SEIBELS BRUCE GROUP INC, S-2, 1997-03-27

SEIBELS BRUCE GROUP INC
S-2, 1997-03-27
FIRE, MARINE & CASUALTY INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997

REGISTRATION NO.
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE SEIBELS BRUCE GROUP, INC.

(Exact Name of registrant as Specified in Charter)

<TABLE>
<S> <C>
SOUTH CAROLINA 57-0672136
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
</TABLE>

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1501 Lady Street
Columbia, SC 29201
(803) 748-2000

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

Priscilla Brooks, Corporate Secretary
The Seibels Bruce Group, Inc.
1501 Lady Street
Columbia, SC 29201
(803) 748-2000

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

COPIES TO:

<TABLE>
<S> <C> <C>
Alan J. Prince, Esq. Matt P. McClure, Esq. Lars Bang-Jensen, Esq.
KING & SPALDING THE SEIBELS BRUCE LEBOEUF, LAMB, GREENE &
191 Peachtree Street GROUP, INC. MACRAE, L.L.P.
Atlanta, Georgia 1501 Lady Street 125 West 55th Street
30303 Columbia, SC 29201 New York, New York 10019-5389
(404) 572-4600 (803) 748-2000 (212) 424-8000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- --------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $1.00 per share................................................. $23,787,629 $7,209
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).

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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 27, 1997

2,853,089 SHARES

[LOGO]

COMMON STOCK
------------------

Of the 2,853,089 shares of Common Stock, $1.00 par value (the "Common
Stock"), of The Seibels Bruce Group, Inc., a South Carolina corporation (the
"Company" or "SBIG"), offered for sale hereby (the "Offering"), 1,853,089 shares
are being offered by a certain shareholder (the "Selling Shareholder") and
1,000,000 shares are being offered by the Company. The Company will not receive
any of the proceeds from the sale of the shares of Common Stock by the Selling
Shareholder.

The Common Stock is currently traded on The Nasdaq Stock Market under the
symbol "SBIG". The reported closing price of the Common Stock as of March 24,
1997 was $7.25. This closing price (and other share and per share information
herein) reflects a 1-for-4 reverse stock split of the Common Stock which,
pending shareholder approval, the Company anticipates will occur during the
second quarter of 1997. See "Market Price of Common Stock."

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

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH IN
"RISK FACTORS" BEGINNING ON PAGE 7 HEREOF.
------------------------

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses of the Offering of approximately
payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
427,963 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholder will be $ , $ , $
and $ , respectively.

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

The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the Offering without notice. It is
expected that delivery of certificates representing the shares of Common Stock
will be made to the Underwriters on or about , 1997.

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

ADVEST, INC. SCOTT & STRINGFELLOW, INC.

The date of this Prospectus is , 1997.
<PAGE>
DESCRIPTION OF CHART

Chart showing The Seibels Bruce Group, Inc. and certain principal
subsidiaries and their specific lines of business.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

FOR NORTH CAROLINA INVESTORS: These securities have not been approved or
disapproved by the Commissioner of Insurance for the State of North Carolina
(the "North Carolina Insurance Commissioner") nor has the North Carolina
Insurance Commissioner ruled upon the accuracy or adequacy of this prospectus.

STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO THE
COMPANY IN GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF THE COMPANY,
AND THUS INDIRECT CONTROL OF ITS INSURANCE SUBSIDIARIES, UNLESS SUCH ACQUISITION
IS APPROVED BY THE APPROPRIATE INSURANCE REGULATORY AUTHORITIES. GENERALLY, ANY
PERSON ACQUIRING BENEFICIAL OWNERSHIP OF 10% OR MORE OF THE COMMON STOCK WOULD
BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL. SEE "BUSINESS--REGULATION."

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<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE, OR INCORPORATED BY
REFERENCE, IN THIS PROSPECTUS. ALL FINANCIAL DATA FOR THE COMPANY ARE PRESENTED
ON THE BASIS OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") UNLESS
OTHERWISE STATED. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS
PROSPECTUS (OTHER THAN INFORMATION INCORPORATED BY REFERENCE) (I) ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED AND (II) REFLECTS
A 1-FOR-4 REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH THE COMPANY
ANTICIPATES WILL OCCUR, SUBJECT TO SHAREHOLDER APPROVAL, DURING THE SECOND
QUARTER OF 1997. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" OR "SBIG"
REFERS TO THE SEIBELS BRUCE GROUP, INC. AND ITS PREDECESSORS AND SUBSIDIARIES.
SEE "GLOSSARY OF SELECTED INSURANCE AND CERTAIN DEFINED TERMS" FOR THE
DEFINITION OF CERTAIN TERMS USED IN THIS PROSPECTUS. FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK,
SEE "RISK FACTORS."

THE COMPANY

The Seibels Bruce Group, Inc. provides automobile, flood and other property
and casualty insurance services and products through independent agents
primarily in the southeastern United States. The Company's largest source of
revenues derives from its role as one of three servicing carriers for the South
Carolina Reinsurance Facility (the "SC Facility"), a state-sponsored plan for
insuring South Carolina drivers outside of the voluntary market. The Company
also is a leading provider and an original participant in the National Flood
Insurance Program (the "NFIP"), which is underwritten by the federal government.
As a servicing carrier for the SC Facility and the NFIP, the Company receives
commissions and fees for issuing, processing and administering policies as well
as for claims adjustment, but reinsures all insurance risks with either the SC
Facility or the NFIP, as applicable. The Company provides other fee-based
services as a managing general agent ("MGA"), primarily for commercial lines,
and as an excess and surplus lines broker, and also offers storm claims
adjustment and liability run-off management services. Recently, the Company
began limited efforts to market and underwrite nonstandard automobile insurance
on a retained risk basis.

The SC Facility provided automobile insurance to approximately 38% of all
exposures in the State of South Carolina in 1995 and received approximately $455
million of private passenger premiums for its fiscal year ended September 30,
1996. Throughout its history, the SC Facility has operated at a deficit which
has been funded by additional fees assessed annually against all insured drivers
in South Carolina. Various efforts to reform the automobile insurance system in
South Carolina by means of regulatory rate increases or more comprehensive
legislative restructuring proposals have been initiated in recent years. The
Company anticipates that current reform efforts are likely to result in changes
to the South Carolina automobile insurance market that will cause the voluntary
withdrawal from the SC Facility by insureds able to obtain more attractive
premium rates in the voluntary market. The Company seeks to take advantage of
the opportunity to market and sell automobile insurance products to these
insureds by capitalizing on its existing agent relationships, underwriting data
and experience with respect to the SC Facility and knowledge of the South
Carolina automobile insurance market. See "Risk Factors--Anticipated Changes in
Automobile Insurance Business in South Carolina."

The Company has participated in the NFIP since the program's inception in
1983 and believes that it was one of the 10 largest NFIP servicing carriers for
the program's fiscal year ended September 30, 1996. NFIP servicing carriers
wrote approximately $1.2 billion of flood insurance premiums during the 1996
NFIP fiscal year. The NFIP had approximately 3.6 million flood insurance
policies in force as of September 30, 1996. The Company is licensed to sell
flood insurance in 43 states and markets its flood products through independent
agents.

The Company serves as a MGA in connection with commercial policies
underwritten by Generali-U.S. Branch ("Generali"), a member of one of the
largest international insurance groups. The Company sells

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<PAGE>
and services certain Generali commercial products, including commercial
automobile insurance products and business owners insurance policies, in
Georgia, Kentucky, North Carolina, South Carolina and Tennessee. The Company
receives a commission, and Generali currently retains all of the underwriting
risk. In addition, the Company acts as a MGA or broker for certain excess and
surplus lines; provides claims adjustment and administrative services, including
storm claims adjustment services for various insurers and associations; and
provides services to companies running-off discontinued business.

The Company was established in 1869 in Columbia, South Carolina and grew to
become a leading property-casualty underwriter and managing general agent in the
southeastern United States. Through its former subsidiary, Policy Management
Systems Corporation ("PMSC"), the Company developed and marketed a computer
software system in the 1970s which is widely used by the insurance industry. The
Company sold its interest in PMSC between 1981 and 1985 to absorb significant
losses in its insurance operations due primarily to environmental and
construction defect claims in California on general liability policies written
by the Company prior to 1985. Throughout the 1980s and early 1990s, the Company
continued to experience significant losses, which were attributable to these
general liability policies, poor experience on its workers' compensation
business and the effects of Hurricanes Hugo in 1989 and Andrew in 1992. These
operating losses reduced the Company's shareholders' equity to $650,000 by the
end of 1994, and prompted the Company to suspend its risk-bearing insurance
operations in early 1995.

In early 1995, the Company replaced its Chief Executive Officer and Chief
Financial Officer and began an ongoing effort to recruit additional management.
New management has taken a number of actions to stabilize and improve the
Company's financial condition through significant cost reductions, the raising
of new equity capital and a renewed emphasis on fee-based businesses. As a
result of these actions and the relative stabilization of its loss experience,
the Company was profitable in 1995 and 1996 and resumed limited insurance
underwriting activities in 1996. By December 31, 1996, shareholders' equity had
increased to $23.8 million. For the fiscal year ended December 31, 1996, the
Company's revenues were $57.2 million and net income was $5.2 million.

STRATEGY. The Company's objective is to increase its revenues and net
income by growing its business primarily in the southeastern United States. To
meet its objective, the Company intends to:

- develop its retained risk automobile insurance business by capitalizing on
the anticipated withdrawal of insureds from the SC Facility and on its
existing agent relationships;

- expand its flood insurance operations by expanding agent coverage
particularly in several high-volume markets, promoting its claims service
to agents, offering bundled flood insurance services and products, and
providing agent incentives;

- enhance the profitability of its relationship with Generali by improving
loss ratios, reducing operating expenses and assuming a portion of the
insurance risk on the Generali commercial policies;

- increase its excess and surplus lines business and storm claims adjustment
service business by expanding the types of products available and
continuing to improve the quality of services provided to agents and
policyholders; and

- continue to reduce expenses and improve productivity through the upgrading
of management information systems and the continued implementation of an
in-house restructuring program to improve communications and work flow
between the Company's claims and underwriting staffs.

The Company's principal executive offices are located at 1501 Lady Street,
Columbia, South Carolina 29201, and its telephone number is (803) 748-2000.

4
<PAGE>
FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements include statements relating to
reform initiatives regarding the SC Facility and the potential voluntary
withdrawal of insureds from such facility; and the Company's strategy to
increase revenues and net income by, among other things, growing its various
lines of business, developing new products and reducing expenses. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. See "Risk
Factors."

THE OFFERING

<TABLE>
<S> <C>
Common Stock being offered by:
The Company................................ 1,000,000 shares
The Selling Shareholder.................... 1,853,089 shares
---------------------------------------------
Total shares offered..................... 2,853,089 shares

Common Stock outstanding after the Offering 7,237,033 shares
(1)........................................

Use of Proceeds.............................. The proceeds derived from the sale of shares
of Common Stock offered by the Company will
be retained for general corporate purposes,
including possible acquisitions. The Company
will also contribute a portion of the
proceeds to one or more of its insurance
company subsidiaries for statutory surplus as
necessary to support insurance operations.
The Company will not receive any proceeds
from the sale of the shares of Common Stock
offered by the Selling Shareholder.

Nasdaq Stock Market Symbol................... SBIG
</TABLE>

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(1) Based upon shares outstanding on March 24, 1997. Does not include (i)
635,181 shares of Common Stock reserved for issuance upon the exercise of
stock options outstanding on such date and (ii) 16,059 shares of restricted
stock issued pursuant to the Company's stock plans.

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Commission and service income................ $ 35,943 $ 41,625 $ 60,669 $ 49,572(1) $ 45,585
Property and casualty premiums............... 117,172 55,331 14,718 10,384 7,186
Credit life premiums......................... 4,247 3,207 1,801 890 478
Net investment income........................ 9,973 5,455 5,321 3,176 3,006
Other interest income........................ 2,987 1,635 905 1,154 801
Realized gains (losses) on investments....... 7,040 1,969 (6,327) 164 (14)
Other income................................. 4,019 4,697 2,673 843 151
---------- ---------- ---------- ------------- ----------
Total revenues............................... 181,381 113,919 79,760 66,183 57,193
Net income (loss).............................. $ (32,666) $ (1,014) $ (19,074) $ 1,152 $ 5,176
Net income (loss) per share and common
equivalent share............................. $ (17.42) $ (0.54) $ (6.89) $ 0.28 $ 0.90
Weighted average shares outstanding............ 1,875 1,875 2,767 4,181 6,382

OTHER OPERATIONS DATA:
Revenue from current operations(2)............. -- -- $ 62,944 $ 50,804 $ 51,475
Revenue from run-off operations(3)............. -- -- 14,244 10,042 1,774

DECEMBER 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total cash and investments..................... $ 161,769 $ 120,480 $ 61,868 $ 50,641 $ 42,944
Total assets(4)................................ 461,136 324,695 255,935 224,005 220,472
Losses and loss adjustment expenses(4)......... 257,602 194,682 166,698 145,523 132,152
Total debt..................................... 25,153 11,934 439 2,476 0
Shareholders' equity........................... 14,219 13,902 650 10,187 23,791
Book value per share........................... 7.58 7.41 0.18 2.44 3.86
STATUTORY SURPLUS(5)............................. $ 18,440 $ 17,352 $ (1,615) $ 9,301 $ 21,632
</TABLE>

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(1) As a result of a competitive bidding process, in October 1994, the Company
was awarded a new contract with the SC Facility for a smaller block of
business at lower rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Nonstandard
Automobile Insurance Business--Industry Background."

(2) Reflects revenue from the lines of business in which the Company is
currently engaged.

(3) Reflects revenue derived from lines of business for which the Company is no
longer writing new or renewal policies. It includes (i) run-off premiums
from retained credit life business in force at the time the Company sold
such business in September 1993, (ii) workers' compensation premiums through
1994 and (iii) premiums on certain personal line policies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

(4) Includes losses and LAE subject to ceded reinsurance recoverable in the
following amounts (in thousands): $140,969 in 1992; $76,221 in 1993; $88,731
in 1994; $84,492 in 1995; and $84,725 in 1996.

(5) Reflects the statutory surplus of South Carolina Insurance Company ("SCIC"),
the Company's principal insurance subsidiary.

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<PAGE>
RISK FACTORS

THERE ARE CERTAIN RISKS INVOLVED IN AN INVESTMENT IN THE COMMON STOCK.
ACCORDINGLY, PROSPECTIVE PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION CONTAINED
IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.

ANTICIPATED CHANGES IN AUTOMOBILE INSURANCE BUSINESS IN SOUTH CAROLINA

Commission and service income earned by the Company as a servicing carrier
for the SC Facility constitutes the Company's largest source of revenues. The
Company's agreement with the SC Facility expires September 30, 1999. However, if
legislation recently approved by the South Carolina Senate is enacted, the SC
Facility will be gradually phased-out over the next three years. In any event,
the Company believes that the number of South Carolina drivers obtaining
insurance from the SC Facility will be significantly reduced over the next few
years either as a result of the enactment of this or other proposed legislation
or anticipated regulatory action increasing premium rates. Accordingly, the
Company could earn significantly less commission and service income in the
future, which could materially adversely affect the Company's results of
operations. While the Company believes that a gradual depopulation of the SC
Facility will present opportunities for the Company to expand its risk-bearing
automobile insurance business in South Carolina, there can be no assurance that
the Company's strategy to expand such business will be successful or that such
business will be profitable. See "--Re-Entry into Risk-Bearing Activities" and
"Business--Nonstandard Automobile Insurance Business."

FINANCIAL CONDITION; RECENT LOSSES

The Company incurred substantial losses from 1989 through 1994. For the
years ended December 31, 1992, 1993 and 1994, the Company recorded net losses of
approximately $32.7 million, $1.0 million (after an extraordinary item) and
$19.1 million, respectively. Losses incurred by the Company through 1994
significantly reduced the shareholders' equity of the Company and the statutory
surplus of its insurance subsidiaries. As a result, the Company suspended its
insurance activities on which it retained risks in the second quarter of 1995.
Having increased capital and improved operating results, the Company received
authorization from the South Carolina Department of Insurance to resume
underwriting new business on a limited basis during the third quarter of 1996.
Although the Company reported net income of $1.2 million and $5.2 million for
the years ended December 31, 1995 and 1996, respectively, there can be no
assurance that the Company will not suffer further operating losses in the
future which may significantly affect its financial condition. See
"--Uncertainty Associated with Estimating Reserves; History of Reserve
Deficiencies." The Company also has experienced negative cash flows from
operations for each of the last three fiscal years. The Company's withdrawal
from most of its insurance activities on which it retained risks caused a
significant reduction in its operating cash flows while the Company continued to
pay a significant amount of claims related to the run-off of such retained risk
activities. While the Company has been able to meet its cash flow obligations
through the sale of investments, there can be no assurance that the Company will
be able to meet its cash flow requirements in the future if claims payment
requirements significantly exceed the Company's current expectations.

UNCERTAINTY ASSOCIATED WITH ESTIMATING RESERVES; HISTORY OF RESERVE DEFICIENCIES

Although the Company currently underwrites insurance on a limited basis, the
Company has historically written substantial amounts of insurance on a retained
risk basis, and as such it could report significant losses in the future in
excess of its current reserves for unpaid losses and loss adjustment expenses
("LAE") due to this past underwriting activity. The reserves for losses and LAE
established by the Company are estimates of ultimate amounts needed to pay
reported and unreported claims and related expenses based on facts and
circumstances known to the Company at the time it established the reserves.
Substantial uncertainties are inherent in the establishment of appropriate
reserves for property and casualty insurers. Such uncertainties are
significantly greater in estimating reserves for environmental,

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<PAGE>
toxic tort and other casualty claims which the Company continues to maintain.
Due to the inherent uncertainty of estimating reserves, it has been necessary,
and may over time continue to be necessary, to revise estimated future
liabilities as reflected in the Company's reserves for claims and policy
expenses.

For each of the three years ended December 31, 1994, 1995 and 1996, the
Company incurred increases in estimated losses and LAE for claims occurring in
prior years of approximately $17.0 million, $3.4 million and $1.1 million,
respectively. For the calendar years 1986 through 1993, the Company ultimately
experienced cumulative reserve deficiencies for those years that ranged between
$23 million and $89 million. To the extent that reserves prove to be deficient
in the future, the Company will have to increase its reserves by the amount of
the deficiency and incur a charge to earnings in the period such reserves are
increased, which could have a material adverse effect on the results of
operations and financial condition of the Company. See "The Company" and
"Business--Reserves for Losses and Loss Adjustment Expenses."

RE-ENTRY INTO RISK-BEARING ACTIVITIES

As a result of its operating losses and impaired financial condition, the
Company suspended all insurance underwriting activities on which it retained
insurance risks in the second quarter of 1995. Following a recapitalization, an
improvement in operating results and the approval of the South Carolina Director
of Insurance, the Company resumed insurance underwriting activities on a
limited, risk-bearing basis in the third quarter of 1996. The Company's strategy
for adapting to the anticipated depopulation of the SC Facility and the
consequent reduction in service and commission income is dependent on the
Company's ability to market and sell nonstandard automobile insurance on a
profitable basis to insureds withdrawing from the SC Facility. The ability of
the Company to market, sell and profitably underwrite nonstandard automobile
insurance and other lines of insurance may be significantly affected by a
variety of factors specific to the Company or the business, including the
following:

ABILITY TO MARKET PRODUCTS THROUGH EXISTING AGENCY RELATIONSHIPS. The
Company intends to capitalize on its agency relationships in order to market and
sell nonstandard automobile insurance. Currently, all private passenger
automobile liability insurance business produced by Designated Agents must be
ceded to the SC Facility and, as a result, such agents are not permitted to
produce such business for insurers in the voluntary market. If, however, the SC
Facility is reorganized pursuant to legislation recently approved by the South
Carolina Senate, then the Designated Agents will be allowed to produce
automobile insurance business for the voluntary market. There can be no
assurance that Designated Agents will be legally permitted to write voluntary
business for the Company or that the Company will be able to recruit Designated
Agents that it currently services or has serviced in the past to market and sell
its nonstandard automobile insurance products.

UNCERTAIN PRICING AND PROFITABILITY. Although the Company has been
servicing the SC Facility since 1974, it has only recently begun to underwrite
nonstandard automobile insurance on a retained-risk basis. There can be no
assurance that the Company will be able to price its nonstandard automobile
products or rate potential policyholders profitably or competitively. Further,
it is unclear what impact depopulation of the SC Facility will have on the
competitive environment for nonstandard automobile insurance in South Carolina.
The Company likely will compete with regional and national insurers that have
greater financial resources than the Company and superior ratings from A.M. Best
Company, Inc. ("A.M. Best").

REGULATORY CONSTRAINTS ON UNDERWRITING ACTIVITIES. The South Carolina
Director of Insurance authorized the resumption of underwriting activities by
the Company on the condition that the Company maintain a ratio of net premiums
written to statutory surplus of 0.85 to one, which ratio is substantially lower
than the maximum three to one ratio normally allowed by the regulators. As a
result of this requirement, net premiums written in 1997 cannot exceed $18.4
million based on the statutory surplus of SCIC (the Company's principal
insurance subsidiary) of approximately $21.6 million as of December 31, 1996.
Due to the Company's history of operating losses and recently impaired financial
condition, the

8
<PAGE>
Company has been, and anticipates that it will continue to be, subject to more
stringent regulatory scrutiny and limitations than other insurance carriers
which could significantly impede its ability to expand its underwriting
activities.

FUTURE GROWTH AND CONTINUED OPERATIONS DEPENDENT ON ACCESS TO
CAPITAL. Significant future growth in the Company's risk-bearing insurance
operations will depend on the Company's ability to obtain additional capital for
its insurance subsidiaries. Such capital will likely have to be obtained through
equity or debt financing as well as retained earnings. There can be no assurance
that the Company will have access to sufficient capital to support future growth
and to satisfy the capital requirements of rating agencies and regulators.

ABSENCE OF RATING. The Company has elected not to be rated by A.M. Best,
the industry's leading rating authority, and accordingly was last assigned a
group rating of NR-4 ("Not Assigned-Company Request"). A.M. Best is an
independent company which rates insurance companies based on its judgment of
factors related to the insurer's ability to meet policyholder and other
contractual obligations. Most of the Company's competitors have A.M. Best
ratings. While the Company believes the lack of a rating is less significant in
underwriting nonstandard automobile business than other lines of business, there
can be no assurance that the Company's current absence of a rating or any future
rating will not affect the Company's competitive position and results of
operations.

RISKS ASSOCIATED WITH THE NATIONAL FLOOD INSURANCE PROGRAM

The Company derives a substantial portion of its net income from its role as
a servicing carrier for the NFIP. While the Company remains one of the leading
producers of flood insurance, the volume of premiums serviced by the Company has
declined in recent years. The volume of flood insurance written by the Company
and the Company's results of operations could be adversely affected by a variety
of factors specific to the Company or the NFIP generally, including the
following:

ABSENCE OF HOMEOWNER'S INSURANCE PRODUCT. The Company currently does not
offer a homeowner's insurance product. Many consumers in flood-prone areas
purchase flood insurance at the same time they purchase homeowners insurance.
Accordingly, the Company believes that its failure to offer a homeowner's
insurance product has limited its ability to expand its flood insurance business
in certain markets. The Company has no current plans to offer a homeowner's
insurance product.

SYSTEMS OPERATIONS. The Company has encountered difficulties in complying
with FEMA statistical reporting requirements. FEMA has given the Company until
June 26, 1997 to comply with FEMA statistical reporting requirements. In order
to comply with such requirements, the Company has recently entered into an
agreement with a major provider of processing services for the NFIP to outsource
the processing of its flood insurance business. Although the Company expects
that its new outsourcing arrangement will enable the Company to meet FEMA
statistical reporting requirements, there can be no assurance that the Company
will in fact be able to do so or that the Company will be able to comply with
such requirements on an ongoing basis. If the Company fails to comply with FEMA
statistical reporting requirements, it could be prohibited from writing flood
insurance through the NFIP, which would materially adversely affect the
Company's results of operations.

INDEPENDENT AGENTS. The Company markets flood insurance through independent
agents. While the Company believes that the commissions and services it provides
to its agents are generally competitive with other servicing carriers, there can
be no assurance that the Company will be able to continue to attract and retain
independent agents to sell its flood insurance products.

VOLATILITY OF FLOOD CLAIMS BUSINESS. Since the demand for flood insurance
typically increases after the occurrence of floods and the Company's results of
operations are favorably affected through servicing flood claims, the extent to
which floods occur infrequently or are minimal in magnitude could have an

9
<PAGE>
adverse effect on the profitability of the Company. See "Business--Flood
Insurance--Claims" and "Business--Other Business--Insurance Network Services."

LEGISLATIVE AND CONTRACT CHANGES. The Company's agreement with the NFIP is
renewed annually and is conditioned upon the Company meeting certain standards
and requirements prescribed by FEMA. Commission rates for servicing carriers
participating in the NFIP are set annually by FEMA. There can be no assurance
that future federal legislative or regulatory changes in the NFIP will not also
adversely affect the Company's results of operations. Furthermore, there can be
no assurance that FEMA will renew its agreement with the Company or that FEMA
will not reduce the commission currently paid to servicing carriers.

DEPENDENCE ON KEY PERSONNEL IN CONNECTION WITH FUTURE SUCCESS

The future success of the Company depends significantly upon the efforts of
certain key management personnel including former Governor of South Carolina
John C. West, Chairman of the Board of Directors, Ernst N. Csiszar, President
and Chief Executive Officer, and John A. Weitzel, Chief Financial Officer. Mr.
Csiszar was diagnosed in November 1995 as having chronic myelogenous, a form of
leukemia for which he is currently receiving treatment. This illness has not
significantly impaired Mr. Csiszar's ability to perform his duties as President
and Chief Executive Officer. Loss of any of these individuals could adversely
affect the Company's business. There can be no assurance that the Company will
be able to recruit and retain additional qualified management personnel in the
future. See "Management--Directors and Executive Officers of the Company."

COMPETITION

The markets in which the Company does, or plans to do business, generally
are highly competitive. The Company competes with large national companies and
smaller regional companies. The Company's competitors generally have greater
financial and marketing resources and insurance underwriting experience than the
Company and superior ratings from A.M. Best, which are factors which may
significantly influence, in particular the Company's ability to market and
profitably sell its insurance products.

Management believes that the Company's ability to compete with other
companies in its chosen lines of business will also be affected by, among other
things, its ability to develop competitive and profitable products and the
quality of service it provides to customers as well as to its agents. There can
be no assurance that the Company's responses to the highly competitive
environment in which it operates will be successful. Nor can there be any
assurance that the Company's limited capital and lack of rating from A.M. Best
will not prevent it from actively competing in the current market place. See
"Business-- Competition."

RISKS ASSOCIATED WITH SYSTEMS OPERATIONS

The Company operates and maintains its own computer system for its
operations, including policy issuance, billing, claims processing, and financial
and management reporting. Commencing in late 1994, the Company began changing
its policy and claims processing operations from an outsourcing arrangement with
a third party vendor to its own computer systems primarily to reduce operating
expenses. The Company has experienced difficulties in transitioning to its
computer systems, particularly in its MGA commercial lines operations and is in
the process of establishing a data bridge between the Company's internal data
processing systems in order to eliminate redundant entry of policy information
and reduce policy issuance time. The Company anticipates that such transitioning
will be completed during the third quarter of 1997. There can be no assurance
that the data bridge will be implemented as scheduled and as such, the Company's
plans to assume a portion of the MGA commercial lines risk may be delayed which
delay could adversely affect the Company's results of operations.

10
<PAGE>
DIVIDEND AND OTHER RESTRICTIONS

The Company is a holding company with no direct operations, the principal
asset of which is the capital stock of its wholly-owned subsidiaries. As a
holding company, the Company's primary sources of cash needed to meet its
obligations, including principal and interest payments with respect to any
indebtedness, are dividends and other permitted payments from its subsidiaries
and affiliates. The payment of dividends to the Company by SCIC, the Company's
principal subsidiary and the parent company of the Company's other insurance
subsidiaries, is subject, among other things, to limitations imposed by the
South Carolina insurance laws and regulations and will depend on SCIC's
statutory earnings, statutory surplus and capital. These laws and regulations
limit the aggregate amount of dividends or distributions that SCIC may declare
or pay to the Company within any 12-month period without the permission of the
South Carolina Director of Insurance. The payment of dividends to SCIC by the
Company's other insurance subsidiaries is subject to similar limitations. See
"Business--Regulation-- Regulation of Dividends and Other Payments from
Insurance Subsidiaries." There can be no assurance that legislative changes will
not result in statutory provisions more restrictive than those currently in
effect. Currently, none of the Company's South Carolina subsidiaries, including
SCIC, is permitted to pay a dividend to the Company without the prior approval
of the South Carolina Department of Insurance. For the past five years, SCIC has
not made a dividend payment to the Company. The inability of the Company's
subsidiaries to pay dividends to the Company could have a material adverse
effect on the Company's ability to meet the cash requirements of the holding
company or to pay dividends to its shareholders.

CONTROL BY PRINCIPAL SHAREHOLDERS

Prior to the completion of the Offering, the three principal shareholders of
the Company are the Selling Shareholder, a group of investors that acquired
shares of Common Stock from the Company in a private transaction in September
1996 (the "Powers Group") and a second group of investors that acquired shares
of Common Stock from the Company in a private transaction in March 1996 (the
"Avent Group"), who beneficially own, approximately 29.7%, 41.2% and 12.4%,
respectively, of the Common Stock on a fully diluted basis. After completion of
the Offering, the Powers Group and the Avent Group will beneficially own
approximately 36.6% and 10.7%, respectively, of the Common Stock on a fully
diluted basis. Accordingly, the Powers Group and the Avent Group will have the
ability to exert significant influence over the policies and affairs of the
Company and will have the right to designate two directors and one director,
respectively, to be included as nominees for election to the Board of Directors
by the shareholders. See "Principal and Selling Shareholders."

GOVERNMENT REGULATION

The Company is subject to substantial government regulation in each of its
lines of business and each of the states and other jurisdictions in which it
conducts business. As a servicing carrier for the SC Facility and the NFIP, the
Company must comply with certain requirements and guidelines established by the
South Carolina Department of Insurance and FEMA, respectively. The Company's
failure to comply with these requirements and guidelines could result in the
termination of the Company's participation in these programs. See "--Risks
Associated with National Flood Insurance Program," "Business--Nonstandard
Automobile Insurance," "Business--Flood Insurance" and "Business--Regulation."

The Company's insurance, MGA and excess and surplus lines brokerage
businesses are also subject to regulation by the insurance departments in each
of the states in which these businesses are conducted. The regulation of the
Company's insurance subsidiaries is designed to protect the interests of
policyholders as opposed to stockholders and typically relates to authorized
lines of business, premium rates, capital and surplus requirements, investment
parameters, underwriting limitations, transactions with affiliates, dividend
limitations and changes in control. The Company is also subject to assessments
by guaranty funds related to insolvent insurers and by governmental pools and
associations, including the North Carolina

11
<PAGE>
Reinsurance Facility (the "NC Facility"). These assessments may materially
affect the Company's results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Regulation." The Company is also subject to a risk-based capital
("RBC") formula which has been adopted to enable insurance regulators to
evaluate the adequacy of statutory capital and surplus of property and casualty
insurers in relation to investment and insurance risks. No assurance can be
given that future legislative or regulatory changes will not adversely affect
the Company. See "--Re-entry into Risk-Bearing Activities--Regulatory
Constraints on Underwriting Activities" and "Business-- Regulation."

GEOGRAPHIC CONCENTRATION

A large portion of the Company's business is concentrated in the states of
South Carolina (60% of total 1996 gross premiums written), North Carolina (13%
of total 1996 gross premiums written) and Kentucky (8% of total 1996 gross
premiums written). As such, the Company's revenues and profitability may be
significantly affected by prevailing economic, regulatory, demographic and other
conditions in these states. For example, proposed legislation is currently
pending before the South Carolina legislature which, if enacted, would
materially affect the Company's business with the SC Facility. See
"--Anticipated Changes in Automobile Insurance Business in South Carolina."

SHARES ELIGIBLE FOR FUTURE SALE AND POSSIBLE EFFECT ON THE MARKET PRICE OF THE
COMMON STOCK

Upon completion of the Offering, there will be outstanding 7,237,033 shares
of Common Stock. The shares of Common Stock offered hereby by the Company and
currently issued and outstanding shares of Common Stock will be freely
tradeable in the public market without restriction under the Securities Act of
1933, as amended (the "Securities Act"), by persons other than affiliates of the
Company. The remaining shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 as promulgated under the
Securities Act.

The Company, its officers and directors and certain shareholders (which
beneficially owned 19,061,146 shares of Common Stock as of March 19, 1997) have
agreed not to, for a period of 180 days after the date of this Prospectus,
directly or indirectly, (i) offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable for
Common Stock or (ii) enter into any swap or other agreement or any transaction
that transfers, in whole or in part, the economic consequences of ownership of
shares of Common Stock whether any such swap or other agreement is to be settled
by delivery of shares of Common Stock, other securities, cash or otherwise
without the prior written consent of Advest, Inc., as representative of the
Underwriters. See "Underwriting."

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. If such sales reduce the market price of the Common Stock, the Company's
ability to raise additional capital in the equity markets also could be
adversely affected.

MARKET FOR COMMON STOCK; POSSIBLE PRICE VOLATILITY

The Company's Common Stock is currently listed on The Nasdaq Stock Market,
and its average daily trading volume over the 52 weeks ended March 21, 1997 was
approximately 6,700 shares. While the shares to be sold by the Company in the
Offering will increase the amount of Common Stock available for trading, there
can be no assurance that a more active trading market will develop or, if
developed, that it will be maintained.

12
<PAGE>
The market price of the Company's Common Stock has experienced significant
volatility over the last five years. Factors such as significant claims
payments, adjustments in reserves, changes in the value of the Company's
investment portfolio, cancellation or amendment of contractual relationships,
competitive market conditions, governmental regulation, regulatory approvals or
developments relating to corporate alliances or proprietary rights may have a
significant impact on the market price of the Common Stock. In addition, general
market price declines, volatility or share illiquidity in the future could
adversely affect the market price of the Common Stock. There can be no assurance
that the market price of the Common Stock will not decline after an investor
purchases shares, or that following the purchase of the shares of Common Stock,
a shareholder will be able to sell shares at a price equal to or greater than
the public offering price. See "Market Price of Common Stock."

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation, the South Carolina Business
Corporation Act of 1988 and the insurance laws of states in which the Company
conducts business contain certain provisions which could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving the Company, even if such a transaction would
be beneficial to the interests of the shareholders, or could discourage a third
party from attempting to acquire control of the Company. In particular, the
classification of the Company's Board of Directors and insurance regulations
which require prior regulatory approval with respect to a change of control
could have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock--Existing Anti-takeover Provisions"
and "Business--Regulation."

13
<PAGE>
THE COMPANY

SBIG is the holding company parent of SCIC, Seibels Bruce & Company ("SBC"),
and the wholly-owned subsidiaries of SCIC and SBC. The Company's predecessor was
established in 1869 in Columbia, South Carolina as a small insurance and real
estate business. SCIC was formed in 1910 to write fire insurance coverage. SCIC
eventually became the parent company of the other insurance subsidiaries, which
include Catawba Insurance Company ("Catawba"), Consolidated American Insurance
Company ("Consolidated American") and Kentucky Insurance Company. SBIG, a South
Carolina corporation, was formed in 1978 to become the holding company of the
group.

During the 1970s, the Company created a new business that developed,
marketed and serviced computer software systems for the property and casualty
insurance industry and provided computer processing for certain customers.
Between 1981 and 1985, the Company sold its entire interest in the company,
Policy Management Systems Corporation ("PMSC"), now a publicly-held company
currently traded on the New York Stock Exchange. By the early 1980s, the
Company's expanded operations included property and casualty insurance
underwriting, the servicing of various accounts, reinsurance, life, credit life
and title insurance, travel agency services, computer systems, flood operations,
reinsurance facility servicing carrier operations, excess and surplus lines and
loss adjustment services.

Beginning in 1981 the Company experienced a series of financial losses. As
part of its plans to expand operations nationwide, the Company acquired a
California managing general agency, Rathbone, King & Seeley, Inc. ("RKS"), in
1981. Through RKS' insurance company subsidiary, American Star Insurance Company
("American Star"), the Company assumed and continued to write general liability
policies in the western United States that included contractors' liability and
environmental coverages. RKS and American Star subsequently accumulated
substantial losses and were sold in 1985. A portion of the liabilities and
corresponding losses were retained by the Company. See "Business--Reserves for
Losses and Loss Adjustment Expenses."

During the late 1980s, the Company, through its subsidiary Consolidated
American, began writing increasingly larger amounts of commercial and workers'
compensation coverages in the Southeast, particularly in Florida. These risks
generated substantial losses for the Company as well and were discontinued in
the early 1990s. The last of these policies expired in 1994.

Natural catastrophes had an adverse effect on the Company due to the
significant amount of personal and commercial business written by the Company in
the Southeast. In 1989, Hurricane Hugo generated approximately $45 million
(approximately $9.9 million after reinsurance) in gross claims paid by the
Company. In 1992, the Company sustained approximately $106 million
(approximately $49.8 million after reinsurance) in gross claims paid due to
Hurricane Andrew.

In December 1993, the Company initiated a recapitalization plan pursuant to
which the Selling Shareholder purchased a previously outstanding loan in the
amount of approximately $23 million and the accrued interest thereon from the
original holder at a discount. The Selling Shareholder ultimately exchanged the
loan for Common Stock. The Company also sold certain of its subsidiaries which
were no longer compatible with its future business plans, including its credit
life subsidiary (for which the Company retains responsibility for certain
policies and continues to run-off the remaining book of business), an insurance
premium financing services subsidiary and a travel agency.

In 1994, the Company reduced its net writings of personal lines business
written in the States of Georgia, Kentucky, North Carolina, South Carolina and
Tennessee. Continuing operating losses reduced the Company's shareholders'
equity to $650,000 by the end of 1994; the Company suspended all underwriting
operations in early 1995 and began a year-long process of non-renewing this
business effective during the second quarter of 1995.

During the first quarter of 1995, the Company received net proceeds of
approximately $5.1 million from a Rights Offering. A loan to the Company by the
Selling Shareholder was repaid during the second

14
<PAGE>
quarter of 1996 with proceeds from a private transaction in which the Company
issued 408,750 unregistered shares of Common Stock and options to acquire an
additional 408,750 shares. In the third quarter of 1996, an investor group
acquired 1,562,500 shares of Common Stock plus options to acquire an additional
1,562,500 shares of Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

Beginning in 1995, the Company replaced the Chief Executive Officer and
Chief Financial Officer and began an ongoing effort to recruit additional
management. New management has taken a number of actions to stabilize and
improve the Company's financial condition through significant cost reductions,
the raising of new equity capital and a renewed emphasis on non-risk fee-based
businesses. As a result of these actions and the relative stabilization of loss
experience, the Company was profitable in 1995 and 1996 and resumed limited
insurance underwriting activities for which it retains risk in 1996. For the
fiscal year ended December 31, 1996, the Company's total revenue was
approximately $57.2 million, total net income was approximately $5.2 million and
shareholders' equity increased to approximately $23.8 million.

15
<PAGE>
USE OF PROCEEDS

Based on an assumed offering price of $ per share, the net proceeds
to the Company of the Offering are estimated to be approximately $
million (approximately $ million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The proceeds
derived from the sale of shares offered by the Company will be retained for
general corporate purposes, including possible acquisitions. Although the
Company regularly evaluates possible acquisition opportunities, it is not
currently a party to any letter of intent or arrangement regarding any
acquisition. The Company also will contribute a portion of the proceeds to one
or more of its insurance company subsidiaries for statutory surplus as necessary
to support insurance operations. The Company will not receive any proceeds from
any sale of the shares of Common Stock offered by the Selling Shareholder.

DIVIDEND POLICY

There have been no dividends declared by the Company during the past five
years, and the Board of Directors does not presently intend to pay any cash
dividends in the foreseeable future. The declaration of cash dividends is at the
discretion of the Board of Directors and is based on earnings, financial
condition, capital requirements, regulatory constraints and other relevant
factors. The ability of the Company to declare and pay cash dividends, as well
as to pay any debt service, is dependent upon the ability of SCIC to declare and
pay dividends to the Company. The payment of dividends by SCIC to the Company is
restricted by the South Carolina Insurance Holding Company Regulatory Act. See
"Risk Factors-- Dividend and Other Restrictions" and
"Business--Regulation--Regulation of Dividends and Other Payments from Insurance
Subsidiaries."

16
<PAGE>
MARKET PRICE OF COMMON STOCK

The following table sets forth the range of high and low closing prices as
reported on The Nasdaq Stock Market. This table reflects a 1-for-4 reverse stock
split of the Common Stock, which, pending shareholder approval, the Company
anticipates will occur during the second quarter of 1997.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter................................. $12 1/4 $ 3 1/2
Second Quarter................................ 5 3/4 3
Third Quarter................................. 4 1/8 3
Fourth Quarter................................ 8 3/4 1 3/4
1996
First Quarter................................. $17 $ 6 1/4
Second Quarter................................ 12 1/2 9 1/2
Third Quarter................................. 10 1/2 7 7/8
Fourth Quarter................................ 11 1/4 7 1/2
1997
First Quarter (through March 24, 1997)........ $ 8 1/4 $ 7 1/4
</TABLE>

On March 24, 1997, the closing price of the Common Stock on The Nasdaq Stock
Market was $7.25 per share (giving effect to the 1-for-4 reverse stock split).
There were approximately 2,556 shareholders of record as of March 24, 1997. This
number does not include beneficial owners holding shares through nominee or
"street" names.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the exercise of a purchase warrant
by the Selling Shareholder and the sale of the 1,000,000 shares of Common Stock
offered by the Company hereby (assuming an offering price of $7.25 per share):

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt..................................................................... $ 0 $ 0
---------- -----------
Shareholders' equity:
Special Stock: no par value, authorized 5,000,000 shares, none issued or
outstanding................................................................ -- --
Common Stock: $1.00 par value; 25,000,000 shares(1) authorized; 6,168,097
shares issued and outstanding; 7,214,561 shares issued and outstanding, as
adjusted(2)................................................................ 6,168
Additional paid-in capital................................................... 54,050
Unrealized gain (loss) on investments........................................ (536) (536)
Accumulated deficit.......................................................... (35,891) (35,391)
---------- -----------
Total shareholders' equity................................................. 23,791
---------- -----------
Total capitalization..................................................... $ 23,791 $
---------- -----------
---------- -----------
</TABLE>

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

(1) Reflects an amendment to the Company's Articles of Incorporation increasing
the authorized Common Stock from 12,500,000 to 25,000,000 shares, which,
pending shareholder approval, the Company anticipates will occur during the
second quarter of 1997.

(2) Does not include, as of March 24, 1997, (i) 635,181 shares of Common Stock
reserved for issuance upon the exercise of stock options outstanding on such
date and (ii) 16,059 shares of restricted stock issued pursuant to the
Company's stock plans.

18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto incorporated
by reference in this Prospectus. The selected financial data presented below as
of the years ended December 31, 1992 through 1996 and for each of the fiscal
years in the five-year period ended December 31, 1996 have been derived from the
Company's consolidated financial statements which have been audited by Arthur
Andersen LLP, independent accountants.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ------------ ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Commission and service income............... $ 35,943 $ 41,625 $ 60,669 $ 49,572(1) $ 45,585
Property and casualty premiums.............. 117,172 55,331 14,718 10,384 7,186
Credit life premiums........................ 4,247 3,207 1,801 890 478
Net investment income....................... 9,973 5,455 5,321 3,176 3,006
Other interest income....................... 2,987 1,635 905 1,154 801
Realized gains (losses) on investments...... 7,040 1,969 (6,327) 164 (14)
Other income................................ 4,019 4,697 2,673 843 151
------------- ------------ ---------- ----------- ---------
Total revenues............................ 181,381 113,919 79,760 66,183 57,193
------------- ------------ ---------- ----------- ---------
Expenses:
Losses and loss adjustments................. --(2) --(2) 36,954 17,618 10,980
Policy acquisition costs.................... 35,709 17,628 5,538 3,794 1,777
Credit life benefits........................ 1,538 1,374 770 545 203
Interest expense............................ 1,853 2,527 321 308 174
Other operating costs and expenses.......... --(2) --(2) 55,222 42,768 39,014
------------- ------------ ---------- ----------- ---------
Total expenses............................ 213,989 128,930 98,805 65,033 52,148
------------- ------------ ---------- ----------- ---------
Income (loss) before income taxes and
extraordinary item.......................... (32,608) (15,011) (19,045) 1,150 5,045
Provision (benefit) for income taxes.......... 58 (4,762) 29 (2) (131)
Extraordinary item............................ -- 9,235 -- -- --
------------- ------------ ---------- ----------- ---------
Net income (loss)......................... $ (32,666) $ (1,014) $ (19,074) $ 1,152 $ 5,176
------------- ------------ ---------- ----------- ---------
------------- ------------ ---------- ----------- ---------
Net income (loss) per share and common
equivalent share............................ $ (17.42) $ (0.54) $ (6.89) $ 0.28 $ 0.90
------------- ------------ ---------- ----------- ---------
------------- ------------ ---------- ----------- ---------
Weighted average shares outstanding........... 1,875 1,875 2,767 4,181 6,382
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total cash and investments......................... $ 161,769 $ 120,480 $ 61,868 $ 50,641 $ 42,944
Total assets....................................... 461,136 324,695 255,935 224,005 220,472
Losses and Loss Adjustment Expenses................ 257,602 194,682 166,698 145,523 132,152
Debt............................................... 25,153 11,934 439 2,476 --
Shareholders' equity............................... 14,219 13,902 650 10,187 23,791
Book value per share............................... 7.58 7.41 0.18 2.44 3.86
STATUTORY SURPLUS(3)................................. $ 18,440 $ 17,352 $ (1,615) $ 9,301 $ 21,632
</TABLE>

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

19
<PAGE>
(1) As a result of a competitive bidding process, in October 1994, the Company
was awarded a new contract with the SC Facility for a smaller block of
business at lower rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Nonstandard
Automobile Insurance Business--Industry Background."

(2) Certain reclassifications were made to the expenses in 1994, 1995 and 1996
for unallocated loss adjustment expenses related to the Company's commission
and service business units. This reclassification increased loss and loss
adjustment expenses while decreasing other operating costs for the same
amount. The data necessary to make this reclassification for 1992 and 1993
is not available. For comparison purposes, expenses for the five years ended
December 31, 1996 without the effect of reclassification are shown below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Expenses:
Losses and loss adjustments...................... $ 125,451 $ 58,285 $ 33,408 $ 12,921 $ 6,372
Policy acquisition costs......................... 35,709 17,628 5,538 3,794 1,777
Credit life benefits............................. 1,538 1,374 770 545 203
Interest expense................................. 1,853 2,527 321 308 174
Other operating costs and expenses............... 49,438 49,116 58,768 47,465 43,622
---------- ---------- --------- --------- ---------
Total expenses................................. $ 213,989 $ 128,930 $ 98,805 $ 65,033 $ 52,148
---------- ---------- --------- --------- ---------
---------- ---------- --------- --------- ---------
</TABLE>

(3) Reflects the statutory surplus of SCIC, the Company's principal insurance
subsidiary.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The selected financial data contained herein and consolidated financial
statements and related notes thereto incorporated by reference should be read in
conjunction with the following discussion as they contain important information
for evaluation of the Company's financial condition and operating results.

OVERVIEW

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current operations:
Fee and service operations:
SC Facility premiums-based fees.............................................. $ 21,415 $ 13,451 $ 14,556
SC Facility claims-based fees................................................ 17,706 14,343 10,638
Flood premiums-based fees.................................................... 10,250 9,408 8,340
Flood claims-based fees...................................................... 648 2,863 3,581
Other state facilities....................................................... 3,188 2,613 1,390
MGA.......................................................................... 7,094 6,734 6,170
Brokerage and other.......................................................... 368 160 910
Risk operations:
Nonstandard automobile......................................................... -- -- 71
Assumed from pools and associations............................................ 2,275 1,232 5,819
--------- --------- ---------
Total current operations......................................................... 62,944 50,804 51,475
Premiums from run-off risk operations............................................ 14,244 10,042 1,774
--------- --------- ---------
Total...................................................................... $ 77,188 $ 60,846 $ 53,249
--------- --------- ---------
--------- --------- ---------
</TABLE>

As one of three servicing carriers for the SC Facility, the Company earns
commission and service income as a percentage of gross premiums written and also
earns a fee on claims paid. Until October 1, 1994, the Company serviced the
largest of three blocks of business for the SC Facility ("Block One"). As the
result of a competitive bid process in 1994, the Company submitted the second
lowest bid and was awarded a five year contract to service the second largest
block of business ("Block Two") at lower rates than under its prior contract.
However, the Company continued to process the remaining run-off of claims from
Block One for losses incurred prior to October 1, 1994 at the rates provided
under its prior contract. Premium-based fees under the new contract are 20.99%
of gross premiums written (compared with a rate of 28.0% under its prior
contract). The Company is responsible for paying all costs of processing the
policies, including the payment to the Designated Agent that produced the
business of a mandated 12% commission on gross premiums earned (which the
Company recognizes in other operating costs and expenses). The Company earns
claims fees in the amount of 10.98% of the gross amount of paid claims (compared
with a 15.0% rate under its prior contract). The Company is responsible for
paying all costs to process these claims, including adjusting expenses. However,
the SC Facility reimburses the Company for legal expenses associated with
processing these claims.

21
<PAGE>
Until the fourth quarter of 1995, the Company served as a servicing carrier
for the North Carolina Reinsurance Facility (the "NC Facility"). This contract
was cancelled by the NC Facility as a result of regulatory concerns regarding
the Company. The Company continues to write nonstandard automobile insurance on
a voluntary basis in North Carolina, all of which it reinsures with the NC
Facility.

Beginning in July 1996, the Company expanded its participation in the South
Carolina automobile insurance market to include writing and retaining
nonstandard automobile insurance policies. These revenues were not significant
during 1996.

The Company is a servicing carrier for the NFIP. During 1994, 1995 and 1996,
the Company recognized commission and service income for the policies it
processes in the amount of 30.6% of gross premiums written. The Company's
commission rate for 1997 is 30.6%, but would increase to 32.6% if the Company is
able to increase policies in force, as defined by the NFIP, by 10%. Commission
rates of up to 34.6% could apply if the growth in policies in force exceeds 10%.
The Company is responsible for paying all costs associated with processing the
policies, including a negotiated commission to the independent agent (which the
Company recognizes in other operating costs and expenses). The Company also
receives a fee on the claims paid on these policies in the amount of 3.3% of
incurred claims and is reimbursed for the allocated LAE ("ALAE") associated with
these claims according to a standard fee schedule.

The Company also derives revenue from its role as a MGA for Generali -- U.S.
Branch. While the Company performs all services and pays all costs (including
the independent agents' commissions) related to underwriting and processing
policies and claims, the policies are issued for Generali. The Company earns
commission income as a percentage of premiums written.

Revenues derived from pools and associations consist of mandated
participation in various state associations due to the Company's participation
in such states' markets. In 1996, the Company's operating results were affected
by premiums and losses assumed from the NC Facility. The amount of risk business
assumed by the Company in any given year is based upon its percentage of
premiums ceded to the NC Facility in prior years, which is ultimately adjusted
to reflect actual current year participation. The assumption of this risk
business is reflected in the Company's reported premiums, losses and loss
adjustment expenses incurred and policy acquisition costs.

The Company continues to maintain reserves and pay significant claims with
respect to its run-off operations. These run-off operations relate primarily to
workers' compensation policies which the Company wrote through 1993 and general
liability policies written by the Company prior to 1985 (which included
contractors, environmental and toxic tort coverages, primarily in California)
and personal lines policies written by the Company in the southeastern United
States in the late 1980s and early 1990s. Claims incurred on these policies
caused substantial losses to the Company during the past 10 years.

Beginning in early 1995, the Company replaced its Chief Executive Officer
and Chief Financial Officer and began an ongoing effort to recruit additional
management. New management has taken a number of actions to stabilize and
improve the Company's financial condition through significant cost reductions,
the raising of new equity capital and a renewed emphasis on fee-based
businesses. As a result of these actions and the relative stabilization of loss
experience, the Company was profitable in 1995 and 1996 and resumed limited
underwriting activities in 1996.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996 AND 1995

COMMISSION & SERVICE INCOME

Commission and service income for the year ended December 31, 1996 decreased
$3,987,000, or 8.0%, to $45,585,000 from $49,572,000 for the year ended December
31, 1995. This decrease is due primarily to a decline of $3,705,000 in SC
Facility claims-based fees as a result of the gradual reduction of

22
<PAGE>
claims-based fees related to the delayed effect of the Company's new contract
with the SC Facility. See "--Overview." Flood premium-based revenues for the
year ended December 31, 1996 decreased $1,068,000, compared to the year ended
December 31, 1995, due to a decrease in the amount of flood premiums serviced by
the Company. However, this decrease was partially offset by a $718,000 increase
to claims-based revenues due to a larger amount of flood claims during 1996. The
cancellation of the contract with the NC Facility also accounted for decreased
revenues in the amount of $1,108,000.

PROPERTY AND CASUALTY PREMIUMS EARNED

Net property and casualty premiums earned for the year ended December 31,
1996 decreased $3,198,000, or 30.8%, to $7,186,000 from $10,384,000 for the year
ended December 31, 1995. This decline is largely due to the suspension of
retained risk business in the first half of 1995. The decline was partially
offset by $5,819,000 of premiums which the Company was required to assume from
pools and associations, the largest being the NC Facility, compared to
$1,232,000 of such premiums assumed in 1995. See "--Overview." In 1996, the
Company also continued to earn premiums on personal lines business written by
the Company in the first half of 1995. Although the Company resumed limited
insurance underwriting activities in July 1996, these activities generated
$71,000 of earned premiums in 1996.

CREDIT LIFE PREMIUMS EARNED

Net credit life premiums earned for the year ended December 31, 1996
decreased $412,000, or 46.3%, to $478,000 from $890,000 for the year ended
December 31, 1995. The Company sold its credit life business in September, 1993.
Under the sale agreement, the Company retained and continues to run-off the
policies in force at the date of the sale.

NET INVESTMENT AND INTEREST INCOME

Net investment and other interest income for the year ended December 31,
1996 decreased $523,000, or 12.1%, to $3,807,000 from $4,330,000 for the year
ended December 31, 1995. This decrease is primarily a result of a decrease of
$7,697,000, or 15.2%, in the Company's cash and investments from $50,641,000 at
December 31, 1995 to $42,944,000 at December 31, 1996. This decrease is due to
the Company's negative cash flow from operations in 1996 as the Company
continued to pay claims on run-off businesses. See "--Liquidity and Capital
Resources." Partially offsetting the reduction in cash and investments, the
average yield on total cash and investments increased to 6.3% for the year ended
December 31, 1996 from 5.9% for the year ended December 31, 1995.

REALIZED GAINS (LOSSES) ON INVESTMENTS

Realized gains (losses) on investments decreased $178,000 from a gain of
$164,000 for the year ended December 31, 1995 to a loss of $14,000 for the year
ended December 31, 1996.

OTHER INCOME

Other income for the years ended December 31, 1996 and 1995 was $151,000 and
$843,000, respectively. Other income in 1995 included income from the settlement
of a litigation.

LOSS AND LOSS ADJUSTMENT EXPENSES

Property and casualty loss and loss adjustment expenses incurred decreased
$6,638,000, or 37.7%, to $10,980,000 from $17,618,000 for the year ended
December 31, 1995. This decrease largely corresponds to the decrease in property
and casualty premiums earned and also reflects a smaller increase in the
provision for prior year losses of $1,117,000 in 1996 as compared to $3,375,000
in 1995. See "Business--Loss and Loss Adjustment Expense Reserves."

23
<PAGE>
POLICY ACQUISITION COSTS

Property and casualty policy acquisition costs incurred decreased
$2,017,000, or 53.2%, to $1,777,000 from $3,794,000 for the year ended December
31, 1996 compared to the year ended December 31, 1995. This decrease is due to
the reduction in net premiums written. The decline was partially offset by the
policy acquisition costs associated with the premiums the Company was required
to assume from the NC Facility.

CREDIT LIFE BENEFITS

Credit life benefits incurred were $203,000 and $545,000 for the years ended
December 31, 1996 and 1995, respectively. The Company sold its credit life
business in September, 1993. Under the sale agreement, the Company retained and
continues to run-off the policies in force at the date of the sale.

INTEREST EXPENSE

Interest expense was $174,000 and $308,000 for the years ended December 31,
1996 and 1995, respectively. The majority of the interest expense during both
years consisted of interest on notes payable to one of the Company's principal
shareholders. The Company repaid these notes in full on May 1, 1996.

OTHER OPERATING COSTS AND EXPENSES

Other operating costs and expenses for the year ended December 31, 1996
decreased $3,754,000 or 8.8%, to $39,014,000 from $42,768,000 for the year ended
December 31, 1995, primarily a result of the Company's continuing efforts to
maintain costs at a level appropriate to the associated revenue levels. A
combination of reductions in occupancy costs, data processing costs, salary and
employee benefit costs and agent commissions accounted for $2,114,000 of this
decrease. Agent commissions included in other operating costs and expenses were
$16,352,000 for the year ended December 31, 1996 and $16,774,000 for the year
ended December 31, 1995.

INCOME TAXES

Benefit from income taxes was $131,000 and $2,000 for the years ended
December 31, 1996, and 1995, respectively. The 1996 income tax benefit resulted
primarily from reversals of tax over accruals in prior years. During 1996 and
1995, the Company utilized net operating loss carry forwards to offset current
income taxes in the amount of $1,590,000 and $329,000, respectively.

YEARS ENDED DECEMBER 31, 1995 AND 1994

COMMISSION & SERVICE INCOME

Commission and service income for the year ended December 31, 1995 decreased
$11,097,000, or 18.3%, to $49,572,000 from $60,669,000 for the year ended
December 31, 1994. This decrease is due primarily to a decline of $7,964,000 and
$3,363,000 in SC Facility premiums-based fees and claims-based fees,
respectively, resulting largely from the new contract effective in October,
1994. The effect of this new contract caused an immediate reduction in
premium-based fees and a more gradual reduction over an approximate eighteen
month period in claims-based fees. See "--Overview." Flood premium-based
revenues for the year ended December 31, 1995 decreased $842,000, compared to
the year ended December 31, 1994, due to a decrease in the amount of flood
premiums serviced by the Company. However, this decrease was more than offset by
a $2,215,000 increase in claims-based revenues due to a larger volume of flood
claims during 1995 than 1994.

24
<PAGE>
PROPERTY AND CASUALTY PREMIUMS EARNED

Net property and casualty premiums earned for the year ended December 31,
1995 decreased $4,334,000, or 29.4%, to $10,384,000 from $14,718,000 for the
year ended December 31, 1994. This decline is largely due to the suspension of
retained risk insurance underwriting in the first half of 1995.

CREDIT LIFE PREMIUMS EARNED

Net credit life premiums earned for the year ended December 31, 1995
decreased $911,000, or 50.6%, to $890,000 from $1,801,000 for the year ended
December 31, 1994. The Company sold its credit life business in September, 1993.
Under the sale agreement, the Company retained and continues to run-off the
policies in force at the date of the sale.

NET INVESTMENT AND INTEREST INCOME

Net investment and other interest income for the year ended December 31,
1995 decreased $1,896,000, or 30.5%, to $4,330,000 from $6,226,000 for the year
ended December 31, 1994. This decrease is primarily a result of a decrease of
$11,227,000, or 18.1%, in the Company's overall cash and investment position
from $61,868,000 at December 31, 1994 to $50,641,000 at December 31, 1995. This
decrease is due to the Company's negative cash flow from operations in 1995. See
"--Liquidity and Capital Resources." Average yield on net investment income was
5.9% for both years.

REALIZED GAINS (LOSSES) ON INVESTMENTS

Realized gains (losses) on investments increased $6,491,000 from a loss of
$6,327,000 for the year ended December 31, 1994 to a gain of $164,000 for the
year ended December 31, 1995. Due to negative cash flow from operations during
1994, the Company sold bonds in a period of declining values, resulting in
realized losses in 1994.

OTHER INCOME

Other income for the years ended December 31, 1995 and 1994 was $843,000 and
$2,673,000, respectively. Other income in 1995 included income from the
settlement of a litigation. Other income for 1994 included $1,737,000 from
operations of the premium financing and travel agency subsidiaries which the
Company sold in February 1994 and March 1995, respectively, and a $650,000 gain
on the sale of the Company's premium financing subsidiary.

LOSS AND LOSS ADJUSTMENT EXPENSES

Property and casualty loss and loss adjustment expenses incurred for the
year ended December 31, 1995 decreased $19,336,000, or 52.3%, to $17,618,000
from $36,954,000 for the year ended December 31, 1994. This decrease corresponds
in part to the decrease in property and casualty premiums earned and also
reflects a smaller increase in the provision for prior year losses of $3,375,000
in 1995 as compared to $16,957,000 in 1994. See "Business--Loss and Loss
Adjustment Expense Reserves."

POLICY ACQUISITION COSTS

Property and casualty policy acquisition costs incurred decreased
$1,744,000, or 31.5%, from $3,794,000 for the year ended December 31, 1995
compared to $5,538,000 in the year ended December 31, 1994. This decrease is due
to the reduction in net premiums written.

25
<PAGE>
CREDIT LIFE BENEFITS

Credit life benefits incurred were $545,000 and $770,000 for the years ended
December 31, 1995 and 1994, respectively. The Company sold its credit life
business in September, 1993. Under the sale agreement, the Company retained and
continues to run-off the policies in force at the date of the sale.

INTEREST EXPENSE

Interest expense was $308,000 and $321,000 for the years ended December 31,
1995 and 1994, respectively. Almost all of the interest expense during both
years consisted of interest on notes payable to the Selling Shareholder. The
Company repaid these notes in full on May 1, 1996.

OTHER OPERATING COSTS AND EXPENSES

Other operating costs and expenses decreased $12,454,000, or 22.6%, for the
year ended December 31, 1995, to $42,768,000 from $55,222,000 for the year ended
December 31, 1994. This decrease was primarily a result of the Company's ongoing
efforts to maintain costs at a level appropriate to the associated revenue
levels. The largest component of the decrease was due to workforce reductions in
early 1995. At December 31, 1995, the Company employed 268 full-time employees,
compared to 407 at December 31, 1994. Salaries and employee benefit expenses
were $10,676,000 for the year ended December 31, 1995, compared to $14,447,000
for the year ended December 31, 1994, a decrease of $3,771,000, or 26.1%.
Additional savings were realized in the Company's data processing costs. The
Company converted its SC Facility business and flood operations from PMSC to
another data processing system in December 1994 and September 1995,
respectively, reducing data processing expense from $3,450,000 for the year
ended December 31, 1994 to $1,849,000 for the year ended December 31, 1995.
Agent commissions included in other operating costs and expenses were
$16,774,000 for the year ended December 31, 1995 and $18,948,000 for the year
ended December 31, 1994.

INCOME TAXES

Provision (benefit) from income taxes was $(2,000) and $29,000 for the years
ended December 31, 1995 and 1994, respectively. During 1995, the Company
utilized net operating loss carryforwards to offset current income taxes in the
amount of $329,000.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity relates to the Company's ability to produce sufficient cash flow
to fulfill obligations to pay claims, agent commissions and other operating
expenses. Sources of liquidity include net income, premium collections,
investment income, sales or maturities of investments and financing activities.

The Company experienced negative cash flow from operations of $12,938,000 in
1996 (which was funded with existing cash and short-term investments),
$21,711,000 in 1995 and $44,608,000 in 1994. Although the Company suspended
risk-bearing insurance underwriting activities in 1995, the Company continued to
pay losses and loss adjustment expenses totaling $24,584,000 in 1996, of which
$16,267,000 were loss payments on prior year claims. During 1994, cash flows
from operations were affected by disbursements of $26,500,000 for the settlement
of all obligations to the Workers Compensation National Reinsurance Pool and a
settlement of a dispute regarding the liabilities of a former subsidiary.

Net cash used in investing activities in 1996 was $7,920,000 as $14,288,000
in new investments were acquired. The primary sources of cash for these new
investments were $7,049,000 of investments that had matured or were sold and
$6,873,000 from financing activities. During 1996, the Company continued to sell
investments that were inconsistent with its current investment policy, which
resulted in realized losses of $14,000. During 1995, the Company realized a
$164,000 gain on its portfolio sales. In order to fund

26
<PAGE>
negative cash flow from operations during 1994, the Company sold bonds resulting
in realized losses of $6,327,000.

Total cash and investments at December 31, 1996, 1995 and 1994 were
$42,944,000, $50,641,000 and $61,868,000, respectively. At December 31, 1996,
6.2% of total investments were committed to cash and short-term investments,
primarily money market funds and overnight repurchase agreements compared to
32.9% at the end of 1995. Investments in U.S. Treasury and U.S. Government notes
represented 93.4% of the portfolio as of December 31, 1996 compared to 62.0% as
of December 31, 1995. The Company does not currently own any non-investment
grade debt securities. See "Business -- Investments."

All debt securities are considered available-for-sale and are carried at
market value as of December 31, 1996 and 1995. The market values of the debt
securities were $536,000 below book value at the end of 1996, which was
reflected as a reduction in shareholders' equity, compared to $401,000 above
book value as of December 31, 1995. The weighted average maturity of the fixed
maturity investments was 3.8 years as of December 31, 1996. Average net
investment yields on the Company's cash and investments was 6.3% in 1996 and
5.9% in 1995.

In January, 1995, the Company received proceeds from a rights offering in
the amount of $5,321,000 and made a capital contribution of $5,000,000 to SCIC
which prior to this contribution had negative statutory surplus. In addition,
during the second quarter of 1995, the Selling Shareholder loaned the Company
$2,000,000, which was contributed to SCIC's statutory surplus.

In the third quarter of 1996, following receipt of regulatory approval, the
Company sold 1,562,500 shares of unregistered Common Stock at a price of $4.00
per share to the Powers Group pursuant to a letter of intent entered into in the
fourth quarter of 1995. The proceeds were used to make a $6,300,000 contribution
to SCIC. In conjunction with this sale, the Company also issued to these
investors stock options to acquire an additional 781,250 shares at the greater
of $6.00 per share or the book value per share at the date of exercise, expiring
December 31, 1998, and 781,250 shares at the greater of $8.00 or the book value
per share at date of exercise, expiring December 31, 2000.

During the first quarter of 1996, the Company sold 408,750 shares of its
unregistered Common Stock at a price of $8.00 per share to the Avent Group. The
proceeds of this stock sale were used to repay the $2,476,000 of notes payable
which were due May 1, 1996. In addition, the Company has issued to this group
stock options expiring December 31, 2000 to acquire an additional 408,750 shares
at the greater of $10.00 per share or the book value per share at the date of
exercise.

SBIG is a legal entity separate and distinct from its subsidiaries. As a
holding company, the primary sources of cash needed to meet its obligations,
including principal and interest payments with respect to any indebtedness, is
dividends and other permitted payments from its subsidiaries and affiliates.

South Carolina insurance laws and regulations require a domestic insurer to
report any action authorizing distributions to shareholders and material
payments from subsidiaries and affiliates at least thirty days prior to
distribution or payment except in limited circumstances. Additionally, those
laws and regulations require the prior approval of the Director of Insurance of
the State of South Carolina for the payment of any dividends by SCIC within any
twelve-month period that exceed the greater of (i) 10% of SCIC's surplus as
regards policyholders as of December 31 of the prior year or (ii) SCIC's
statutory net income, not including realized capital gains or losses, for the
prior calendar year. The Company's payment of cash dividends is at the
discretion of the Board of Directors, upon approval of the Director of
Insurance, and is based on its earnings, financial condition, capital
requirements, and other relevant factors. If the ability of SCIC and the
Company's other insurance subsidiaries to pay dividends or make other payments
to the Company is materially restricted by regulatory requirements, it could
affect the Company's ability to service its debt and/or pay dividends. In
addition, no assurance can be given that South Carolina will not adopt statutory
provisions more restrictive than those currently in effect.

27
<PAGE>
The volume of premiums that the property and casualty insurance subsidiaries
may prudently write is based in part on the amount of statutory net worth as
determined in accordance with applicable insurance regulations. The NAIC has
adopted RBC requirements for property and casualty insurance companies to
evaluate the adequacy of statutory capital and surplus in relation to
investments and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy, and other business factors. The RBC formula is
used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that are
potentially inadequately capitalized. Compliance is determined by the ratio of
the companies' regulatory total adjusted capital to its authorized control level
RBC (as defined by the NAIC). All four of the property and casualty insurance
subsidiaries of the Company have December 31, 1996 ratios of total adjusted
capital to RBC that are in excess of the level which would prompt regulatory
action. The South Carolina Director of Insurance authorized the resumption of
underwriting activities for which the Company retains risk on the condition that
the Company maintain a ratio of net premiums written to statutory surplus of
0.85 to one. See "Business--Regulation."

UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS

The Company has unused tax operating loss carryforwards and capital loss
carryforwards of approximately $95,415,000 for income tax purposes. However, due
to a "change in ownership" event that occurred in January, 1995, the Company's
use of the net operating loss carryforwards are subject to limitations in future
years of approximately $2,000,000 per year. In addition, these net operating
loss carryforwards expire between 1999 and 2010. As a result of these
limitations, the Company expects that it will not be able to utilize a majority
of the net operating loss carryforwards. Net operating loss carryforwards
available for use in 1997 is approximately $7,600,000 due to the tax losses
incurred in 1995 subsequent to the date on which the change in ownership event
occurred. See Note 6 to Notes to Consolidated Financial Statements.

28
<PAGE>
BUSINESS

OVERVIEW

The Company provides automobile, flood and other property and casualty
insurance services and products through independent agents primarily in the
southeastern United States. The Company's largest source of revenues derives
from its role as one of three servicing carriers for the SC Facility, a state-
sponsored plan which provides automobile insurance coverage outside of the
voluntary market. The Company also is a leading provider and an original
participant in the NFIP, a flood insurance program administered by the federal
government. As a servicing carrier for the SC Facility and the NFIP, the Company
receives commissions and fees for issuing, processing and administering policies
as well as for claims adjustment, but reinsures all insurance risks with either
the SC Facility or the NFIP, as applicable. The Company provides other fee-based
services as a MGA for commercial insurance, primarily for commercial lines, and
as an excess and surplus lines broker, and also offers storm claims adjustment
and liability run-off management services. Recently, the Company began limited
efforts to market and underwrite nonstandard automobile insurance on a retained
risk basis.

The following table sets forth certain information for the Company's current
insurance operations and run-off risk operations for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------------------- --------------------------------------- -----------
GROSS NET GROSS NET GROSS
PREMIUMS PREMIUMS TOTAL PREMIUMS PREMIUMS TOTAL PREMIUMS
WRITTEN EARNED REVENUES(1) WRITTEN EARNED REVENUES(1) WRITTEN
----------- ----------- ------------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT OPERATIONS
Fee and Service Operations:
SC Facility(2):
Premiums/related fees...... $ 80,073 -- $ 21,415 $ 64,206 -- $ 13,451 $ 69,981
Claims-based fees.......... 0 -- 17,706 0 -- 14,343 0
Flood:
Premiums/related fees...... 29,517 -- 10,250 28,576 -- 9,408 27,157
Claims-based fees.......... 0 -- 648 0 -- 2,863 0
MGA.......................... 25,388 -- 7,094 24,245 -- 6,734 18,676
Brokerage and Other(3)....... 13,485 -- 3,556 10,915 -- 2,773 7,342
Risk Operations:
Nonstandard Automobile(4).... -- -- -- 2,381 -- -- 2,948
Assumed from Pools(5)........ 5,332 2,275 2,275 422 1,232 1,232 6,235
----------- ----------- ------------- ----------- ----------- ------------- -----------
Total Current Operations....... $ 153,795 $ 2,275 $ 62,944 $ 130,745 $ 1,232 $ 50,804 $ 132,339
----------- ----------- ------------- ----------- ----------- ------------- -----------
----------- ----------- ------------- ----------- ----------- ------------- -----------

RUN-OFF RISK OPERATIONS(6)..... $ 18,728 $ 14,244 $ 14,244 $ 9,264 $ 10,042 $ 10,042 $ 710
----------- ----------- ------------- ----------- ----------- ------------- -----------
----------- ----------- ------------- ----------- ----------- ------------- -----------

NET
PREMIUMS TOTAL
EARNED REVENUES(1)
----------- -------------

<S> <C> <C>
CURRENT OPERATIONS
Fee and Service Operations:
SC Facility(2):
Premiums/related fees...... -- $ 14,556
Claims-based fees.......... -- 10,638
Flood:
Premiums/related fees...... -- 8,340
Claims-based fees.......... -- 3,581
MGA.......................... -- 6,170
Brokerage and Other(3)....... -- 2,300
Risk Operations:
Nonstandard Automobile(4).... 71 71
Assumed from Pools(5)........ 5,819 5,819
----------- -------------
Total Current Operations....... $ 5,890 $ 51,475
----------- -------------
----------- -------------
RUN-OFF RISK OPERATIONS(6)..... $ 1,774 $ 1,774
----------- -------------
----------- -------------
</TABLE>

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

(1) Excludes revenues from investment income and other income.

(2) As a result of a competitive bidding process in October 1994, the Company
was awarded a new contract with the SC Facility for a smaller block of
business at lower rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Nonstandard
Automobile Insurance Business--Industry Background."

(3) Includes excess and surplus lines brokerage and other state facilities for
which the Company acted as a servicing carrier and other fee service income.

(4) In 1995, the Company continued to write nonstandard automobile insurance on
a voluntary basis in North Carolina which is reinsured 100% with the NC
Facility.

(5) Consists of mandated participation in various state associations due to the
Company's participation in such states' markets.

(6) Reflects revenue derived from lines of business for which the Company is no
longer writing new or renewal policies. It includes (i) run-off premiums
from retained credit life business in force at the time the Company sold
such business in September 1993, (ii) workers' compensation premiums through
1994 and (iii) premiums on certain personal line policies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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<PAGE>
NONSTANDARD AUTOMOBILE INSURANCE BUSINESS

INDUSTRY BACKGROUND

Total private passenger automobile insurance premiums written by insurance
carriers in the United States have been estimated by A.M. Best to be $122.2
billion, of which $1.5 billion was written in South Carolina, in 1995. South
Carolina premiums consisted of approximately $968 million of automobile
liability coverage and approximately $533 million of automobile physical damage
coverage.

Many states, including South Carolina, have state-sponsored plans to provide
insurance to drivers who are unable to obtain insurance in the voluntary market.
As of September 30, 1995, approximately 38% of all exposures in the State of
South Carolina were insured through the SC Facility. The SC Facility was created
on October 1, 1974, as a result of the South Carolina Automobile Reformation Act
of 1974 (the "Facility Legislation"). The Facility Legislation created a pool of
"Designated Agents" which are divided into three "blocks". The Designated Agents
produce automobile liability insurance business exclusively for the SC Facility
through one of three servicing carriers that each service a "block" of
Designated Agents. In addition, voluntary automobile insurance companies may
selectively reinsure policy risks with the SC Facility by ceding up to a maximum
of 35% of their automobile liability premiums to the SC Facility. Of the
policies ceded to the SC Facility, as of September 30, 1996, approximately 61%
were written by voluntary insurance companies and approximately 39% were written
through Designated Agents by the servicing carriers. The total written premium
volume for private passenger policies in the SC Facility for the fiscal year
ended September 30, 1996 was approximately $455 million, and the total amount of
written premium volume for private passenger policies of all Designated Agents
for the fiscal year ended September 30, 1996 was approximately $175 million.

Servicing carriers contract with the SC Facility in exchange for a
percentage of premiums written and claims handled. These carriers must pay the
Designated Agents assigned to them a 12% commission on the premiums for policies
written by them. Each servicing carrier reinsures 100% of the risks under such
policies with the SC Facility. When a policyholder whose premium has been ceded
to the SC Facility incurs a loss, the voluntary insurance company or servicing
carrier that issued the policy adjusts the loss and is reimbursed for the loss
and expenses by the SC Facility.

Approximately 175 Designated Agents participated in the SC Facility as of
September 30, 1996. Prior to October, 1994, the Company serviced the Designated
Agents assigned to Block One, the largest of the three blocks. In 1994, the SC
Facility for the first time instituted a bid and qualification process for each
of the three blocks. The bidding was open to all qualified insurers, and
successful bidders were awarded a five-year servicing contract beginning in
October 1994. The Company submitted the second lowest bid and was awarded the
contract to service Designated Agents assigned to Block Two. Block Two accounts
for approximately one-third of both the Designated Agents and the gross premiums
written through Designated Agents for the SC Facility. Block Two Designated
Agents are primarily located in the Charleston area, Block One agents are
primarily located in the Columbia area and Block Three includes agents located
in the Greenville area.

The Company has worked with the Designated Agents in each of the SC
Facility's three blocks. From 1974 to 1994, the Company serviced the Designated
Agents of Block One; since 1994, the Company has serviced the Designated Agents
of Block Two; and since 1996, the Company has serviced the Designated Agents of
Block Three in its capacity as a provider of run-off services for the previous
Block Three servicing carrier.

Throughout its history, the SC Facility has operated at a deficit. Total
losses for private passenger automobile insurance policies in the SC Facility
amounted to approximately $506 million for the fiscal year ended September 30,
1996 for a loss ratio of 111% and a combined ratio of 144%. The deficit of the
SC Facility is subsidized by all South Carolina drivers who are assessed a
"recoupment fee" in addition to their insurance premium. These fees ranged from
approximately $50 to approximately $3,900 per insured in

30
<PAGE>
1996 based upon driving records. SC Facility loss ratios have been due, in large
part, to the fact that automobile insurance premium rates for drivers insured by
the SC Facility have been inadequate to support the SC Facility on a
self-sustaining basis. However, the current South Carolina Director of Insurance
has allowed physical damage premium rate increases aggregating approximately 62%
in order to reduce the SC Facility's losses related to such risks. An increase
in liability rates has not yet occurred.

The South Carolina Senate recently passed reform legislation which, if
enacted, would reorganize the SC Facility over a three-year transition period.
In particular, this legislation would replace the SC Facility with either an
assigned risk plan or a joint underwriter association ("JUA"), and Designated
Agents would lose their designated status. An assigned risk plan typically
assigns qualifying insureds to insurance carriers based on their premiums
written in the voluntary market, while a JUA typically shares profits and losses
related to qualifying insureds among the carriers participating in the JUA. This
legislation was proposed in response to the SC Facility's significant deficits
and the resulting subsidization of the SC Facility through recoupment fees paid
by all South Carolina drivers. The Company believes that the proposed
reorganization is likely to result in SC Facility rates increasing to a
self-sustaining level, thereby triggering a voluntary exit from the SC Facility
by insureds able to obtain more attractive rates in the voluntary market.

Several reform bills also are currently pending before the South Carolina
House of Representatives. Although certain of these bills would not reorganize
the SC Facility, they would eliminate certain factors used in rating insured
South Carolina drivers and recalculate the recoupment fees. The Company believes
that enactment of any of these bills would likely result in higher SC Facility
rates and a voluntary with-drawal of insureds from the SC Facility.

If the South Carolina Legislature does not enact reform legislation with
respect to the SC Facility, the Company believes that the Director of Insurance
will allow premium rates for liability insurance to rise to approximate
self-sustaining levels based on the recent increase in physical damage rates of
approximately 62%. These rate increases may be effected through adjustments to
criteria under the SC Facility Legislation which are within the purview of the
Director. See "Risk Factors--Anticipated Changes in Automobile Insurance
Business in South Carolina."

In the event SC Facility rates are increased and insureds voluntarily
withdraw from the SC Facility, the Company believes there will be an opportunity
to attract such insureds to the Company's nonstandard automobile insurance
products and, eventually, into standard and preferred automobile products. In
particular, the Company believes that its Designated Agent relationships, its
underwriting data and experience with the SC Facility and knowledge of the South
Carolina automobile insurance market will allow it to obtain and underwrite
additional business. See "Risk Factors--Re-entry into Risk-Bearing Activities."

The voluntary automobile insurance market in most states includes three
tiers of risks: preferred, standard and nonstandard. Nonstandard risk drivers
are individuals who are unable to obtain insurance through standard market
carriers due to factors such as poor premium payment history, limited driving
experience, unsatisfactory driving records, automobile make or model or other
restrictive underwriting criteria. Premium rates for nonstandard risks generally
are higher and policy limits generally are lower than for preferred or standard
risk drivers.

Several factors influence the tiers of the automobile insurance business,
including compulsory state insurance laws, premium rate regulation, market
conditions for standard automobile insurance and state assigned risk (or
residual market) plans. In cases where these factors have contributed to an
unattractive market environment, certain insurance companies have ceased to
underwrite personal automobile insurance, many have elected to write insurance
for preferred or standard risks only and others have selectively withdrawn from
certain states. In addition, the underwriting standards for preferred and
standard risks have become more restrictive, thereby requiring more drivers to
seek coverage in the nonstandard market. These and other factors have
contributed to an increase in the size of the nonstandard automobile market
nationwide.

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<PAGE>
According to statistical information derived from insurer annual statements
compiled by A.M. Best, the nonstandard automobile market accounted for
approximately $20.6 billion in total annual premium volume in the United States
for 1995. Overall, based on information provided by A.M. Best, from 1990 through
1995, the nonstandard automobile segment grew from approximately 8.6% to
approximately 14.5% of the total private passenger automobile market. In South
Carolina, virtually all potential nonstandard automobile insurance business is
written by the SC Facility, which had approximately $455 million in total
written premium volume for private passenger coverages for the fiscal year ended
September 30, 1996.

STRATEGY

As discussed above, the Company expects that rates in the SC Facility will
increase (whether as a result of legislative or administrative action),
eventually resulting in insureds leaving the SC Facility. See "Risk
Factors--Anticipated Changes in Automobile Insurance Business in South
Carolina." In anticipation of these expected events, the Company has adopted a
transition strategy designed to expand its risk-bearing automobile insurance
business and increase the profitability of its current servicing carrier
operations. To accomplish these objectives, the Company intends to:

- EXPAND RETAINED-RISK AUTOMOBILE INSURANCE BUSINESS. The Company intends to
expand its automobile business in South Carolina. In addition to
increasing its existing physical damage coverage business, the Company
plans to add liability coverage and will offer these insurance products to
certain drivers voluntarily leaving the SC Facility. The Company also
intends to write automobile insurance policies on a retained risk basis in
North Carolina, where it currently writes nonstandard automobile liability
insurance policies that are entirely ceded to the NC Facility.

- CAPITALIZE ON EXISTING AGENT RELATIONSHIPS. The Company intends to
capitalize on its agent relationships to expand its risk-bearing
automobile insurance business. The Company has been a servicing carrier
for the SC Facility since 1974 and, as a result, has established
relationships with many of the SC Facility's Designated Agents. In
addition, the Company intends to continue its efforts to develop
relationships with independent agents in non-urban areas which the Company
believes are often not developed by larger insurance companies. The
Company also intends to utilize the relationships it currently has with
independent agents in North Carolina to obtain profitable risks for
underwritten automobile insurance products that it will offer in North
Carolina.

- DEVELOP MULTI-TIERED PRODUCTS FOR THE AUTOMOBILE INSURANCE MARKET. The
Company is developing standard and preferred automobile insurance products
for qualified insureds that the Company expects will exit the SC Facility.
The Company also anticipates that other insureds who voluntarily leave the
SC Facility will be upgraded to standard or preferred status once they
meet the underwriting criteria.

- CAPITALIZE ON EXISTING DATABASE. The Company has been adjusting and
servicing automobile insurance policies for the SC Facility since 1974. As
a result, the Company has extensive knowledge of the South Carolina
automobile insurance market and has developed a substantial database of
insureds. The Company believes that its database will be beneficial when
considering various factors relevant in underwriting and pricing
automobile insurance in South Carolina. In the event the SC Facility is
depopulated, the Company believes that its database will provide it with
an advantage over potential competitors in profitably underwriting
automobile business in South Carolina.

- REDUCE OPERATING EXPENSES RELATED TO SC FACILITY BUSINESS. The Company's
current management intends to continue to reduce expenses related to the
Company's SC Facility operations as well as improve service and increase
productivity. In particular, the Company continues to upgrade its
management information systems in order to improve communications with its
Designated Agents. The Company recently created integrated customer
service teams and is providing pay-for-performance incentives to its
agents to improve productivity and service quality.

32
<PAGE>
SERVICES AND PRODUCTS

The Company offers automobile insurance as a servicing carrier to the SC
Facility and, to a limited extent, on a retained risk basis where it retains
underwriting gains and losses. Policies ceded to the SC Facility are written
through Designated Agents and can include both liability and physical damage
coverages. These policies have terms that range from 6 to 12 months; the
majority have a term of 6 months. The SC Facility will only accept liability
policies with accident limits of $15,000 to $250,000 for bodily injury coverage
per person, $30,000 to $500,000 for bodily injury per accident and $5,000 to
$50,000 for property damage or a combined limit of $500,000 per accident.
Policies with greater limits cannot be ceded to the SC Facility.

As a servicing carrier, the Company rates, issues, processes and administers
the policies and adjusts claims on business produced by Designated Agents
assigned to Block Two. The Company receives a fee based upon the premiums
written as well as a fee based upon the claims that it adjusts. The Company also
is managing the run-off of claims for Block Three resulting from business
written before October, 1994 by the servicing carrier that formerly serviced
Block Three.

The Company selectively retains physical damage coverages on a risk-bearing
basis for policies with terms of 6 to 12 months. The Company resumed
underwriting nonstandard products on a retained risk basis in July 1996 by
writing physical damage coverage for which it retained approximately 50% of the
risk and reinsured approximately 50% of the risk under a quota-share reinsurance
arrangement with unaffiliated reinsurers. On May 1, 1996, the Company also
acquired a book of nonowners automobile insurance business for which it retains
all of the risks. Nonowners insurance is sold to an individual with a limited-
purpose driver's license (e.g., work-related driving only). In South Carolina,
drivers must obtain nonowners insurance even if liability and physical damage
coverage has already been obtained by the employer.

The Company also writes nonstandard automobile liability insurance in North
Carolina, all of which is reinsured with the NC Facility. The NC Facility will
only accept liability policies with accident limits of $25,000 to $100,000 for
bodily injury coverage per person, $50,000 to $300,000 for bodily injury
coverage per accident, and $15,000 to $50,000 for property damage per accident.

MARKETING

The SC Facility requires Designated Agents to write private passenger
automobile liability insurance through their assigned servicing carrier. As of
September 30, 1996, approximately 175 Designated Agents participated in the SC
Facility. The Company works with the Designated Agents assigned to Block Two of
the SC Facility. As of September 30, 1996, approximately 65 Designated Agents
were assigned to Block Two. Ten of the Designated Agents assigned to Block Two
accounted for approximately 42.5% (six accounted for approximately 32.4%) of the
gross premiums written for the SC Facility by the Company as of December 31,
1996.

The Company intends to concentrate its risk-bearing activities in South
Carolina, although management plans to expand selectively into additional
states. The Company writes nonstandard automobile liability insurance through 95
independent agents in North Carolina, all of which is currently ceded to the NC
Facility. The Company intends to write and retain certain automobile insurance
coverages in North Carolina in 1997.

The Company seeks to foster a loyal and close working relationship with its
Designated Agents and independent agents in a variety of ways. The Company
conducts quarterly Agents Advisory Council meetings to learn of, and respond to,
the needs of its Designated Agents and is creating similar councils for its
independent agents. The Company also is developing a program that will include
underwriting training to assist its Designated Agents with the anticipated
changes to the SC Facility. The Company actively engages in recruiting and
training new independent agents as well. The Company also provides assistance to
its independent agents through the use of seminars and underwriting training and
field representatives

33
<PAGE>
who consult with agencies on underwriting matters, assist agencies in research
and accompany agents on marketing visits to current and prospective
policyholders. The Company assists its independent agents with the processing of
paperwork and other administrative services and provides automated services to
selected agents.

Independent agents generally are paid higher commissions than those employed
directly by an insurance company, in part to account for the expenses of
operating as an independent agent. The Company believes that the commissions it
pays to its independent agents are competitive with the commissions paid by
other insurance companies operating through independent agents. The Company also
has established a stock option plan for certain eligible independent agents
(including selected Designated Agents), which became effective on December 31,
1995.

CLAIMS

The Company's claims management unit employs approximately 90 full-time
personnel who handle claims for both the SC Facility and the personal automobile
risk-bearing business. In addition to claims handling teams, the Company's
claims operation includes clerical, direct reporting, litigation, salvage/
automobile material damage ("AMD"), subrogation and systems teams. Claims are
received and initially processed by the direct reporting team, which assigns
them to a claims representative based upon loss type, severity and agent. Claims
representatives review claims, obtain appropriate documentation, establish loss
reserves for covered claims and negotiate and settle claims.

Claims settlement authority levels are established for each adjustor and
supervisor based on their expertise and experience. The Company processes all
claims in-house with limited use of outside adjustors for specific task
assignments. Outside adjustors have no authority to settle claims and are paid
on a time and reasonable expenses basis. Outside appraisers are frequently used
and are paid at prescribed rates. The AMD team reviews all appraisals in excess
of $2,500.

The Company recently terminated a claims supervisor after it discovered that
he had falsified certain SC Facility-related claims information and
documentation. The Company is conducting its own internal investigation as well
as assisting investigations by the South Carolina Department of Insurance, the
SC Facility and the South Carolina Attorney General. The Company estimates that
the total amount of fraudulent claims was approximately $185,000. The SC
Facility was improperly charged for certain of these fraudulent claims, which
the Company will reimburse. The Company has a fidelity bond that is expected to
pay for any losses that exceed $150,000. The Company has taken several steps to
improve its internal security, including reestablishing a corporate internal
audit function, testing and implementing several systems and work flow
procedural enhancements, and conducting unannounced, random audits of closed and
reopened files. There can be no assurance, however, that the Company will be
able to prevent similar incidents of fraud in the future.

UNDERWRITING

A voluntary insurance company or servicing carrier (each, a "Facility
Insurer") must appropriately rate and cede risks placed with the SC Facility. If
a risk is improperly rated, the Facility Insurer must either increase the
premium it charges the insured upon renewal of the policy or immediately refund
any overcharged amount, whichever is applicable. The SC Facility examines a
Facility Insurer's ratings of risks during annual underwriting audits and
determines the Facility Insurer's error percentage. If a Facility Insurer's
error percentage exceeds 15%, the Facility Insurer bears the cost of two
additional audits and, if its error percentage remains above 15% after the
second audit, is subject to losing its contract with the SC Facility. During the
past five years, the Company's error percentage has consistently been under 10%.
If a risk is improperly ceded to the SC Facility and a loss is incurred in
connection with such risk, the SC Facility may refuse to cover such loss and,
subject to an appeals process, the Facility Insurer will be solely responsible
for the loss.

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<PAGE>
Although the Company must properly rate SC Facility-related business,
underwriting activities on which the Company retains insurance risks currently
are limited to a small amount of the nonstandard automobile physical damage
business conducted in South Carolina. See "--Nonstandard Automobile Insurance
Business--Marketing." The Company underwrites this business with the goal of
achieving adequate pricing and seeks to classify risks into narrowly defined
segments by using all available underwriting criteria and credible historical
data. As of December 31, 1996, the Company had a combined nonstandard automobile
insurance underwriting and processing staff of 12 employees.

The Company generally utilizes many factors in determining its rates,
including the number of vehicles, their type, age and location, driving
experience, number and type of convictions or accidents, limits of liability,
deductibles, and, where allowed by law, sex and marital status of the insured.
Premium rates for automobile insurance generally are subject to the approval of
state insurance departments. The rate approval process varies from state to
state.

FLOOD INSURANCE

INDUSTRY BACKGROUND

Policyholders obtain flood insurance to insure structures and personal
property from flood damage. The federal government, through the Federal
Emergency Management Agency, underwrites the National Flood Insurance Program, a
federal flood insurance program. The NFIP offers flood insurance to owners of
property located in flood-prone areas both directly and through the Write Your
Own Program, which was created to increase the NFIP's policy base through the
promotion and servicing of flood insurance by the private insurance industry.
Flood insurance premium rates are set by FEMA based on the desired amount of
coverage and the location of property in one of 70 flood zone areas. Insurance
companies that participate in the WYO Program do not compete on price because
FEMA establishes flood insurance premium rates, but do compete on commissions
paid to agents and service provided to agents and policyholders. FEMA has
estimated that approximately 40% of eligible properties are currently insured
through the NFIP. The federal government, through legislation such as the
National Flood Reform Act of 1994, has sought to increase participation of
eligible properties in the NFIP in order to make the NFIP more actuarially sound
and to mitigate federal disaster assistance, which is also administered by FEMA.
In addition, as a result of legislation enacted in 1994, federally-backed
mortgage loans currently require parties to obtain flood insurance for property
located in a flood zone.

As of September 30, 1996, the total number of NFIP policies was
approximately 3.6 million, an increase of approximately 201,000 policies, or
5.9%, over the total number of NFIP policies in place at September 30, 1995.
Total premiums written by all servicing carriers were approximately $1.18
billion and approximately $1.21 billion for the years ended September 30, 1995
and 1996, respectively.

A servicing carrier for the NFIP receives a commission that ranges from
30.6% to 34.6% of the gross premiums written. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In the event of a
flood, a servicing carrier will handle claims on behalf of the NFIP, for which
the carrier receives a fee of 3.3% of the claims paid plus reimbursement for
loss adjustment expenses. See "--Flood Insurance--Claims." Total fees for claims
paid under the NFIP were approximately $14.4 million and approximately $39.9
million for the years ended September 30, 1995 and 1996, respectively.

As of September 30, 1996, 94 servicing carriers actively participated in the
NFIP. The Company joined the NFIP as an original servicing carrier in 1983 and
believes, based on NFIP data, that it was one of the ten largest flood servicing
carriers in the NFIP for the fiscal year ended September 30, 1996. Although the
Company is licensed to sell flood insurance in approximately 43 states, and has
licensed agencies across the United States, its flood business primarily is
concentrated in Florida, New Jersey, North Carolina and South Carolina. The
Company also provides specialized catastrophe claims services to other flood
insurers through its network of storm claims adjusters. See "--Other
Business--Insurance Network Services."

35
<PAGE>
STRATEGY

One of the Company's business objectives is to increase its volume of flood
insurance business through the expansion of its agent network. To accomplish
this objective, the Company intends to:

- EXPAND AGENT COVERAGE IN HIGH-VOLUME MARKETS. The Company has targeted
several high-volume markets in which it intends to increase agent coverage
for its flood business. In order to implement this plan, the Company has
recently hired three marketing representatives to develop relationships
with independent agents in these markets and educate them about the
Company's flood operations and claims team. These representatives and
certain of the Company's claims personnel also plan to make joint
presentations to certain large national accounts.

- PROMOTE PAST CLAIMS PERFORMANCE TO AGENTS. The Company intends to continue
to promote its flood claims experience and capabilities. The Company
believes that an important factor necessary for retaining its current
agents and attracting new agents is its proven ability to provide reliable
catastrophe claims services through its claims adjusting division,
Insurance Network Services ("INS"). For example, in connection with
Hurricane Fran in 1996, the Company adjusted over 3,000 claims, 1,800 on
policies it services and 1,200 for other carriers, representing over $45
million in claims as of February 28, 1997. The Company also has expanded
its storm claims adjustment capabilities by establishing a second claims
team, which will allow the Company to respond to concurrent catastrophes
and to devote greater claims resources for significant catastrophes. See
"--Other Business--Insurance Network Systems."

- STRENGTHEN RELATIONSHIPS WITH AGENTS. The Company intends to place
terminals directly in the offices of selected agents. The Company expects
that direct terminal placement will expand the agent's role in processing
policies and will also attract "large agent" rollover packages from
competitors. The Company believes that it is one of the few flood
insurance servicing carriers that provides agents with the opportunity to
participate in a stock option program.

- PROVIDE BUNDLED PRODUCTS. The Company is developing a bundled product
which will include flood mapping services, national flood insurance and
access to excess flood insurance. The Company currently offers these
services through arrangements with other companies. The Company believes
that the convenience and competitive pricing of a bundled product will be
attractive to its agents and other potential sources of flood insurance
business. The Company also expects to allow policyholders to use credit
cards to pay premiums.

- DEVELOP STRATEGIC RELATIONSHIPS. The Company intends to increase its flood
business by developing strategic relationships with financial
institutions. In particular, the Company expects to attract those
institutions that seek to outsource some of the flood insurance and
ancillary services associated with loan origination. The Company believes
that demand for flood insurance and related products by these institutions
will increase because recent reform legislation requires that all
properties subject to federally backed mortgages must be mapped for
potential flood exposures before a loan is issued.

PRODUCTS

The NFIP policies written by the Company provide protection to policyholders
for property damage resulting from floods, subject to limits of $250,000 on
residential buildings, $500,000 on commercial risks and $100,000 and $500,000
for residential and non-residential contents, respectively. The Company also
provides a free flood zone determination mapping service to its agents through
arrangements with other companies. This service, often completed within 24 hours
of receiving a request, provides the agent with the basic information needed to
rate, quote and sell a flood insurance policy. In a brokerage capacity, the
Company also offers excess flood insurance to policyholders. See "--Other
Business--Excess and Surplus Operations."

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<PAGE>
MARKETING

The Company markets its flood insurance products through a network
consisting of approximately 1,200 independent agencies, who receive a commission
on the premiums they write. The following table sets forth certain Company
information for its top four states as well as the 39 other states in which the
Company is licensed to sell flood insurance:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996
-------------------------- -------------------------- -----------
YEAR NUMBER OF % OF PREMIUMS NUMBER OF % OF PREMIUMS NUMBER OF
ENTERED(1) AGENCIES WRITTEN AGENCIES WRITTEN AGENCIES
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Florida............................ 1983 417 50.9% 390 45.1% 342
North Carolina..................... 1983 202 9.8 202 11.0 204
South Carolina..................... 1983 148 10.0 156 10.7 200
New Jersey......................... 1984 113 7.0 117 8.7 136
39 Other States.................... Various -- 22.3 -- 24.5 1,129

% OF PREMIUMS
WRITTEN
-------------
<S> <C>
Florida............................ 43.2%
North Carolina..................... 11.4
South Carolina..................... 10.2
New Jersey......................... 9.4
39 Other States.................... 25.8
</TABLE>

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

(1) Represents year in which the Company commenced the sale of flood insurance
policies in such state.

While the NFIP directly markets flood insurance policies through independent
agents, the majority of NFIP policies are written by servicing carriers. The
Company believes that independent agents prefer to write flood policies through
servicing carriers rather than directly with the NFIP because servicing
carriers, including the Company, generally pay higher commissions. The Company
also offers its independent agents the opportunity to participate in its stock
option plan. The Company periodically reviews and terminates its agency
relationships with non-producing or under-producing agents or agents that do not
comply with its guidelines and policies for the sale of flood insurance.

The Company provides assistance to its agents through the use of seminars,
training and field representatives who consult with agents on various matters.
The Company also provides certain agents with a software program that is
designed to assist agents with premium calculations, flood quotes, the creation
of insurance applications and the storage of data for requoting or correcting
policies. Once the requisite application information data is entered, the
software prints the application for the agent to sign, attach payment and mail
to the Company. The Company provides its agents with flood zone determinations
and also has installed zone determination software in certain agencies.

CLAIMS

Insurance claims on flood insurance policies are investigated and settled
mainly by claims adjusters employed by INS. The Company also uses a network of
independent adjusters located throughout the United States solely for
investigation purposes; the Company makes all decisions concerning coverage and
payments. The Company has utilized as many as 45 subcontracted adjusters at one
time in the aftermath of Hurricane Fran in September 1996, and adjusted over
3,000 claims. Pursuant to a fee schedule issued by FEMA, independent adjusters
receive a portion of the fees paid by FEMA for handling covered losses, while
the Company receives the balance. For claims up to $50,000 in covered losses,
FEMA pays a graduated fee up to approximately $800. For claims over $50,000 in
covered losses, FEMA pays a percentage of such claim that ranges from
approximately 3.0% to approximately 2.1%. See "--Other Business--Insurance
Network Services."

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<PAGE>
CLAIMS

FEMA REPORTING REQUIREMENTS

FEMA requires certain standards and procedures for the issuance, servicing
and statistical reporting of all NFIP transactions conducted by its servicing
carriers. Data is reported monthly, validated, audited in detail and compared
and balanced against the servicing carrier's financial reports. The Company
previously experienced problems in complying with FEMA's statistical reporting
requirements. See "Risk Factors--Risks Associated with the National Flood
Insurance Program." In an effort to rectify these problems, the Company recently
entered into an outsourcing agreement with a major provider of processing
services for the NFIP for the processing of its flood insurance business. This
arrangement includes policy quotation and issuance, billing, claims processing,
financial reporting and statistical reporting to the NFIP and eliminates the
need for the Company to maintain and provide such specialized processing. As a
result, the Company will be able to refocus its efforts on marketing and sales
programs.

MGA/COMMERCIAL LINES

GENERAL

In its capacity as a MGA, the Company sells commercial lines products,
including commercial automobile insurance, commercial package policies, business
owner policies ("BOP"), garage packages and umbrella policies. Commercial
automobile coverage insures policyholders against losses incurred from bodily
injury, bodily injury to third parties, property damage to an insured's vehicle
(including fire and theft) and damage to other vehicles and property as a result
of automobile accidents involving the insured's commercial vehicles. Commercial
package policies provide insureds coverage on perils protecting real and
personal business property combined with comprehensive general liability
coverage. The BOP is a prepackaged "off-the-shelf" product for small to medium
sized businesses that includes building, contents and liability coverages for
business, while the garage package is tailored to provide specific coverages for
garage owners. An umbrella policy provides additional excess third party
liability protection.

All of the Company's commercial business is currently underwritten by
Generali-U.S. Branch pursuant to a MGA agreement. Generali is a member of the
Generali Group of Trieste, Italy. The Generali Group had approximately $79.6
billion dollars in total assets as of December 31, 1995, and has an A.M. Best
rating of A ("Excellent").

The Company sells, issues and performs underwriting and claims adjusting
services for Generali's commercial lines products, for which Generali retains
100% of the risk, in Georgia, Kentucky, North Carolina, South Carolina and
Tennessee. The Company is paid on a commission basis. The Company has reduced
the loss ratio on this business from 76% in 1995 to a range of approximately
61-64% in 1996, including allocated loss adjustment expense. The Company's
contract provides for contingent commissions once stated loss ratio targets are
achieved.

38
<PAGE>
STRATEGY

One of the Company's business objectives is to increase total revenue and
net income attributable to its MGA/commercial lines business. To accomplish this
objective, the Company intends to:

- IMPROVE LOSS RATIO. The Company plans to continue its efforts to lower the
loss ratio for the Generali business from its current mid-60s range to the
mid-50s range, at which point the Company will qualify to receive
contingent commissions from Generali. First, the Company is increasing
enforcement of its underwriting guidelines by conducting reviews of its
underwriting staff, confining underwriting activity to in-house personnel
and phasing out policies that do not meet its underwriting guidelines.
Second, Company employees will visit the premises of its insureds in order
to identify, and recommend ways of curing potential loss exposures. Third,
the Company is in the process of evaluating and, where appropriate,
updating the pricing of its products.

- REDUCE OPERATING EXPENSES. The Company seeks to reduce operating expenses
further through increased automation and the restructuring program
initiated for its claims and underwriting staff. The Company expects that
improvements to its systems operations will reduce the number of employees
required to administer its commercial lines policies. The Company also is
continuing to implement a restructuring program to redesign the flow of
work through its claims and underwriting staff. In particular, the Company
recently reorganized its agency support staff to combine claims personnel
and underwriting personnel into one servicing team. As a result of the
restructuring, agents will be able to call one number for both claims and
underwriting issues. The Company also believes that the combined group
will have better access to historical claims data, resulting in better
underwriting decisions.

- ASSUME A PORTION OF THE RISK FOR PREMIUMS WRITTEN AND INCREASE THE SIZE OF
THE COMMERCIAL LINES BUSINESS. The Company expects to begin assuming on a
risk-bearing basis a 10-20% portion of its established commercial lines
business currently underwritten 100% by Generali. Generali has indicated
an interest in pursuing this objective, which would allow the Company to
assume a portion of the risks written by Generali through the MGA
relationship.

- DEVELOP NEW NICHE PRODUCTS. The Company is continuing to develop insurance
products that are tailored to specific needs of certain well-defined
insureds (for example, garage package policies for owners of garages and
parking lots). The Company also plans to increase the number of commercial
automobile insurance products offered. In addition, the Company intends to
introduce new payment plans that are flexible with respect to the timing
and method of premium payment. The Company and Generali also have reached
an agreement in principle to add multi-tier commercial lines products so
as to offer pricing alternatives.

- INCREASE AGENCY RETENTION AND RECRUITMENT. The Company intends to continue
to strengthen its relationships with, and to recruit, agents that have
demonstrated an ability to apply underwriting guidelines in the initial
selection of insureds. For example, the Company plans to continue to
encourage the participation of its successful agents in the Company's
stock option program. For the year ended December 31, 1996, independent
agents participating in the Company's stock option plan accounted for
approximately $5.4 million, or approximately 30.8%, of the Company's total
gross premiums for its MGA/commercial lines business. The Company also
believes that improvements to automation facilitate the ease of doing
business with the Company and increase agent participation in processing
policies. In addition, the Company educates its agents on the new products
and coverages it offers.

MARKETING

The Company markets its commercial lines insurance products through over 380
professionally-licensed, appointed independent agencies in its core states of
North Carolina, Georgia, Kentucky, South

39
<PAGE>
Carolina and Tennessee. Agents participate in continuing education programs and
many have received such designations as Chartered Property Casualty Underwriter
or Certified Insurance Counselor. In addition, each state sets continuing
education requirements for maintaining an active agent's license with the state.

The following table sets forth, as of or for the year ended December 31,
1996, as applicable, certain information regarding each of the states in which
the Company conducts its Generali MGA business:

<TABLE>
<CAPTION>
NUMBER GROSS % OF
STATE OF AGENCIES PREMIUMS WRITTEN PREMIUMS WRITTEN
- --------------------------------------------------------------- --------------- ----------------- -------------------
<S> <C> <C> <C>
North Carolina................................................. 136 $ 5,834,000 32.6%
Georgia........................................................ 86 2,083,000 11.6
Kentucky....................................................... 64 3,427,000 19.2
South Carolina................................................. 58 4,587,000 25.7
Tennessee...................................................... 40 1,955,000 10.9
--- ----------------- -----
Total...................................................... 384 $ 17,886,000 100.0%
</TABLE>

CLAIMS

The Company's MGA claims management unit employs approximately ten full-time
personnel, including a team leader, a litigation manager and five multi-line
adjusters with varying degrees of experience and authority (ranging from $5,000
to $50,000). The MGA contract gives the Company authority to settle claims up to
$50,000; Generali must approve the settlement of claims in excess of $50,000,
although the Company's staff remains responsible for the actual settlement of
such claims. Outside adjustors and appraisers, which the Company will use when
necessary, have no claims settlement authority.

OTHER BUSINESS

EXCESS AND SURPLUS LINES OPERATIONS

The Company represents other insurance companies in both a MGA capacity and
a brokerage capacity for excess and surplus lines operations. Excess and surplus
lines insurance generally is written on classes of risks on which insurance is
not available from an insurer licensed in the state where the risk is located.
The Company has contracts with approximately 25 insurance companies selling
products such as excess flood insurance, medium-haul trucking, general
liability, professional liability and marine insurance. The Company earns a
percentage of the premiums written for selling, issuing and servicing such
policies, while retaining no risk.

The Company markets products through approximately 1,500 independent
insurance agencies in eight southeastern states. This business is marketed
through traditional sales activities, convention exhibits, sales kits and
advertisements, as well as through direct marketing campaigns.

The Company seeks to grow this business by increasing product offerings and
expanding into new markets. The Company also intends to offer its excess and
surplus products in new states in which it is licensed and recently entered a
new relationship that will enable the Company to provide additional automobile
insurance products and property coverages.

INSURANCE NETWORK SERVICES

INS provides storm claims adjustment and "run-off" services. The storm
claims adjustment service was developed to complement the Company's flood
operations and is designed to maximize customer service in the event of a wind
storm, flood or other catastrophe. This claims servicing activity has increased
as a result of the widespread incidence of flood claims over the last several
years. The Company seeks to

40
<PAGE>
increase utilization of its established network of storm adjusters to service
claims of other flood, wind and property insurers. INS also is developing a plan
to expand its catastrophe service beyond floods to include other disasters. In
addition, INS provides services to companies "running-off" discontinued books of
business, leaving the region or in temporary need of services due to sharp
increases in volume, usually due to seasonal demands, hurricanes or other
catastrophes.

INS investigates and settles insurance claims on policies through in-house
claims adjustors and independent adjustors who are utilized in locations where
there is insufficient claim volume to justify the cost of an internal claims
staff, or when specialized claims expertise is required. These independent
adjustors are paid a percentage of the income they produce and are required to
carry errors and omissions insurance.

Claims settlement authority levels are established for each adjustor and
supervisor based on their expertise and experience. Upon receipt, each claim is
reviewed and assigned to an adjustor based on the type and severity of the
claim. The claims staff then reviews the claim, obtains appropriate
documentation and establishes a loss reserve for covered claims. Home office
review and approval is needed on all claims in excess of the established
settlement authority of $50,000 for bodily injury and property damage. All
claims-related litigation is monitored by the home office or a litigation
manager. In addition, all environmental claims are handled by the home office.

One of the Company's business objectives is to increase its INS claims
service business. To accomplish this objective, the Company intends to continue
the expansion of its claims adjusting services to include additional run-off
management services for third party insurance companies. The Company is paid a
fee for these services but does not assume any risk. To support this expansion,
the Company has dedicated additional personnel to its run-off claims service
operations. The Company also has improved its catastrophe-servicing capabilities
by establishing a second claims team, which allows the Company to respond to
concurrent catastrophes and to devote greater claims resources to significant
catastrophes. The Company also is in the process of implementing new technology
in an effort to improve the efficiency of its adjusters and reduce expenses of
its claims service business.

REINSURANCE

Prior to suspending underwriting operations in the first quarter of 1995,
the Company reinsured a portion of its risks. Business was ceded principally to
reduce the Company's exposure on large individual risks and to provide
protection against large catastrophic occurrences. Currently, the Company is not
purchasing reinsurance for either of these types of exposures, but has
outstanding claims recoverable under prior reinsurance agreements primarily on
unpaid claims for liability exposures that take a lengthy period to settle. The
Company's principal reinsurer under the prior agreements, in terms of the amount
of reinsurance recoverable on incurred losses, is Swiss Reinsurance American
Corporation.

The Company currently reinsures 50% of its automobile physical damage
business under a quota-share reinsurance agreement with a group of reinsurers
led by Constitution Reinsurance Company. The Company cedes a portion of the
premiums to the reinsurers net of a ceding commission and collects half of
claims payments from the reinsurers. Quota-share reinsurance is designed to
increase the capacity of the Company to write new business.

Reinsurance does not legally discharge an insurer from its primary liability
on the policies it issues, but it does make the assuming reinsurer liable to the
insurer to the extent of reinsurance ceded. Therefore, the Company is subject to
credit risk with respect to the obligations of its reinsurers. The Company
evaluates the financial condition of each prospective reinsurer before it cedes
business to that carrier. Reserves for uncollectible reinsurance are provided if
deemed necessary. See "--Reserves for Losses and Loss Adjustment Expenses."

41
<PAGE>
In its capacity as a servicing carrier, the Company issues policies for
automobile and flood insurance, then reinsures 100% of these risks with the SC
Facility, NC Facility and FEMA. While the amounts of reinsurance recoverables
under these arrangements are significant, the Company believes these balances
from the SC Facility, NC Facility and FEMA are fully collectible.

SYSTEMS OPERATIONS

The Company operates and maintains a computer system for its operations,
including policy issuance, billing, claims processing, and financial and
management reporting. The system utilizes networked personal computers and an
IBM AS/400 computer for processing. The Company has entered into arrangements to
provide computer processing support in the event the Company's data center is
disabled. The disaster plan provides hardware, software and communications
backup which will allow the Company to continue to operate with limited
disruption in service.

An insurance processing system is utilized by the Company for all lines of
business, including flood, commercial and personal. The system provides support
for all aspects of the Company's business, including policy rating and issuance,
direct policyholder and agency billing, commission processing, management
reporting and regulatory reporting. The Company has supplemented the system with
other software in areas that require or can be aided by special support.

The Company uses a financial reporting system for accounting support and for
statutory and GAAP financial reporting. Automated data transfers have been
established between the insurance processing and the accounting system. The
accounting system is designed specifically for the unique reporting requirements
of the insurance industry. A separate system is utilized by the specialty lines
brokerage operation. The system provides the quotation, commission and sales
accounting support requirements unique to the brokerage environment.

The Company currently is installing an executive information system
providing performance reporting capabilities for business profitability analysis
and for risk/rate analysis and development. The Company believes that this
system, which will report results by product, state, agent and risk
characteristics, will become fully operational in the second quarter of 1997.

FLOOD INSURANCE PROCESSING. The Company recently entered into an agreement
with a major provider of processing for the NFIP to outsource the processing of
its flood insurance business. This outsourcing arrangement includes policy
quotation and issuance, billing, claims processing, financial reporting and
statistical reporting to the NFIP, eliminating the Company's need to maintain
and provide such specialized processing and allowing it to refocus its efforts
on the support of its marketing and sales programs.

AGENCY ELECTRONIC COMMUNICATIONS. The Company provides selected agents with
electronic connections to its systems, allowing agents to submit applications
for insurance electronically. A few of the SC Facility Designated Agents
electronically enter policy transactions into the Company's system. This
electronic communication is provided to improve the service level to the
consumer. The Company plans to enhance its electronic communication capabilities
in 1997 to encompass over 70% of the facility business. In addition, selected
high volume flood agents will be set up for electronic communications and
processing. Approximately 20 other agencies electronically transfer new business
applications and cancellations through an unaffiliated finance company.

FUTURE SYSTEM ENHANCEMENTS. The Company will continue to evaluate
enhancements to its systems. Improvements in agent and consumer service, new
product offerings and reductions in administrative expenses will require ongoing
enhancements to the Company's support systems. Current plans include
establishing a data bridge between systems to eliminate redundant entry of
policy information and reduce policy issuance time. This data bridge, associated
with the Company's commercial business, is expected to be in place by the third
quarter of 1997. The Company also expects to automate a Workers' Compensation
product during the first half of 1997. This product will supplement the existing
commercial lines offerings

42
<PAGE>
in the Company's core states. In addition, support for policy audits will be
enhanced in the second quarter of 1997 to support the workers' compensation
product and to improve audit reporting and efficiencies.

The Company plans to enhance its electronic communications with agents
during 1997. For example, the Company expects to develop data transfer systems,
which will allow agents to move data between their computer and the Company's
computer, during the third and fourth quarters of 1997. In addition, the Company
intends to expand current electronic interface capabilities for high volume
flood and facility agents by the end of 1997.

RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

Loss reserves are estimates at a given point in time of the amount of claims
that the insurer expects to pay claimants plus investigation and litigation
costs, based on facts and circumstances then known. It can be expected that the
ultimate liability in each case will differ from such estimates. During the loss
settlement period, additional facts regarding individual claims may become known
and, consequently, it may become necessary to refine and adjust the estimates of
liability.

The liability for losses is determined using case-basis evaluations and
statistical projections. The liabilities determined under these procedures are
reduced, for GAAP purposes, by estimated amounts to be received through salvage
and subrogation. The resulting liabilities represent the Company's estimate of
the ultimate net cost of all unpaid losses and LAE incurred through December 31
of each year. These estimates may be affected by the frequency and/or severity
of future claims. Among the complications are a lack of historical data, long
reporting delays, difficulty in properly allocating responsibility and/or
liability for environmental damage, changes in underlying laws and judicial
interpretation of those laws, potential for an environmental claim to involve
many insurance providers over many periods, questions concerning interpretation
and application of insurance and reinsurance coverage, and uncertainty regarding
the number and identity of insureds with potential environmental exposure. These
estimates are continually reviewed and as experience develops and new
information becomes known, the liability is adjusted as necessary.

The anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. While anticipated price increases due to
inflation are considered, an increase in average severity of claims may be
caused by a number of factors that vary with the individual type of policy
written. Future average severity is projected based on historical trends
adjusting for changes in underwriting standards, policy provisions and general
economic trends. These anticipated trends are monitored based on actual
developments and are modified as necessary. The Company does not discount its
loss and LAE reserves.

43
<PAGE>
The following table presents, on a GAAP basis, a three-year analysis of
losses and LAE, net of ceded reinsurance recoverable, with the net liability
reconciled to the gross liability as reported in the Company's financial
statements:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Liability for losses and LAE at the beginning of the year:
Gross liability per balance sheet.......................................... $ 194,682 $ 166,698 $ 145,523
Ceded reinsurance recoverable, classified as an asset...................... (76,221) (88,731) (84,492)
---------- ---------- ----------
Net liability.............................................................. 118,461 77,967 61,031
---------- ---------- ----------

Provision for losses and LAE for claims occurring in the current year........ 19,997 14,243 9,863
Increase in estimated losses and LAE for claims occurring in prior years..... 16,957 3,375 1,117
---------- ---------- ----------
36,954 17,618 10,980
---------- ---------- ----------
Losses and LAE payments for claims occurring during
Current year............................................................... 13,837 11,711 8,317
Prior years................................................................ 63,611 22,843 16,267
---------- ---------- ----------
77,448 34,554 24,584
---------- ---------- ----------
Liability for losses and LAE at the end of the year:
Net liability.............................................................. 77,967 61,031 47,427
Ceded reinsurance recoverable, classified as an asset...................... 88,731 84,492 84,725
---------- ---------- ----------
Gross liability per balance sheet.......................................... $ 166,698 $ 145,523 $ 132,152
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The ceded reinsurance recoverable, classified as an asset, includes
$75,674,000 at the end of 1994, $76,067,000 at the end of 1995 and $74,786,000
at the end of 1996 of balances recoverable from certain state and federal
insurance facilities, including the SC Facility, NC Facility and the NFIP. See
Note 12 of Notes to Consolidated Financial Statements.

As reflected in the preceding table, each year was affected by reserves from
prior years having been deficient in those earlier periods. However, the impact
of adverse development has decreased significantly since 1994. The amount of
adverse development related to claims occurring in prior years was $16,957,000
in 1994, $3,375,000 in 1995, and $1,117,000 in 1996. Reserve deficiencies are
caused primarily by the difficulties inherent in estimating the liability for
claims on the casualty lines of business, where the full extent of the damages
can often be sizable but not accurately determinable at the date of estimation.
This situation is further complicated by the fact that the existence of a claim
may not be reported to the Company for a number of years.

44
<PAGE>
The difference between the year-end net liability for losses and LAE
reported in the accompanying consolidated financial statements in accordance
with GAAP and that in accordance with SAP was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)

<S> <C> <C>
Net liability on a SAP basis as filed in annual statement....................... $ 61,812 $ 47,952
Established salvage and subrogation recoveries recorded on a cash basis for SAP
and on an accrual basis for GAAP.............................................. (781) (525)
---------- ----------
Net liability on a GAAP basis, at year end...................................... 61,031 47,427
Ceded reinsurance recoverable, classified as an asset........................... 84,492 84,725
---------- ----------
Gross liability on a GAAP basis, at year end.................................... $ 145,523 $ 132,152
---------- ----------
---------- ----------
</TABLE>

The following table reflects the loss and LAE development for 1995 and 1996
on a GAAP basis:

<TABLE>
<CAPTION>
RE-ESTIMATED AS
UNPAID LOSSES OF
AND LAE ONE YEAR LATER DEFICIENCY
------------- ----------------- -----------
(IN THOUSANDS)

<S> <C> <C> <C>
1995: Gross liability............................................... $ 145,523 $ 148,186 $ (2,663)
Less reinsurance recoverable................................... 84,492 86,038 (1,546)
------------- -------- -----------
Net liability.................................................. $ 61,031 $ 62,148 $ (1,117)
------------- -------- -----------
------------- -------- -----------

1996: Gross liability............................................... $ 132,152
Less reinsurance recoverable................................... 84,725
-------------
Net liability.................................................. $ 47,427
-------------
-------------
</TABLE>

45
<PAGE>
The following analysis reflects loss and LAE development on a SAP basis, net
of ceded reinsurance recoverable, for a ten-year period for retained business
only:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)

Gross liability for unpaid losses and
LAE...................................
Reinsurance recoverable on unpaid losses
and LAE...............................
Net liability for unpaid losses and
LAE................................... $ 162 $ 145 $ 129 $ 122 $ 114 $ 112 $ 118 $ 120

Cumulative liability paid through:
One year later........................ $ 94 $ 82 $ 104 $ 78 $ 77 $ 63 $ 30 $ 65
Two years later....................... 142 150 141 121 116 50 84 86
Three years later..................... 194 173 166 145 93 91 102 99
Four years later...................... 211 191 183 115 125 104 112
Five years later...................... 224 203 151 139 135 111
Six years later....................... 233 174 170 147 140
Seven years later..................... 208 191 176 151
Eight years later..................... 223 195 179
Nine years later...................... 226 199
Ten years later....................... 229

Net liability re-estimated as of:
One year later........................ $ 181 $ 158 $ 174 $ 135 $ 136 $ 119 $ 129 $ 138
Two years later....................... 192 197 177 150 147 124 146 144
Three years later..................... 229 200 188 156 151 134 151 143
Four years later...................... 233 210 185 159 161 145 149
Five years later...................... 240 204 185 168 172 143
Six years later....................... 235 204 195 180 171
Seven years later..................... 235 213 206 178
Eight years later..................... 243 224 204
Nine years later...................... 253 222
Ten years later....................... 251

Net cumulative (deficiency)............. (89) (77) (75) (56) (57) (31) (31) (23)
--------- --------- --------- --------- --------- --------- --------- ---------

1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>

Gross liability for unpaid losses and
LAE................................... $ 169 $ 146 $ 133
Reinsurance recoverable on unpaid losses
and LAE............................... (89) (84) (85)
--------- --------- ---------
Net liability for unpaid losses and
LAE................................... 80 62 48
Cumulative liability paid through:
One year later........................ $ 26 $ 16
Two years later....................... 42
Three years later.....................
Four years later......................
Five years later......................
Six years later.......................
Seven years later.....................
Eight years later.....................
Nine years later......................
Ten years later.......................
Net liability re-estimated as of:
One year later........................ $ 85 $ 63
Two years later....................... 87
Three years later.....................
Four years later......................
Five years later......................
Six years later.......................
Seven years later.....................
Eight years later.....................
Nine years later......................
Ten years later.......................
Net cumulative (deficiency)............. (7) (1)
--------- ---------
</TABLE>

The preceding table presents the development of balance sheet liabilities on
a SAP basis for 1986 through 1996. The top line of the preceding table shows the
initial estimated liability on a SAP basis. This liability represents the
estimated amount of losses and LAE for claims arising in years that are unpaid
at the balance sheet date, including losses that have been incurred but not yet
reported. The next portion of the table reflects the cumulative payments made
for each of the indicated years as they have developed through time. This table
has been adjusted for a modification made to 1994 paid losses on a GAAP basis,
not recorded for statutory net losses incurred. On a statutory basis, the
modification is a reclassification only and has no effect on income.

In evaluating this information, it should be noted 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
the 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.

Establishing reserves is an estimation process and adverse developments in
future years may occur and would be recorded in the year so determined. As a
result of independent actuarial reviews of reserves as of December 31, 1994, the
Company significantly increased its reserves for unpaid losses and LAE

46
<PAGE>
related to prior years by $17.0 million in the fourth quarter of 1994. Since
that time, the Company's operating results have not been as significantly
affected by increases in reserves for incurred losses and loss adjustment
expenses for claims occurring in prior years compared to the impact upon
operating results for the year ended December 31, 1994.

The adverse loss reserve development in 1986 through 1993 is primarily
attributable to run-off on the claims of workers' compensation and general
liability policies written primarily in Florida and California, which created
substantial losses for the Company for the past 10 years.

A part of the Company's reserve for losses and LAE is set aside for
environmental, pollution and toxic tort claims. These claims relate to business
written on the West Coast prior to 1986. On June 7, 1994, the Company settled a
dispute with another insurance company relative to approximately 400 of these
claims. Any future liability on these claims is limited to 50% of the direct
loss and LAE paid. The Company's obligation to pay 50% of these claims will not
begin until the other company has paid subsequent to June 7, 1994 $20,000,000 in
losses and LAE, net of reinsurance. As of December 31, 1996, $4,200,000 of
claims payments gross of reinsurance have been made by the other company under
this agreement. A portion of the reinsurance on this business was placed with a
reinsurer currently operating under the supervision of its state regulator.
Estimates of the Company's liabilities take into account only amounts of
reinsurance that the Company believes are recoverable.

Substantial uncertainties are inherent in the establishment of appropriate
reserves for property and casualty insurers. Such uncertainties are
significantly greater in estimating reserves for environmental, toxic tort and
other casualty claims which the Company continues to maintain. Among the
complications are a lack of historical data, long reporting delays, difficulty
in properly allocating responsibility and/or liability for environmental damage,
changes in underlying laws and judicial interpretation of those laws, potential
for an environmental claim to involve many insurance providers over many
periods, questions concerning interpretation and application of insurance and
reinsurance coverage and uncertainty regarding the number and identity of
insureds with potential environmental exposure.

Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 1996:

<TABLE>
<S> <C>
Pending, December 31, 1995............................................. 85
New claims advised..................................................... 16
Claims settled......................................................... 30
--
Pending, December 31, 1996............................................. 71
--
--
</TABLE>

The policies corresponding to these claims were written on a direct basis.
The Company has excess of loss reinsurance with company retentions through 1980
of $100,000 and of $500,000 after 1980. The claims are reserved as follows as of
December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Case reserves........................................................... $ 2,229 $ 3,170
IBNR reserves........................................................... 8,675 6,381
LAE reserves............................................................ 3,453 3,764
--------- ---------
Total............................................................... $ 14,357 $ 13,315
--------- ---------
--------- ---------
</TABLE>

The above claims involve eight Superfund sites, five asbestos or toxic
claims, six underground storage tanks and 52 miscellaneous clean-up sites. For
this direct business there are usually several different insurers participating
in the defense and settlement of claims made against the insured. Costs and
settlements are pro-rated by either time on the risk or policy limits.

47
<PAGE>
In estimating the liability for reported and estimated losses and adjustment
expenses related to environmental and construction defect claims, management
considers facts currently known along with the current state of the law and
coverage litigation. Liabilities are recognized for known claims (including the
cost of related litigation) when sufficient information has been developed to
indicate the involvement of a specific insurance policy and when management can
reasonably estimate its liability. In exposures on both known and unasserted
claims, estimates of the liabilities are reviewed and updated continually. The
potential development of losses is restricted by policy limits.

Because only 71 claims remain open as of December 31, 1996, the exposure to
significant additional development is less than when the claims were less
mature. In addition, the likelihood of new claims being asserted for
construction liability is lessened by the expiration of statutes of limitations
since the last policy expired over ten years ago.

INVESTMENTS

The Company invests in securities and other investments authorized by
applicable state laws and regulations. Investments are managed by a management
committee comprised of the Chief Financial Officer, the Vice President of
Strategic Planning and the Treasurer.

The Company's cash and investments were distributed as follows at December
31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
ASSET ASSET
VALUES(1) % VALUES(1) %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. government and government agencies and authorities.............. $ 31,416 62.0% $ 40,102 93.4%
States, municipalities and political subdivisions.................... 993 2.0 115 0.3
Corporate bonds...................................................... 1,168 2.3 -- --
Redeemable preferred stocks.......................................... 4 -- -- --
--------- ----- --------- -----------
Total debt securities............................................ 33,581 66.3 40,217 93.7
Cash and short term investments...................................... 16,649 32.9 2,664 6.2
Equity securities.................................................... 377 0.7 35 0.1
Other long term investments.......................................... 34 0.1 28 --
--------- ----- --------- -----------
Total cash and investments........................................... $ 50,641 100.0% $ 42,944 100.0%
--------- ----- --------- -----------
--------- ----- --------- -----------
</TABLE>

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

(1) Asset values represent market values at December 31.

The following table sets forth the consolidated investment results for the
three years ended December 31, 1996:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Total investments(1)............................................................. $ 90,175 $ 53,841 $ 47,614
Net investment income............................................................ 5,321 3,176 3,006
Average yield.................................................................... 5.9% 5.9% 6.3%
Net realized investment gains (losses)........................................... $ (6,327) $ 164 $ (14)
</TABLE>

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

(1) Average of the aggregate invested amounts (market values) at the beginning
of the year, as of June 30 and as of the end of the year.

As per its investment policy, the Company purchases only U.S. Treasury
securities, U.S. agency securities and investment-grade municipal and corporate
securities primarily with an "A" or higher rating

48
<PAGE>
with the highest yield to maturity available. As of December 31, 1996,
approximately 93.7% of the Company's total investments were fixed-income debt
securities, of which 99.7% were securities of the United States Government or
its agencies or instrumentalities, and all remaining bonds were rated "A" or
better by either Moody's Debt Rating Service or Standard & Poor's Ratings
Service. The Company generally buys investments maturing within two to twelve
years of the date of purchase. At December 31, 1996, the average maturity of the
Company's bond investment portfolio was 3.8 years. For additional information
regarding the Company's investments, see Note 2 of the Notes to Consolidated
Financial Statements.

The following table sets forth, as of December 31, 1994, 1995 and 1996, the
composition of the Company's portfolio of debt securities by time to maturity.

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT
TOTAL TOTAL TOTAL
MARKET MARKET MARKET MARKET MARKET MARKET
TIME TO MATURITY VALUE VALUE VALUE VALUE VALUE VALUE
- ------------------------------------------------ --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1 year or less $ 2,030 5.2% $ 3,102 9.2% $ 1,667 4.1%
More than 1 year through 5 years................ 19,743 50.7 16,436 49.0 25,224 62.7
More than 5 years through 10 years.............. 14,167 36.4 12,520 37.3 13,142 32.7
More than 10 years.............................. 2,996 7.7 1,519 4.5 184 0.5
Redeemable Preferred............................ -- -- 4 -- -- --
--------- ----- --------- ----- --------- -----
Total....................................... $ 38,936 100.0% $ 33,581 100.0% $ 40,217 100.0%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>

RATINGS

The Company has elected not to be rated by A.M. Best and accordingly was
last assigned a rating of NR-4 ("Not Rated--Company Request"). A.M. Best ratings
represent an independent opinion of an insurers's financial strength and ability
to meet policyholder and other contractual obligations. Such ratings are not
directed toward the protection of investors or shareholders. A.M. Best
classifications are A++ and A+ (superior), A and A- (excellent), B++ and B+
(very good), B and B- (fair), C++ and C+ (marginal), C and C- (weak), D (poor),
E (under regulatory supervision), F (in liquidation) and S (rating suspended).

COMPETITION

The Company operates in highly competitive industry segments. Many of its
competitors have significantly greater financial, marketing and underwriting
resources and superior ratings from A.M. Best. These factors may significantly
affect the Company's ability to market and profitably sell its products. In
general, the Company competes with both large national writers and smaller
regional companies in each state in which it operates.

NONSTANDARD AUTOMOBILE INSURANCE BUSINESS. The other two servicing carriers
for the SC Facility are Unisun Insurance Company ("Unisun") and Companion
Property and Casualty Insurance Co. The Company competes with major carriers in
the voluntary automobile insurance market, including State Farm Mutual
Automobile Insurance Co., Nationwide Mutual Life Insurance Co., Farm Bureau
Mutual Insurance, Inc. and Allstate Insurance Company, Inc., as well as other
regional insurance companies. See "Risk Factors--Re-entry into Risk Bearing
Activities" and "Risk Factors--Competition."

FLOOD PROGRAM. The Company's principal flood insurance competitors include
Bankers Insurance Co., American Bankers Insurance Group, Omaha P&C Insurance
Group, Selective Insurance Group, Inc.,

49
<PAGE>
Redland Insurance Co., Travelers Property-Casualty Insurance Co. and Unisun.
Factors influencing the choice of a flood insurer or servicing carrier include
the ability to offer homeowners or other property products to agents, a superior
rating from A.M. Best, a competitor's ability to increase commission rates,
on-line policy issuance capability, and credit card premium payment capability.

OTHER BUSINESS. As a MGA for Generali, the Company competes with other MGAs
and insurers seeking to write commercial lines business in Tennessee, Kentucky,
North Carolina, Georgia and South Carolina. INS, primarily competes with the
independent adjusting community. As a MGA and excess and surplus lines broker,
the Company competes primarily with regional, privately held companies in eight
Southeastern states.

REGULATION

STATE INSURANCE REGULATION. Insurance companies are subject to supervision
and regulation in the jurisdictions in which they transact business, and such
supervision and regulation relates to numerous aspects of an insurance company's
business and financial condition. The primary purpose of such supervision and
regulation is the protection of policyholders. The extent of such regulation
varies but generally derives from state statutes which delegate regulatory,
supervisory and administrative authority to state insurance departments.
Accordingly, the state insurance departments have the authority to establish
standards of solvency which must be met and maintained by insurers; license
insurers and agents; impose limitations on the nature and amount of investments;
regulate premium rates; delineate the provisions which insurers must make for
current losses and future liabilities; require the deposit of securities for the
benefit of policyholders; and approve policy forms. State insurance departments
also conduct periodic examinations of the affairs of insurance companies and
require the filing of annual and other reports relating to the financial
condition of insurance companies.

Most states, including South Carolina and Kentucky, have enacted legislation
which regulates insurance holding company systems, including acquisitions,
dividends, the terms of surplus notes, the terms of affiliate transactions and
other related matters. Further, states often require prior regulatory approval
of changes in control of an insurer and of intercorporate transfers of assets
within the holding company structure. The purchase of more than 10% of the
outstanding shares of Common Stock by one or more parties acting in concert
requires the prior approval of the Insurance Departments of South Carolina and
Kentucky and may subject such party or parties to the reporting requirements of
the insurance laws and regulations of such states and to the prior approval
and/or reporting requirements of other jurisdictions in which the Company is
licensed. Three of the Company's insurance subsidiaries are domiciled in the
state of South Carolina and are principally regulated by the South Carolina
Department of Insurance. One subsidiary is domiciled in Kentucky and is
principally regulated by the Kentucky Department of Insurance.

Insurance companies are required to file detailed annual statements with the
state insurance regulators in each of the states in which they do business, and
their business and accounts are subject to examination by such regulators at any
time. In addition, these insurance regulators periodically examine the insurer's
financial condition, adherence to statutory accounting principles, and
compliance with insurance department rules and regulations. South Carolina
insurance laws, rather than federal bankruptcy laws, would apply to the
liquidation or reorganization of the South Carolina insurance companies.
Examinations of SCIC, Consolidated American and Catawba as of December 31, 1992
and of Kentucky Insurance Company as of June 30, 1996 have been completed.

NAIC GUIDELINES. The NAIC has adopted RBC requirements for property and
casualty insurance companies to evaluate the adequacy of statutory capital and
surplus in relation to investment and insurance risks such as asset quality,
asset and liability matching, loss reserve adequacy, and other business factors.
The RBC formula will be used by state insurance regulators as an early warning
tool to identify, for the purpose of initiating regulatory action, insurance
companies that potentially are inadequately capitalized. Compliance is
determined by the ratio of the Company's regulatory total adjusted capital to
its

50
<PAGE>
authorized control level RBC (as defined by the NAIC). Companies which fall
below the authorized RBC level may be required to disclose plans to remedy the
situation. As of December 31, 1996, all of the Company's insurance subsidiaries
have ratios of total adjusted capital to RBC that are in excess of the level
which would prompt regulatory action.

INSURANCE REGULATORY INFORMATION SYSTEM. The NAIC Insurance Regulatory
Information System ("IRIS") was developed primarily to assist state insurance
departments in executing their statutory mandate to oversee the financial
condition of insurance companies. Insurance companies submit data on an annual
basis to NAIC, which analyzes the data using ratios concerning various
categories of financial data. IRIS ratios consist of 12 ratios with defined
acceptable ranges. They are used as an initial screening process for identifying
companies that may be in need of special attention. SCIC has several ratios that
fall outside of ranges considered acceptable by the NAIC. Companies that have
several ratios that fall outside of the acceptable range are selected for closer
review by the NAIC. If the NAIC determines that more attention may be warranted,
one of several priority designations is assigned, and the insurance department
of the state of domicile is then responsible for follow-up action.

REGULATION OF DIVIDENDS AND OTHER PAYMENTS FROM INSURANCE SUBSIDIARIES. The
Company is a legal entity separate and distinct from its subsidiaries. As a
holding company, the primary sources of cash needed to meet its obligations,
including principal and interest payments with respect to indebtedness, are
dividends and other statutorily permitted payments from its subsidiaries and
affiliates.

If insurance regulators determine that payment of a dividend or any other
payments to an affiliate, because of the financial condition of the paying
insurance company or otherwise, would be hazardous to such insurance company's
policyholders or creditors, the regulators may disapprove, prohibit or mandate
return of such payments that would otherwise be permitted without prior
approval.

REQUIRED PARTICIPATION IN STATE RESIDUAL MARKET PLANS. Most states in which
the Company's property and casualty insurance group writes business have
collective pools, underwriting associations, reinsurance facilities (the largest
being the SC Facility and the NC Facility), assigned risk plans or other types
of residual market plans (collectively, the "Plans"), pursuant to which
coverages not normally available in the voluntary market are shared by all
companies writing that type of business in that state. Participation is usually
based on the ratio of the Company's direct voluntary business to the total
industry business of that type in that state. As the Company's share of the
voluntary market in a given state changes, tentative participations are assigned
for each policy year and are updated as actual data becomes available which may
lay behind changes in market share by two years or more.

The required participation by the Company in all such Plans is reflected in
the results of the Company as soon as such information is reported by the Plans.
Estimates are maintained for unreported data.

51
<PAGE>
REQUIRED PARTICIPATION IN INSURANCE GUARANTY FUNDS. Most states have also
enacted insurance guaranty fund laws. Typically, these laws provide that when an
insurance company is declared insolvent, the other companies writing the
insurance in that jurisdiction are assessed amounts that pay covered claims of
the insolvent company. The amount a company is assessed is generally determined
by the amount of premiums written in that state, subject to a maximum annual
assessment ranging from approximately 1% to 2% of direct written premiums.
During 1995 and 1996, the Company paid $116,000 and $29,000, respectively, in
such assessments. Because such assessments are typically not made for several
years after an insurer fails and depend upon the final outcome of liquidation or
rehabilitation proceedings, the Company cannot accurately determine the precise
amount or timing of any future assessments.

REGULATION OF SOUTH CAROLINA FACILITY AND SERVICING CARRIERS. The SC
Facility created a pool of "Designated Agents," which are agencies usually
comprised of a single independent agent who lost his or her access to the
voluntary automobile market. Designated Agents are assigned to one of the SC
Facility's servicing carriers. The SC Facility is an unincorporated, non-profit
administrative service association of insurers. The SC Facility also provides a
mechanism for insurance companies to cede mandated coverages under automobile
policies. Every insurer authorized to write automobile liability insurance in
South Carolina is required to participate in the SC Facility. When policyholders
whose premiums have been ceded through the SC Facility incur a loss, the member
company or servicing carrier which issued the policy adjusts the loss and
subsequently is reimbursed for the loss and expenses by the SC Facility. Prior
to October 1, 1996, the cession or retention of physical damage was dictated by
whether or not the risk was "pointed" or "clean." Only clean risk physical
damage could be ceded to the SC Facility prior to October 1, 1996. Effective
October 1, 1996, however, physical damage was removed from the mandate, and the
SC Facility agreed to accept any physical damage, pointed or clean, provided the
SC Facility-filed rates were used. The current South Carolina Director of
Insurance also allowed physical damage premium rate increases aggregating
approximately 62% in order to reduce the SC Facility's losses related to such
risks. An increase in liability rates has not yet occurred.

The SC Facility has established a policy pursuant to which penalties are
charged to member companies or servicing carriers for over-cession, late
reported premiums and uncorrected transactions. The penalties are recorded as a
balance due the SC Facility and, upon collection, are redistributed to the
member companies or servicing carrier. With respect to policy cession, a case of
overutilization may be established when a member, or a group of members under
the same management, have ceded more than 35% of total direct cedeable written
premium on South Carolina automobile insurance. In a particular calendar year, a
member company which exceeds an excess of 35% of its total direct cedeable
written premium on South Carolina automobile insurance is subject to an
additional share of loss provision. The additional share of loss provision is
calculated in the results of the SC Facility at the end of each fiscal year.

NATIONAL FLOOD INSURANCE PROGRAM REGULATION. FEMA's Federal Insurance
Administration manages the NFIP. The NFIP regulations established the "Financial
Assistance/Subsidy Arrangement" pursuant to which the NFIP Administrator and the
private sector insurers participate in the WYO Program. Under the WYO Program,
insurers which are parties to a Financial Assistance/Subsidy Arrangement may
issue in their own names a Standard Flood Insurance Policy, the form and
substance of which is approved by the NFIP Administrator. Insurers are
responsible for all aspects of service, including policy issuance, endorsements
and renewals of policies and adjustments of claims brought under the policies,
and the NFIP Administrator monitors the performance levels of all insurers
participating in the WYO program.

The Company is required to furnish to FEMA such summaries and analyses of
information, including claims information, as may be necessary to carry out the
purposes of the National Flood Insurance Act of 1968, as amended. See "Risk
Factors--Risks Associated with the National Flood Insurance Program-- Systems
Operations." Upon request, the Company is required to file with the Federal
Insurance Administration true and correct copies of the Company's Fire and
Casualty Annual Statement and Insurance Expense Exhibits which are filed with
the state insurance authority of the Company's domiciliary state.

52
<PAGE>
RECENT LEGISLATIVE PROPOSALS. Various bills that propose to reform the SC
Facility are currently pending before the South Carolina State Legislature. See
"Business--Industry Background--The SC Facility" and "Risk Factors--Anticipated
Changes in the Automobile Insurance Business in South Carolina." The South
Carolina Senate recently passed reform legislation which, if enacted, would
reorganize the SC Facility over the course of a three-year transition period by
creating a single residual market mechanism rate and providing all Designated
Agents with access to the voluntary marketplace. Voluntary insurance companies
or agents would not be able to cede any business to the SC Facility after March
1, 1998, and the Facility rate would be "capped" so that no more than a 10% rate
increase each year would be allowed. Although the SC Facility would be phased
out in 2001, the servicing carrier concept would continue and a single rate
would be effective, commencing March 1, 1998, for all companies and agents. This
rate would be based on the total experience of both the voluntary market and the
Designated Agent book of business in the current SC Facility. It is not possible
to predict whether or in what form this proposal might be adopted or the effect,
if any, on the Company.

LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to various lawsuits generally
arising in the normal course of their insurance and ancillary businesses. The
Company does not believe that the eventual outcome of any pending litigation
will have a material adverse effect on the financial condition or results of
operations of the Company.

PROPERTIES

The Company owns its Columbia, South Carolina home office, which contains
approximately 148,000 square feet of occupied space. The Company uses the South
Carolina home office primarily for its property and casualty insurance
operations. Some additional premises are leased by the Company in locations in
which they operate. Management believes that these facilities are adequate for
the current level of operations.

EMPLOYEES

As of December 31, 1996, the Company and its subsidiaries employed 317
employees. The Company is not a party to any collective bargaining agreements
and believes that relations with its employees are good.

53
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The directors of the Company are divided into three classes and are elected
to hold office for a three-year term or until their successors are elected and
qualified. The election of each class of directors is staggered over each
three-year period. See "Description of Capital Stock--Anti-takeover Provisions."
All executive officers of the Company are elected for one year terms and serve
at the pleasure of the Board of Directors.

The following table provides information regarding the executive officers
and directors of the Company:

<TABLE>
<CAPTION>
EXPIRATION OF TERM AS
NAME AGE POSITION DIRECTOR OF THE COMPANY
- ---------------------------- --- ----------------------------------------------------- -------------------------
<S> <C> <C> <C>
John C. West................ 75 Chairman of the Board 1997
Ernst N. Csiszar............ 46 President, Chief Executive Officer and Director 1999
John A. Weitzel............. 51 Chief Financial Officer and Director 1999
Frank H. Avent.............. 56 Director 1997
William M. Barilka.......... 48 Director 1998
Fred S. Clark............... 60 Director 1997
Albert H. Cox, Jr........... 64 Director 1998
Claude E. McCain............ 72 Director 1998
Kenneth W. Pavia............ 54 Director 1998
Charles H. Powers........... 70 Director 1997
Walker S. Powers............ 42 Director 1997
John P. Seibels............. 54 Director 1999
George R.P. Walker, Jr...... 64 Director 1997
</TABLE>

Biographical information for each of the individuals listed in the above
table is set forth below.

JOHN C. WEST has been Chairman of the Board of Directors since 1994 and has
served as a director of the Company since 1994. Mr. West was the Governor of the
State of South Carolina from 1971 to 1975, and currently serves as a professor
at the University of South Carolina and as a practicing attorney. Mr. West also
serves as a member of the Board of Directors of Donaldson, Lufkin & Jenrette,
Inc.

ERNST N. CSISZAR has served as a director of the Company since 1995. Since
June 1995, Mr. Csiszar has held the office of President and, since January 1996,
the position of Chief Executive Officer of SBIG and all of its subsidiaries. He
also continues to serve as a visiting professor at the School of Business,
University of South Carolina, a position he has held since 1988. Prior to 1988,
he served as Managing Director of Holborn Holdings Limited, an international
merchant banking firm based in Geneva, Switzerland.

JOHN A. WEITZEL has served as a director of the Company since 1995. Since
September 1995, Mr. Weitzel has held the office of Chief Financial Officer of
SBIG and all of its subsidiaries. From April 1985 to November 1994, he served as
Chief Financial Officer of Milwaukee Insurance Group, Inc. From 1995, Mr.
Weitzel acted as a consultant to SBIG.

FRANK H. AVENT has served as a director of the Company since 1997. He is the
President and General Manager of Pepsi Cola Bottling Company of Florence, South
Carolina, a position he has held since 1963.

WILLIAM M. BARILKA has served as a director of the Company since 1994. He
has served since 1991 as Chief Financial Officer of AGGAD Investment Company in
Riyadh, Saudi Arabia. From 1986 to 1991, Mr. Barilka was employed by the
National Commercial Bank in Riyadh, Saudi Arabia in a variety of corporate
finance positions.

54
<PAGE>
FRED S. CLARK, ESQ. has served as a director of the Company since 1996. Mr.
Clark has been a partner in the law firm of Clark and Clark in Savannah, Georgia
for the past five years.

ALBERT H. COX, JR. has served as a director of the Company since 1994. He is
a consulting economist, formerly serving as Chief Economist of Feltman & Co., an
Atlanta-based investment banking firm from 1995 through 1996. From 1985 to 1993,
he held various executive positions, including as a member of the board of
directors and Senior Economic Advisor with BIL Management, Inc., a subsidiary of
the Bank in Liechtenstein. Prior to 1985, he held a number of positions with
Merrill Lynch & Co.

CLAUDE E. MCCAIN has served as a director of the Company since 1995. He is
also Chairman of H.C. McCain Agency, Inc., President of McCain Realty, Inc., and
President of Insurance Finance Company, Inc. He was formerly a member of the
South Carolina State Insurance Commission for fifteen years, of which he served
as Chairman for ten years. Mr. McCain has been in the insurance business since
1946.

KENNETH W. PAVIA has served as a director of the Company since 1995. He is a
general partner of Balboa Investments, a position he has held since 1992. He
also holds the office of Chairman of FHI, Inc., a securities holding company,
and Chairman of Fiduciary Leasco, Inc., a position he has held since 1985.

CHARLES H. POWERS has served as a director of the Company since 1997. Mr.
Powers owns and operates SADISCO Corporation, an automobile salvage company
based in Florence, South Carolina ("SADISCO"). He is also a Vice President and
Treasurer of Holland Grills, in Apex, North Carolina, and President of PC Inc.,
located in Myrtle Beach, South Carolina.

WALKER S. POWERS has served as a director of the Company since 1997. Mr.
Powers has been a member of the management of SADISCO since 1975, and served as
SADISCO's President from 1993 through 1994.

JOHN P. SEIBELS has served as a director of the Company since 1969.(1) Mr.
Seibels also serves as a member of the board of directors of PMSC, and he has
been an investor based in Columbia, South Carolina since March, 1963.

GEORGE R.P. WALKER, JR. has served as a director of the Company since
1969.(1) Mr. Walker has owned and operated Middlefield Farm (a Hanoverian horse
farm) in Blythewood, South Carolina, for more than the past five years.

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

(1) Each present director of the Company with election dates prior to October
1978 (when the Company became the parent of SCIC) was formerly a Director of
SCIC and the information set forth as to periods prior to 1978 reflects
positions with SCIC and the year such Director was first elected to the SCIC
Board of Directors.

55
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The table below sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of March 24, 1997, by: (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Common Stock; (ii) each of the Company's executive officers and directors; (iii)
all directors and officers of the Company as a group; and (iv) the shareholder
of the Company who is offering shares in this Offering (the "Selling
Shareholder"), both before and after giving effect to this offering.

<TABLE>
<CAPTION>
SHARES OWNED BEFORE OFFERING OWNERSHIP AFTER OFFERING(1)
------------------------------------- SHARES -------------------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---------------------- ---------------------- ------------- --------------- ---------------------- -------------
<S> <C> <C> <C> <C> <C>
Alissa Group.......... 1,853,089(2) 29.7% 1,853,089 0 0%
Frank H. Avent........ 520,000(3) 8.1 0 520,000(3) 6.9
William M. Barilka.... 36,250(4) * 0 36,250(4) *
Fred S. Clark......... 3,902(5) * 0 3,902(5) *
Albert H. Cox, Jr..... 4,000(6) * 0 4,000(6) *
Ernst N. Csiszar...... 125,000(7) 2.0 0 125,000(7) 1.7
Claude E. McCain...... 3,766(6) * 0 3,766(6) *
Kenneth A. Pavia...... 1,250(8) * 0 1,250(8) *
Charles H. Powers..... 2,582,051(9) 34.7 0 2,582,051(9) 30.4
Walker S. Powers...... 500,000(10) 7.8 0 500,000(10) 6.5
John P. Seibels....... 152,977(6)(11)(12) 2.5 0 152,977(6)(11)(12) 2.1
George R. P. Walker,
Jr.................. 127,964(6)(12)(13) 2.1 0 127,964(6)(12)(13) 1.8
John A. Weitzel....... 50,000(14) * 0 50,000(14) *
John C. West.......... 128,525(15) 2.0 0 128,525(15) 1.8
All Directors and
Executive Officers
as a Group.......... 4,235,686 51.3% 0 4,235,686 45.5%
</TABLE>

- --------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.

(1) Except as indicated in the footnotes set forth below, the persons named in
the table, to the Company's knowledge, have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. All information assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." The numbers shown include the
shares which are not currently outstanding but which certain shareholders
are entitled to acquire or will be entitled to acquire within 60 days. Such
shares are deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by the particular shareholder
and by the group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.

(2) Based on information contained in a Statement on Form 4 for December, 1996
(the "Form 4"): includes 473,750 shares for which Mr. Alissa has sole voting
power; 72,664 shares, including 46,464 shares of Common Stock underlying a
purchase warrant that will be exercised prior to this Offering, that are
beneficially owned by Mr. Alissa through General Investors Ltd., a Cayman
Island company ("GIL"), of which Mr. Alissa is the sole shareholder;
1,276,250 shares that are beneficially owned by Mr. Alissa through
Abdullatif Ali Alissa Est. (the "Establishment"); and 30,425 shares that are
beneficially owned by Mr. Alissa through Financial Investors Ltd., a Cayman
Island company ("FIL"). The Form 4 indicates that Mr. Alissa is the
President of the Establishment, that FIL is wholly-owned by the
Establishment, and that GIL is wholly-owned by Mr. Alissa. The address of
the Alissa Group is P.O Box 192, Alkhobar, Saudi Arabia.

56
<PAGE>
(3) Includes 10,000 shares of Common Stock and 10,000 shares of Common Stock
underlying certain options for which Mr. Avent has sole voting power and
250,000 shares of Common Stock and 250,000 shares of Common Stock underlying
certain options as to which he has shared voting power beneficially owned
(shared voting and dispositive power) by Pepsi Cola Bottling Company of
Florence, South Carolina ("PepsiCo"). Mr. Avent has informed the Company
that he is the President and General Manager of PepsiCo. Mr. Avent's address
is P.O. Box 3886, Florence, South Carolina 29502.

(4) Includes 2,500 shares of Common Stock underlying certain options.

(5) Includes 1,525 shares of Common Stock held by Mr. Clark's wife, and 960
shares of Common Stock held by his minor son.

(6) Includes 2,500 shares of Common Stock underlying certain options.

(7) Includes 125,000 shares of Common Stock underlying certain options.

(8) Includes 1,250 shares of Common Stock underlying certain options.

(9) Includes 1,250,000 shares of Common Stock underlying certain options. Mr.
Powers' address is P.O. Box 6525, Florence, South Carolina 29502.

(10) Includes 250,000 shares of Common Stock underlying certain options. Mr.
Powers' address is P.O. Box 6525, Florence, South Carolina 29502.

(11) Excludes 2,253 shares of Common Stock held by Mr. Seibels' wife, of which
shares he holds neither sole nor shared voting or dispositive power and,
therefore, disclaims beneficial ownership.

(12) George R.P. Walker, Jr. and John P. Seibels are cousins.

(13) Excludes 11,389 shares of Common Stock held by Mr. Walker's wife, of which
shares he holds neither sole nor shared voting or dispositive power and,
therefore, disclaims beneficial ownership.

(14) Includes 50,000 shares of Common Stock underlying certain options.

(15) Includes 120,000 shares of Common Stock underlying certain options.

57
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, par value $1.00 (assuming the adoption of an amendment to the
Company's Articles of Incorporation, which increases the authorized Common Stock
from 12,500,000 to 25,000,000 shares, will occur during the second quarter of
1997), and 5,000,000 shares of Special Stock, no par value. There were issued
and outstanding as of March 24, 1997, 6,190,569 shares of Common Stock, all of
which are fully paid and nonassessable. No shares of Special Stock are
outstanding. However, the Board of Directors of the Company could, without
stockholder approval, issue Special Stock and establish the rights, privileges,
and preferences thereof, including, but not limited to, dividend rights,
convertibility features, redemption rates and prices, liquidation preferences,
and voting rights. Such issuance could adversely affect the rights of the
holders of shares of the Company's Common Stock.

DIVIDEND RIGHTS

Holders of the Common Stock and Special Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. However, the Board of Directors could provide, upon
issuing Special Stock, that holders of Special Stock should receive dividends in
preference to holders of Common Stock, or that no dividends be paid on Common
Stock if dividends in full on all shares of Special Stock to which the holders
thereof are entitled shall not have been paid or declared and set apart for
payment.

VOTING RIGHTS

Holders of shares of the Common Stock are entitled to one vote per share
and, subject to the voting rights, if any, of holders of Special Stock which may
hereafter be issued, have the exclusive right to receive notice of shareholders'
meetings and to vote thereat. Shareholders of the Company are allowed to
cumulate their votes for the election of directors.

LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION

Section Six of Article Eight of the Company's By-laws limits the liability
of its directors to the fullest extent that the General Corporation Law of the
State of South Carolina permits.

EXISTING ANTI-TAKEOVER PROVISIONS

SOUTH CAROLINA CONTROL SHARE ACQUISITIONS ACT ("CSAA"). The Company is
subject to the CSAA, which is intended to render it more difficult or to
discourage an attempt to obtain control of the Company by merger, tender offer,
proxy contest or otherwise.

SOUTH CAROLINA BUSINESS COMBINATION STATUTE. South Carolina law regulates
business combinations such as mergers, consolidations and asset purchases where
the business acquired was, or the assets belonged to, a public corporation, such
as the Company, and where the acquirer became an Interested Shareholder (as
defined below) of the public corporation before a majority of the disinterested
members of the Board of Directors of the public corporation approved either (i)
the purchase resulting in such acquirer becoming an Interested Shareholder or
(ii) the business combination. In the context of this law, an "Interested
Shareholder" is any person who directly or indirectly, alone or in concert with
others, beneficially owns or controls 10% or more of the voting stock of the
public corporation, and a "disinterested" board member is a person who is
neither a present nor a former officer or employee of the corporation. The law
is very broad in its scope and is designed to inhibit unfriendly acquisitions.
It does not apply to corporations whose Articles of Incorporation contain a
provision electing not to be covered by the law. The Company's Articles of
Incorporation do not contain such a provision.

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<PAGE>
The law prohibits business combinations with an unapproved Interested
Shareholder for a period of two years after the date on which the person became
an Interested Shareholder and requires that any business combination with an
unapproved Interested Shareholder after such two-year period be approved by a
majority vote of outstanding shares held by persons other than the Interested
Shareholder or, alternatively, meet certain requirements that other shareholders
receive at least a specified price for their shares.

SUPERMAJORITY VOTING REQUIREMENTS. Article 9(k) of the Company's Articles
of Incorporation requires a special vote of the shareholders to approve certain
transactions, including, among other things, a merger or the sale, lease or
exchange of substantially all of the assets (as therein defined) of the Company,
with any shareholder owning at least 10% of the Company's equity securities. The
approval of such transactions requires the affirmative vote of at least 80% of
the holders of each class of equity securities of the Company entitled to vote
thereon. The requirement of an 80% shareholder vote does not apply, however, to
transactions approved by at least 75% of all the members of the Board of
Directors. If such approval by the Board of Directors is obtained, the
transaction generally would require approval by the holders of a majority of the
outstanding shares entitled to vote, or as otherwise established by law.

The Company's Articles of Incorporation further provide that Article 9(k)
may not be amended, altered or repealed without the approval of the holders of
80% of the Company's shareholders unless 75% of the Board of Directors approves
such a change, in which case approval by the holders of 66 2/3% of the Common
Stock is required.

CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Company's Articles
of Incorporation provide for the division of the Board of Directors into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the members of the Board of Directors are elected
each year.

Pursuant to the Company's Articles of Incorporation, directors may be
removed without cause by the affirmative vote of the holders of a majority of
the shares entitled to vote in the election of directors at a meeting called for
that purpose at which 80% of the shares entitled to vote are represented.
Directors may be removed for cause by the affirmative vote of the holders of a
majority of the shares entitled to vote in the election of directors at a
meeting called for that purpose at which a majority of the shares issued,
outstanding and entitled to vote are represented. Under South Carolina law, a
director of the Company may not be removed from the Board of Directors if the
number of votes sufficient to elect such director is voted against his removal.

The classified Board and director removal provisions could have the effect
of discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its shareholders. In addition, the classified
Board and director removal provisions could delay shareholders who do not agree
with the policies of the Board of Directors from removing a majority of the
Board for two years, unless they can obtain the affirmative vote of the holders
of a majority of the shares at a meeting at which 80% of the shares are present
in person or represented by proxy, or they can show cause and obtain the
affirmative vote of the holders of a majority of the shares at a meeting at
which a majority is present or represented.

LIQUIDATION RIGHTS

In the event of liquidation of the Company, holders of the Common Stock are
entitled to share pro rata the net assets remaining after the payment of all
amounts due creditors and such amounts, if any, as may be due to holders of any
Special Stock then outstanding.

PREEMPTIVE RIGHTS

No holder of any of the Common Stock or Special Stock of the Company is
entitled, as of right, to purchase or subscribe for any unissued shares of any
class, or additional shares of any class, to be issued by

59
<PAGE>
reason of any increase of the authorized capital stock of the Company of any
class, or bonds, certificates of indebtedness, debentures, or other securities
convertible into shares of the Company or carrying any right to purchase shares
of any class. Any such unissued shares, or other securities convertible into
shares or carrying any right to purchase shares, may be issued and disposed of,
to such persons, firms, corporations, or associations and upon such terms as may
be deemed advisable by the Board of Directors.

TRANSFER AGENT AND REGISTRAR

American Stock Transfer and Trust Company is the transfer agent and
registrar for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 7,237,033 shares of
Common Stock outstanding. Of these shares, the shares sold in this Offering will
be freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company, as defined
under the Securities Act.

Of the Company's 7,237,033 shares of Common Stock that will be issued and
outstanding after this Offering, shares will be freely tradeable without
restriction or further registration and shares will be "restricted shares"
under the meaning of Rule 144 and will be subject to restrictions under the
Securities Act. In addition, the Company's officers and directors and certain
shareholders, who upon completion of this Offering will own in the aggregate
approximately 19,000,000 shares, and the Company have agreed not to sell, offer
for sale, or otherwise dispose of any Common Stock for a period of 180 days from
the date of this prospectus without the prior written consent of Advest, Inc.

In general, under Rule 144, a person (or person whose shares are aggregated)
who has beneficially owned restricted shares for at least one year, including a
person who may be deemed an affiliate of the Company, is entitled to sell within
any three-month period a number of shares of Common Stock that does not exceed
the greater of 1% of the then-outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock on The Nasdaq Stock Market during the
four calendar weeks preceding such sale. Sales under Rule 144 are subject to
certain restrictions relating to manner of sale, notice and the availability of
current public information about the Company. A person who has not been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned shares for at least two years, would be entitled to
sell such shares without regard to the volume limitations, manner of sale
provisions and other requirements of Rule 144.

No prediction can be made of the effect that the sale or availability for
sale of shares of Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of substantial amounts of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.

60
<PAGE>
UNDERWRITING

Under the terms and subject to the conditions set forth in the Underwriting
Agreement, the Underwriters named below, for whom Advest, Inc. and Scott &
Stringfellow, Inc. are acting as the representatives (the "Representatives"),
have severally and not jointly agreed to purchase from the Company and the
Selling Shareholder the respective aggregate number of shares of Common Stock
set forth opposite their names below, at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Advest, Inc......................................................................
Scott & Stringfellow, Inc........................................................

----------
Total........................................................................ 2,853,089
----------
----------
</TABLE>

The Underwriters are committed to purchase and pay for all the shares of
Common Stock offered hereby (other than those shares covered by the
Underwriters' over-allotment option described below) if any are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to approval of certain matters by their counsel and to various other
conditions.

The Company and the Selling Shareholder have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
directly to the public at the offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After commencement of the Offering, the public offering price and other
selling terms may be changed by the Underwriters.

In the Underwriting Agreement, the Company and the Selling Shareholder have
agreed to indemnify the Underwriters against certain liabilities that may be
incurred in connection with the offering of Common Stock, including liabilities
under the Securities Act.

The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 427,963
additional shares of Common Stock solely to cover over-allotments, if any, at
the price to public less underwriting discounts and commissions set forth on the
cover page of this Prospectus. If the Underwriters exercise such option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by each of them as shown in the table above, bears to
427,963 shares of Common Stock and the Company will be obligated, pursuant to
the option, to sell all of such shares to the Underwriters. If purchased, the
Underwriters will sell such additional shares on the same terms as those on
which the 2,853,089 shares are being sold.

The Company, the Selling Shareholder, each of the Company's officers and
directors and certain other shareholders have agreed not to sell any shares, for
a period of 180 days after the date of this Prospectus, directly or indirectly,
(i) offer, sell, contract to sell or otherwise dispose of any Shares of Common
Stock or securities convertible in or exchangeable for Common Stock or (ii)
enter into any swap or other agreement or transaction that transfers, in whole
or in part, the economic consequences of ownership of shares of Common Stock
whether any such swap or other agreement is to be settled by delivery of shares
of Common Stock, other securities, cash or otherwise without the prior written
consent of Advest Inc., as representative of the Underwriters. In addition, the
Company has agreed that, for 180

61
<PAGE>
days from the date of this Prospectus, it will not issue any shares of Common
Stock except upon the exercise of stock options outstanding as of the date of
this Prospectus.

The Underwriters have informed the Company and the Selling Shareholder that
the Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to a copy of
the Underwriting Agreement which is on file as an exhibit to the Registration
Statement.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Such stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the Common Stock to be higher than it would otherwise be
in the absence of such transactions. These transactions may be effected on The
Nasdaq Stock Market or otherwise and, if commenced, may be discounted at any
time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by King & Spalding, Atlanta, Georgia. Certain legal matters
in connection with this Offering will be passed upon for the Underwriters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. In rendering such
opinions, such firms will rely upon the opinion of Sinkler & Boyd, P.A.,
Columbia, South Carolina, as to matters of South Carolina law.

EXPERTS

The financial statements and schedules of the Company as of December 31,
1996 and December 31, 1995 and for each of the years in the three-year period
ended December 31, 1996, have been incorporated by reference herein in reliance
upon the reports of Arthur Andersen LLP, independent public accountants, and
upon the authority of said firm as experts in accounting and auditing in giving
said reports.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be examined without
charge at, or copies obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Room 1024 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549 and are also available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company. In addition, the Company's Common Stock
is listed on The Nasdaq Stock Market and such material also can be inspected and
copied at the offices of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules promulgated thereunder, with

62
<PAGE>
respect to the Common Stock. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and financial schedules thereto. For further
information concerning the Company and the Common Stock, reference is made to
the Registration Statement and the exhibits and schedules filed therewith, which
may be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Commission and its regional offices at the locations listed
above. Any statements contained herein concerning the provisions of any document
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, heretofore filed with the Commission (File No. 0-08804) is
incorporated herein by reference.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and made a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other document subsequently filed with the
Commission which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference herein (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents. Requests
for such copies should be directed to: The Seibels Bruce Group, Inc., 1501 Lady
Street, Columbia, South Carolina 29201, Attention: Corporate Secretary;
telephone: (803) 748-2000.

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<PAGE>
GLOSSARY OF SELECTED INSURANCE AND CERTAIN DEFINED TERMS

<TABLE>
<S> <C>
Admitted Insurer.............. An insurance company licensed by a state regulatory
authority to transact insurance business in that state. An
admitted insurer is subject to the rules and regulations of
each state in which it is licensed governing virtually all
aspects of its insurance operations and financial condition.
A non-admitted insurer, also known as an excess and surplus
lines insurer, is not licensed to transact insurance busi-
ness in a given state but may be permitted to write certain
business in that state in accordance with the provisions of
excess and surplus lines insurance laws which generally
involve less rate and operational regulation.
Adverse Loss Developments..... Increase in losses and loss adjustment expenses exceeding
anticipated loss and loss adjustment expense experience over
a given period of time.
Allocated Loss Adjustment Allocated loss adjustment expense includes all legal
Expense ("ALAE")............ expenses and other expenses incurred by a company in
connection with the investigation, adjustment, settlement or
litigation of claims or losses under business covered. ALAE
does not include costs of "in-house" counsel, claims staff
or other overhead or general expense of the insurer.

A.M. Best..................... A.M. Best Company, Inc., a rating agency and publisher for
the insurance industry.

Assume........................ To accept from the primary insurer or reinsurer all or a
portion of the liability underwritten by such primary
insurer or reinsurer.

BOP........................... Business owners policy; a prepackaged insurance product for
business.

Cede.......................... To transfer to another insurer (the reinsurer) all or part
of the insurance written by an insurer (the "ceding insurer"
or "ceding company").

Ceding Commission............. A commission (usually a percentage of the reinsurance
premium) paid by the reinsurer to the ceding company.

Combined Ratio................ The sum of the expense ratio and the loss ratio, determined
in accordance with statutory accounting principles. A
combined ratio under 100% indicates an underwriting profit
and a combined ratio over 100% indicates an underwriting
loss.

Company (or SBIG)............. The Seibels Bruce Group, Inc., a South Carolina corporation,
and its subsidiaries, unless the context indicates
otherwise.

CPP........................... Commercial package policy; an insurance product that
provides insures with coverage for real and personal
business property combined with comprehensive general
liability coverage.

Designated Agents............. Insurance agents that write insurance for the SC Facility
through one of the SC Facility's three servicing carriers.

Direct writer................. An insurer or reinsurer that markets and sells insurance
directly to its insured, either by use of telephone, mail or
exclusive agents.

Direct premiums written....... Total premiums collected in respect of policies issued by an
insurer during a given period without any reduction for
premiums ceded to a reinsurer.
</TABLE>

64
<PAGE>
<TABLE>
<S> <C>
Excess and Surplus A type of insurance that is generally written on classes of
Insurance................... risks which admitted insurers will not write or which are
too small in premium size for larger companies to handle
efficiently. Because of the lack of availability of coverage
from admitted insurers, premium levels for excess and
surplus policies are generally higher than for standard
coverages provided by admitted insurers.

Excess of Loss Reinsurance.... A generic term describing reinsurance which indemnifies the
reinsured against all or a specified portion of losses on
underlying insurance policies in excess of a specified
dollar amount, called a "layer" or "retention."

Expense Ratio................. The ratio of commissions and other expenses incurred to
premiums. The percentage of premium used to pay all the
costs of acquiring, writing and servicing insurance and
reinsurance.

FEMA.......................... Federal Emergency Management Agency, a federal agency that
administers the NFIP.

General Liability Insurance... Coverage for an insured risk which causes bodily injury or
property damage to others.

Generally Accepted Accounting The method of accounting used for reporting to shareholders
Principles ("GAAP")......... as defined by the American Institute of Certified Public
Accountants or the Financial Accounting Standards Board.
Unless otherwise indicated, all financial information
contained in this Prospectus is based on GAAP.

Gross Premiums Written........ Direct premiums written plus premiums collected in respect
of policies assumed, in whole or in part, from other
insurance carriers.

Incurred But Not Reported Claims under policies that have been incurred but have not
("IBNR") claims............. yet been reported to the Company by the insured.

Incurred But Not Reported IBNR reserves include LAE related to losses anticipated from
(IBNR) reserves............. IBNR claims and may also provide for future adverse loss
development on reported claims.

Liability Coverage............ Insurance coverage that compensates for damages for which
the insured is legally liable, including as a consequence of
negligent acts that result in injuries to other persons or
damage to their property.

Loss Adjustment Expense Expenses incurred in the settlement of claims, including
("LAE")..................... outside adjustment expenses, legal fees and internal
administrative costs associated with claims adjustment
process, but not including general overhead expenses.

Loss and LAE Ratio............ The ratio of losses and LAE incurred to premiums earned.

Loss and LAE Reserves......... Liabilities established by insurers to reflect the ultimate
estimated cost of claim payments as of a given date.

Loss Ratio.................... The ratio of claims incurred and the increase in policy
reserves to premiums.

Loss Reserve.................. Loss reserves are estimates at a given point in time of
amounts that an insurer expects to pay in incurred losses
based on facts and circumstances then known. The amount of
loss reserves for reported claims is primarily based upon a
case-by-case evaluation of the type of claim involved, the
circumstances surrounding the claim, and the
</TABLE>

65
<PAGE>
<TABLE>
<S> <C>
policy provisions relating to the type of loss. The amount
of loss reserves for unreported claims and case reserve
development is determined on the basis of historical
information and anticipated future conditions by lines of
insurance and actuarial review. Loss reserves also include
amounts for loss adjustment expenses.

Managing General Agent or
MGA......................... A fee-for-service arrangement wherein the agent sells and
services insurance policies issued by an insurance company.

NAIC.......................... The National Association of Insurance Commissioners.

NC Facility................... The North Carolina Reinsurance Facility.

NFIP.......................... The National Flood Insurance Program.

Net Premiums Earned........... The portion of net premiums written applicable to the
expired period of policies and, accordingly, recognized as
income during a given period.

Net Written Premiums.......... Total premiums for insurance written (less any return
premiums) during a given period, reduced by premiums ceded
in respect of liability reinsured by other carriers.

Nonstandard Automobile Insur- Personal lines automobile insurance written for those
ance........................ individuals presenting an above average risk profile (i.e.,
higher risk) in terms of payment history, driving
experience, record of prior accidents or driving violations,
particular occupation or type of vehicle and other factors.

Physical Damage Coverage...... Insurance coverage that compensate for damage to the
insured's automobile under the heading of "Collision" or
"Comprehensive" coverage. Losses under physical damage
coverage are generally limited to the value of the vehicle
insured.

Premiums...................... The consideration received by the Company pursuant to the
terms of an insurance contract.

Quota Share Reinsurance....... A generic term describing all forms of reinsurance in which
the reinsurer shares an agreed percentage of both the
original premiums and the losses of the reinsured. (Also
known as pro rata reinsurance, proportional reinsurance, and
participating reinsurance).

Redundancy (Deficiency)....... Estimates in reserves change as more information becomes
known about the frequency and severity of claims for each
year. A redundancy (deficiency) exists when the original
liability estimate is greater (less) than the re-estimated
liability. The cumulative redundancy (deficiency) is the
aggregate net changes in estimates over time subsequent to
establishing the original liability estimate.

Reinsurance................... A transaction in which one insurance company ("reinsurer")
assumes all or part of an insurance risk undertaken
originally by another insurer ("ceding insurer"), in
exchange for consideration paid by the ceding insurer.

Reserves...................... Estimated liabilities established by an insurer to reflect
the estimated costs of claims payments that the insurer will
ultimately be required to pay with respect to insurance it
has written.
</TABLE>

66
<PAGE>
<TABLE>
<S> <C>
Residual Market............... The market consisting of those persons (most frequently
drivers seeking automobile insurance) who are unable to
obtain insurance coverage in the voluntary market.

Risk-Based Capital............ The measure adopted by the NAIC and some states setting
forth a methodology for assessing and reporting on the
adequacy of the capital of insurers.

Run-off....................... A discontinued line of business in which an insurance
company continues to maintain reserves and pay claims
although it is no longer writing new or renewal policies.

SC Facility................... The South Carolina Reinsurance Facility, a legislatively
mandated residual plan for high-risk nonstandard drivers in
South Carolina.

Specialty Lines............... A risk or a part of a risk for which there is no market
available through admitted companies. Therefore, it is
placed with non-admitted companies on an unregulated basis
with regard to premium and form. Specialty lines are
sometimes referred to as nonstandard or excess and surplus
lines.

Standard Automobile Personal lines automobile insurance written for those
Insurance................... individuals presenting an average risk profile in terms of
loss history, driving record, type of vehicle driven and
other factors.

Statutory Accounting Practices Accounting practices which consist of recording transactions
(SAP)....................... and preparing financial statements in accordance with the
rules and procedures prescribed or permitted by state
regulatory authorities. Statutory accounting emphasizes
solvency rather than matching revenues and expenses during
an accounting period.

Statutory Surplus............. The excess of admitted assets over total liabilities
(including loss reserves), determined using data reported in
accordance with SAP.

Underwriting.................. The process whereby an insurer reviews applications
submitted for insurance coverage and determines whether to
provide all or part of the coverage being requested for an
agreed premium.

Underwriting Expense.......... As used in the definition of "Expense Ratio", the aggregate
of policy acquisition costs and the portion of
administrative, general and other expenses of an insurer
attributable to underwriting operations.

Unearned Premiums............. The portion of a premium representing the unexpired portion
of the contract term as of a certain date.

Voluntary Market.............. The market in which a person seeking insurance obtains
coverage without the assistance of an assigned risk plan,
joint underwriting association, reinsurance facility or
similar mechanism, through an insurer of his or her own
selection.

WYO........................... The Write Your Own Flood Program of the NFIP.
</TABLE>

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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF THE DATE HEREOF OR THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, THE SELLING SHAREHOLDER OR THE
UNDERWRITERS SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 7
The Company...................................... 14
Use of Proceeds.................................. 16
Dividend Policy.................................. 16
Market Price of Common Stock..................... 17
Capitalization................................... 18
Selected Consolidated Financial Data............. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 29
Management....................................... 54
Principal and Selling Shareholders............... 56
Description of Capital Stock..................... 58
Shares Eligible for Future Sale.................. 60
Underwriting..................................... 61
Legal Matters.................................... 62
Experts.......................................... 62
Available Information............................ 62
Glossary of Selected Insurance and Certain
Defined Terms.................................. 64
</TABLE>

2,853,089 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

ADVEST, INC.

SCOTT & STRINGFELLOW, INC.

, 1997

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.

<TABLE>
<S> <C>
SEC registration fee............................................... $ 7,209
NASD filing fee.................................................... 2,879
Nasdaq National Market Listing Fee................................. 17,500
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Blue Sky fees and expenses (including counsel fees)................ *
Printing and Engraving expenses.................................... *
Transfer Agent and Registrar fees and expenses..................... *
Miscellaneous Expenses............................................. *
---------
Total........................................................ *
---------
---------
</TABLE>

* To be provided by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The South Carolina Business Corporation Act of 1988 (the "SCBCA") permits a
corporation to indemnify an individual made a party to a proceeding because he
is or was a director against liability incurred in the proceeding if (i) such
individual conducted himself in good faith, (ii) in the case of conduct in his
official capacity with the corporation, his conduct was in its best interest,
and (iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. The SCBCA does not permit a corporation to
indemnify a director (x) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
(y) in connection with any other proceeding charging improper personal benefit
to him, whether or not involving action in his official capacity, in which he
was adjudged liable on the basis that personal benefit was improperly received
by him. In connection with a proceeding by or in the right of the corporation,
the SCBCA limits indemnification to reasonable expenses incurred in connection
with the proceeding. The SCBCA also permits a corporation to indemnify its
officers, employees and agents to the extent, consistent with public policy,
that may be provided by its articles of incorporation, bylaws, general or
specific action of its board of directors, or contract.

Addendum Two to the Company's Articles of Incorporation, as amended,
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (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 gross negligence, intentional misconduct or a
knowing violation of law, (iii) under Section 33-8-330 of the SCBCA (addressing
director liability for unlawful distributions), or (iv) for any transaction from
which the director derived an improper personal benefit. Section Six of Article
Eight of the Bylaws of the Company provides that the Company shall indemnify
officers and directors of the Company and its subsidiaries to the extent
permitted by South Carolina law and may insure such persons against liability
arising out of or relating to their employment by the Company in an amount and
according to such terms as the Board of Directors deems prudent.

II-1
<PAGE>
ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement
4.1* Specimen Common Stock Certificate
5.1* Opinion of King & Spalding as to the legality of the Common Stock being registered
10.1 Stock Purchase Agreement between registrant, Abdullatif Ali Est. and Saad A. Alissa, dated December 22,
1993, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (2)(1)-1, for the year
ended December 31, 1993.
10.2 Stock Purchase Agreement, dated July 30, 1993, by and between National Teachers Life Insurance Company
and South Carolina Insurance Company, incorporated herein by reference to the Annual Report on Form
10-K, Exhibit (10)(10)-2, for the year ended December 31, 1993.
10.3 The Seibels Bruce Group, Inc., Common Stock Warrant, dated February 4, 1993, incorporated herein by
reference to the Annual Report on Form 10-K, Exhibit (10)(9)-3, for the year ended December 31, 1992.
10.4 The Seibels, Bruce & Company Employees' Profit Sharing and Savings Plan, dated June 30, 1992, as amended
January 4, 1993, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit (10)(9)-9,
for the year ended December 31, 1992.
10.5 Stock Purchase Agreement, dated January 29, 1996, by and between the registrant and Charles H. Powers
and Walker S. Powers, and amendment thereto, incorporated herein by reference to submission DEF 14-A,
filing date May 10, 1996, file number 000-08804, accession number 0001005150-96-000127, accepted May 9,
1996.
10.6 Stock Purchase Agreement, dated January 30, 1996, by and between the registrant and Charles H. Powers,
Walker S. Powers, and Rex and Jane Huggins, incorporated herein by reference to submission DEF 14-A,
filing date May 10, 1996, file number 000-08804, accession number 0001005150-96-000127, accepted May 9,
1996.
10.7 Stock Purchase Agreement, dated March 28, 1996, by and between the registrant and Fred C. Avent, Frank
H. Avent and Pepsico of Florence, incorporated herein by reference to submission Form S-2, filing date
October 15, 1996, file number 33314123, access number 0000276380-96-00017, accepted October 15, 1996.
10.8 Stock Purchase Agreement, dated March 28, 1996, by and between the registrant and Junius DeLeon Finklea,
Joseph K. Newsom, Sr., Mark J. Ross, Larry M. Brice, J. Howard Stokes, Winston Y. Godwin, IRA and Peter
D. and Vera C. Hyman, incorporated herein by reference to submission Form S-2, filing date October 15,
1996, file number 33314123, access number 0000276380-96-00017, accepted October 15, 1996.
10.9 The Seibels Bruce Group, Inc. 1996 Stock Option Plan for Employees, dated November 1, 1995, incorporated
herein by reference to submission DEF 14-A, filing date May 10, 1996, file number 000-08804, accession
number 0001005150-96-000127, accepted May 9, 1996.
10.10 The Seibels Bruce Group, Inc. 1995 Stock Option Plan for Independent Agents, dated June 14, 1996,
incorporated herein by reference to submission DEF 14-A, filing date May 10, 1996, file number
000-08804, accession number 0001005150-96-000127, accepted May 9, 1996.
10.11 The Seibels Bruce Group, Inc. 1995 Stock Option Plan for Non-Employee Directors, dated June 14, 1996,
incorporated herein by reference to submission DEF 14-A, filing date May 10, 1996, file number
000-08804, accession number 0001005150-96-000127, accepted May 9, 1996.
10.12 Agreement, dated October 1, 1994, by and between Catawba Insurance Company and the South Carolina
Reinsurance Facility, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.12,
for the year ended December 31, 1996.
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Managing General Agent Agreement, dated January 1, 1996, by and between Seibels Bruce & Company and
Agency Specialty of Kentucky, Inc. and Generali--US Branch, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit 10.13, for the year ended December 31, 1996.
10.14 Arrangement, dated October 1, 1996, by and between Catawba Insurance Company, Kentucky Insurance Company
and South Carolina Insurance Company and The United States of America Federal Emergency Management
Agency, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.14, for the year
ended December 31, 1996.
11.1 Statement re: computation of per share earnings, for the year ended December 31, 1996, incorporated
herein by reference to the Annual Report on Form 10-K, Exhibit 11.1, for the year ended December 31,
1996.
23.1* Consent of King & Spalding (contained in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (contained on signature page)
</TABLE>

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

* To be filed by amendment

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus 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 is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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>
SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Columbia, state of South Carolina, on March 21, 1997.

THE SEIBELS BRUCE GROUP, INC.

By: /s/ ERNST N. CSISZAR
-----------------------------------------
Ernst N. Csiszar
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Ernst N. Csiszar and John A. Weitzel, and each of
them, his or her true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, from such person and in each person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the registration statement, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission and to sign and file any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ JOHN C. WEST
- ------------------------------ Chairman of the Board and March 21, 1997
John C. West Director

/s/ ERNST N. CSISZAR
- ------------------------------ President, Chief Executive March 21, 1997
Ernst N. Csiszar Officer, and Director

/s/ JOHN A. WEITZEL
- ------------------------------ Chief Financial Officer March 21, 1997
John A. Weitzel and Director

/s/ MARY M. GARDNER
- ------------------------------ Controller (Principal March 21, 1997
Mary M. Gardner Accounting Officer)

/s/ FRANK H. AVENT
- ------------------------------ Director March 21, 1997
Frank H. Avent
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ WILLIAM M. BARILKA
- ------------------------------ Director March 21, 1997
William M. Barilka

/s/ FRED S. CLARK
- ------------------------------ Director March 21, 1997
Fred S. Clark

/s/ ALBERT H. COX, JR.
- ------------------------------ Director March 21, 1997
Albert H. Cox, Jr.

/s/ CLAUDE E. MCCAIN
- ------------------------------ Director March 21, 1997
Claude E. McCain

/s/ KENNETH W. PAVIA
- ------------------------------ Director March 21, 1997
Kenneth W. Pavia

/s/ CHARLES H. POWERS
- ------------------------------ Director March 21, 1997
Charles H. Powers

/s/ WALKER S. POWERS
- ------------------------------ Director March 21, 1997
Walker S. Powers

/s/ JOHN P. SEIBELS
- ------------------------------ Director March 21, 1997
John P. Seibels

/s/ GEORGE R.P. WALKER, JR.
- ------------------------------ Director March 21, 1997
George R.P. Walker, Jr.
</TABLE>

II-5

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 14, 1997,
included in The Seibels Bruce Group, Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 1996 and to all references to our Firm included in this
registration statement.

ARTHUR ANDERSEN LLP

Columbia, South Carolina
March 25, 1997