable from reinsurers. Amounts recoverable from the reinsurers pursuant
to retrocession agreements have been estimated using actuarial assumptions
consistent with those used in establishing the liability for unpaid losses and
loss adjustment expenses. Management believes that reinsurance recoveries
receivable as recorded represents its best estimate of such amounts; however,
as changes in the estimated ultimate liability for unpaid losses and loss
adjustment expenses are determined, the estimated ultimate amount recoverable
from the reinsurers will also change. Accordingly, the ultimate recoverable
could be significantly in excess of or less than the amount indicated in the
financial statements. Further, management has determined that no provision for
uncollectible reinsurance recoveries is necessary. As adjustments to these
estimates become necessary, such adjustments are reflected in current
operations.

Investments:

All investments are considered to be available for sale and are reported at
their estimated market values at December 31, 1997 and 1996. Net changes in
these estimated market values are reported as unrealized gains or losses
directly in stockholders' equity, net of tax effects. Net realized gains and
losses are determined using the specific identification method and are
reflected in the income statement in the period of sale. Short-term
investments include fixed maturity securities with a maturity date within one
year of acquisition. As more fully described in Note B, certain investments
held are used to collateralize obligations to previous and current ceding
companies.

Cash and Cash Equivalents:

Cash equivalents consist of money market mutual funds.

Note B--Insurance Activity

AIIG, through its wholly-owned subsidiary AIC, has been engaged since April
1988 in the reinsurance of claims-made insurance policies of participants in
an AICPA-endorsed insurance program that provides accountants' professional
liability insurance coverage (AICPA Plan). From the inception of AIC through
mid-1993, Crum and Forster Managers Corporation through a group of affiliated
insurance companies (collectively CFMC), was the primary insurer for the AICPA
Plan. In 1988, AIC provided reinsurance to CFMC, assuming 10% of the risks
related to the first $1,000,000 of coverage for each policy issued under the
program. For the period 1989 through mid-1993, an unaffiliated company,
Virginia Surety Company, Inc. (VSC) provided reinsurance to CFMC and
retroceded a portion to AIC such that AIC assumed 10% to 12.5% of the risk
related to the first $1,000,000 of coverage limits for each policy issued
under the program. In August 1993, the AICPA Plan endorsed the CNA Insurance
Group (CNA) as its insurance carrier, replacing CFMC as the primary insurer.
AIC began a reinsurance relationship with CNA, taking a 10% participation of
the first $1,000,000 of liability of each policy written under the plan. CFMC,
VSC, and CNA are collectively referred to as the "ceding companies".

F-8
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pursuant to the reinsurance agreements described above, AIC is required to
provide the ceding companies with collateral for AIC's liabilities to them. At
December 31, 1997 and 1996, investments with a carrying value of $499,707 and
$1,498,311, respectively, are held in a trust account pursuant to the 1988
reinsurance agreement with CFMC. At December 31, 1997 and 1996, the carrying
value of investments held in a trust account pursuant to reinsurance
agreements with VSC in effect from 1989 to mid-1993 is $7,144,800 and
$12,291,395, respectively. At December 31, 1997 and 1996, AIC has provided CNA
with a letter of credit issued by Harris Trust and Savings Bank in the amount
of $4,500,000. At December 31, 1997 and 1996, investments with a carrying
value of $7,225,790 and $7,170,612, respectively, are held in a trust account
at Harris Trust and Savings Bank as security for the letter of credit.

AIC entered into excess of loss retrocession agreements to limit its
retained risk on any one claim underwritten by CFMC to $50,000 in 1989 and
1990 and $62,500 in 1991 through mid-1993, subject to specified maximum
recoveries for each contract year. Retrocession premiums ceded by AIC are
adjustable within a specified range based on actual experience under each
contract. Retrocession transactions do not relieve AIC from its obligation to
the ceding companies. Revisions to the estimates of ultimate premiums ceded
pursuant to the retrocession agreements resulted in credits to retroceded
premiums recorded of $720,298, $693,976 and $611,916 during 1997, 1996 and
1995, respectively.

A reconciliation of assumed to net premiums, on both a written and an
earned basis is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Written Earned Written Earned Written Earned
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assumed................. $5,797,076 $5,131,988 $4,740,977 $4,692,412 $4,924,059 $4,882,497
Retroceded.............. 720,298 720,298 693,976 693,976 611,916 611,916
---------- ---------- ---------- ---------- ---------- ----------
Net................. $6,517,374 $5,852,286 $5,434,953 $5,386,388 $5,535,975 $5,494,413
========== ========== ========== ========== ========== ==========
</TABLE>

The components of the liability for unpaid losses and loss adjustment
expenses and related reinsurance recoveries receivable are as follows:

<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
Gross Reinsurance Net Gross Reinsurance Net
Liability Receivable Liability Liability Receivable Liability
--------- ----------- --------- --------- ----------- ---------
(000's omitted)
<S> <C> <C> <C> <C> <C> <C>
Case basis estimates.... $ 5,765 $ (372) $ 5,393 $ 6,673 $(1,162) $ 5,511
Supplemental amounts.... 15,038 (668) 14,370 13,627 (858) 12,769
------- ------- ------- ------- ------- -------
Totals.............. $20,803 $(1,040) $19,763 $20,300 $(2,020) $18,280
======= ======= ======= ======= ======= =======
</TABLE>

F-9
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The changes in the liability for unpaid losses and loss adjustment expenses,
net of related reinsurance recoveries receivable, are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(000's omitted)
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
recoveries receivable........................... $18,280 $18,629 $21,264
Incurred related to:
Current year................................... 6,160 5,635 4,797
Prior years.................................... (1,411) (2,917) (3,307)
------- ------- -------
Total incurred............................... 4,749 2,718 1,490
------- ------- -------
Paid related to:
Current year................................... (230) (183) (38)
Prior years.................................... (3,036) (2,884) (4,087)
------- ------- -------
Total paid................................... (3,266) (3,067) (4,125)
------- ------- -------
Balance as of December 31, net of reinsurance
recoveries receivable........................... $19,763 $18,280 $18,629
======= ======= =======
</TABLE>

Note C--Investments

Major categories of net interest and dividend income, net realized gains
(losses) on sales of investments and net change in unrealized gains (losses)
are summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest earned:
Fixed maturity investments......... $2,158,681 $2,283,637 $2,290,071
Funds held by ceding companies..... 113,704
Short term investments and cash and
cash equivalents.................. 148,884 157,679 150,104
Dividends earned..................... 57,724 23,571 23,336
Net realized gains (losses) on sales
of investments:
Fixed maturity investments......... 3,025 (160,919) (367,505)
Equity securities.................. 302,693 163,265 54,858
Short-term investments............. (466) (581)
Investment expenses.................. (98,002) (72,275) (69,117)
---------- ---------- ----------
Net investment income................ $2,572,539 $2,394,377 $2,195,451
========== ========== ==========
Net change in unrealized gains
(losses):
Fixed maturity investments......... $ 270,305 $ (373,231) $1,229,681
Funds held by ceding companies..... 1,555,517
Equity securities.................. 627,172 144,833 193,917
---------- ---------- ----------
Net change in unrealized gains (loss-
es)................................. $ 897,477 $ (228,398) $2,979,115
========== ========== ==========
</TABLE>

F-10
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The cost or amortized cost and estimated market values of investments are as
follows:

<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------
Cost or Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. treasury securities
and obligations of U.S.
government agencies..... $ 4,447,299 $ 105,201 $ -- $ 4,552,500
Obligations of states and
political subdivisions.. 13,831,512 292,052 (5,510) 14,118,054
Mortgage-backed
securities.............. 15,142,052 253,013 15,395,065
----------- ---------- --------- -----------
Total fixed maturity
investments............. 33,420,863 650,266 (5,510) 34,065,619
Equity securities........ 6,721,873 1,177,052 (280,965) 7,617,960
----------- ---------- --------- -----------
Total investments.... $40,142,736 $1,827,318 $(286,475) $41,683,579
=========== ========== ========= ===========
<CAPTION>
As of December 31, 1996
----------------------------------------------
Cost or Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. treasury securities
and obligations of U.S.
government agencies..... $ 5,684,753 $ 87,747 $ -- $ 5,772,500
Obligations of states and
political subdivisions.. 9,332,002 110,379 (19,952) 9,422,429
Mortgage-backed
securities.............. 20,295,410 214,677 (16,584) 20,493,503
----------- ---------- --------- -----------
Total fixed maturity
investments............. 35,312,165 412,803 (36,536) 35,688,432
Short term investments... 1,689,278 (1,817) 1,687,461
Equity securities........ 1,991,963 345,397 (76,482) 2,260,878
----------- ---------- --------- -----------
Total investments.... $38,993,406 $ 758,200 $(114,835) $39,636,771
=========== ========== ========= ===========
</TABLE>

The amortized cost and estimated market value of fixed maturity investments
at December 31, 1997, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities as borrowers may have the
right to call or prepay obligations without penalties.

<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less.......................... $ 751,875 $ 760,000
Due after one year through five years............ 6,654,159 6,769,270
Due after five years through ten years........... 9,463,351 9,702,132
Due after ten years.............................. 1,409,426 1,439,152
----------- -----------
Subtotal..................................... 18,278,811 18,670,554
Mortgage-backed securities....................... 15,142,052 15,395,065
----------- -----------
Total........................................ $33,420,863 $34,065,619
=========== ===========
</TABLE>

F-11
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Included in fixed maturity investments at December 31, 1997 and 1996 are
securities held in a trust fund deposit at a bank in accordance with the
Illinois Insurance Code with a carrying value of approximately $1,750,000.

Information on sales and maturities of investments in fixed maturity
investments are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Total proceeds (excluding short-
term investments)................ $9,890,774 $19,057,331 $18,680,109
Gross gains....................... 18,504 33,438 31,761
Gross losses...................... (15,479) (194,357) (399,266)
</TABLE>

Note D--Operating and Management Expenses

AIIG and AIC have no employees. Their operating activities, as well as
certain management functions, are performed by contracted professional service
providers. USA Risk Group (USARG) provides certain management, administrative
and operational services under the direction of the Company's board of
directors pursuant to an agreement. The agreement may be terminated by either
party on July 1 of each year within a period not exceeding ninety days and no
less than 60 days prior written notice.

Operating and management expenses include compensation paid to members of
the board of directors and various committees of the board totaling $140,025
in 1997, $140,300 in 1996 and $129,183 in 1995.

Note E--Federal Income Taxes

AIIG and AIC file a consolidated federal income tax return. Deferred
federal income taxes arise from temporary differences between the valuation of
assets and liabilities as determined for financial reporting purposes and
income tax purposes. Such temporary differences relate principally to
unrealized gains and losses on investments, discounting of loss reserves,
recognition of unearned premiums and deferred policy acquisition costs.
Although realization is not assured, management believes it is more likely
than not that the net deferred tax asset recorded at each balance sheet date
is fully realizable. The amount of the deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced. Significant permanent differences between book and taxable
income include tax exempt municipal bond income, and the deduction for
dividends received.

The components of the provision for income tax are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Federal income tax
Current tax............................. $253,747 $1,434,172 $ 347,423
Deferred tax (benefit).................. 8,657 (495,780) 841,771
-------- ---------- ----------
Total federal income tax.................. 262,404 938,392 1,189,194
State income tax.......................... -- 7,604 43,404
-------- ---------- ----------
Provision for income tax.................. $262,404 $ 945,996 $1,232,598
======== ========== ==========
</TABLE>

A reconciliation of income tax at the federal statutory rate to the
Company's provision for income tax is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate.. $ 541,816 $1,031,143 $1,472,058
Effect of tax exempt investment
income............................... (164,154) (71,449) (143,386)
State income taxes.................... 7,604 43,404
Other................................. (115,258) (21,302) (139,478)
--------- ---------- ----------
Totals............................ $ 262,404 $ 945,996 $1,232,598
========= ========== ==========
</TABLE>

F-12
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The composition of the net deferred tax asset at December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities Net
------------ ------------ ----------
<S> <C> <C> <C>
Loss reserve discount............... $1,491,367 $ -- $1,491,367
Unearned premiums................... 191,020 191,020
Deferred policy acquisition costs... (272,203) (272,203)
Unrealized gain on investments...... (523,885) (523,885)
Capital loss carryforward........... 106,300 106,300
---------- --------- ----------
Total........................... $1,788,687 $(796,088) $ 992,599
========== ========= ==========
</TABLE>

The composition of the net deferred tax asset at December 31, 1996 is as
follows:

<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities Net
------------ ------------ ----------
<S> <C> <C> <C>
Loss reserve discount............... $1,480,805 $ -- $1,480,805
Unearned premiums................... 145,794 145,794
Deferred policy acquisition costs... (207,756) (207,756)
Unrealized gain on investments...... (218,744) (218,744)
Capital loss carryforward........... 106,300 106,300
---------- --------- ----------
Total........................... $1,732,899 $(426,500) $1,306,399
========== ========= ==========
</TABLE>

Note F--Insurance Regulatory Matters

AIC, domiciled in the State of Illinois, prepares statutory financial
statements in accordance with accounting practices prescribed or permitted by
the Insurance Department of the State of Illinois. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The NAIC
currently is in the process of establishing a codified set of statutory
accounting practices (the codification), the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices. The
codification is expected to be effective in 1999. The impact of the
codification on AIC cannot be determined at this time. Significant differences
between statutory accounting practices and generally accepted accounting
principles as apply to AIC are as follows:

. For statutory purposes, policy acquisition costs are charged to
operations in the year the costs are incurred rather than being deferred
and amortized as premiums are earned.

. Under statutory accounting practices, there is no provision made for
deferred income taxes.

. Certain assets including prepaid expenses are not admitted for statutory
purposes.

. Investments in fixed maturity securities are valued at amortized cost
under statutory accounting practices, rather than at market value.

Statutory surplus (stockholder's equity determined on a statutory basis) as
reflected in AIC's Annual Statement filed with the Insurance Department of the
State of Illinois was $17,400,602 and $16,478,241 at December 31, 1997 and
1996, respectively. Statutory net income was $1,248,255, $1,711,224 and
$3,969,695 in 1997, 1996 and 1995, respectively.

The State of Illinois imposes a restriction on the amount of dividends that
can be paid without prior regulatory approval. The maximum amount of dividends
that may be paid without such approval is limited to

F-13
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

the greater of 10% of statutory surplus or 100% of statutory basis net income
for the preceding fiscal year. The amount of dividends that could be paid by
AIC in 1998 without prior regulatory approval is $1,740,060. Accordingly,
$18,200,893 of AIC's separately determined GAAP basis stockholder's equity of
$19,940,953 is unavailable for distribution to AIIG in 1998 without prior
regulatory approval.

Note G--Proposed Redomestication and Restructuring

AIIG's Board of Directors has voted to submit a proposed "Exchange
Agreement" and related matters to a vote of shareholders. Pursuant to this
proposal, AIIG would transfer all of its assets and liabilities to a newly
formed Bermuda company in exchange for newly issued shares of the Bermuda
company. AIIG would then be liquidated and AIIG shareholders would receive on
a share-for-share basis the newly issued shares of the Bermuda company.

The transaction contemplates the restructuring of AIIG's business,
including the redomestication of AIC's insurance operations to a Bermuda
domiciled company.

The transactions contemplated in the Exchange Agreement, the
redomestication and the restructuring will be consummated only if certain
conditions are satisfied, including the approval of specific matters by the
holders of at least a majority of the outstanding AIIG common stock, certain
regulatory approvals and the agreement of certain other third parties.

F-14
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 1998 and December 31, 1997

<TABLE>
<CAPTION>
(Unaudited) As of
As of December 31,
ASSETS September 30, 1998 1997
------ ------------------ ------------
<S> <C> <C>
Investments
Fixed-maturity securities, at market......... $35,174,032 $34,065,619
Equity securities, at market................. 6,620,036 7,617,960
----------- -----------
Total investments.......................... 41,794,068 41,683,579
Other assets
Cash......................................... 1,068,940 1,081,736
Assumed reinsurance premiums receivable...... 1,112,977 1,146,379
Reinsurance recoveries receivable............ 1,000,685 1,039,762
Accrued investment income.................... 436,008 499,970
Deferred policy acquisition costs............ 722,880 800,598
Deferred federal income taxes................ 1,450,129 992,599
Prepaid expenses and other assets............ 201,959 186,506
Income taxes receivable...................... 390,766 --
----------- -----------
Total assets............................... $48,178,412 $47,431,129
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities
Losses and loss adjustment expenses.......... $23,666,481 $20,802,873
Unearned premiums............................ 2,536,423 2,809,115
Reinsurance balances payable................. 1,966,033 1,984,442
Income taxes payable......................... -- 260,897
Accrued expenses and other liabilities....... 498,491 455,438
----------- -----------
Total liabilities.......................... 28,667,428 26,312,765
----------- -----------
Stockholders' equity
Common stock, $.01 par value, 2,000,000
shares authorized:
1998: 332,800 issued and outstanding
1997: 333,358 issued and outstanding........ 3,328 3,334
Additional paid-in capital................... 7,156,539 7,172,508
Retained earnings............................ 11,910,233 12,925,566
Accumulated other comprehensive income, net
of taxes.................................... 440,884 1,016,956
----------- -----------
Total stockholders' equity................. 19,510,984 21,118,364
----------- -----------
Total liabilities and stockholders' equity. $48,178,412 $47,431,129
=========== ===========
</TABLE>

See the accompanying notes to the condensed consolidated financial statements.

F-15
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue.................
Premiums earned....... $ 4,497,820 $ 3,407,213 $ 1,440,929 $ 999,649
Net investment income. 1,627,661 1,793,221 543,305 597,353
Net realized capital
gain (loss).......... 334,834 180,503 28,639 110,891
----------- ----------- ----------- -----------
Total revenue..... 6,460,315 5,380,937 2,012,873 1,707,893
Losses and expenses
Losses and loss
adjustment expenses.. 5,364,453 4,041,048 1,696,472 1,167,452
Commissions expense... 1,278,323 971,172 410,665 284,903
Other operating and
management expenses.. 606,703 548,267 156,991 167,657
----------- ----------- ----------- -----------
Total losses and
expenses......... 7,249,479 5,560,487 2,264,128 1,620,012
----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (789,164) (179,550) (251,255) 87,881
Provision for income tax
expense (benefit)...... (437,428) (292,379) (137,660) 166,939
----------- ----------- ----------- -----------
Net income (loss)....... $ (351,736) $ 112,829 $ (113,595) $ 254,820
----------- ----------- ----------- -----------
Other comprehensive
income, net of tax
Unrealized gains
(losses) on
securities:
Unrealized holding
gains (losses)
arising during
period............. (355,082) 821,022 (789,111) 553,985
Less:
reclassification
adjustment for
gains (losses)
included in net
income............. (220,990) (119,132) (18,902) (73,188)
----------- ----------- ----------- -----------
Other comprehensive
income (loss).......... (576,072) 701,890 (808,013) 480,797
----------- ----------- ----------- -----------
Comprehensive income
(loss)................. $ (927,808) $ 814,719 $ (921,608) $ 735,617
=========== =========== =========== ===========
Retained earnings,
beginning of period.... $12,925,566 $12,474,579 $12,240,149 $11,893,520
Net income (loss)....... (351,736) 112,829 (113,595) 254,820
Dividend paid........... (649,377) (651,000) (216,321) (216,984)
Excess of purchase price
on stock redemptions... (14,220) (5,052) -- --
----------- ----------- ----------- -----------
Retained earnings, end
of period.............. $11,910,233 $11,931,356 $11,910,233 $11,931,356
=========== =========== =========== ===========
Per common share data
Net income (loss)....... $ (1.06) $ .34 $ (.34) $ .76
=========== =========== =========== ===========
Dividend paid........... $ 1.95 $ 1.95 $ .65 $ .65
=========== =========== =========== ===========
Weighted average number
of shares outstanding
for the entire period.. 333,070 333,864 332,800 333,821
=========== =========== =========== ===========
</TABLE>

See the accompanying notes to the condensed consolidated financial statements.

F-16
<PAGE>

AMERINST INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Operating activities
Net Cash Provided by Operating Activities........ $ 1,339,380 $ 3,239,679
------------ -----------
Investing activities
Proceeds from sales of investments............... 9,992,939 8,142,786
Purchases of fixed-maturity securities........... (10,665,540) (9,887,047)
Net sales of short-term investments.............. -- (705,180)
------------ -----------
Net Cash used in Investing Activities.............. (672,601) (2,449,441)
Financing activities
Redemption of shares............................. (30,196) (11,955)
Shareholder dividend............................. (649,379) (651,000)
------------ -----------
Net Cash Used by Financing Activities.............. (679,575) (662,955)
------------ -----------
Increase (Decrease) in cash........................ $ (12,796) $ 127,283
============ ===========
</TABLE>

See the accompanying notes to the condensed consolidated financial statements.

F-17
<PAGE>

AMERINST INSURANCE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1998
(UNAUDITED)

BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by AmerInst Insurance Group, Inc. (AIIG) without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission and
reflect all adjustments consisting of normal recurring accruals, which are, in
the opinion of management, necessary for a fair presentation of the results of
operations for the periods shown. These statements are condensed and do not
include all information required by generally accepted accounting principles
to be included in a full set of financial statements. It is suggested that
these condensed statements be read in conjunction with the consolidated
financial statements at and for the year ended December 31, 1997 and notes
thereto, included in the Registrant's annual report as of that date.

F-18
<PAGE>

[LETTERHEAD OF DELOITTE & TOUCHE]

INDEPENDENT AUDITORS' REPORT

To the Shareholder of AmerInst Insurance Group, Ltd.

We have audited the accompanying balance sheet of AmerInst Insurance Group,
Ltd. as at September 30, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this balance sheet based on our audit.

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

In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as at September 30, 1998 in
conformity with accounting principles generally accepted in the United States
of America.

/s/ Deloitte & Touche

Hamilton, Bermuda
September 30, 1998

- -----------
Deloitte Touche
Tohmatsu
- -----------

F-19
<PAGE>

AMERINST INSURANCE GROUP, LTD.

BALANCE SHEET

As of September 30, 1998
(expressed in U.S. dollars)

<TABLE>
<S> <C>
ASSETS
Organization costs.................................................... $27,000
=======
LIABILITIES
Accounts payable and accrued expenses................................. $27,000
SHAREHOLDER'S EQUITY
Share capital
Authorized, issued and nil paid 12,000 common shares of par value $1
each ............................................................... $ 0
-------
$27,000
=======
</TABLE>

See accompanying notes to the balance sheet

APPROVED BY THE BOARD
____________________________ Director ____________________________ Director

F-20
<PAGE>

AMERINST INSURANCE GROUP, LTD.

NOTES TO THE BALANCE SHEET

September 30, 1998
(expressed in U.S. dollars)

1. Description of Business

The Company was incorporated on July 16, 1998 under the laws of Bermuda and
is a wholly-owned subsidiary of AmerInst Insurance Group, Inc. ("AIG"), a
company incorporated in the United States of America. The principal activity
is that of an investment holding company.

2. Significant Accounting Policies

Basis of preparation

The balance sheet has been prepared in conformity with accounting
principles generally accepted in the United States of America. The preparation
of a balance sheet in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement. Actual results could
differ from those estimates.

Organization costs

Organization costs are amortized on a straight line basis over three months
from October 1 to December 31, 1998.

3. Exchange Agreement

The Company will, subject to AIG shareholder approval, enter into an
Exchange Agreement which provides that AIG will exchange all of its assets and
liabilities for newly-issued shares of the Company's common stock. Immediately
after the exchange, AIG will be dissolved and the holders of shares of AIG
common stock will receive, on a share-for-share basis, common shares of the
Company.

The transfer of the assets and liabilities of AIG to the Company pursuant
to the Exchange will be accounted for at historic cost, as the transaction
will not result in a change in control of voting interest.

4. Taxation

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

F-21
<PAGE>

APPENDIX A

[BERMUDA SEAL GRAPHIC]

FORM NO. 2

BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(1) and (2))

MEMORANDUM OF ASSOCIATION
OF
AmerInst Insurance Group Ltd.

(hereinafter referred to as "the Company")

1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.

2. We, the undersigned, namely,

<TABLE>
<CAPTION>
Bermudian Number
Status of Shares
Name Address (Yes/No) Nationality Subscribed
---- ------- --------- ----------- ----------
<S> <C> <C> <C> <C>
James M. Macdonald Clarendon House Yes British One
2 Church Street
Hamilton, Bermuda
David W. Cooke " Yes British One
Anthony D. Whaley " Yes British One
</TABLE>

do hereby respectively agree to take such number of shares of the Company as
may be allotted to us respectively by the provisional directors of the
Company, not exceeding the number of shares for which we have respectively
subscribed, and to satisfy such calls as may be made by the directors,
provisional directors or promoters of the Company in respect of the shares
allotted to us respectively.

3. The Company is to be an exempted Company as defined by the Companies Act
1981.

4. The Company has power to hold land situated in Bermuda not exceeding in
all, including the following parcels--N/A

5. The authorized share capital of the Company is US$12,000.00 divided into
shares of US$1.00 each. The minimum subscribed share capital of the Company
is US$12,000.00.

6. The objects for which the Company is formed and incorporated are--

(i) as set out in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to the Companies Act 1981.

Signed by each subscriber in the presence of at least one witness attesting
the signature thereof--

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

/s/ James M. Macdonald
- -------------------------------------

/s/ David W. Cooke
- -------------------------------------

/s/ Anthony D. Whaley
- -------------------------------------

(Subscribers) (Witnesses)

SUBSCRIBED this 6th day of July, 1998
<PAGE>

APPENDIX B

BYE-LAWS

AMERINST INSURANCE GROUP, LTD.

B-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
1. Interpretation.................................................. B-4
2. Board of Directors.............................................. B-5
3. Management of the Company....................................... B-5
4. Power to appoint managing director or chief executive officer... B-6
5. Power to appoint manager........................................ B-6
6. Power to authorize specific actions............................. B-6
7. Power to appoint attorney....................................... B-6
8. Power to delegate to a committee................................ B-6
9. Power to appoint and dismiss employees.......................... B-7
10. Power to borrow and charge property............................. B-7
11. Exercise of power to purchase shares of or discontinue the
Company........................................................ B-7
12. Election of Directors........................................... B-7
13. Defects in appointment of Directors............................. B-7
14. Alternate Directors............................................. B-8
15. Removal of Directors............................................ B-8
16. Vacancies on the Board.......................................... B-8
17. Notice of meetings of the Board................................. B-9
18. Quorum at meetings of the Board................................. B-9
19. Meetings of the Board........................................... B-9
20. Unanimous written resolutions................................... B-9
21. Contracts and disclosure of Directors' interests................ B-10
22. Remuneration of Directors....................................... B-10
23. Officers of the Company......................................... B-10
24. Appointment of Officers......................................... B-10
25. Remuneration of Officers........................................ B-11
26. Duties of Officers.............................................. B-11
27. Chairman of meetings............................................ B-11
28. Register of Directors and Officers.............................. B-11
29. Obligations of Board to keep minutes............................ B-11
30. Indemnification of Directors and Officers of the Company........ B-11
31. Waiver of Action by Members..................................... B-14
32. Notice of annual general meeting................................ B-14
33. Notice of special general meeting............................... B-14
34. Accidental omission of notice of general meeting................ B-14
35. Meeting called on requisition of Members........................ B-15
36. Short notice.................................................... B-15
37. Postponement of meetings........................................ B-15
38. Quorum for general meeting...................................... B-15
39. Adjournment of meetings......................................... B-15
40. Written resolutions............................................. B-15
41. Attendance of Directors......................................... B-16
42. Voting at meetings.............................................. B-16
43. Voting on show of hands......................................... B-17
44. Decision of chairman............................................ B-17
45. Demand for a poll............................................... B-17
46. Instrument of proxy............................................. B-18
47. Representation of corporations at meetings...................... B-18
48. Rights of shares................................................ B-18
49. Power to issue shares........................................... B-19
</TABLE>

B-2
<PAGE>

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
50. Variation of rights, alteration of share capital and purchase of
shares of the Company.......................................... B-20
51. Registered holder of shares..................................... B-20
52. Death of a joint holder......................................... B-20
53. Share certificates.............................................. B-21
54. Calls on shares................................................. B-21
55. Forfeiture of shares............................................ B-21
56. Contents of Register of Members................................. B-22
57. Inspection of Register of Members............................... B-22
58. Determination of record dates................................... B-22
59. Instrument of transfer.......................................... B-22
60. Restriction on transfer......................................... B-22
61. Transfers by joint holders...................................... B-23
62. Representative of deceased Member............................... B-23
63. Registration on death or bankruptcy............................. B-23
64. Declaration of dividends by the Board........................... B-23
65. Other distributions............................................. B-24
66. Reserve fund.................................................... B-24
67. Deduction of Amounts due to the Company......................... B-24
68. Issue of bonus shares........................................... B-24
69. Records of account.............................................. B-24
70. Financial year end.............................................. B-25
71. Financial statements............................................ B-25
72. Appointment of Auditor.......................................... B-25
73. Remuneration of Auditor......................................... B-25
74. Vacation of office of Auditor................................... B-25
75. Access to books of the Company.................................. B-25
76. Report of the Auditor........................................... B-26
77. Notices to Members of the Company............................... B-26
78. Notices to joint Members........................................ B-26
79. Service and delivery of notice.................................. B-26
80. The seal........................................................ B-27
81. Manner in which seal is to be affixed........................... B-27
82. Winding-up/distribution by liquidator........................... B-27
83. Alteration of Bye-laws.......................................... B-27
Schedule--Form A (Bye-law 55)........................................ 28
Schedule--Form B (Bye-law 59)........................................ 29
Schedule--Form C (Bye-law 63)........................................ 30
</TABLE>

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<PAGE>

INTERPRETATION

1. Interpretation

(1) In these Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:--

(a) "Act" means the Companies Act 1981, as amended from time to time;

(b) "Alternate Director" means an alternate Director appointed in
accordance with these Bye-laws;

(d) "Bermuda Director" shall be a Director who is ordinarily resident in
Bermuda.

(e) "Board" means the Board of Directors appointed or elected pursuant
to these Bye-laws and acting by resolution in accordance with the Act and
these Bye-laws or the Directors present at a meeting of Directors at which
there is a quorum;

(f) "Company" means the company for which these Bye-laws are approved
and confirmed;

(g) "Director" means a director of the Company and shall include an
Alternate Director;

(h) "Member" means the person registered in the Register of Members as
the holder of shares in the Company and, when two or more persons are so
registered as joint holders of shares, means the person whose name stands
first in the Register of Members as one of such joint holders or all of
such persons as the context so requires;

(i) "notice" means written notice as further defined in these Bye-laws
unless otherwise specifically stated;

(j) "Officer" means any person appointed by the Board to hold an office
in the Company who has executive authority pursuant to these Bye-Laws;

(k) "Register of Directors and Officers" means the Register of Directors
and Officers referred to in these Bye-laws;

(l) "Register of Members" means the Register of Members referred to in
these Bye-laws;

(m) "Resident Representative" means any person appointed to act as
resident representative and includes any deputy or assistant resident
representative; and

(n) "Secretary" means the person appointed to perform any or all the
duties of secretary of the Company and includes any deputy or assistant
secretary.

(2) In these Bye-laws, where not inconsistent with the context:

(a) words denoting the plural number include the singular number and
vice versa;

(b) words denoting the masculine gender include the feminine gender;

(d) the word:

(i) "may" shall be construed as permissive;

(ii) "shall" shall be construed as imperative; and

(e) unless otherwise provided herein words or expressions defined in the
Act shall bear the same meaning in these Bye-laws.

(3) Expressions referring to writing or written shall, unless the contrary
intention appears, include facsimile, printing, lithography, photography and
other modes of representing words in a visible form.

(4) Headings used in these Bye-laws are for convenience only and are not to
be used or relied upon in the construction hereof.

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<PAGE>

BOARD OF DIRECTORS

2. Board of Directors

The business of the Company shall be managed and conducted by the Board.

3. Management of the Company

(1) In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws,
required to be exercised by the Company in general meeting subject,
nevertheless, to these Bye-laws, the provisions of any statute and to such
directions as may be prescribed by the Company in general meeting.

(2) No regulation or alteration to these Bye-laws made by the Company in
general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation or alteration had not been made.

(3) The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.

4. Power to appoint managing director or chief executive officer

The Board may from time to time appoint a President to be the chief
executive officer of the Company who shall, subject to the control of the
Board, supervise and administer all of the general business and affairs of the
Company.

5. Power to appoint manager

The Board may appoint a person to act as manager of the Company's day to
day business and may entrust to and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such
business.

6. Power to authorize specific actions

The Board may from time to time and at any time authorize any company,
firm, person or body of persons to act on behalf of the Company for any
specific purpose and in connection therewith to execute any agreement,
document or instrument on behalf of the Company.

7. Power to appoint attorney

The Board may from time to time and at any time by power of attorney
appoint any company, firm, person or body of persons, whether nominated
directly or indirectly by the Board, to be an attorney of the Company for such
purposes and with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Board) and for such period and subject
to such conditions as it may think fit and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney as the Board may think fit and may also authorize any
such attorney to sub-delegate all or any of the powers, authorities and
discretions so vested in the attorney. Such attorney may, if so authorized
under the seal of the Company, execute any deed or instrument under such
attorney's personal seal with the same effect as the affixation of the seal of
the Company.

8. Power to delegate to a committee

The Board may delegate any of its powers to a committee appointed by the
Board which may consist partly or entirely of non-Directors and every such
committee shall conform to such directions as the Board shall impose on them.

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<PAGE>

9. Power to appoint and dismiss employees

The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and determine
their duties.

10. Power to borrow and charge property

The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge its undertaking, property and uncalled capital, or any part
thereof, and may issue debentures, debenture stock and other securities
whether outright or as security for any debt, liability or obligation of the
Company or any third party.

11. Exercise of power to purchase shares of or discontinue the Company

(1) The Board may exercise all the powers of the Company to purchase all or
any part of its own shares pursuant to Section 42A of the Act.

(2) The Board may exercise all the powers of the Company to discontinue the
Company to a named country or jurisdiction outside Bermuda pursuant to Section
132G of the Act.

12. Election of Directors

The business of the Company shall be managed and conducted by a Board of
Directors consisting of not less than 5 and more than 9 Directors as the
Members may from time to time determine who shall be elected or appointed at
the annual general meetings of the Company. The persons nominated to be
elected or appointed as Directors shall be divided into three classes of
approximately equal size determined by lot; the term of office of those in the
first class to expire at the annual general meeting next following such
meeting, the term of office of those in the second class to expire at the
second annual general meeting following such meeting, and the term of office
of those in the third class to expire at the third annual general meeting
following such meeting. At each annual general meeting held after such
classification and election, Directors shall be elected or appointed for a
full three year term, as the case may be, to succeed those whose terms expire.
Each Director shall hold office for the term for which he is elected and until
his successor is appointed. Any general meeting may authorize the Board to
fill any vacancy in their number unfilled at a general meeting.

13. Defects in appointment of Directors

All acts done bona fide by any meeting of the Board or by a committee of
the Board or by any person acting as a Director shall, notwithstanding that it
be afterwards discovered that there was some defect in the appointment of any
Director or person acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such person had been duly appointed and
was qualified to be a Director.

14. Alternate Directors

(1) Any Director may appoint a person or persons to act as a Director in
the alternative to himself or herself by notice in writing deposited with the
Secretary. Any person so elected or appointed shall have all the rights and
powers of the Director or Directors for whom such person is appointed in the
alternative provided that such person shall not be counted more than once in
determining whether or not a quorum is present.

(2) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.

B-6
<PAGE>

(3) An Alternate Director shall cease to be such if the Director for whom
such Alternate Director was appointed ceases for any reason to be a Director
but may be re-appointed by the Board as alternate to the person appointed to
fill the vacancy in accordance with these Bye-laws.

15. Removal of Directors

(1) Subject to any provision to the contrary in these Bye-laws, the Members
may, at any special general meeting convened and held in accordance with these
Bye-laws, remove a Director provided that the notice of any such meeting
convened for the purpose of removing a Director shall contain a statement of
the intention so to do and be served on such Director not less than 14 days
before the meeting and at such meeting such Director shall be entitled to be
heard on the motion for such Director's removal.

(2) A vacancy on the Board created by the removal of a Director under the
provisions of subparagraph (1) of this Bye-law may be filled by the Members at
the meeting at which such Director is removed and, in the absence of such
election or appointment, the Board may fill the vacancy.

16. Vacancies on the Board

(1) The Board shall have the power from time to time and at any time to
appoint any person as a Director to fill a vacancy on the Board occurring as
the result of the death, disability, disqualification or resignation of any
Director and to appoint an Alternate Director to any Director so appointed.
The term of such Alternate Director so appointed shall expire at the next
following annual meeting.

(2) The Board may act notwithstanding any vacancy in its number but, if and
so long as its number is reduced below the number fixed by these Bye-laws as
the quorum necessary for the transaction of business at meetings of the Board,
the continuing Directors or Director may act for the purpose of (i) summoning
a general meeting of the Company or (ii) preserving the assets of the Company.

(3) The office of Director shall be vacated if the Director:

(a) is removed from office pursuant to these Bye-laws or is prohibited
from being a Director by law;

(b) is or becomes bankrupt or makes any arrangement or composition with
his creditors generally;

(d) resigns his or her office by notice in writing to the Company.

17. Notice of meetings of the Board

(1) A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Board.

(2) Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given in writing to such Director, sent to such Director by
post, cable, telex, telecopier, facsimile or other mode of representing words
in a legible and non-transitory form at such Director's last known address or
any other address given by such Director to the Company for this purpose, at
least five days prior to the meeting.

18. Quorum at meetings of the Board

The quorum necessary for the transaction of business at a meeting of the
Board shall be two Directors.

19. Meetings of the Board

(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.

B-7
<PAGE>

(2) Directors may participate in any meeting of the Board by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting; provided, however, that no Director present in the
United States at the time of such communication meeting may participate in
such communication facility.

(3) A resolution put to the vote at a meeting of the Board shall be carried
by the affirmative votes of a majority of the votes cast and in the case of an
equality of votes the resolution shall fail.

20. Unanimous written resolutions

A resolution in writing signed by all the Directors which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Bermuda Director signs the resolution, which shall be after
all other Directors shall have signed the resolution. For the purposes of this
Bye-law only, "Director" shall not include an Alternate Director.

21. Contracts and disclosure of Directors' interests

(1) Any Director, or any Director's firm, partner or any company with whom
any Director is associated, may act in a professional capacity for the Company
and such Director or such Director's firm, partner or such company shall be
entitled to remuneration for professional services as if such Director were
not a Director, provided that nothing herein contained shall authorize a
Director or Director's firm, partner or such company to act as Auditor of the
Company.

(2) A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.

(3) Following a declaration being made pursuant to this Bye-law, and unless
disqualified by the chairman of the relevant Board meeting, a Director may
vote in respect of any contract or proposed contract or arrangement in which
such Director is interested and may be counted in the quorum at such meeting.

22. Remuneration of Directors

The remuneration (if any) of the Directors shall be determined by the Board
and shall be deemed to accrue from day to day. The Directors may also be paid
all travel, hotel and other expenses properly incurred by them in attending
and returning from meetings of the Board, any committee appointed by the
Board, general meetings of the Company, or in connection with the business of
the Company or their duties as Directors generally.

OFFICERS

23. Officers of the Company

The Officers of the Company shall consist of a President and a Vice
President, a Secretary and such additional Officers as the Board may from time
to time determine all of whom shall be deemed to be Officers for the purposes
of these Bye-laws. Any Chairman and any Vice Chairman of the Board shall not
be an Officer.

24. Appointment of Officers

(1) The Board shall, as soon as possible after the statutory meeting of
Members and after each annual general meeting, appoint a President and a Vice
President, who shall be Directors.

(2) The Secretary and additional Officers, if any, shall be appointed by
the Board from time to time.

B-8
<PAGE>

25. Remuneration of Officers

The Officers shall receive such remuneration as the Board may from time to
time determine.

26. Duties of Officers

Subject to By-Law 4, the Officers shall have such powers and perform such
duties in the management, business and affairs of the Company as may be
delegated to them by the Board from time to time.

27. Chairman of meetings

Unless otherwise agreed by a majority of those attending and entitled to
attend and vote thereat, the Chairman, if there be one, and if not the
President shall act as chairman at all meetings of the Members and of the
Board at which such person is present. In their absence the Deputy Chairman or
Vice President, if present, shall act as chairman and in the absence of all of
them a chairman shall be appointed or elected by those present at the meeting
and entitled to vote.

28. Register of Directors and Officers

The Board shall cause to be kept in one or more books at the registered
office of the Company a Register of Directors and Officers and shall enter
therein the particulars required by the Act.

MINUTES

29. Obligations of Board to keep minutes

(1) The Board shall cause minutes to be duly entered in books provided for
the purpose:

(a) of all elections and appointments of Officers;

(b) of the names of the Directors present at each meeting of the Board
and of any committee appointed by the Board; and

(c) of all resolutions and proceedings of general meetings of the
Members, meetings of the Board, meetings of managers and meetings of
committees appointed by the Board.

(2) Minutes prepared in accordance with the Act and these Bye-laws shall be
kept by the Secretary at the registered office of the Company.

INDEMNITY

30. Indemnification of Directors and Officers of the Company

(1) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative, including all appeals (other than an action, suit, or
proceeding by, or in the right of, the Company) by reason of the fact that he
is or was a Director or Officer, or is or was serving at the request of the
Company as a director or officer of another company, corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including,
without limitation, reasonable professional fees, expert witness fees, and
attorneys' fees), judgments, decrees, fines, penalties, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal action, suit, or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
he

B-9
<PAGE>

reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal action, suit, or proceeding, had
reasonable cause to believe that his conduct was unlawful.

(2) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, including all appeals, by or in the right of the Company
to procure a judgment in its favor by reason of the fact that he is or was a
Director or Officer, or is or was serving at the request of the Company as a
director or officer of another company, corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including, without
limitation, reasonable professional fees, expert witness fees, and attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company.

(3) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, including all appeals, by or in the right of the Company
to procure a judgment in its favor by reason of the fact that he is or was a
Director or Officer, or is or was serving at the request of the Company as a
director or officer of another company, corporation, partnership, joint
venture, trust, or other enterprise, against judgments, decrees, fines,
penalties, and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Company, but only to the extent that a court determines
upon application that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity.

(4) The purpose of this Bye-law as a whole is to provide the broadest
indemnity allowable at law but the indemnification under this Bye-law shall
not extend to any matter in respect of any fraud or dishonesty which may
attach to the persons otherwise indemnified.

(5) If any person has been successful on the merits or otherwise in defense
of any action, suit, or proceeding for which he is entitled to indemnification
pursuant to paragraphs (1), (2), (3) or (4) of this Bye-law, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

(6) Any indemnification under this Bye-law, unless ordered by a court,
shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the Director or Officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
in this Bye-law. Such determination shall be made (i) by the Board by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit, or proceeding, or (ii) if such quorum is not obtainable, or even
if obtainable, a quorum of disinterested Directors so directs, by an
independent legal counsel in a written opinion, or (iii) by the Members. If
any person is entitled to indemnification under this Bye-law for a portion of
the expenses (including attorneys' fees), judgments, decrees, fines,
penalties, and amounts paid in settlement actually and reasonably incurred by
him in connection with an action, suit, or proceeding, the Company shall
indemnify such person only as to the portion to which he is entitled.

(7) Expenses (including attorneys' fees) actually and reasonably incurred
by any person in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding, or threat thereof, referred to in
paragraph 1 of this Bye-law shall be paid by the Company in advance of the
final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall be
ultimately determined that he is not entitled to be indemnified by the Company
as authorized in these Bye-Laws or otherwise pursuant to applicable law;
provided, however, that if it is determined by either (i) a majority vote of a
quorum of the Board consisting of directors who were not parties to such
action, suit, or proceeding, or (ii) if such quorum is not obtainable, or even
if obtainable, a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, that there is a reasonable basis to
believe that such person is not entitled to be indemnified by the Company as
authorized in these Bye-Laws or otherwise pursuant to applicable law, then no
expense shall be advanced in accordance with this paragraph.

B-10
<PAGE>

(8) The indemnification and advancement of expenses provided in these Bye-
laws shall not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may now or hereafter be entitled
under any statute, agreement, vote of Members or otherwise, both as to action
in an official capacity and as to action in another capacity while holding
such office.

(9) The Company shall have power to purchase and maintain insurance on
behalf of any person who is or was a Director, Officer, employee, or agent of
the Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another company, corporation, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Company would have the power to indemnify
him against such liability under the provisions of these Bye-Laws or under
law.

(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Bye-law shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to hold the
position for which he is entitled to be indemnified or advanced expenses and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.

(11) The right to indemnification conferred by this Bye-law shall be deemed
to be a contract between the Company and each person referred to herein until
amended or repealed, but no amendment to or repeal of these provisions shall
apply to or have any effect on the right to indemnification of any person with
respect to any liability or alleged liability of such person for or with
respect to any act or omission of such person occurring prior to such
amendment or repeal.

31. Waiver of Action by Members.

In order to induce persons to serve as Directors or Officers of the
Company, or at the request of the Company as directors or officers of another
company, corporation, partnership, joint venture, trust, or other enterprise,
each Member agrees to waive any claim or right of action it might have,
whether individually or by or in the right of the Company, against any such
person on account of any action taken by such person, or the failure of such
person to take any action, in the performance of his duties with or for the
Company or such other company, corporation, partnership, joint venture, trust,
or other enterprise; provided, however, that such waiver shall not apply to
any claims or rights of action arising out of the fraud or dishonesty of such
person or to recover any gain, personal profit, or advantage to which such
person is not legally entitled.

MEETINGS

32. Notice of annual general meeting

The annual general meeting of the Company shall be held in each year other
than the year of incorporation at such time and place as the Board or any two
Directors shall appoint. At least thirty days' notice of such meeting shall be
given to each Member stating the date, place and time at which the meeting is
to be held, that the election of Directors will take place thereat, and as far
as practicable, the other business to be conducted at the meeting.

33. Notice of special general meeting

The Board or any two Directors may convene a special general meeting of the
Company whenever in their judgment such a meeting is necessary, upon not less
than fifteen days' notice which shall state the date, time, place and the
general nature of the business to be considered at the meeting.

34. Accidental omission of notice of general meeting

The accidental omission to give notice of a general meeting to, or the non-
receipt of notice of a general meeting by, any person entitled to receive
notice shall not invalidate the proceedings at that meeting.

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<PAGE>

35. Meeting called on requisition of Members

Notwithstanding anything herein, the Board shall, on the requisition of
Members holding at the date of the deposit of the requisition not less than
one-tenth of such of the paid-up share capital of the Company as at the date
of the deposit carries the right to vote at general meetings of the Company,
forthwith proceed to convene a special general meeting of the Company and the
provisions of Section 74 of the Act shall apply.

36. Short notice

A general meeting of the Company shall, notwithstanding that it is called
by shorter notice than that specified in these Bye-laws, be deemed to have
been properly called if it is so agreed by (i) all the Members entitled to
attend and vote thereat in the case of an annual general meeting; and (ii) by
a majority in number of the Members having the right to attend and vote at the
meeting, being a majority together holding not less than 95% in nominal value
of the shares giving a right to attend and vote thereat in the case of a
special general meeting.

37. Postponement of meetings

The Secretary may postpone any general meeting called in accordance with
the provisions of these Bye-laws (other than a meeting requisitioned under
these Bye-laws) provided that notice of postponement is given to each Member
before the time for such meeting. Fresh notice of the date, time and place for
the postponed meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.

38. Quorum for general meeting

At any general meeting of the Company two persons present in person and
representing in person or by proxy in excess of one-third of the total issued
voting shares in the Company throughout the meeting shall form a quorum for
the transaction of business.

39. Adjournment of meetings

The chairman of a general meeting may, with the consent of the Members at
any general meeting at which a quorum is present (and shall if so directed),
adjourn the meeting. Unless the meeting is adjourned to a specific date and
time, fresh notice of the date, time and place for the resumption of the
adjourned meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.

40. Written resolutions

(1) Subject to subparagraph (6), anything which may be done by resolution
of the Company in general meeting or by resolution of a meeting of any class
of the Members of the Company, may, without a meeting and without any previous
notice being required, be done by resolution in writing signed by, or, in the
case of a Member that is a corporation whether or not a company within the
meaning of the Act, on behalf of, all the Members who at the date of the
resolution would be entitled to attend the meeting and vote on the resolution.

(2) A resolution in writing may be signed by, or, in the case of a Member
that is a corporation whether or not a company within the meaning of the Act,
on behalf of, all the Members, or any class thereof, in as many counterparts
as may be necessary.

(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance
with this Bye-law, a reference to such date.

(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a
meeting of the relevant class of Members, as the case may be, and any

B-12
<PAGE>

reference in any Bye-law to a meeting at which a resolution is passed or to
Members voting in favor of a resolution shall be construed accordingly.

(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of Sections 81 and 82 of the Act.

(6) This Bye-law shall not apply to:

(a) a resolution passed pursuant to Section 89(5) of the Act; or

(b) a resolution passed for the purpose of removing a Director before
the expiration of his term of office under these Bye-laws.

41. Attendance of Directors

The Directors of the Company shall be entitled to receive notice of and to
attend and be heard at any general meeting.

42. Voting at meetings

(1) Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting shall be
decided by the affirmative votes of a majority of the votes cast in accordance
with the provisions of these Bye-laws and in the case of an equality of votes
the resolution shall fail.

(2) Notwithstanding any other provisions of these Bye-laws to the contrary,
the following matters shall require the affirmative vote of the holders of 75%
all voting rights attached to all issued and outstanding shares, and in the
case of an equality of votes the resolution shall fail:

(a) removal of a Director other than for cause; and

(b) any amendment to this Bye-law 42(2), or to Bye-law 12.

(3) No Member shall be entitled to vote at any general meeting unless such
Member has paid all the calls on all shares held by such Member.

43. Voting on show of hands

At any general meeting a resolution put to the vote of the meeting shall,
in the first instance, be voted upon by a show of hands and, subject to any
rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present
in person and every person holding a valid proxy at such meeting shall be
entitled to one vote and shall cast such vote by raising his or her hand.

44. Decision of chairman

At any general meeting a declaration by the chairman of the meeting that a
question proposed for consideration has, on a show of hands, been carried, or
carried unanimously, or by a particular majority, or lost, and an entry to
that effect in a book containing the minutes of the proceedings of the Company
shall, subject to the provisions of these Bye-laws, be conclusive evidence of
that fact.

45. Demand for a poll

(1) Notwithstanding the provisions of the immediately preceding two Bye-
laws, at any general meeting of the Company, in respect of any question
proposed for the consideration of the Members (whether before or on the
declaration of the result of a show of hands as provided for in these Bye-
laws), a poll may be demanded by any of the following persons:

(a) the chairman of such meeting; or

(b) at least three Members present in person or represented by proxy; or

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(c) any Member or Members present in person or represented by proxy and
holding between them not less than one-tenth of the total voting rights of
all the Members having the right to vote at such meeting; or

(d) any Member or Members present in person or represented by proxy
holding shares in the Company conferring the right to vote at such meeting,
being shares on which an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all such shares conferring such
right.

(2) Where, in accordance with the provisions of subparagraph (1) of this
Bye-law, a poll is demanded, subject to any rights or restrictions for the
time being lawfully attached to any class of shares, every person present at
such meeting shall have one vote for each share of which such person is the
holder or for which such person holds a proxy and such vote shall be counted
in the manner set out in subparagraph (4) of this Bye-Law or in the case of a
general meeting at which one or more Members are present by telephone in such
manner as the chairman of the meeting may direct and the result of such poll
shall be deemed to be the resolution of the meeting at which the poll was
demanded and shall replace any previous resolution upon the same matter which
has been the subject of a show of hands.

(3) A poll demanded in accordance with the provisions of subparagraph (1)
of this Bye-law, for the purpose of electing a chairman of the meeting or on a
question of adjournment, shall be taken forthwith and a poll demanded on any
other question shall be taken in such manner and at such time and place as the
Chairman (or acting chairman) may direct and any business other than that upon
which a poll has been demanded may be proceeded with pending the taking of the
poll.

(4) Where a vote is taken by poll, each person present and entitled to vote
shall be furnished with a ballot paper on which such person shall record his
or her vote in such manner as shall be determined at the meeting having regard
to the nature of the question on which the vote is taken, and each ballot
paper shall be signed or initialed or otherwise marked so as to identify the
voter and the registered holder in the case of a proxy. At the conclusion of
the poll, the ballot papers shall be examined and counted by a committee of
not less than two Members or proxy holders appointed by the chairman for the
purpose and the result of the poll shall be declared by the chairman.

46. Instrument of proxy

The instrument appointing a proxy shall be in writing in such form as the
Board may approve or other common form, under the hand of the appointor or of
the appointor's attorney duly authorized in writing, or if the appointor is a
corporation, either under its seal, or under the hand of a duly authorized
officer or attorney. The decision of the chairman of any general meeting as to
the validity of any instrument of proxy shall be final.

47. Representation of corporations at meetings

A corporation which is a Member may, by written instrument, authorize such
person as it thinks fit to act as its representative at any meeting of the
Members and the person so authorized shall be entitled to exercise the same
powers on behalf of the corporation which such person represents as that
corporation could exercise if it were an individual Member. Notwithstanding
the foregoing, the chairman of the meeting may accept such assurances as he or
she thinks fit as to the right of any person to attend and vote at general
meetings on behalf of a corporation which is a Member.

SHARE CAPITAL AND SHARES

48. Rights of shares

Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the share capital of the Company shall be
divided into shares of a single class the holders of which shall, subject to
the provisions of these Bye-laws:

(a) be entitled to one vote per share;

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(b) be entitled to such dividends as the Board may from time to time
declare;

(c) in the event of a winding-up or dissolution of the Company, whether
voluntary or involuntary or for the purpose of a reorganization or
otherwise or upon any distribution of capital, be entitled to the surplus
assets of the Company; and

(d) generally be entitled to enjoy all of the rights attaching to
shares.

49. Power to issue shares

(1) Subject to these Bye-laws and to any resolution of the Members to the
contrary and without prejudice to any special rights previously conferred on
the holders of any existing shares or class of shares, the Board shall have
power to issue any unissued shares of the Company on such terms and conditions
as it may determine and any shares or class of shares may be issued with such
preferred, deferred or other special rights or such restrictions, whether in
regard to dividend, voting, return of capital or otherwise as the Company may
from time to time by resolution of the Members prescribe.

(2) The Board shall, in connection with the issue of any share, have the
power to pay such commission and brokerage as may be permitted by law.

(3) The Company shall not give, whether directly or indirectly, whether by
means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of a purchase or subscription made or to be made by
any person of or for any shares in the Company, but nothing in this Bye-Law
shall prohibit transactions mentioned in Sections 39A, 39B and 39C of the Act.

(4) The Company may from time to time do any one or more of the following
things:

(a) make arrangements on the issue of shares for a difference between
the Members in the amounts and times of payments of calls on their shares;

(b) accept from any Member the whole or a part of the amount remaining
unpaid on any shares held by him, although no part of that amount has been
called up;

(c) pay dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on others; and

(d) issue its shares in fractional denominations and deal with such
fractions to the same extent as its whole shares and shares in fractional
denominations shall have in proportion to the respective fractions
represented thereby all of the rights of whole shares including (but
without limiting the generality of the foregoing) the right to vote, to
receive dividends and distributions and to participate in a winding up.

50. Variation of rights, alteration of share capital and purchase of shares of
the Company

(1) Subject to the provisions of Sections 42 and 43 of the Act any
preference shares may be issued or converted into shares that, at a
determinable date or at the option of the Company, are liable to be redeemed
on such terms and in such manner as the Company before the issue or conversion
may by resolution of the Members determine.

(2) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the
terms of issue of the shares of that class) may, whether or not the Company is
being wound-up, be varied with the consent in writing of the holders of three-
fourths of the issued shares of that class or with the sanction of a
resolution passed by a majority of the votes cast at a separate general
meeting of the holders of the shares of the class in accordance with Section
47 (7) of the Act. The rights conferred upon the holders of the shares of any
class issued with preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari
passu therewith.

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(3) The Company may from time to time by resolution of the Members change
the currency denomination of, increase, alter or reduce its share capital in
accordance with the provisions of Sections 45 and 46 of the Act. Where, on any
alteration of share capital, fractions of shares or some other difficulty
would arise, the Board may deal with or resolve the same in such manner as it
thinks fit including, without limiting the generality of the foregoing, the
issue to Members, as appropriate, of fractions of shares and/or arranging for
the sale or transfer of the fractions of shares of Members.

(4) The Company may from time to time purchase its own shares in accordance
with the provisions of Section 42A of the Act.

51. Registered holder of shares

(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognize any equitable or other claim to, or interest in, such share on the
part of any other person.

(2) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by check or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such person and to such address as the holder or joint holders
may in writing direct. If two or more persons are registered as joint holders
of any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.

52. Death of a joint holder

Where two or more persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said
share or shares and the Company shall recognize no claim in respect of the
estate of any joint holder except in the case of the last survivor of such
joint holders.

53. Share certificates

(1) Every Member shall be entitled to a certificate under the seal of the
Company (or a facsimile thereof) specifying the number and, where appropriate,
the class of shares held by such Member and whether the same are fully paid up
and, if not, how much has been paid thereon. The Board may by resolution
determine, either generally or in a particular case, that any or all
signatures on certificates may be printed thereon or affixed by mechanical
means.

(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the person to
whom such shares have been allotted.

(3) If any such certificate shall be proved to the satisfaction of the
Board to have been worn out, damaged, lost, mislaid or destroyed the Board may
cause a new certificate to be issued and request an indemnity for the lost
certificate if it sees fit.

54. Calls on shares

(1) The Board may from time to time make such calls as it thinks fit upon
the Members in respect of any monies unpaid on the shares allotted to or held
by such Members and, if a call is not paid on or before the day appointed for
payment thereof, the Member may at the discretion of the Board be liable to
pay the Company interest on the amount of such call at such rate as the Board
may determine, from the date when such call was payable up to the actual date
of payment. The joint holders of a share shall be jointly and severally liable
to pay all calls in respect thereof.

(2) The Board may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.

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55. Forfeiture of shares

(1) If any Member fails to pay, on the day appointed for payment thereof,
any call in respect of any share allotted to or held by such Member, the Board
may, at any time thereafter during such time as the call remains unpaid,
direct the Secretary to forward to such Member a notice in the form, or as
near thereto as circumstances admit, of Form "A" in the Schedule hereto.

(2) If the requirements of such notice are not complied with, any such
share may at any time thereafter before the payment of such call and the
interest due in respect thereof be forfeited by a resolution of the Board to
that effect, and such share shall thereupon become the property of the Company
and may be disposed of as the Board shall determine.

(3) A Member whose share or shares have been forfeited as aforesaid shall,
notwithstanding such forfeiture, be liable to pay to the Company all calls
owing on such share or shares at the time of the forfeiture and all interest
due thereon.

56. Contents of Register of Members

The Board shall cause to be kept in one or more books a Register of Members
and shall enter therein the particulars required by the Act.

57. Inspection of Register of Members

The Register of Members shall be open to inspection at the registered
office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than four hours in each
business day be allowed for inspection.

58. Determination of record dates

Notwithstanding any other provision of these Bye-laws, the Board may fix
any date as the record date for:

(a) determining the Members entitled to receive any dividend; and

(b) determining the Members entitled to receive notice of and to vote at
any general meeting of the Company.

TRANSFER OF SHARES

59. Instrument of transfer

(1) An instrument of transfer shall be in the form or as near thereto as
circumstances admit of Form "B" in the Schedule hereto or in such other common
form as the Board may accept. Such instrument of transfer shall be signed by
or on behalf of the transferor and transferee provided that, in the case of a
fully paid share, the Board may accept the instrument signed by or on behalf
of the transferor alone. The transferor shall be deemed to remain the holder
of such share until the same has been transferred to the transferee in the
Register of Members.

(2) The Board may refuse to recognize any instrument of transfer unless it
is accompanied by the certificate in respect of the shares to which it relates
and by such other evidence as the Board may reasonably require to show the
right of the transferor to make the transfer.

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60. Restriction on transfer

(1) The Board may in its absolute discretion and without assigning any
reason therefor refuse to register the transfer of a share. The Board shall
refuse to register a transfer unless all applicable consents, authorizations
and permissions of any governmental body or agency in Bermuda have been
obtained.

(2) If the Board refuses to register a transfer of any share the Secretary
shall, within three months after the date on which the transfer was lodged
with the Company, send to the transferor and transferee notice of the refusal.

61. Transfers by joint holders

The joint holders of any share or shares may transfer such share or shares
to one or more of such joint holders, and the surviving holder or holders of
any share or shares previously held by them jointly with a deceased Member may
transfer any such share to the executors or administrators of such deceased
Member.

TRANSMISSION OF SHARES

62. Representative of deceased Member

In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognized by the Company as having any title to the deceased
Member's interest in the shares. Nothing herein contained shall release the
estate of a deceased joint holder from any liability in respect of any share
which had been jointly held by such deceased Member with other persons.
Subject to the provisions of Section 52 of the Act, for the purpose of this
Bye-law, legal personal representative means the executor or administrator of
a deceased Member or such other person as the Board may in its absolute
discretion decide as being properly authorized to deal with the shares of a
deceased Member.

63. Registration on death or bankruptcy

Any person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as
the Board may deem sufficient or may elect to nominate some person to be
registered as a transferee of such share, and in such case the person becoming
entitled shall execute in favor of such nominee an instrument of transfer in
the form, or as near thereto as circumstances admit, of Form "C" in the
Schedule hereto. On the presentation thereof to the Board, accompanied by such
evidence as the Board may require to prove the title of the transferor, the
transferee shall be registered as a Member but the Board shall, in either
case, have the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Member before such Member's
death or bankruptcy, as the case may be.

DIVIDENDS AND OTHER DISTRIBUTIONS

64. Declaration of dividends by the Board

The Board may, subject to these Bye-laws and in accordance with Section 54
of the Act, declare a dividend to be paid to the Members, in proportion to the
number of shares held by them, and such dividend may be paid in cash or wholly
or partly in specie in which case the Board may fix the value for distribution
in specie of any assets.

65. Other distributions

The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the
Company.

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66. Reserve fund

The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve to be used to meet contingencies or for equalizing dividends or for
any other special purpose.

67. Deduction of Amounts due to the Company

The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company on account of calls or
otherwise.

CAPITALIZATION

68. Issue of bonus shares

(1) The Board may resolve to capitalize any part of the amount for the time
being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares
to be allotted as fully paid bonus shares pro rata to the Members.

(2) The Company may capitalize any sum standing to the credit of a reserve
account or sums otherwise available for dividend or distribution by applying
such amounts in paying up in full partly paid shares of those Members who
would have been entitled to such sums if they were distributed by way of
dividend or distribution.

ACCOUNTS AND FINANCIAL STATEMENTS

69. Records of account

The Board shall cause to be kept proper records of account with respect to
all transactions of the Company and in particular with respect to:

(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure relates;

(b) all sales and purchases of goods by the Company; and

Such records of account shall be kept at the registered office of the Company
or, subject to Section 83(2) of the Act, at such other place as the Board
thinks fit and shall be available for inspection by the Directors during
normal business hours.

70. Financial year end

The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be December 31st in each year.

71. Financial statements

Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements as required by the Act shall be laid before the
Members in general meeting.

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AUDIT

72. Appointment of Auditor

Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.

73. Remuneration of Auditor

The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.

74. Vacation of office of Auditor

If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by the Auditor becoming incapable of acting by reason of illness
or other disability at a time when the Auditor's services are required, the
Board shall, as soon as practicable, convene a special general meeting to fill
the vacancy thereby created.

75. Access to books of the Company

The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto, and the Auditor
may call on the Directors or Officers of the Company for any information in
their possession relating to the books or affairs of the Company.

76. Report of the Auditor

(1) Subject to any rights to waive laying of accounts or appointment of an
Auditor pursuant to Section 88 of the Act, the accounts of the Company shall
be audited at least once in every year.

(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing
standards. The Auditor shall make a written report thereon in accordance with
generally accepted auditing standards and the report of the Auditor shall be
submitted to the Members in general meeting.

(3) The generally accepted auditing standards referred to in subparagraph
(2) of this Bye-law may be those of a country or jurisdiction other than
Bermuda. If so, the financial statements and the report of the Auditor must
disclose this fact and name such country or jurisdiction.

NOTICES

77. Notices to Members of the Company

A notice may be given by the Company to any Member either by delivering it
to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service,
cable, telex, telecopier, facsimile or other mode of representing words in a
legible and non-transitory form.

78. Notices to joint Members

Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.

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79. Service and delivery of notice

Any notice shall be deemed to have been served at the time when the same
would be delivered in the ordinary course of transmission and, in proving such
service, it shall be sufficient to prove that the notice was properly
addressed and prepaid, if posted, and the time when it was posted, delivered
to the courier or to the cable company or transmitted by telex, facsimile or
other method as the case may be.

SEAL OF THE COMPANY

80. The seal

The seal of the Company shall be in such form as the Board may from time to
time determine. The Board may adopt one or more duplicate seals for use
outside Bermuda.

81. Manner in which seal is to be affixed

The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two
Directors, or any person appointed by the Board for the purpose, provided that
any Director, Officer or Resident Representative, may affix the seal of the
Company attested by such Director, Officer or Resident Representative's
signature to any authenticated copies of these Bye-laws, the incorporating
documents of the Company, the minutes of any meetings or any other documents
required to be authenticated by such Director, Officer or Resident
Representative.

WINDING-UP

82. Winding-up/distribution by liquidator

If the Company shall be wound up the liquidator may, with the sanction of a
resolution of the Members, divide amongst the Members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such value as
he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like sanction, vest
the whole or any part of such assets in trustees upon such trusts for the
benefit of the Members as the liquidator shall think fit, but so that no
Member shall be compelled to accept any shares or other securities or assets
whereon there is any liability.

ALTERATION OF BYE-LAWS

83. Alteration of Bye-laws

No Bye-law shall be rescinded, altered or amended and no new Bye-law shall
be made until the same has been approved by a resolution of the Board and by a
resolution of the Members.

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SCHEDULE--FORM A (Bye-law 55)

NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL

You have failed to pay the call of [amount of call] made on the day of
, 19 last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the
day of , 19 last, the day appointed for payment of such call. You are
hereby notified that unless you pay such call together with interest thereon
at the rate of per annum computed from the said day of , 19
last, on or before the day of , 19 next at the place of business
of the Company the share(s) will be liable to be forfeited.

Dated this day of , 19

[Signature of Secretary]
By order of the Board

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SCHEDULE--FORM B (Bye-law 59)

TRANSFER OF A SHARE OR SHARES

FOR VALUE RECEIVED______________________________________________________________
[amount]

- --------------------------------------------------------------------------------
[transferor]

hereby sell, assign and transfer unto___________________________________________
[transferee]

of______________________________________________________________________________
[address]

- --------------------------------------------------------------------------------
[number of shares]

shares of_______________________________________________________________________
[name of Company]

Dated________________________________

- -------------------------------------
(Transferor)

In the presence of:

- -------------------------------------
(Witness)

- -------------------------------------
(Transferee)

In the presence of:

- -------------------------------------
(Witness)

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SCHEDULE--FORM C (Bye-law 63)

TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A MEMBER

I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number] share(s) standing in the register of
members of [Company] in the name of the said [name of deceased Member] instead
of being registered myself/ourselves elect to have [name of transferee] (the
"Transferee") registered as a transferee of such share(s) and I/we do hereby
accordingly transfer the said share(s) to the Transferee to hold the same unto
the Transferee his or her executors administrators and assigns subject to the
conditions on which the same were held at the time of the execution thereof;
and the Transferee does hereby agree to take the said share(s) subject to the
same conditions.

WITNESS our hands this __________ day of _____________________, 19__

Signed by the above-named )
[person or persons entitled] )
in the presence of: )
)
Signed by the above-named )
[transferee] )
in the presence of: )

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APPENDIX C

EXCHANGE AGREEMENT

This Exchange Agreement dated as of January 20, 1999, is entered into by
and between AmerInst Insurance Group, Inc., a Delaware corporation ("AIIG"),
and AmerInst Insurance Group, Ltd., a Bermuda company ("AIIG Limited"). As
used herein, "Constituent Corporations" shall mean AIIG and AIIG Limited.

RECITALS

A. The parties hereto desire to effect an exchange, as a result of which
AIIG will receive 332,331 common shares, par value $1.00, of AIIG Limited
("AIIG Limited Stock"), and AIIG Limited will receive all of the assets, and
assume all of the liabilities, of AIIG.

B. The respective Boards of Directors of AIIG and AIIG Limited deem it
advisable and in the best interests to the shareholders of such corporations
to enter into this Agreement and have approved this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein set forth
and subject to the terms and conditions hereof, the parties agree as follows:

1. The Exchange; Effect of the Exchange. At the Effective Time of the
Exchange (as hereinafter defined), the assets and liabilities of AIIG
(including 12,000 shares of AIIG Limited Stock, which will be canceled)
shall be exchanged for 332,331 shares of AIIG Limited Stock (the
"Exchange"), and thereafter (i) AIIG Limited shall remain a wholly-owned
subsidiary of AIIG and (ii) AIIG Limited shall own all of the assets and be
obligated with respect to all of the liabilities of AIIG.

2. Effective Time of the Exchange. The Exchange shall become effective
at such time as the parties shall agree, reasonably promptly after this
Agreement shall have been adopted by the stockholders of AIIG in accordance
with the requirements of the laws of the State of Delaware. The time when
the Exchange shall become effective is herein called the "Effective Time of
the Exchange."

3. Meetings of the Shareholders.

(a) AIIG Limited shall call a special meeting of its shareholders
(the "Special Bermuda Meeting") prior to the Effective Time of the
Exchange to be held in accordance with the laws of Bermuda to consider
and vote upon the Exchange. The parties hereto acknowledge and agree
that AIIG Limited's shareholders may approve the Exchange by unanimous
written consent in lieu of holding and voting at the Special Bermuda
Meeting.

(b) AIIG shall call a special meeting of its shareholders (the
"Special Delaware Meeting") prior to the Effective Time of the Exchange
to be held in accordance with the laws of the State of Delaware to
consider and vote upon the Exchange.

4. Representations and Warranties of AIIG Limited.

AIIG Limited represents and warrants to AIIG as follows:

(a) Organization; Good Standing.

AIIG Limited is a company duly organized, validly existing and in
good standing under the laws of Bermuda, with all requisite corporate
power and authority to enter into this Agreement and perform its
obligations hereunder.

(b) Capitalization.

The authorized capital of AIIG Limited consists of US $500,000,
divided into 500,000 shares of AIIG Limited Stock, par value US $1.00.
As of the date hereof, there are 12,000 shares of AIIG Limited Stock
outstanding, all of which are held by AIIG.

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<PAGE>

AIIG Limited has taken, or will have taken prior to the Effective
Time of the Exchange, all necessary action to approve this Agreement
and the performance of its obligations hereunder. The issuance and
delivery by AIIG Limited of shares of AIIG Limited Stock in connection
with the Exchange have been duly and validly authorized by all
necessary action on the part of AIIG Limited, except for the approval
of its shareholders referred to in Section 3(a). The shares of AIIG
Limited Stock to be issued in connection with the Exchange, when issued
in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable.

(d) Compliance with Other Instruments.

Subject to the shareholders' approval referred to in Section 3(a)
hereof, neither the execution or the delivery of this Agreement nor the
consummation of the transactions contemplated hereby will conflict
with, or result in any violation of, or constitute a default under, the
provisions of the Memorandum of Association or Bye-laws of AIIG Limited
or any material agreement, mortgage or indenture by which AIIG Limited
is bound.

(e) Binding Agreement.

Subject to the shareholder's approval referred to in Section 3(a)
hereof, this Agreement constitutes a valid and legally binding
agreement of AIIG Limited, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency and similar laws affecting creditors rights generally and by
general principles of equity.

5. Representations and Warranties of AIIG.

AIIG represents and warrants to AIIG Limited as follows:

(a) Organization; Good Standing.

AIIG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all requisite
corporate power to enter into and perform its obligations hereunder.

(b) Authority.

AIIG has taken, or will have taken prior to the Effective Time of
the Exchange, all necessary corporate action to approve this Agreement
and the performance of its obligations hereunder.

AIIG has good title to all of the assets to be transferred to AIIG
Limited pursuant to Section 1 hereof.

(d) Compliance with Other Instruments.

Subject to the shareholders' approval referred to in Section 3(b)
hereof, neither the execution or the delivery of this Agreement nor the
consummation of the transactions contemplated hereby will conflict
with, or result in any violation of, or constitute a default under, the
provisions of the Articles of Incorporation or Bylaws of AIIG or any
material agreement, mortgage or indenture by which AIIG is bound.

(e) Binding Agreement.

This Agreement constitutes a valid and legally binding agreement of
AIIG, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency and
similar laws affecting creditors rights generally and by general
principles of equity.

C-2
<PAGE>

6. Covenants.

(a) Carry On In Regular Course.

During the period from the date of this Agreement to the Effective
Time of the Exchange, AIIG and its subsidiaries shall use all
reasonable efforts to conduct their business in the ordinary course,
repair and maintain all their tangible property and assets in
accordance with generally accepted repair and maintenance standards,
continue in force their existing insurance and shall not enter into any
transaction which if effected before the date of this Agreement would
constitute a breach of the representations, warranties or agreements
contained herein. AIIG and AIIG Limited and their respective
subsidiaries will not after the date hereof, except with the prior
written consent of the other party, in the case of AIIG, amend its
Articles of Incorporation or Bylaws and in the case of AIIG Limited,
amend its Memorandum of Association or Bylaws, or make any change in
authorized capital stock.

(b) Registration Statement.

AIIG and AIIG Limited shall jointly prepare and file with the SEC as
soon as practicable a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect
to the AIIG Limited Stock issuable in the Exchange, which Registration
Statement shall also serve as the proxy statement with respect to the
meeting of the shareholders of AIIG to approve the Exchange, and any
other matters which may be described therein (the "Proxy
Statement/Prospectus"). AIIG and AIIG Limited shall use all reasonable
efforts to have the Proxy Statement/Prospectus declared effective by
the SEC as promptly as practicable. AIIG and AIIG Limited shall use
their best efforts to obtain, prior to the effective date of the Proxy
Statement/Prospectus, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the transactions
contemplated by this Agreement and will pay all expenses incident
thereto. The Proxy Statement/Prospectus, when declared effective by the
SEC, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.

Each party hereto shall, subject to the fulfillment at or before the
Effective Time of the Exchange of each of the conditions of performance
set forth herein or the waiver thereof, perform such further acts and
execute such documents as may be reasonably required to effectuate the
Exchange.

7. Conditions Precedent to the Obligations of AIIG Limited.

All obligations of AIIG Limited to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior
to the Effective Time of the Exchange, of each of the following conditions:

(a) The representations and warranties of AIIG contained herein
shall be true in all material respects on and as of the date of the
Effective Time of the Exchange with the same force and effect as though
made on and as of such date, except as affected by transactions
contemplated hereby, and AIIG shall have performed or complied in all
material respects with its agreements and covenants required by this
Agreement to be performed by it at or prior to the Closing Date (as
hereinafter defined).

(b) This Agreement shall have been approved and adopted by the
shareholders of AIIG in accordance with the laws of the State of
Delaware.

(c) No suit, action or other proceeding shall be pending or
threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or which might materially and adversely
affect the value of the assets and business of AIIG.

C-3
<PAGE>

(d) No material adverse change in the business or financial position
or value of assets of AIIG shall have occurred.

(e) At the Closing, AIIG shall have delivered to AIIG Limited an
opinion, dated as of the Closing Date, of Altheimer & Gray, in the form
to be agreed.

(f) The Registration Statement contemplated by Section 6(b) shall
have become effective and no stop order thereto shall be in effect.

(g) AIIG and AIIG Limited shall have received the authorization for
the Exchange and for certain transactions incident thereto of each of
the governmental entities set forth on Schedule 7(g).

8. Conditions Precedent to the Obligations of AIIG.

All obligations of AIIG to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Effective
Time of the Exchange, of each of the following conditions:

(a) The representations and warranties of AIIG Limited contained
herein shall be true in all material respects on and as of the date of
the Effective Time of Exchange with the same force and effect as though
made on and as of such date, except as affected by transactions
contemplated hereby, and AIIG Limited shall have performed or complied
in all material respects with its agreements and covenants required by
this Agreement to be performed by it at or prior to the Closing Date.

(b) This Agreement shall have been approved and adopted by the
shareholders of AIIG in accordance with the laws of the State of
Delaware.

(d) No material adverse change in the business or financial position
or value of assets of AIIG Limited shall have occurred.

(e) At the Closing, AIIG Limited shall have delivered to AIIG an
opinion of Conyers, Dill & Pearman, dated as of the Closing Date, in
the form to be agreed.

(f) The Registration Statement contemplated by Section 7(b) shall
have become effective and no stop order thereto shall be in effect.

(g) AIIG and AIIG Limited shall have received the authorization for
the Exchange and for certain transactions incident thereto of each of
the governmental entities set forth on Schedule 7(g).

9. Termination.

(a) This Agreement may be terminated and the Exchange may be
abandoned at any time prior to the Effective Time of the Exchange,
before or after the approval of this Agreement by the shareholders of
AIIG or AIIG Limited, by the mutual consent of AIIG and AIIG Limited.

(b) This Agreement may be terminated and the Exchange may be
abandoned by action of the Board of Directors of either AIIG or AIIG
Limited at any time prior to the Effective Time of the Exchange, before
or after the approval of this Agreement by shareholders of AIIG or AIIG
Limited, if: (i) the Exchange shall not have become effective by
December 31, 1999, or (ii) any statute, rule or regulation shall have
been enacted or promulgated by any government or governmental agency
which makes consummation of the Exchange illegal or impractical.

(c) In the event of termination of this Agreement and abandonment of
the Exchange pursuant to this Section, no party hereto (or any of its
directors or officers) shall have any liability or further

C-4
<PAGE>

obligation to any other party to this Agreement, except that nothing
herein will relieve any party from liability for any breach of this
Agreement.

10. Closing.

Simultaneously with the Effective Time of the Exchange, the closing of
the Exchange (the "Closing") shall take place at the offices of Altheimer &
Gray, 10 South Wacker Drive, Suite 4000, Chicago, Illinois 60606, or at
such other time and date as the parties may mutually agree. The date of the
Closing is referred to herein as the "Closing Date."

11. Waivers and Notices.

Any failure by any party to this Agreement to comply with any of its
obligations, agreements or covenants hereunder may be waived by AIIG
Limited in the case of a default by AIIG and by AIIG in the case of a
default by AIIG Limited. All waivers under this Agreement and all notices,
consents, demands, requests, approvals and other communications which are
required or may be given hereunder shall be in writing and shall be deemed
to have been duly given when received by AIIG at P.O. Box 1330, Montpelier,
Vermont 05601 and AIIG Limited at Clarendon House, 2 Church Street,
Hamilton, Bermuda HM 11.

12. Miscellaneous.

This Agreement may not be amended or terminated except by a writing
signed by a duly authorized officer of the party against whom such
amendment or termination is asserted. This Agreement, together with the
other writings delivered in connection herewith, embody the entire
agreement and understanding of the parties hereto and supersede any prior
agreement and understanding between the parties. The section headings
contained in this Agreement are for convenience only and shall not affect
the construction of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

Amerinst Insurance Group, Inc.

--------------------------------------
By:
Its:

Amerinst Insurance Group, Ltd.

--------------------------------------
By:
Its:

C-5
<PAGE>

SCHEDULE 7(g)

Illinois Department of Insurance
Minister of Finance in Bermuda
Controller of Foreign Exchange in Bermuda

C-6
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Section 98 of the Companies Act of 1981 of Bermuda (as amended, the "Act")
provides generally that a Bermudian company may indemnify its directors,
officers and auditions against any liability which by virtue of Bermudian law
otherwise would be imposed on them, except in cases where such liability arises
from the fraud or dishonesty of which such officer, director or auditor may be
guilty in relation to the Company. Section 98 further provides that a Bermudian
company may indemnify its directors, officers, and auditors against any
liability incurred against them in defending any proceedings, whether civil or
criminal, in which judgment is awarded in their favor or they are acquitted or
granted relief by the Supreme Court of Bermuda in certain proceedings arising
under Section 281 of the Act.

The Company has adopted provisions in its Memorandum of Association and
Bye-Laws that provide that the Company shall indemnify its officers and
directors to the maximum extent permitted under the Act. The Company also
intends to enter into indemnification agreements with each of its directors and
officers to provide them with the maximum indemnification allowed under its
Memorandum of Association, Bye-Laws and the Act.

The Act also permits a corporation to purchase and maintain insurance for
the benefit of its officers and directors covering certain liabilities. The
Company intends to maintain a policy of officers' and directors' liability
insurance for the benefit of such persons.

The preceding discussion of the Company's Memorandum of Association, Bye-
laws, the Act and the Indemnification Agreements is not intended to be
exhaustive and is qualified in its entirety by the Memorandum of Association,
Bye-laws, the Act and the Indemnification Agreements.

Item 21. Exhibits and Financial Statement Schedules.

<TABLE>
<CAPTION>
(a) Exhibits

Exhibit
Number Description
------ -----------
<S> <C>
2.1 - Exchange Agreement dated as of January 20, 1999, between
AmerInst Insurance Group, Ltd. and AmerInst Insurance Group,
Inc. (filed as Appendix C to the Prospectus/Proxy
Statement and incorporated by reference hereby).

3.1 - Memorandum of Association of the Company (filed as Appendix
A to the Prospectus/Proxy Statement and incorporated by
reference hereby).

3.2 - Bye-laws of the Company (filed as Appendix B to the
Prospectus/Proxy Statement and incorporated by reference
hereby).

</TABLE>
II-1

<PAGE>

<S> <C>
4.1 - Specimen Certificate of Company Common Shares, par value $1.00
per share, of the Company.

5 - Opinion of Conyers, Dill & Pearman, regarding the legality of the
securities being registered.

8.1 - Opinion of Altheimer & Gray, regarding certain United States
income tax considerations.

8.2 - Opinion of Conyers, Dill & Pearman, regarding certain Bermudian
income tax considerations (included in Exhibit 5 to this
Registration Statement).

21 - Subsidiaries of the Company.

23.1 - Consent of Johnson Lambert & Company.

23.2 - Consent of Deloitte & Touche, Ltd.

23.3 - Consent of Conyers, Dill & Pearman (included in Exhibit 5 to
this Registration Statement).

23.4 - Consent of Altheimer & Gray (included in Exhibit 8.1 to
this Registration Statement).

27 - Power of Attorney (included on page II-4 of the Registration
Statement filed on September 30, 1998).

99.1 - Form of Proxy Card for AmerInst Insurance Group, Inc.

99.2 - Additional Soliciting Materials to be distributed to the
stockholders of AmerInst Insurance Group, Inc.
</TABLE>

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

(b) Financial Statement Schedules
Schedule II--Parent Company Condensed Financial Statements

Schedule IV--Reinsurance
Report of Independent Accountants on Financial Statement Schedule

All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted because
they are not required under related instructions or are inapplicable, or all of
the information required is set forth in the financial statements and related
notes.

Items 22. Undertakings.

1. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
Prospectus/Proxy Statement

II-2
<PAGE>

which is a part of this registration statement, by any person or party who is
deemed to be as underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.

2. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933, as amended
(the "Securities Act"), and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

4. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus/Proxy
Statement pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.

5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

6. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

7. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the Prospectus/Proxy
Statement is sent or given, the latest annual report to security holders that is
incorporated by reference in the Prospectus/Proxy Statement and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in the
Prospectus/Proxy Statement to deliver, or cause to be delivered to each person
to whom the Prospectus/Proxy Statement is sent or given, the latest quarterly
report that is specifically incorporated by reference in the Prospectus/Proxy
Statement to provide such interim financial information.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montpelier, State of
Vermont, on January 18, 1999.

AMERINST INSURANCE GROUP, LTD.

BY: /s/ Bruce Fenton
------------------------------------------------------
Bruce Fenton,
President

Signature Title Date
--------- ----- ----

Director January 18, 1999
- --------------------------
Norman C. Batchelder*

/s/ Bruce W. Breitweiser Director January 18, 1999
- --------------------------
Bruce W. Breitweiser

Director January 18, 1999
- --------------------------
Ronald S. Katch*

II-5
<PAGE>

Jerome A. Harris* Secretary and Director January 18, 1999

David N. Thompson* Director January 18, 1999

/s/ Bruce Fenton President and Director January 18, 1999
- ----------------------- (Principal Executive Officer)
Bruce Fenton

/s/ Janice Witkowski Vice President, Treasurer and January 18, 1999
- ----------------------- Director (Principal Financial
Janice Witkowski and Accounting Officer)

*By: /s/ Bruce W. Breitweiser
------------------------
Bruce W. Breitweiser
Attorney-In-Fact

II-6
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULES

The Board of Directors
AmerInst Insurance Group, Inc.

Our report on the 1997 consolidated financial statements of AmerInst Insurance
Group, Inc. is included on page F-2 of this Proxy Statement/Prospectus. In
connection with our audit of such financial statements, we also audited the
related condensed financial information of AmerInst Insurance Group, Inc.
(Parent) as of December 31, 1997 and 1996 and for the three years ended
December 31, 1997.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.

JOHNSON LAMBERT & CO.

Burlington, Vermont

January 18, 1999

S-1
<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Balance Sheets as of December 31, 1996 and 1997

<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Investment in subsidiary $18,940,597 $18, 379,184
Fixed maturity investments 1,081,859 1,082,928
Cash 3,162 6,339
Accrued investment income 20,514 20,514
Prepaid expenses and other assets 67,507 56,341
Income tax recoverable 79,893 218,275
----------- ------------
TOTAL ASSETS $20,193,532 $ 19,763,581
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Due to subsidiary $ 47,895 $ 61,325
Deferred federal income tax 8,552 7,399
Accrued expenses and other liabilities 19,077 13,590
----------- ------------
TOTAL LIABILITIES 75,524 82,314
=========== ============
STOCKHOLDERS' EQUITY
Common Stock 3,334 3,342
Additional paid-in capital 7,172,508 7,188,983
Retained earnings 12,925,566 12,474,579
Net unrealized gain in held for sale securities 16,600 14,363
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 20,118,008 19,681,267
=========== ============
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $20,193,532 $ 19,763,581
=========== ============
</TABLE>

S-2
<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Income for the Years Ended December 31, 1995 through
1997

<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE

Net investment income $ 56,039 $ 56,816 $ 63,887
---------- ---------- ----------

EXPENSES

Operating and management expenses 242,064 323,970 327,481
---------- ---------- ----------

Income (Loss) Before Income Taxes and (186,025) (267,154) (263,594)
Undistributed Earnings of Subsidiary

Income Tax (Benefit) (88,048) (98,355) (111,765)
---------- ---------- ----------

Income (Loss) before undistributed (97,977) (168,799) (151,829)
income of subsidiary

Undistributed Net Income of Subsidiary 1,429,148 2,255,277 3,248,814
---------- ---------- ----------

NET INCOME $1,331,171 $2,086,778 $3,096,985
========== ========== ==========

</TABLE>

S-3
<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT-SCHEDULE II

Condensed Statements of Cash Flows for the Years Ended
December 31, 1995 through 1997

1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES

Net Cash Provided by Operations $893,490 $829,642 $474,335
-------- -------- --------

INVESTING ACTIVITIES

Purchase of fixed-maturity investments (190,000) (105,000)
Sale and maturities of fixed maturity
investments 250,000
Net (purchases) sale of short-term investments 46,637 46,637
-------- -------- --------

Net Cash Provided by (Used in) Investing
Activities 60,000 (58,363)
-------- -------- --------

FINANCING ACTIVITIES

Dividends paid (867,735) (869,661) (435,412)
Purchases of treasury stock (28,932) (34,642) (65,079)
-------- -------- --------

Net Cash Used in Financing Activities (896,667) (904,303) (500,491)
-------- -------- --------

DECREASE IN CASH (3,177) (14,661) (84,519)

CASH AT BEGINNING OF YEAR 6,339 21,000 105,519
-------- -------- --------

CASH AT END OF YEAR $ 3,162 $ 6,339 $ 21,000
======== ======== ========
</TABLE>

S-4
<PAGE>

AMERINST INSURANCE GROUP, INC. (PARENT)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--SCHEDULE IV
Reinsurance

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Line of Gross Ceded to Assumed Net % Assumed
Business Premium Other Premiums Premiums to Net Premiums
Written Companies Written Written Written
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 Professional Liability 720,298 5,797,076 6,517,374 88.9%
12/31/96 Professional Liability 693,976 4,740,977 5,434,953 87.2%
12/31/95 Professional Liability 611,916 4,924,059 5,535,975 88.9%
</TABLE>

Note: For a description of the insurance program and further detail on ceded
premium adjustments and assumed premiums written and earned see Note B to the
audited financial statements.

S-5

<PAGE>

EXHIBIT 4.1

Incorporated in Bermuda

AmerInst Insurance Group, Ltd.

This is to certify that

is/are the registered shareholders of:

- --------------------------------------------------------------------------------
No. of Shares Type of Shares Par Value

- --------------------------------------------------------------------------------
Date of Record Certificate Number % Paid

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

The above shares are subject to the Memorandum of Association and Bye-laws of
the Company and transferrable in accordance therewith.

Given under the Common Seal of the Company

________________________ Director ________________________ Director/Secretary

<PAGE>

EXHIBIT 5

January __, 1999 DRAFT

AmerInst Insurance Group, Ltd.
2 Church Street
Hamilton HM 11
Bermuda

RE: AmerInst Insurance Group, Ltd. (the "Company") and common shares
of the Company of US$1.00 par value each ("Common Shares")

Dear Sirs,

We have acted as your Bermuda counsel in connection with the Registration
Statement ("Registration Statement") on Form S-4, filed with the United States
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended ("Act") of the United States of America, with respect to the
registration of 332,331 Common Shares (the "Shares") which are to be issued upon
an exchange of shares pursuant to an exchange agreement with AmerInst Insurance
Group, Inc.

For the purposes of giving this opinion, we have examined a copy of the
Registration Statement and originals or copies of the memorandum of association
and bye-laws of the Company. We have also examined such certificates of
directors and officers of the Company, minutes and draft minutes of meetings of
directors and of shareholders of the Company and such other certificates,
agreements, instruments and documents in Bermuda as we have deemed necessary in
order to render the opinions set forth below.

<PAGE>

AmerInst Insurance Group, Ltd.

January __, 1999
page 2

We have assumed:

(i) The genuineness and authenticity of all signatures and the conformity to
the originals of all copies of documents (whether or not certified)
examined by us;

(ii) The accuracy and completeness of all factual representations and
warranties made in the documents, and of the minutes and the draft
minutes of meetings of directors and of shareholders of the Company,
examined by us;

(iii) That there is no provision of the law of any jurisdiction, other than
Bermuda, which should have any implication in relation to the opinions
expressed herein;

(iv) That the Company will receive money or money's worth of not less than
US$1.00 in respect of each Share when issued.

We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is governed by and
construed in accordance with the laws of Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda. This opinion is issued
solely for your benefit and is not to be relied upon by any other person, firm
or entity or in respect of any other matter, without our express prior written
consent.

1. On the basis of and subject to the foregoing we are of the opinion that
the Shares have been duly authorized and, when issued in accordance with
the Registration Statement and duly paid for, will be validly issued and
fully paid and as such be non-assessable; no personal liability will
attach to the holders of such Common Shares solely by reason of ownership
thereof.

Our reservation with respect to the foregoing opinion is as follows:

"Non-assessability" is not a legal concept under Bermuda law, but when we
describe shares as being "non-assessable" (see above) we mean with
respect to the shareholders of the company, in relation to fully paid
shares of the company and subject to any contrary provision in any
agreement in writing between that company and any one of its shareholders
holding such shares but only with respect to such shareholder, that such
shareholder shall not be bound by an alteration to the memorandum of
association or the bye-laws of that company after the date upon which
they became such shareholders, if and so far as the alteration requires
them to take or subscribe for additional shares, or in any way increases
their liability to contribute to the share capital of, or otherwise pay
money to, such company.
<PAGE>

AmerInst Insurance Group, Ltd.

January __, 1999
page 3

2. The statements in the Registration Statement under the caption "Bermuda
Tax Consequences", to the extent that the same constitute matters of
Bermuda law or legal conclusions with respect thereto, have been reviewed
by us and are correct in all material respects, and such statements
reflect our opinions with respect to the matters of law referred to
therein.

We hereby consent to the filing of this opinion with the SEC and as an exhibit
to the Registration Statement and to the references to this Firm in the
Registration Statement. As Bermuda attorneys, however, we are not qualified to
opine on matters of law of any jurisdiction other than Bermuda. Accordingly, we
do not admit to being an expert within the meaning of the Act.

Yours faithfully,

Conyers, Dill & Pearman

<PAGE>

Exhibit 8.1
-----------

January 18, 1999

AmerInst Insurance Group, Inc.
P.O. Box 1330
Montpelier, VT 05601

Ladies and Gentlemen:

At your request, we have examined the registration statement to which this
opinion is an Exhibit (the "Registration Statement") of AmerInst Insurance
Group, Ltd., a Bermuda corporation (the "Company"), in connection with the
registration under the Securities Act of 1933, as amended, of shares of common
stock of the Company to be issued in connection with the proposed transfer of
all of the assets and liabilities of AmerInst Insurance Group, Inc., a Delaware
corporation ("AIIG"), to the Company, solely for Company stock, with the
currently outstanding Company stock being canceled (the "Exchange"), followed by
the dissolution of AIIG,, with holders of shares of AIIG stock receiving from
AIIG in exchange therefor the Company stock previously issued to AIIG (the
"Dissolution"). Our opinion has been requested regarding certain United States
Federal income tax consequences of this Exchange and Dissolution.

The terms of the proposed Exchange and Dissolution are contained in the
Registration Statement filed with the Securities and Exchange Commission on
September 30, 1998 and amended on January 19, 1999. Terms not otherwise defined
in this letter shall have the meanings assigned to them in the Registration
Statement.

We assume in rendering this opinion that the Exchange and Dissolution will
be consummated as described in the Registration Statement, and that all of the
factual information, descriptions, representations and assumptions set forth in
the Registration Statement and in the certificate letter to us from AIIG, dated
January 18, 1999, were accurate and complete at the date of such certificate
letter, and will be accurate and complete at the time the Exchange and
Dissolution become effective (the "Effective Time"), and that the disclosure set
forth in the Prospectus/Proxy Statement ("Prospectus/Proxy Statement") contained
in the Registration Statement that is to be mailed to AIIG stockholders in
connection with the special meeting of stockholders (at which AIIG stockholders
will be asked to approve the Exchange and Dissolution) is accurate and complete.
We have made no independent investigation as to the facts set forth in any of
the foregoing. Nothing has come to our attention, however, that would indicate
in any material respect that such facts as so set forth are not accurate or
complete or do not include all material facts relevant to our opinion.

Subject to and based on the foregoing and on the other matters set forth
herein, it is our opinion that, for United States income tax purposes, the
Exchange and Dissolution will qualify as a "reorganization" under Section 368(a)
of the Code, and AIIG and the Company will each be a party

<PAGE>

AmerInst Insurance Group, Inc.

January 18, 1999
Page 2

to such reorganization within the meaning of Section 368(b) of the Code.
Accordingly, with respect to each stockholder of AIIG, no gain or loss will be
recognized on the exchange of AIIG stock for Company stock in the Exchange and
Dissolution; the tax basis of the Company stock received will be the same as the
AIIG stock surrendered in exchange therefor; and the holding period of the
Company stock received will include the holding period of the AIIG stock
surrendered in exchange therefor, provided that the AIIG stock surrendered was a
capital asset in the hands of such stockholder.

We are also of the opinion that the descriptions of the United States law
contained in the Prospectus under the caption "United States Federal Income Tax
Consequences" appearing on pages 42 through 45 of the Proxy Statement/
Prospectus, are correct in all material respects, and the discussion thereunder
fairly summarizes the material United States Federal income tax consequences of
the Exchange and Dissolution to an AIIG stockholder.

Our opinion is based on the understanding that the relevant facts are, and
will be at the Effective Time, as set forth or referred to in this letter. If
this understanding is incorrect or incomplete in any respect, the validity
and/or scope of our opinion could be affected.

This opinion is based on the Code and the regulations thereunder, and on
the interpretations thereof by the Internal Revenue Service and courts having
jurisdiction over such matters, none of which squarely addresses every precise
factual circumstance present in connection with the Exchange and Dissolution,
but all of which, taken together, in our opinion provide a sufficient legal
basis for our opinions set forth herein. However, the possibility exists that
our opinion as to the proper application of the law to the facts of the Exchange
and Dissolution would not be accepted by the Internal Revenue Service or would
not prevail in court. In addition, the authorities upon which we have relied are
all subject to change and such change may be made with retroactive effect. We
can give no assurance that after any such change, our opinion would not be
different. Lastly, any variation or difference in the fact as incorporated
herein might affect the conclusions stated herein.

This opinion is for your benefit and is not to be used, circulated, quoted
or otherwise referred to for any purpose, except that we consent in accordance
with the requirements of Item 601(a)(23) of Regulation S-K under the Securities
Act, to the filing of this opinion as Exhibit 8.1 of the Registration Statement,
and to the use of our name under the captions "United States Federal Income Tax
Consequences" and "Legal Opinions" in the Proxy Statement/Prospectus. In giving
such consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.

Very truly yours,

ALTHEIMER & GRAY

<PAGE>

Exhibit 21

Subsidiaries of the Company
---------------------------

None

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of AmerInst Insurance Group, Inc.

We consent to the reference to our firm under the caption "EXPERTS" and to the
inclusion in Form S-4, Registration Statement of AmerInst Insurance Group, Ltd.
of our report dated February 13, 1998 on our audit of the financial statements
of AmerInst Insurance Group, Inc. as of December 31, 1997 and 1996 and for the
three years ended December 31, 1997.

JOHNSON LAMBERT & CO.

Burlington, Vermont
January 18, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 30, 1998, in the Form S-4 Registration
Statement of AmerInst Insurance Group, Ltd.

DELOITTE & TOUCHE, LTD.

Hamilton, Bermuda

January 15, 1999

<PAGE>

EXHIBIT 99.1

AMERINST INSURANCE GROUP, INC.

This Proxy is being solicited on behalf of the Board of Directors for
the Special Meeting of Stockholders to be held on February 26, 1999.

The undersigned hereby appoints Bruce W. Breitweiser and Norman C.
Batchelder, or any of them, with individual power of substitution, proxies to
vote all shares of Common Stock of AmerInst Insurance Group, Inc. (the
"Company") which the undersigned may be entitled to vote at the Special Meeting
of Stockholders of the Company to be held in Chicago, Illinois at 10:00 a.m.
Chicago time, on February 26, 1999 and at any adjournment thereof, as
designated on the reverse side of this proxy card, and in their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the meeting. You are encouraged to specify your choice by marking the
appropriate box on the reverse side. If you do not mark any box, your proxy will
be vote in accordance with the Board of Directors' recommendations. The proxies
cannot vote your shares unless you sign and return this card. The undersigned
hereby acknowledges receipt of the Notice of the Special Meeting of Stockholders
and the related Proxy Statement and Prospectus (with all annexes and enclosures)
dated January , 1999.

This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR authority to vote for the proposal and if any other matters should
properly come before the Special Meeting, such shares will be voted with respect
to such matters in accordance with the judgment of the persons voting such
proxies.

The Board of Directors recommends a vote FOR the proposals to approve and adopt
the Exchange Agreement and the Dissolution.

FOR AGAINST ABSTAIN
Proposal to approve and adopt the Exchange Agreement
dated as of January 20, 1999 between AmerInst Insurance
Group, Inc. and AmerInst Insurance Group, Ltd. [_] [_] [_]

Proposal to dissolve and liquidate AmerInst
Insurance Group, Inc. [_] [_] [_]

Please check this box if you plan to attend the
Special Meeting [_]

SIGNATURE(S) DATE
---------------------------- -------------------------------
PRINT NAME
----------------------------
The signer hereby revokes all proxies heretofore given by the signer to vote
at said meeting or any adjournments thereof.

IMPORTANT: Please date this proxy and sign exactly as your name or names
appear(s) hereon. If the stock is held jointly, signatures should
include both names. Executors, administrators, trustees, guardians
and other signing in a representative capacity should give full
title. In order to insure that your shares will be represented at
the Special Meeting of Stockholders, please sign, date and return
this proxy promptly in the enclosed postage-prepaid envelope or by
facsimile to Morrow & Co., (212) 754-8300. If you do attend the
meeting, you may, if you wish, withdraw your proxy and vote in
person.

<PAGE>

Exhibit 99.2

DRAFT

January , 1999

Dear AmerInst Shareholder:

Your Board of Directors has been approaching a number of initiatives in
order to increase liquidity for your shares and to preserve the initial
mission of AmerInst: to exert a positive influence on the market for
accountants' professional liability insurance. A number of our initiatives
have been accomplished, and others are in process.

Clearly the most significant benefit for liquidity is now before you; the
recommendation of your Board to redomesticate our companies to Bermuda. This
transaction is presented to you as a tax-free exchange of shares and, if our
shareholders approve the transaction, we will be able to add an additional
avenue of liquidity for our shareholders by investing in our own shares for
our investment portfolio.

We are regulated by the Securities and Exchange Commission as a public
company. A transaction of this complexity and magnitude requires substantial
disclosure. This mailing includes:

The notice of a special meeting of stockholders called for February 26,
1999 to vote on the transaction;

A proxy statement/prospectus, describing the transaction and the Board's
reasons for recommending the transaction to you.

A proxy card with respect to the voting of your shares at the special
meeting of stockholders; and a return envelope for the proxy card.

Attached to this letter are a number of questions and answers prepared to
assist you in your review of this exchange transaction. This attachment
summarizes the enclosed proxy statement/prospectus. You should carefully read
the proxy statement/prospectus before making any decision regarding how to
vote at the special meeting.

Your board has voted unanimously to recommend the exchange transaction to
you for your approval. If you have any questions, we have arranged a series of
telephone conference calls which will give you an opportunity to ask questions
of our directors or listen to the answers to questions of other shareholders.
Please call into any of the following conferences by dialing 1-800-xxx-xxxx
and ask for the AmerInst conference:

<TABLE>
<S> <C> <C>
February 10 Wednesday 2:00 p.m. CST
February 12 Friday 10:00 a.m. CST
February 16 Tuesday 10:00 a.m. CST
February 18 Thursday 5:00 p.m. CST
February 22 Monday 2:00 p.m. CST
</TABLE>

Information, including our 1998 annual financial results, will also be
available, on our website at:

www.cfonews.com/amernist/aiig.htm

Respectfully submitted,

Board of Directors

AmerInst Insurance Group
<PAGE>

AmerInst Insurance Group, Inc.

Questions and Answers

1. Isn't this transaction just a perk for the directors, or some other kind
of inside deal?

Let's address any animosity up front. There has been misinformation
circulating about this transaction for some time. The following Questions
and Answers will put forth the facts of the transaction and you can judge
as to whether you agree it is a sound business decision to move our
companies to Bermuda.

We are in the process of adding and replacing directors; presently
completing the interviews and selection from a field of three dozen
respondents to our invitation for shareholders interested in becoming
directors. Many of the candidates, not unlike our present directors, are
concerned about the time commitment. Though Bermuda may be an attractive
location, it is also expensive and the travel time is lengthy from most
regions of the U.S. We expect to use written consents in lieu of meetings
and telephonic meetings to the extent necessary to minimize the necessity
of travel and associated costs.

Your directors, present and those in the future, are committed to AmerInst
in our original mission, in our liquidity for shareholders and in our
maintaining a viable business for the future. We appreciate input from
shareholders, and indeed we have received input from many of you.
Shareholders have asked for liquidity, additional information and evolving
leadership. This transaction is one more step in responding to shareholders
and in adding value to your investment.

2. Why is the Board recommending this transaction?

There are several reasons this restructuring and change in domicile is
recommended:

. Investco, our Bermuda subsidiary, will be able to purchase and sell
shares of AmerInst. We will no longer be limited to treasury stock
transactions.

. AmerInst presently is subject to the classic "double taxation" whereby
our annual net income is subject to corporate income tax, and our
dividend paid to our shareholders is subject to personal income tax while
not being tax deductible to AmerInst. If AmerInst is domiciled in Bermuda
our distributed income is subject only to income tax at the shareholder
level. The elimination of double taxation will result in additional cash
flow which can be utilized to repurchase shares and increase liquidity
for our shareholders.

. Bermuda is a major reinsurance and financial center, which will enhance
the future ability of AmerInst to participate in the professional
liability insurance market.

(Page 17)

3. Will this transaction increase liquidity for my shares?

Yes, in several ways:

. Investco, our Bermuda subsidiary, will be able to buy and sell shares of
AmerInst.

. Additional cash will be available from the elimination of the double
taxation.

4. What other proposals does the Board have to improve liquidity?

Whether or not the proposed transaction is consummated, the Board intends
to revise the Company's stock ownership and redemption policies as follows:

. The Board would use its authority to generally permit additional forms of
ownership (irrevocable trusts, personal rather than firm, qualified
retirement plan trusts), which has always been within the Board's
discretion.

. The stock redemption policy would be changed to allow for full redemption
on request, rather than our present policy of full redemption only on
death, disability or retirement. This liberalized redemption policy will
continue to be at the Board's discretion to assure that redemption will
not impair our capital.

5. Is this exchange transaction taxable to me?

No. This transaction is tax-free, as an exchange, to you as well as our
company.

(Page 10; 16)

2
<PAGE>

6. Will this exchange transaction change my tax basis?

No. It is a tax-free exchange and you are entitled to a carryover basis and
holding period of all of your shares. (Page 16)

7. What changes will effect operations in Bermuda, and won't it be more
expensive?

The changes to the operations of AmerInst are to conform to Bermuda
corporate law and are relatively insignificant and transparent to our
shareholders. The majority of the directors of the new Bermuda company will
be current members of the Board. Our present service providers with direct
shareholder contact, such as USA Risk Group and our securities transfer
agent, will use their Bermuda offices or affiliated entities to serve us.
We will retain legal counsel and auditors in Bermuda. Our SEC and U.S.
income tax representation can continue to be provided by our present
lawyers and accountants. Investment advisory services can continue with our
U.S. firms. We have no plans to change service providers other than where
our present service provider does not have a presence in Bermuda.

Yes, it will be slightly more expensive to operate outside of the U.S., but
the Board believes that such additional costs will be substantially less
than the expected income tax savings.

8. Will the new by-laws (Bermuda) be different?

Yes. Our company is presently governed under Delaware law. The new company
will be governed under Bermuda law. There are a number of changes fully
explained in "Comparative Rights of Shareholders" beginning on Page 18.
Bermuda law, which is similar to English law, is generally more favorable
to shareholders than Delaware law.

9. Will I still receive the financial information required by United States
securities laws?

Yes. AmerInst will still be subject to U.S. Federal securities laws,
including filing of quarterly reports (10-Q and 10-K) with the SEC.

10. With the expected higher net income, can I expect my dividend to increase?

Not at this time. Adding shareholder value by maintaining our capital and
providing additional liquidity for our shareholders is our key objective.
We have paid a quarterly dividend each of the last three years. We review
the dividends each quarter and expect to continue this practice as well as
the present payment rate.

11. What are the basic steps that I, as a shareholder, need to take besides
voting?

You only need to vote, by returning your proxy or attending the special
meeting of the shareholders.

Please do not send your share certificate(s) with your proxy.

If the transaction is approved by our shareholders you will receive
instructions on the steps to take to exchange your shares or to replace any
lost certificates.

12. Notwithstanding this transaction, I would like to change or receive a
replacement stock certificate. Who do I contact?

Please request in writing a "stock replacement package" from:

Harris Trust & Savings

Attention: Jeff Knapp

311 W. Monroe St.

14th Floor

PO Box A 3504

Chicago, IL 60690