DELPHI FINANCIAL GROUP INC/DE, 10-K, 1997-03-05

DELPHI FINANCIAL GROUP INC/DE
10-K, 1997-03-05
LIFE INSURANCE

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

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]

For the Fiscal Year Ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to
--------- ----------
Commission File Number 001-11462
---------

DELPHI FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
<S> <C> <C>
Delaware (302) 478-5142 13-3427277
- -------------------------------- ------------------------------- -------------------------------
(State or other jurisdiction of (Registrant's telephone number, (I.R.S. Employer Identification
incorporation or organization) including area code) Number)
</TABLE>

1105 North Market Street, Suite 1230, Wilmington, Delaware 19899
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

Class A Common Stock, $.01 par value New York Stock Exchange
- ------------------------------------ -------------------------
(Title of Each Class) (Name of Each Exchange
On Which Registered)

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

None

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

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

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the closing price for the Registrant's Class A Common
Stock on February 21, 1997, was $396,269,000.

As of February 21, 1997, the Registrant had 11,884,020 shares of Class A Common
Stock and 6,258,944 shares of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

<PAGE> 2
PART I

ITEM 1. BUSINESS

Delphi Financial Group, Inc. (the "Company," which term includes the Company and
its consolidated subsidiaries unless the context specifies otherwise) is an
insurance holding company engaged through its subsidiaries in offering a diverse
portfolio of group employee benefit products including life, disability, excess
workers' compensation and personal accident insurance. The Company also offers
asset accumulation products, primarily annuities, to individuals and groups. The
Company's two product categories are group employee benefit products and asset
accumulation products. The Company offers its insurance products in all fifty
states and the District of Columbia. Pennsylvania, New Jersey, Illinois,
California, Florida and New York collectively accounted for approximately 48% of
the Company's direct written premiums determined in accordance with statutory
accounting principles ("SAP"), with no state representing more than
approximately 11% of these premiums for the year ended December 31, 1996.

OPERATING STRATEGY

The Company was organized as a Delaware corporation in 1987 for the purpose of
acquiring all of the common stock of Reliance Standard Life Insurance Company
("RSLIC") and First Reliance Standard Life Insurance Company ("FRSLIC"), which
had historically engaged in the sale of life and accident and health insurance
products targeted principally to the employee benefits market. In the third
quarter of 1995, the Company began to market its new single premium deferred
annuity ("SPDA") products, including a product with a market value adjustment
("MVA") feature. The Company's operating strategy has also emphasized the
acquisition of blocks of insurance business and other insurance and financial
services companies and the active management of the Company's investment
portfolio.

On March 5, 1996, SIG Holdings, Inc. ("SIG") was merged into the Company (the
"SIG Merger"). See "Other Transactions." SIG, through its subsidiary Safety
National Casualty Corporation ("SNCC"), is an insurance specialist providing
excess workers' compensation insurance products to the self-insured market.
SNCC, founded in 1942, operates in 49 states and is one of the oldest continuous
writers of excess workers' compensation insurance in the United States.

The Company's operating strategy has contributed to a 14% compound annual growth
rate in insurance premiums and policyholder fees from January 1988 through
December 1996, excluding individual life insurance business, which the Company
exited in 1994. This strategy has also contributed to an increase in total
assets from $819.1 million at December 31, 1987, to $2,857.9 million at December
31, 1996, a compound annual growth rate of 15%, and an increase in shareholders'
equity from $24.1 million at December 31, 1987, to $367.0 million at December
31, 1996, a compound annual growth rate of 35%.

The Company's management of its investment portfolio is an important component
of its profitability. The Company's strategy emphasizes liquidity and yield,
while seeking to limit risks associated with interest rate fluctuations and
credit quality. The Company's average yield on invested assets (excluding
realized and unrealized investments gains and losses) was 8.5%, 8.3% and 6.6%
for the years ended December 31, 1996, 1995 and 1994, respectively. See
"Investments."

GROUP EMPLOYEE BENEFIT PRODUCTS

The Company emphasizes the origination of specialty insurance products directed
to the employee benefits market, primarily group life, disability, excess
workers' compensation and personal accident insurance. The Company also offers
group dental insurance. The Company markets its group products to
employer-employee groups and associations in a variety of industries. The
Company insures groups ranging from 10 to more than 1,000 individuals, although
the average size of insured groups currently ranges from 100 to 300 individuals.
In underwriting its group employee benefit products, the Company attempts to
avoid concentrations of business in any industry segment or geographic area.

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<PAGE> 3
The following table sets forth, for the periods indicated, selected financial
and statistical data concerning the Company's group employee benefit products:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C>
Insurance premiums:
Life .............................. $ 135,806 $ 127,760 $ 115,450
Disability income ................. 92,024 85,849 80,666
Excess workers' compensation (1) .. 56,200 -- --
Personal accident and other ....... 47,348 43,470 37,581
------------ ------------ ------------
Total insurance premiums ........ $ 331,378 $ 257,079 $ 233,697
============ ============ ============

Group life insurance policy data:
Group life insurance in force:
Balance, beginning of period .. $ 43,468,174 $ 45,547,840 $ 37,337,683
Sales ......................... 6,969,825 6,412,543 4,805,923
Lapses ........................ (8,201,918) (8,430,816) (4,754,623)
Other increases (decreases) (2) 6,920,549 (61,393) 8,158,857
------------ ------------ ------------
Balance, end of period ........ $ 49,156,630 $ 43,468,174 $ 45,547,840
============ ============ ============

Policy count .................... 6,976 6,652 6,274
</TABLE>

(1) Excess workers' compensation business was acquired as a result of the
SIG Merger.
(2) Represents net increases (decreases) due to changes in the face amounts
of policies issued.

The profitability of group employee benefit products is affected by, among other
things, differences between actual and projected claims experience and the
ability to control administrative expenses. The table below sets forth for the
periods indicated the loss and expense ratios as a percent of premium income for
the Company's group employee benefit products.

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loss ratio ............... 70.0% 74.4% 74.3%
Expense ratio ............ 26.7 24.5 23.5
----- ----- -----
Combined ratio ....... 96.7% 98.9% 97.8%
===== ===== =====
</TABLE>

The loss, expense and combined ratios for the year ended December 31, 1996,
excluding excess workers' compensation business, were 72.9%, 24.8% and 97.7%,
respectively.

The Company's group life insurance products, which include voluntary group term
life, provide for the payment of a stated amount upon the death of a member of
the insured group and policy terms are generally one year. Accidental death and
dismemberment insurance, which provides for the payment of a stated amount upon
the accidental death or dismemberment of a member of the insured group, is
frequently sold in conjunction with group life policies and is included in
premiums charged for group life insurance. The Company reinsures risks in excess
of $150,000 per individual for employer provided group life insurance policies
and $100,000 for voluntary group term life policies under indemnity reinsurance
arrangements with various reinsurance companies. See "Reinsurance."

Group disability products offered by the Company, principally long-term
disability insurance, generally provide a specified level of benefits to persons
who, because of sickness or injury, are unable to work for a specified period of
time. The Company focuses group long-term disability sales toward employers
engaged principally in service industries such as accounting, architecture and
engineering, as well as certain retailing and manufacturing fields. Long-term
disability benefits generally are paid monthly and typically are limited for any
one employee to two-thirds of the employee's earned income up to a specified
maximum benefit. The Company actively manages its disability claims, working
with claimants to help them return to work as quickly as possible. When
insureds' disabilities prevent them from returning to their original jobs, the
Company, in appropriate cases, provides assistance in developing new productive
skills for an alternative career. Premiums are generally determined annually for
disability insurance and are based upon expected morbidity and emerging
experience

-2-

<PAGE> 4
of the insured group, as well as assumptions regarding operating expenses and
future interest rates. The Company reinsures risks in excess of $2,500 per
individual per month under an indemnity reinsurance arrangement. See
"Reinsurance."

The Company's excess workers' compensation business was acquired in March 1996
as a result of the SIG Merger. This product provides coverage to employers and
groups who self-insure their workers' compensation risks. The coverage applies
to losses in excess of the applicable self-insured retentions ("SIRs" or
deductibles) of employers and groups, whose workers' compensation claims are
generally handled by third-party administrators ("TPAs"). This product is
principally targeted to mid-sized companies and association groups, particularly
small municipalities, hospitals and schools. These companies and groups tend to
be less prone to catastrophic workers' compensation exposures and less price
sensitive than larger account business. Because claim payments do not begin
until after the SIR is met, it takes an average of 13 years from the date the
claim is incurred to the time claim payments begin. At that point, the payments
are primarily for wage replacement, similar to the benefit provided under
disability coverage. Medical payments, if any, tend to be stable and
predictable. The Company reinsures risks between $500,000 and $50.0 million per
policy per occurrence. See "Reinsurance."

The Company's personal accident insurance products include business travel and
"all risk" accidental death and dismemberment insurance. These policies pay a
stated amount based on a predetermined schedule in the event of accidental
dismemberment or death of a member of the insured group. The Company reinsures
risks in excess of $150,000 per individual under indemnity reinsurance
arrangements with pools of reinsurers through managing reinsurance underwriters.
In addition, under a catastrophe reinsurance agreement, the amount of the
Company's loss arising from any one occurrence is limited to $500,000. See
"Reinsurance."

The Company's group employee benefit products are sold primarily by independent
brokers, agents and TPAs. The Company's home offices and 25 regional offices
provide sales support and service existing business. The Company believes that
its regional sales network minimizes expenses traditionally associated with
large insurance company captive marketing systems.

ASSET ACCUMULATION PRODUCTS

The Company's asset accumulation products consist primarily of annuity products,
principally SPDAs and flexible premium annuities ("FPAs"). The Company
consummated five separate annuity block acquisitions between 1988 and 1992 that
resulted in the assumption of $967.1 million in liabilities in the form of
policyholder account balances. The first acquisition was an assumption
reinsurance transaction, and the others were indemnity reinsurance transactions.
In the case of each acquisition, assets supporting the related reserves were
transferred to, and are managed by, the Company. Pursuant to the assumption
reinsurance acquisition, the Company has the right to establish the crediting
rate with respect to the business acquired. The Company has the right under each
indemnity reinsurance transaction to recommend to the ceding company crediting
rates with respect to the business acquired. The ceding company is solely
responsible for payment of crediting rates to the extent that these rates exceed
the greater of the recommended rate and certain benchmark rates. A substantial
portion of the Company's profitability on asset accumulation products is
generated from spread income, which is the difference between the net yield
achieved on invested assets and the interest credited on policyholder account
balances. As a result of the Company's ability to recommend increases or
decreases to applicable crediting rates annually, it believes that it can manage
the spread income on the annuity business acquired. The aggregate lapse rates
experienced on the annuity acquisitions have been consistent with the levels
assumed in pricing the transactions and consequently have not adversely affected
the Company's liquidity or results of operations.

In the fall of 1995, the Company began to market its new SPDA annuity products,
including an MVA annuity product that provides for an adjustment to the
accumulated value of the policy if it is surrendered during the surrender charge
period. These new products are sold predominantly through networks of
independent agents. For the year ended December 31, 1996, these new products
accounted for $57.5 million of asset accumulation product deposits, of which
$45.5 million was attributable to the new MVA annuity product. One network of
independent agents accounted for approximately 75% of the deposits from these
new products during 1996. The Company believes that it has a good relationship
with this network.

-3-

<PAGE> 5
The following table sets forth for the periods indicated selected financial and
statistical data concerning the Company's asset accumulation products:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Asset accumulation product deposits:
Annuities .................................. $ 59,460 $ 13,580 $ 7,142
GICs (1) ................................... -- -- 1,250
-------- -------- --------
Total asset accumulation product deposits $ 59,460 $ 13,580 $ 8,392
======== ======== ========

Policy count .................................. 37,288 38,119 40,818

Funds under management (at period end):
Annuities ................................... $689,952 $695,737 $773,300
GICs (1) .................................... 1,046 18,997 117,061
-------- -------- --------
Total funds under management .............. $690,998 $714,734 $890,361
======== ======== ========
</TABLE>

(1) The Company no longer actively markets its GIC product and the
remaining contract matures in 1998.

An SPDA provides for a single payment by an annuity holder to the Company, and
the payment of interest by the Company at the applicable crediting rate. An FPA
provides for periodic payments by an annuity holder to the Company, the timing
and amount of which are at the discretion of the annuity holder, and the payment
of interest by the Company at the applicable crediting rate. Interest credited
on SPDAs and FPAs is not paid currently to the annuity holder but instead
accumulates and is added to the annuity holder's account value. This
accumulation is tax deferred. The crediting rate may be increased or decreased
by the Company annually, typically on the policy anniversary, subject to
specified guaranteed minimum crediting rates. Minimum guaranteed crediting rates
currently range from 3.0% to 5.5%. Withdrawals may be made at any time, but some
withdrawals may result in the assessment of surrender charges, market value
adjustments, taxes, and/or tax penalties on the withdrawn amount.

At December 31, 1996, annuity liabilities were composed of $492.6 million of
SPDA liabilities and $197.4 million of FPA liabilities, for a total of $690.0
million of annuity liabilities with a weighted average crediting rate of 5.4%.
Of these liabilities, $194.8 million were subject to surrender charges averaging
7.3% at December 31, 1996. Annuity liabilities not subject to surrender charges
have been in force, on average, for 15 years.

The Company prices its annuity products based on assumptions concerning
prevailing and expected interest rates and other factors to achieve a positive
difference, or spread, between its expected return on investments and the
crediting rate. The Company achieves this spread by active portfolio management
focusing on matching the durations of invested assets and related liabilities to
minimize the exposure to fluctuations in market interest rates and by the
adjustment of the crediting rate on its annuity products. In response to changes
in interest rates, the Company increases or decreases the crediting rates on its
annuity products. Although the Company believes that these strategies will
continue to permit it to achieve a positive spread, a significant decline in the
yield on the Company's investments could adversely affect the results of
operations and financial condition of the Company.

In light of the annuity holder's ability to withdraw funds and the volatility of
market interest rates, it is difficult to predict the timing of the Company's
payment obligations under its SPDAs and FPAs. Consequently, the Company
maintains a portfolio of investments which are readily marketable and sufficient
in management's judgment to satisfy liquidity requirements. See "Investments."

VARIABLE LIFE INSURANCE PRODUCTS

In 1991, the Company introduced a variable flexible premium universal life
insurance policy under which the related assets are segregated in a separate
account not subject to claims of general creditors of the Company. Policyholders
may elect to deposit amounts in the account from time to time, subject to
underwriting limits and a minimum initial deposit of $1.0 million. At December
31, 1996, these deposits, excluding the Company's deposit, totaled $71.9
million. Pursuant to the investment option that is available to policyholders,
the assets of the separate account have been invested with independent

-4-

<PAGE> 6
investment managers employing a variety of diversified investment strategies.
Both the cash values and death benefits of these policies fluctuate according to
the investment experience of the assets in the separate account; accordingly,
the investment risk with respect to these assets is borne by the policyholders
and any adverse investment experience with respect to these investments would
not have a material adverse effect on the Company's results of operations and
financial condition. The Company earns fee income from the separate account in
the form of charges for management and other administrative fees. The Company
reinsures risks in excess of $200,000 per individual under indemnity reinsurance
arrangements with various reinsurance companies. See "Reinsurance."

UNDERWRITING PROCEDURES

Premiums charged on insurance products are based in part on assumptions about
the incidence and timing of insurance claims. The Company has adopted and
follows detailed underwriting procedures designed to assess and qualify
insurance risks before issuing policies to groups and individuals. To implement
these procedures, the Company employs a professional underwriting staff.

In underwriting group coverage, the Company focuses on the risk characteristics
of the group to be insured as a whole. A prospective group is evaluated with
particular attention paid to the claims experience of the group with prior
carriers, the occupations of the insureds, the nature of the business of the
group, the current economic outlook of the group in relation to others in its
industry and of the industry as a whole, the appropriateness of the benefits or
SIR applied for and income from other sources during disability. The Company's
policies generally afford it the flexibility to adjust premiums charged annually
to its policyholders in order to reflect emerging mortality or morbidity
experience.

INVESTMENTS

The Company's management of its investment portfolio is an important component
of its profitability since a substantial portion of its operating income is
generated from the difference between the yield achieved on invested assets and
the interest credited on policyholder funds and reserves. The Company's overall
investment strategy to achieve its objectives of safety and liquidity, while
seeking the best available return, focuses on, among other things, managing the
durations of the Company's interest-sensitive assets and liabilities and
minimizing the Company's exposure to fluctuations in interest rates.

At December 31, 1996, the Company's invested assets had an aggregate carrying
value of $2,295.0 million. At December 31, 1996, 1995 and 1994, the Company's
fixed maturity portfolio (including cash, cash equivalents and short-term
investments), which represented 86.3%, 87.9% and 85.1%, respectively, of the
Company's invested assets, had weighted average durations of 4.9 years, 3.9
years and 3.1 years, respectively, after giving effect to hedging activities.
The extension in duration of the fixed maturity portfolio, in 1996 is related
to the acquisition of long-duration insurance liabilities as a result of the
SIG Merger.

For information regarding the composition and diversification of the Company's
investment portfolio, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Investments" and Notes A, C, D, J and P of the Notes to the Consolidated
Financial Statements.

The following table sets forth for the periods indicated the pretax investment
results of the Company's investment portfolio:

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
----------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Average investments (1) (2) .......... $ 1,823,223 $1,417,472 $1,625,179
Net investment income (2) (3) ........ 154,750 117,112 106,576
Weighted average annual yield (4) .... 8.5% 8.3% 6.6%
Net realized investment (losses) gains $ (2,651) $ 704 $ 10,213
</TABLE>

(1) Average investments are computed by dividing the total of the amortized
cost of investments at the beginning of the period reduced by advances
from the Federal Home Loan Bank of Pittsburgh ("FHLB"), reverse repurchase
agreement liabilities and short securities positions plus the individual
quarter-end balances by five and deducting one-half of net investment
income.
(2) The increases in 1996 reflect the impact of the SIG Merger.

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<PAGE> 7
(3) Consists principally of interest and dividend income less investment
expenses.
(4) The weighted average annual yield on the Company's investment portfolio
for each period is computed by dividing net investment income
(exclusive of realized and unrealized gains and losses) by average
investments for the period.

REINSURANCE

The Company participates in various reinsurance arrangements both as the ceding
insurer and as the assuming insurer. Arrangements in which the Company is the
ceding insurer afford various levels of protection against excessive loss by
assisting the Company in diversifying its risks and by limiting its maximum loss
on risks that exceed retention limits. Under indemnity reinsurance transactions
in which the Company is the ceding reinsurer, the Company is exposed to a degree
of risk if the assuming company becomes insolvent. To limit this risk, the
Company reevaluates each of these reinsurance arrangements on a periodic basis
focusing principally on the ratings and claims-paying abilities of the
respective reinsurers.

The Company cedes portions of the risks relating to its group employee benefit
and variable life insurance products under indemnity reinsurance agreements with
various unaffiliated reinsurers. The terms of these agreements, which are
typical for agreements of this type, provide, among other things, for the
automatic acceptance by the reinsurer of ceded risks in excess of the Company's
retention limits stated in the agreements. The Company pays reinsurance premiums
to these reinsurers which are, in general, based upon percentages of premiums
received by the Company on the business reinsured less, in certain cases, ceding
commissions and experience refunds paid by the reinsurer to the Company. These
agreements are generally terminable at any time as to new risks by either the
Company or the reinsurer on appropriate notice; however, termination does not
affect risks ceded during the term of the agreement, which generally remain with
the reinsurer, subject, in certain cases, to specified rights on the part of the
Company to recapture these risks. All of the Company's significant reinsurers
are rated "A-" (Excellent) or higher by A.M. Best Company. See Notes D and N of
the Notes to the Consolidated Financial Statements.

As of December 31, 1996, reinsured amounts with the Company's reinsurers are as
follows:

<TABLE>
<CAPTION>
Policy Amounts
Reserves and Recoverable
Premium Policyholder from Reinsurers
Income Account Balances for Paid and
Ceded Ceded Unpaid Claims
------- -------- -------
(dollars in thousands)
<S> <C> <C> <C>
Protective Life Insurance Company $14,128 $132,499 $ 1,243
Cologne Life Reinsurance Company -- 18,517 9,576
TAURUS .......................... 13,554 -- --
Sun Life Assurance of Canada .... 9,670 13,605 5,712
All other reinsurers ............ 24,164 6,344 22,119
------- -------- -------
Total ....................... $61,516 $170,965 $38,650
======= ======== =======
</TABLE>

The Company currently participates as an assuming insurer in a number of
reinsurance pools. These reinsurance pools generally are administered by TPAs or
managing underwriters which underwrite risks, coordinate premiums charged and
process claims. The Company has the right, generally exercisable annually, to
terminate or change its participation in any of these pools as to new business.
These reinsurance pools represented, in the aggregate, $53.0 million of premiums
and policyholder fees and $48.9 million of benefits for the year ended December
31, 1996. The Company's five largest participations in these reinsurance pools
represented $44.5 million of earned premiums and $41.7 million of benefits for
the year ended December 31, 1996. The Company has also acquired blocks of
annuity business through indemnity and assumption reinsurance agreements. See
"Asset Accumulation Products."

LIFE AND ACCIDENT AND HEALTH INSURANCE RESERVES

The Company carries as liabilities actuarially determined reserves to satisfy
its life, accident and health and annuity policy and contract obligations. These
reserves, together with premiums to be received on policies in force and
interest thereon at certain assumed rates, are calculated to be sufficient to
satisfy policy and contract obligations. The Company performs periodic studies
to compare current experience for mortality, interest and lapse rates with
expected experience in the reserve

-6-

<PAGE> 8
assumptions to determine future policy benefit reserves for these products.
Differences are reflected currently in earnings for each period. The Company has
not experienced significant adverse deviations from its assumptions.

The life and accident and health insurance reserves carried in the Consolidated
Financial Statements are calculated based on generally accepted accounting
principles ("GAAP") and differ from those reported by the Company for statutory
financial statement purposes. These differences arise from the use of different
mortality and morbidity tables and interest assumptions, the introduction of
lapse assumptions into the reserve calculation and the use of the level-premium
reserve method on all insurance business. See Note A of the Notes to
Consolidated Financial Statements for certain additional information regarding
reserve assumptions under GAAP.

EXCESS WORKERS' COMPENSATION INSURANCE RESERVES

The Company carries as liabilities actuarially determined reserves for
anticipated claims and claim expenses for casualty insurance products. Reserves
for claim expenses represent the estimated probable costs of investigating those
claims and, when necessary, defending lawsuits in connection with those claims.
Reserves for claims and claim expenses are estimated based on individual loss
data, historical loss data and industry averages and indices and include amounts
determined on the basis of individual and actuarially determined estimates of
future losses. Therefore, the ultimate liability could deviate from the amounts
currently reflected in the Consolidated Financial Statements. Over 95% of these
reserves relate to excess workers' compensation insurance, and the balance
consists of reserves for excess unemployment compensation insurance,
self-insurance bonds and an excess umbrella liability insurance product that was
discontinued in 1985.

Reserving practices under GAAP allow discounting of claim reserves related to
excess workers' compensation losses to reflect the time value of money. Reserve
discounting for these types of claims is common industry practice, and the
discount factors used are less than the annual tax-equivalent investment yield
earned by the Company on its invested assets. Reserves for claim expenses are
not discounted.

The following table provides a reconciliation of beginning and ending unpaid
claims and claim expenses from March 5, 1996, the date of the SIG Merger, to
December 31, 1996.

<TABLE>
<CAPTION>
Period from March 5 to
December 31, 1996
----------------------
(dollars in thousands)

<S> <C>
Unpaid claims and claim expenses, beginning of period ................. $369,871

Provision for claims and claim expenses incurred in the current year .. 28,290
Increase in estimated claims and claim expenses incurred in prior years 7,358
--------
Incurred claims and claim expenses during the current year ........ 35,648
--------
Deduct claims and claim expenses paid, occurring during:
Current year ...................................................... 249
Prior years ....................................................... 24,444
--------
Total paid ..................................................... 24,693
--------
Unpaid claims and claim expenses, end of period ....................... $380,826
========
</TABLE>

The increase in estimated claims and claim expenses incurred in prior years is
primarily due to the accretion of interest on discounted claim reserves. The
effects of the discount to reflect the time value of money of $164.0 million
and $168.8 million at March 5, 1996, the date of the SIG Merger, and December
31, 1996, respectively, have been removed from the loss development table which
follows in order to present the gross loss development.

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<PAGE> 9
<TABLE>
<CAPTION>
March 5, December 31,
1996 1996
-------- ------------
(dollars in thousands)
<S> <C> <C>
Reserve for unpaid claims and claim expenses $533,871 $549,653
Cumulative amount of liability paid:
Period from March 5 to December 31, 1996 24,444
Liability reestimated as of :
December 31, 1996 ...................... 524,423
Cumulative redundancy ...................... 9,448
</TABLE>

The "Reserve for unpaid claims and claim expenses" line of the table shows the
estimated reserve for unpaid claims and claim expenses recorded at the end of
each of the periods indicated. These liabilities represent the estimated amount
of losses and expenses for claims arising in the current year and all prior
years that are unpaid at the end of each period. The "Cumulative amount of
liability paid" line of the table represents the cumulative amounts paid with
respect to the liability previously recorded as of the end of each succeeding
period. The "Liability reestimated" line of the table shows the reestimated
amount relating to the previously recorded liability and is based upon
experience as of the end of each succeeding period. This estimate is either
increased or decreased as additional information about the frequency and
severity of claims for each period becomes available and is reviewed. The
Company periodically reviews the estimated reserves for claims and claim
expenses and any changes are reflected currently in earnings for each period.
The Company has not experienced significant adverse deviations from its
assumptions. The "Cumulative redundancy" line of the table represents the
aggregate change in the estimated claim reserve liabilities over the prior
period.

The excess workers' compensation insurance reserves carried in the Consolidated
Financial Statements are calculated in accordance with GAAP and, excluding the
effects of reinsurance, are approximately $26.0 million less than those reported
by the Company for statutory financial statement purposes at December 31, 1996.
This difference is primarily due to the use of different discount factors under
GAAP and SAP. See Note A of the Notes to Consolidated Financial Statements for
certain additional information regarding reserve assumptions under GAAP.

COMPETITION

The insurance industry is highly competitive. The Company competes with numerous
other insurance and financial services companies both in connection with sales
of insurance and asset accumulation products and in acquiring blocks of
business. Many of these organizations have substantially greater asset bases,
higher ratings from ratings agencies, larger and more diversified portfolios of
insurance products and larger agency sales operations. Competition in asset
accumulation product markets is also encountered from the expanding number of
banks, securities brokerage firms and other financial intermediaries marketing
alternative savings products, such as mutual funds, traditional bank investments
and retirement funding alternatives.

The Company believes that its reputation in the marketplace, quality of service
and investment returns have enabled it to compete effectively for new insurance
business in its targeted markets. The Company reacts to changes in the
marketplace generally by focusing on products with adequate margins and
attempting to avoid those with low margins. The Company believes that its
smaller size, relative to some of its competitors, enables it to more easily
tailor its products to the demands of customers.

REGULATION

The Company's insurance subsidiaries are highly regulated by state insurance
authorities in the states in which they are domiciled and the other states in
which they conduct business. These regulations, among other things, limit the
amount of dividends and other payments that can be made by the Company's
insurance subsidiaries without prior regulatory approval and impose restrictions
on the amount and type of investments these subsidiaries may have. These
regulations also affect many other aspects of the Company's insurance
subsidiaries' business, including, for example, risk-based capital ("RBC")
requirements, various reserve requirements and the terms and conditions and
manner of sale and marketing of the these subsidiaries' insurance products.
These regulations are intended to protect policyholders rather than investors.
The

-8-

<PAGE> 10
Company's insurance subsidiaries are required under these regulations to file
detailed annual reports with the supervisory agencies in the various states in
which they do business, and their business and accounts are subject to
examination at any time by these agencies. Under state insurance laws and the
rules of the National Association of Insurance Commissioners ("NAIC"), the
Company's insurance subsidiaries may be examined periodically, usually at three-
to five-year intervals, by the supervisory agencies of the states in which they
do business. To date, no examinations have produced any significant adverse
findings or adjustments.

The ability of the Company to receive dividends from its insurance subsidiaries
is governed by the insurance laws of the subsidiaries' respective states of
domicile. These insurance laws require, among other things, that the statutory
surplus of the domiciled insurance company, following any dividend or
distribution, be reasonable in relation to its outstanding liabilities and
adequate to its financial needs, as determined under standards contained
therein. The insurance commissioners of these states may bring an action to
enjoin or rescind the payment of a dividend or distribution by an insurer
domiciled in its state that would cause the insurer's statutory surplus to be
unreasonable or inadequate under this standard. For further information on state
limitations on dividends by insurers, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources - General" and Note K of the Notes to the Consolidated Financial
Statements.

From time to time, increased scrutiny has been placed upon the insurance
regulatory framework, and a number of state legislatures have considered or
enacted legislative measures that alter, and in many cases increase, state
authority to regulate insurance companies. In addition to legislative
initiatives of this type, the NAIC and insurance regulators have been and are
involved in a process of reexamining existing laws and their application to
insurance companies. In particular, this reexamination has focused on insurance
company investment and solvency issues and, more recently, issues relating to
the manner in which insurance products are sold and marketed. In some instances,
it has resulted in new interpretations of existing law, the development of new
laws and the implementation of nonstatutory guidelines. These developments may
impact, among other things, the structure of insurance company investment
portfolios and the earnings thereon. In addition, the NAIC is currently in the
process of comprehensively codifying (and, in certain respects, revising) SAP,
which process, when complete, may affect the manner in which insurance
companies, including the Company's insurance subsidiaries, report their
statutory financial condition and operating results. It is not possible to
predict the future impact of changing regulation or accounting practices on the
operations of the Company and its insurance subsidiaries.

The NAIC's RBC requirements for insurance companies take into account asset
risks, insurance risks, interest rate risks and other relevant risks with
respect to the insurer's business and specify varying degrees of regulatory
action to occur to the extent that an insurer does not meet the specified RBC
thresholds, with increasing degrees of regulatory scrutiny or intervention
provided for companies in categories of lesser RBC compliance. The Company
believes that its insurance subsidiaries are adequately capitalized under the
RBC requirements and that the thresholds will not have any significant
regulatory effect on the Company. However, were the insurance subsidiaries' RBC
position to decline in the future, the insurance subsidiaries' continued ability
to pay dividends and the degree of regulatory supervision or control to which
they are subjected may be affected.

The Company's insurance subsidiaries can also be required, under solvency or
guaranty laws of most states in which they do business, to pay assessments to
fund policyholder losses or liabilities of insurance companies that become
insolvent. These assessments may be deferred or forgiven under most solvency or
guaranty laws if they would threaten an insurer's financial strength and, in
most instances, may be offset against future state premium taxes. The amount of
any future assessments under these laws cannot reasonably be estimated and thus
is not included in the Company's reserves, although none of the Company's
insurance subsidiaries has ever incurred any significant costs of this nature.

The federal government currently does not directly regulate the insurance
business. However, federal legislation and administrative policies in a number
of areas, such as pension regulation, age, sex and disability-based
discrimination, financial services regulation and federal taxation, can
significantly affect the insurance business.

From time to time, federal legislative proposals have been made that would, if
enacted, have an adverse impact on the federal income tax treatment of certain
annuity contracts. There can be no assurance that such legislation will not be
adopted in the future. Any legislation adopted, depending on its nature, could
have a positive or adverse effect on the persistency of the Company's SPDAs and
FPAs and the Company's ability to market or acquire additional blocks of these
types of products.

-9-

<PAGE> 11
EMPLOYEES

The Company and its subsidiaries employed 514 persons at December 31, 1996. The
Company believes that it enjoys good relations with its employees.

OTHER SUBSIDIARIES

The Company conducts certain of its investment management activities through its
wholly-owned subsidiary, Delphi Capital Management, Inc. ("DCM"), and makes
certain investments, including certain of its balances with independent
investment managers, through other wholly-owned non-insurance subsidiaries.

OTHER TRANSACTIONS

On February 23, 1993, the Company entered into an $85.0 million revolving credit
facility with a group of institutional lenders (the "Credit Agreement") and used
a portion of the facility to refinance a term loan with an institutional lender.
Beginning in July 1993, the Company implemented a recapitalization plan (the
"Recapitalization") designed to enhance its financial condition by increasing
shareholders' equity, reducing leverage and decreasing interest expense. In
addition, the Recapitalization was designed to increase the liquidity of the
Company's Class A Common Stock. The first step of the Recapitalization occurred
in July 1993 and included (i) increasing the principal amount available under
the Credit Agreement from $85.0 million to $120.0 million and (ii) using $30.0
million of the additional available funds to redeem $29.0 million aggregate
principal amount of the Company's 11 3/4% Senior Subordinated Debentures due
1999 (the "Senior Subordinated Debentures") at 103.42% of par value. In October
1993, the Company completed the second step of the Recapitalization, which
included (i) the public offering of $85.0 million of 8.0% Senior Notes due 2003
(the "Senior Notes"), for net proceeds of $82.4 million and (ii) the public
offering of 3.3 million shares of Class A Common Stock (of which 1.2 million
shares were sold by selling shareholders) for net proceeds to the Company of
$35.8 million. The Recapitalization was completed in November 1993, when the
Company redeemed all of the remaining $87.8 million par value Senior
Subordinated Debentures at 103.42% of par value.

In July 1994, the Company's shelf registration statement was declared effective
by the Securities and Exchange Commission. The shelf registration statement
provides for the sale, from time to time, of up to $150.0 million of securities.
To date, the Company has issued $0.8 million of the total amount of securities
available for issuance.

In December 1995, the Company and its existing lenders, along with additional
lenders, agreed to amend and restate the terms of the Credit Agreement to
increase the maximum amount available under the facility at any one time to
$200.0 million. Of the total facility, $98.0 million is restricted for use in
connection with, among other things, acquisitions or the redemption of the SIG
Senior Notes (as defined below).

On March 5, 1996, SIG was merged into the Company for consideration of
approximately $54.5 million of cash, net of approximately $1.0 million payable
upon the exercise of certain SIG stock options, which was funded from additional
borrowings under the Credit Agreement, and approximately 5.2 million shares of
the Company's Class A Common Stock, including shares of Class A Common Stock
reserved for issuance upon the exercise of stock options of SIG assumed by the
Company in connection with the merger, plus additional contingent consideration
of up to $20.0 million. The contingent consideration will be payable in shares
of the Company's Class A Common Stock or, at the option of the Company, in cash.
No contingent consideration is due unless SIG's cumulative net income exceeds
$41.8 million for the two years ending December 31, 1997, $62.6 million for the
three years ending December 31, 1998, or $83.5 million for the four years ending
December 31, 1999, and the maximum amount is triggered at cumulative net income
levels of $75.3 million for the three-year period or $104.4 million for the
four-year period. The Company also assumed $45.0 million of SIG's 8.5% Senior
Secured Notes due 2003 (the "SIG Senior Notes").

-10-

<PAGE> 12
On August 30, 1996, the Company's Board of Directors declared a 20% stock
dividend distributed on September 30, 1996 to stockholders of record on
September 16, 1996. Results per share and applicable share amounts for prior
periods have been restated to reflect the stock dividend.

In December 1996, the Company and its existing lenders agreed to amend and
restate the terms of the Credit Agreement to, among other things, reduce the
Company's borrowing costs. Under the amended terms, the maximum amount available
will be reduced incrementally over a four and one-half year period beginning in
October 1999.

ITEM 2. PROPERTIES

The Company's principal executive offices are located at 1105 North Market
Street, Suite 1230, Wilmington, Delaware 19899. This office space is leased
through an operating lease expiring in November 1999. RSLIC owns its home office
building at 2501 Parkway, Philadelphia, Pennsylvania, which consists of
approximately 100,000 square feet. SNCC also owns its home office building at
2043 Woodland Parkway, Suite 200, St. Louis, Missouri which consists of
approximately 58,000 square feet. The Company also maintains 25 sales offices
throughout the country to provide sales support and service existing business.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, the Company's insurance subsidiaries are
defendants in litigation principally involving insurance policy claims and agent
disputes, including claims for compensatory and punitive damages. In the opinion
of management, the ultimate disposition of such litigation will not have a
material adverse effect upon the Company's financial condition, liquidity or
future results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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<PAGE> 13
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY, RSLIC AND SNCC

The table below presents certain information concerning each of the executive
officers of the Company, RSLIC and SNCC.

<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert Rosenkranz 54 Director of the Company; Chairman of the Board, President and Chief
Executive Officer of the Company; Chairman of the Board of RSLIC
Charles P. O'Brien 60 Director of the Company; President and Chief Executive Officer of RSLIC
Robert M. Smith, Jr. 45 Director and Vice President of the Company
Thomas A. Sullivan 56 Director of the Company; President of DCM
B.K. Werner 63 Director of the Company; Chairman of the Board and Chief Executive
Officer of SNCC
Chad W. Coulter 34 Assistant Secretary of the Company; Vice President, Secretary and
General Counsel of RSLIC
Jane R. Dunlap 64 Vice President and Treasurer of the Company; Vice President, Finance of
RSLIC
Wayne M. Benseler 47 Vice President and Chief Actuary of RSLIC
Lawrence E. Daurelle 45 Vice President and Treasurer of RSLIC
Christopher A. Fazzini 34 Vice President - Sales and Marketing of RSLIC
</TABLE>

Mr. Rosenkranz has served as the President and Chief Executive Officer of the
Company since May 1987 and has served as Chairman of the Board of Directors of
the Company since April 1989. He is also Chairman of the Board of RSLIC, FRSLIC
and Reliance Standard Life Insurance Company of Texas ("RSLIC-Texas") and
serves on the Board of Directors of SNCC. Mr. Rosenkranz, by means of
beneficial ownership of the corporate general partner of Rosenkranz & Company,
an irrevocable proxy and direct or beneficial ownership, has the power to vote
all of the outstanding shares of Class B Common Stock, which represents 82% of
the voting power of the Company's common stock on a fully diluted basis as of
February 21, 1997.

Mr. O'Brien has served as a Director of the Company since November 1987. Since
August 1976, Mr. O'Brien has served as President, Chief Executive Officer and a
Director of RSLIC. Mr. O'Brien also serves as President and Chief Executive
Officer and a Director of RSLIC-Texas and FRSLIC and as a Director of SNCC.

Mr. Smith has served as Vice President of the Company and as Vice President of
DCM since July 1994 and as a Director of the Company since January 1995. Mr.
Smith also serves as a Director of RSLIC-Texas, RSLIC, FRSLIC and SNCC. Prior to
July 1994, Mr. Smith was Director, Investment Banking for Merrill Lynch &
Company in New York, New York.

Mr. Sullivan has served as a Director of the Company since July 1991. He became
President of DCM and a limited partner in Rosenkranz & Company in July 1991.
Prior to that, he served as Chief Investment Officer of DCM from January 1990 to
July 1991, and as Chief Investment Officer of the Company from November 1987 to
December 1989. Since April 1987, Mr. Sullivan has been owner of MMS Advisors, a
commodity trading advisory company.

Mr. Werner was elected a Director of the Company upon the SIG Merger. He has
served as Chairman of the Board of SNCC since June 1987 and as Chief Executive
Officer since June 1990. Mr. Werner has served as a Director of and has been
employed in various capacities by SNCC since 1959.

Mr. Coulter has served as Vice President, Secretary and General Counsel of
RSLIC, FRSLIC and RSLIC-Texas since February 1994. Mr. Coulter has also served
as Assistant Secretary of the Company since March 1994. From January 1991 to
February 1994, he was employed in various capacities by RSLIC. Prior to January
1991, Mr. Coulter was an associate with the law firm of Morris, Nichols, Arsht &
Tunnell in Wilmington, Delaware.

Ms. Dunlap has served as Vice President of the Company since April 1989 and
Treasurer of the Company since April 1988. She has been Vice President, Finance
of RSLIC since March 1984, Vice President, Finance of FRSLIC since April 1987,
and Vice President, Finance of RSLIC-Texas since November 1987. Ms. Dunlap has
been employed in various capacities by RSLIC since August 1975.

-12-

<PAGE> 14
Mr. Benseler has served as Vice President and Chief Actuary of RSLIC and FRSLIC
since August 1986 and as Vice President and Chief Actuary of RSLIC-Texas since
November 1987. He has been employed in various capacities by RSLIC since
February 1980.

Mr. Daurelle has served as Vice President and Treasurer of RSLIC, FRSLIC and
RSLIC-Texas since May 1995. From October 1994 to April 1995, he was Senior Vice
President and Chief Financial Officer for Mutual Assurance Company, and from
September 1993 to October 1994 he was Senior Vice President, Strategic Planning
for The Fidelity Mutual Life Insurance Company. Prior to September 1993, Mr.
Daurelle was Vice President of United Pacific Life Insurance Company.

Mr. Fazzini has served as Vice President - Sales and Marketing of RSLIC since
November 1996. He has been employed in various capacities by RSLIC since July
1984.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The closing price of the Company's Class A Common Stock was $33 3/8 on February
21, 1997. There were in excess of 1,650 holders of record of the Company's Class
A Common Stock as of February 21, 1997.

The following table sets forth high and low closing prices for the Company's
Class A Common Stock. The Company's Class A Common Stock is listed on the New
York Stock Exchange under the symbol DFG and, prior to October 31, 1996, was
traded on the NASDAQ National Market under the symbol DLFI. Prior periods have
been restated to reflect the 20% stock dividend distributed September 30, 1996.

<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
1995: First Quarter $ 15 7/8 $ 13 1/2
Second Quarter 14 5/8 13 1/2
Third Quarter 15 1/4 13 7/8
Fourth Quarter 19 1/8 14 5/8

1996: First Quarter $ 21 $ 19 5/8
Second Quarter 24 3/8 19 1/2
Third Quarter 29 21
Fourth Quarter 29 1/2 27 1/4
</TABLE>

Cash dividends have not been declared or paid on the Class A Common Stock or the
Class B Common Stock. Dividend payments are permitted under the terms of the
Senior Notes subject to certain restrictions and covenants. Under the Credit
Agreement, dividends on, together with any repurchases or redemptions by the
Company of, its capital stock, may not, during any fiscal year, exceed 4% of the
Company's Consolidated Equity (as defined in the Credit Agreement) as of the end
of the preceding fiscal year. The Credit Agreement also permits additional
repurchases by the Company of its capital stock in an aggregate amount of up to
$20.0 million over the term of the Credit Agreement.

In addition, dividend payments by the Company's insurance subsidiaries to the
Company are subject to certain regulatory restrictions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Business - Regulation." The Company
presently intends to retain earnings to finance the development and growth of
its business. Accordingly, the Company does not anticipate payment of any cash
dividends in the foreseeable future.

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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA

The selected financial data of the Company set forth below for each of the five
years ended December 31, 1996, 1995, 1994, 1993 and 1992, were derived from the
Consolidated Financial Statements included elsewhere herein or previously filed
by the Company. This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related notes.

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 (1) 1995 1994 1993 1992
--------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Insurance premiums and policyholder fees:
Group employee benefit products ........ $ 331,378 $257,079 $233,697 $206,587 $178,737
Annuities .............................. 2,122 2,121 1,716 6,285 3,086
Other insurance products (2) ........... 1,733 1,702 13,099 22,047 21,065
Net investment income ..................... 154,750 117,112 106,576 177,374 133,515
Net realized investment (losses) gains .... (2,651) 704 10,213 13,963 19,115
--------- -------- -------- -------- --------
Total revenue .......................... 487,332 378,718 365,301 426,256 355,518
Benefits and expenses ..................... 387,713 314,549 315,407 335,685 298,416
--------- -------- -------- -------- --------
Income from continuing operations before
interest and income tax expense ........ 99,619 64,169 49,894 90,571 57,102
Interest expense .......................... 18,269 13,257 12,252 17,720 19,949
Income taxes .............................. 27,496 18,170 11,698 26,098 12,513
--------- -------- -------- -------- --------
Income from continuing operations ......... $ 53,854 $ 32,742 $ 25,944 $ 46,753 $ 24,640
========= -------- -------- -------- ========
Net income (3) ............................ $ 47,253 $ 30,464 $ 25,818 $ 34,746 $ 23,659
========= ======== ======== ======== ========

PER SHARE DATA (4):
Income from continuing operations excluding
realized investment (losses) gains ..... $ 2.97 $ 2.22 $ 1.33 $ 3.28 $ 1.36
Income from continuing operations ......... $ 2.88 $ 2.25 $ 1.79 $ 3.64 $ 1.98
Net income (3) ............................ $ 2.53 $ 2.10 $ 1.78 $ 2.70 $ 1.90
Fully diluted book value per share (5) (6) $ 18.84 $ 15.32 $ 11.72 $ 13.95 $ 10.56
Weighted average shares
outstanding (000's) (7) ................ 18,693 14,532 14,495 12,856 12,421

OTHER DATA:
Return on average equity (8) .............. 18.5% 16.6% 10.4% 25.5% 15.2%
Interest coverage ratio (9) ............... 5.83x 4.84x 4.07x 5.11x 2.86x
</TABLE>

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1996 (1) 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at period end):
Total investments .................... $2,295,007 $1,791,531 $1,965,154 $2,041,774 $1,881,880
Total assets ......................... 2,857,906 2,323,010 2,472,776 2,344,321 2,211,751
Long-term debt ....................... 231,004 134,611 159,577 159,545 164,274
Shareholders' equity (6) ............. 366,965 222,815 170,382 200,968 129,046
Debt to total capitalization ratio (10) 38.6% 37.7% 48.4% 44.3% 56.0%
</TABLE>

-14-

<PAGE> 16
(1) Reflects the acquisition of excess workers' compensation business as a
result of the SIG Merger.

(2) Amounts for 1994, 1993 and 1992 include individual life insurance
business, which the Company exited in July 1994. See Note N to the
Consolidated Financial Statements.

(3) The Company discontinued its long-term care business in 1996 and
recorded a one-time after-tax charge of $5.8 million in 1996
attributable to this discontinuance. After-tax operating losses on this
business were $0.8 million, $2.3 million and $0.1 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Additionally, the
Company has incurred after-tax extraordinary losses associated with the
early extinguishment of debt. These losses totaled $12.0 million and
$0.4 million for the years ended December 31, 1993 and 1992,
respectively. The Company also recognized an after-tax charge of $0.6
million related to the cumulative effect of a change in accounting for
postretirement benefits other than pensions in the year ended December
31, 1992.

(4) Prior periods have been restated to reflect the 20% stock dividend
distributed on September 30, 1996.

(5) Fully diluted book value per share is calculated by dividing
shareholders' equity, as increased by the proceeds of the assumed
exercise of outstanding stock options, by total shares outstanding,
also increased by shares issued upon the assumed exercise of the
options and deferred shares.

(6) In 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). See Note A to the
Consolidated Financial Statements.

(7) Weighted average shares outstanding in 1996, 1995, 1994 and 1993
reflect the issuance of 2.1 million shares of Class A Common Stock in
October 1993.

(8) Return on average equity is calculated by dividing income from
continuing operations by average shareholders' equity, excluding
realized investment gains and losses, discontinued operations,
extraordinary items and changes in accounting principles, as determined
as of the beginning and end of each year.

(9) The interest coverage ratio is calculated by dividing income from
continuing operations before interest and income tax expense by
interest expense (1996 excludes interest paid in connection with the
settlement of prior-year federal income taxes).

(10) Total capitalization is the sum of the Company's long-term debt and
shareholders' equity.

-15-

<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is an analysis of the results of operations and financial
condition of the Company. This analysis should be read in conjunction with the
Consolidated Financial Statements and related notes.

RESULTS OF OPERATIONS

Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995

Insurance Premiums and Policyholder Fees. Insurance premiums and policyholder
fees in 1996 were $335.2 million as compared to $260.9 million in 1995, an
increase of 28%. Contributing to this increase was $56.2 million in premiums
from the Company's excess workers' compensation business which was acquired as a
result of the SIG Merger. Also contributing to the increase was growth in
premiums from the Company's other group employee benefit products, including the
impact of certain price increases, growth and development of the Company's sales
force and normal growth in employment and salary levels for the Company's
existing customer base. Deposits from the Company's SPDA products, including the
Company's new MVA product, which it began marketing in the fall of 1995, were
$57.5 million during 1996 as compared to $11.4 million in 1995. Deposits for the
Company's asset accumulation products, which are long-term in nature, are not
recorded as premiums; instead, the deposits are recorded as a liability.

Net Investment Income. Net investment income in 1996 was $154.8 million as
compared to $117.1 million in 1995, an increase of 32%. The increase is
principally due to an increase in average invested assets as a result of the SIG
Merger. The weighted average annual yield on invested assets, excluding realized
and unrealized investment gains and losses, was 8.5% on average invested assets
of $1,823.2 million and 8.3% on average invested assets of $1,417.5 million in
1996 and 1995, respectively.

Net Realized Investment (Losses) Gains. Net realized investment losses were $2.7
million in 1996 as compared to net realized investment gains of $0.7 million in
1995. The Company's investment strategy results in periodic sales of securities
and the recognition of realized investment gains and losses arising from those
sales.

Benefits and Expenses. Policyholder benefits and expenses in 1996 were $387.7
million as compared to $314.5 million in 1995, an increase of 23%. During 1996,
benefits and expenses for group employee benefit products increased by $66.2
million as compared to 1995. Of this increase, $51.7 million was attributable to
the Company's excess workers' compensation business which was acquired as a
result of the SIG Merger. The remaining increase was primarily attributable to
growth in the Company's other group employee benefit product lines. The combined
ratio for group insurance lines, excluding excess workers' compensation
insurance, decreased from 98.9% in 1995 to 97.7% in 1996. This decrease reflects
the impact of certain price increases and the expansion of the Company's loss
management capabilities during 1995. Amortization of cost of business acquired
related to asset accumulation products was accelerated by $4.8 million during
1996 primarily due to better than anticipated investment results. Benefits and
interest credited on asset accumulation products decreased by $4.0 million in
1996 as compared to 1995, principally due to the scheduled maturities during
1995 of guaranteed investment contracts with crediting rates that were generally
higher than the Company's other asset accumulation products. Primarily due to
these maturities, average funds under management decreased by $87.1 million and
the weighted average annual crediting rate on asset accumulation products
declined from 5.6% to 5.2%.

Operating Income. Income from continuing operations before interest and taxes in
1996 was $99.6 million as compared to $64.2 million in 1995, an increase of 55%.
The increase was primarily due to the acquisition of the excess workers'
compensation business through the SIG Merger, partially offset by net realized
investment losses in 1996.

Interest Expense. Interest expense in 1996 was $18.3 million as compared to
$13.3 million in 1995. The increase was primarily due to interest expense on the
SIG Senior Notes, which were assumed in conjunction with the SIG Merger, and
additional borrowings under the Credit Agreement in 1996 to fund the SIG Merger
partially offset by a decline in the weighted average borrowing rate on the
Credit Agreement. Also contributing to the increase was interest paid in 1996 in
connection with the settlement of prior-year federal income taxes.

-16-

<PAGE> 18
Income Taxes. Income tax expense in 1996 was $27.5 million as compared to $18.2
million in 1995. The increase was primarily due to the $35.4 million increase in
operating income partially offset by a decrease in the effective tax rate from
35.7% in 1995 to 33.8% in 1996 due to an increase in tax-exempt interest earned
during 1996.

Discontinued Operations. The Company recorded the discontinuance of its
long-term care insurance business in 1996. Operating losses on this business
totaled $0.8 million and $2.3 million, net of a tax benefit of $0.4 million and
$1.2 million, in 1996 and 1995, respectively. The Company also recorded a
one-time charge in 1996 of $5.8 million, net of a tax benefit of $3.2 million,
as a result of the discontinuance of this business.

Year Ended December 31, 1995
Compared to Year Ended December 31, 1994

Insurance Premiums and Policyholder Fees. Insurance premiums and policyholder
fees in 1995 were $260.9 million as compared to $248.5 million in 1994, an
increase of 5%. Premiums from group employee benefits products increased $23.4
million, an increase of 10%. Contributing to the increase in premiums was the
growth and development of the Company's sales force, normal growth in employment
and salary levels for the Company's existing customer base and certain price
increases. The Company had virtually no premium from individual insurance during
1995 due to the 100% reinsurance of this business effective July 1, 1994, while
1994 reflected premiums of $13.1 million. See Note N to the Consolidated
Financial Statements.

Net Investment Income. Net investment income in 1995 was $117.1 million as
compared to $106.6 million in 1994, an increase of 10%. The weighted average
annual yield on invested assets, excluding realized and unrealized investment
gains and losses, was 8.3% on average invested assets of $1,417.5 million and
6.6% on average invested assets of $1,625.2 million in 1995 and 1994,
respectively. The increase in yield was primarily due to improved performance by
the Company's independent investment manager program and its trading account
securities. The impact of the increase in yield was partially offset by a
decrease in average invested assets principally due to policy maturities and
surrenders and the asset transfer associated with the reinsurance of the
Company's individual life insurance business.

Net Realized Investment Gains. Net realized investment gains were $0.7 million
in 1995 as compared to $10.2 million in 1994. The Company's investment strategy
results in periodic sales of securities and the recognition of realized
investment gains and losses arising from those sales.

Benefits and Expenses. Policyholder benefits and expenses in 1995 were $314.5
million as compared to $315.4 million in 1994. Benefits and expenses related to
the Company's individual insurance business, which was 100% reinsured effective
July 1, 1994, decreased $17.2 million in 1995 as compared to the same period in
1994. Benefits and interest credited on asset accumulation products decreased by
$12.9 million. The primary cause of the decrease was a decline in average funds
under management of $201.3 million in 1995 as compared to 1994 due to policy
maturities and surrenders. The weighted average annual crediting rate on asset
accumulation products was 5.6% in 1995 and 1994. Amortization of cost of
business acquired related to asset accumulation products increased by $2.5
million during 1995 due to an increase in the difference between investment
yields and credited rates. During 1995, benefits and expenses for group employee
benefit products increased by $25.7 million as compared to 1994, primarily due
to premium growth in these `product lines. The combined ratio (loss ratio plus
expense ratio) for group employee benefit products was 98.9% for the year ended
December 31, 1995 as compared to 97.8% for 1994. The increase in the combined
ratio was primarily due to an increase in expenses related to the expansion of
the Company's loss management capabilities.

Operating Income. Income from continuing operations before interest and taxes in
1995 was $64.2 million as compared to $49.9 million for 1994, an increase of
29%. The increase was primarily due to an increase in the weighted average
annual yield on invested assets. Partially offsetting this increase in operating
income was a decrease in realized investment gains.

Interest Expense. Interest expense for 1995 was $13.3 million as compared to
$12.3 million for 1994, an increase of 8%. Interest on the $85.0 million Senior
Notes was unchanged. Short-term interest rates, which affect the floating
interest rate payable under the Credit Agreement, declined during the year;
however, on average, they were more than 100 basis points higher than the
previous year.

-17-

<PAGE> 19
Income Taxes. Income tax expense in 1995 was $18.2 million as compared to $11.7
million in 1994. The increase was primarily due to the $14.3 million increase in
operating income partially offset by an increase in the effective tax rate to
35.7% in 1995 as compared to 31.1% for 1994, which includes an adjustment for a
one-time tax recovery.

Discontinued Operations. The operating loss from the Company's discontinued
long-term care insurance business for 1995 was $2.3 million as compared to $0.1
million for 1994. This business, which was discontinued in 1996, was acquired in
December 1994.

LIQUIDITY AND CAPITAL RESOURCES

General. The Company had approximately $117.2 million of financial resources
available at the holding company level at December 31, 1996, which are primarily
comprised of investments in the common stock of its non-insurance subsidiaries.
The assets of these non-insurance subsidiaries are primarily invested in
balances with independent investment managers and marketable securities.
Substantially, all of the amounts invested with independent investment managers
are withdrawable at least annually, subject to applicable notice requirements. A
shelf registration is also in effect under which up to $149.2 million in
securities may be issued by the Company.

Other sources of liquidity at the holding company level include interest and
principal payments made on a surplus debenture (the "Surplus Debenture") issued
by RSLIC-Texas to the Company, dividends paid from insurance subsidiaries,
primarily generated from operating cash flows and investments, and borrowings
available under the Credit Agreement. At December 31, 1996, the unpaid principal
balance of the Surplus Debenture, which is payable in quarterly installments
through December 31, 1999, was $58.0 million. RSLIC-Texas generates less than 1%
of the Company's premiums, policyholder fees and deposits; therefore, payments
on the Surplus Debenture are generally funded by dividend payments made by RSLIC
to RSLIC-Texas. These dividends are subject to regulatory restrictions and, in
the absence of regulatory approval, are generally limited within any 12-month
period, in the aggregate, to the greater of RSLIC's statutory net income for the
preceding calendar year, or 10% of RSLIC's statutory surplus as of the preceding
December 31, determined in accordance with state regulations. RSLIC will be
permitted to make dividend payments of $23.2 million during 1997 without prior
regulatory approval. SNCC's ability to pay dividends is subject to regulatory
and certain other contractual restrictions and, in the absence of the requisite
approvals, dividends are generally limited within any 12-month period, in the
aggregate, to the lesser of 10% of SNCC's statutory surplus as of the preceding
December 31, or SNCC's statutory net investment income for the preceding
calendar year, determined in accordance with state regulations. SNCC will be
permitted to make dividend payments totaling $14.0 million during 1997 without
prior approval. Additional dividends may also be paid by RSLIC and SNCC with the
requisite approvals. See "Business - Regulation." The Credit Agreement permits
the Company to borrow up to $200.0 million at any one time. Of the unused
portion of the facility, $54.0 million is restricted for use in connection with,
among other things, acquisitions or the redemption of the SIG Senior Notes.

The Company's current liquidity needs, in addition to funding operating
expenses, include principal and interest payments on outstanding borrowings
under the Credit Agreement, the Senior Notes and the SIG Senior Notes. Beginning
in 1999, the maximum amount available to the Company under the Credit Agreement
will be reduced on October 1 of each year with the balance due on April 1, 2003.
At the Company's current level of borrowing, no principal repayments would be
required until October 1, 2002. The Senior Notes mature in their entirety on
October 1, 2003 and are not subject to any sinking fund requirements nor are
they redeemable prior to maturity. The SIG Senior Notes amortize in $9.0 million
annual installments beginning in May 1999. See Note F to the Consolidated
Financial Statements.

The Company actively pursues acquisitions of blocks of business and insurance
and financial services companies that complement or may otherwise be
strategically consistent with its existing business. The Company routinely
engages in discussions with respect to certain potential transactions, any of
which could, if consummated, be material to the Company's operations.

Sources of liquidity available to the Company on a parent company-only basis,
including the undistributed earnings of its subsidiaries, scheduled payments
under the Surplus Debenture and additional borrowings available under the Credit
Agreement, are expected to exceed the Company's cash requirements for 1997.

The principal liquidity requirements of the Company's insurance subsidiaries
are, in the cases of RSLIC, FRSLIC and SNCC, their contractual obligations to
policyholders and contractholders, and in the case of RSLIC-Texas, its payments
to the Company on the Surplus Debenture. The primary sources of funding for
these obligations, in addition to operating earnings,

-18-

<PAGE> 20
are the marketable investments included in the investment portfolios of RSLIC,
FRSLIC and SNCC. The Company believes that these sources of funding will be
adequate for its insurance subsidiaries to satisfy on both a short-term and
long-term basis these contractual obligations throughout their estimated or
stated period.

Operating activities increased cash and cash equivalents by $95.7 million during
1996. Net investing activities provided $101.0 million of cash during 1996,
primarily due to sales of securities and net cash acquired as a result of the
SIG Merger. Financing activities used $123.7 million of cash during 1996,
principally to reduce reverse repurchase agreement liabilities, offset by
additional borrowings under the Credit Agreement to fund the cash consideration
associated with the SIG Merger.

The Company recorded the discontinuance of its long-term care insurance business
in 1996. This is expected to be accomplished by means of a sale, which is
intended to be consummated by mid-1997. This business was purchased in December
1994 and was expected to become a significant part of the Company's operations.
The Company exited this business due to its continued losses attributable to
lower than expected sales and profit levels and decided to concentrate its
resources on other opportunities such as product and distribution enhancements
for the Company's group employee benefit products. The discontinuance of this
business is not expected to have a material effect on the Company's financial
condition or liquidity in the future.

Investments. The Company's overall investment strategy to achieve its objectives
of safety and liquidity, while seeking the best available return, focuses on,
among other things, managing the durations of the Company's interest-sensitive
assets and liabilities and minimizing the Company's exposure to fluctuations in
interest rates. The Company has de-emphasized the use of reverse repurchase
agreements and has reduced its liabilities under these agreements from $202.5
million at December 31, 1995 to $50.2 million at December 31, 1996. The
Company's investment portfolio primarily consists of investments in fixed
maturity securities. The weighted average credit rating of the Company's fixed
maturity portfolio as rated by Standard & Poor's Corporation was "AA" at
December 31, 1996. While the investment grade rating of the Company's fixed
maturity portfolio addresses credit risk, it does not address other risks, such
as prepayment and extension risks, which are discussed below.

During the year ended December 31, 1996, the Company's investments in
mortgage-backed securities decreased to 36% of total invested assets, or $819.8
million, as compared to 63% of total invested assets, or $1,133.5 million, at
December 31, 1995. This decrease resulted from the sale of $296.3 million of
mortgage-backed securities and the acquisition of SIG's investment portfolio,
which totaled $566.3 million at December 31, 1996. Approximately 35% of the
Company's mortgage-backed securities are guaranteed by U.S. Government sponsored
entities as to the full amount of principal and interest. The remaining 65% of
the mortgage-backed portfolio consists of investments in trusts created by banks
and finance and mortgage companies. Ninety-nine percent of the Company's
mortgage-backed securities portfolio, based on fair value, have been rated as
investment grade by nationally recognized statistical rating organizations. The
single largest investment in mortgage-backed securities backed by a single
mortgage pool totaled $50.7 million, or 2% of total invested assets, at December
31, 1996. The Company's holdings include certain privately placed
mortgage-backed securities, the fair value of which totaled $121.8 million at
December 31, 1996. Although there is an additional degree of liquidity risk
associated with privately placed securities, the Company believes that, if
necessary, it could liquidate all or a portion of its investments in these
securities in a timely manner at or close to market value. The Company has not
experienced any material write-downs in its mortgage-backed portfolio.

Mortgage-backed securities subject the Company to a degree of interest rate
risk, including prepayment and extension risk, which is generally a function of
the sensitivity of each security's underlying collateral to prepayments under
varying interest rate environments and the repayment priority of the securities
in the particular securitization structure. The Company seeks to limit the
extent of this risk by emphasizing the more predictable payment classes and
securities with stable collateral. In addition, the Company has developed a
hedging program to assist it in managing the duration of its mortgage-backed
securities. The hedging program utilizes short positions in U.S. Treasury
futures contracts to reduce the Company's interest rate risk, effectively
shortening the duration of the Company's mortgage-backed securities. At December
31, 1996, the Company maintained mortgage-backed securities with a weighted
average duration of 4.9 years, after giving effect to hedging activities, in
line with the duration of its interest sensitive liabilities. The duration of
the Company's mortgage-backed securities without the hedging instruments was
approximately 5.6 years. At December 31, 1996, realized losses on closed futures
positions totaling $23.9 million and unrealized gains on open futures positions
totaling $1.4 million have been deferred and recorded as adjustments to the
amortized cost of the mortgage-backed securities being hedged and will be
amortized into investment income over the expected term of the securities being
hedged.

-19-

<PAGE> 21
The Company has also developed a hedging program to reduce the interest rate
risk associated with its municipal securities portfolio. This hedging program
utilizes short positions in U.S. Treasury futures contracts and limits the
interest rate risk associated with its investments in trusts comprised of
municipal securities. The short futures contracts hedging these securities have
a net deferred realized loss on closed positions of $4.9 million and an
unrealized gain on open positions of $1.8 million which have been recorded as
adjustments to the amortized cost of the municipal securities being hedged and
will be amortized into investment income over the expected term of the
securities being hedged.

The Company maintains an investment program in which securities have been
financed using advances from the FHLB. The Company has utilized this program to
manage the duration of its liabilities and to earn spread income, which is the
difference between the financing cost and the earnings from the securities
purchased with those funds. The advances from the FHLB, which are at a fixed
rate, had an average term to maturity of 3.8 years. This program requires the
Company to maintain securities on deposit with the FHLB as collateral for the
advances outstanding. As the fair value of those securities increases or
decreases, the Company may be allowed to retake possession of securities or be
required to deposit additional securities.

The ability of the Company's insurance subsidiaries to make investments is
subject to the insurance laws and regulations of their respective state of
domicile. Each of these states has comprehensive investment regulations. In
addition, the Credit Agreement and, as to SNCC, the SIG Senior Notes also
contain limitations, with which the Company is currently in compliance in all
material respects, on the composition of the Company's investment portfolio. The
Company also continually monitors its investment portfolio and attempts to
ensure that the risks associated with concentrations of investments in either a
particular sector of the market or a single entity are limited.

Asset/Liability Management. A significant aspect of the Company's continued
profitability is its ability to manage risks associated with interest-sensitive
assets and liabilities. The Company prices its annuity products based on
assumptions concerning prevailing and expected interest rates and other factors
to achieve a positive difference, or spread, between its expected return on
investments and the crediting rate. The Company achieves this spread by active
portfolio management focusing on matching the durations of invested assets and
related liabilities to minimize the exposure to fluctuations in interest rates
and by the adjustment of the crediting rate on annuity products. The results of
this asset/liability matching are analyzed periodically through cash flow
analysis under multiple interest rate scenarios. The Company believes that it
will continue to achieve a positive spread and that the amount of lapses and
surrender rates will remain consistent with those assumed in the pricing of the
products.

-20-

<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is included in this Form 10-K beginning on
page 26 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of
Stockholders, under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference, and in Item 4A in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of
Stockholders, under the caption "Executive Compensation" and is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT

The information required by Item 12 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of
Stockholders, under the caption "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of
Stockholders, under the caption "Certain Relationships and Related Party
Transactions" and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The response to this portion of Item 14 is submitted as a
separate section of this report (see page 26 of this Form
10-K).

(b) No reports on Form 8-K were filed during the fourth quarter of
1996.

(c) The following Exhibits are numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K:
2.1 - Agreement and Plan of Merger, dated October 5,
1995, among the Company, SIG Holdings Acquisition
Corp., and SIG Holdings, Inc. (9)
3.1 - Restated Certificate of Incorporation of Delphi
Financial Group, Inc. (exhibit 3.2) (3)
3.2 - Amended and Restated By-laws of Delphi Financial
Group, Inc. (exhibit 3.4) (3)
4.1 - Indenture, dated as of October 8, 1993, between
Delphi Financial Group, Inc. and Fleet National Bank
(formerly Shawmut Bank Connecticut, N.A.) as Trustee
(8.0% Senior Notes due 2003). (4)
10.1 - Senior Management Incentive Plan of Reliance
Standard Life Insurance Company. (10)
10.2 - Amended and Restated Employee Nonqualified Stock
Option Plan of the Company. (Exhibit 4.2) (9)

-21-

<PAGE> 23
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. - (CONTINUED)

10.3 - The Delphi Capital Management, Inc. Pension Plan for Robert
Rosenkranz. (exhibit 10.4) (2)
10.4 - Third Amended and Restated Credit Agreement dated as of
December 5, 1996, among the Company, the Lenders named
therein, The Bank of New York, NationsBank, N.A. (South) and
Fleet National Bank, as Co-Agents for the lenders, and Bank of
America National Trust and Savings Association, as
Administrative Agent for the lenders. (10)
10.5 - Borrower Pledge Agreement, dated as of February 23, 1993,
between the Company and Bank of America Illinois. (exhibit
10.6) (2)
10.6 - Investment Consulting Agreement, dated as of November 10,
1988, between Rosenkranz, Inc. and the Company. (exhibit 10.8)
(3)
10.7 - Investment Consulting Agreement, dated as of November 6,
1988, between Rosenkranz, Inc. and Reliance Standard Life
Insurance Company. (exhibit 10.9) (3)
10.8 - Assumption Reinsurance Agreement, dated as of December 5,
1988, between John Alden Life Insurance Company and Reliance
Standard Life Insurance Company. (exhibit 10.11) (3)
10.9 - Assignment and Marketing Agreement, dated as of November 1,
1988, between Reliance Standard Life Insurance Company and RSL
Marketing, Inc. (exhibit 10.14) (3)
10.10 - Settlement Agreement and Release of February 1988 among
Insurers Service Corporation, Frank B. Hall & Co. Inc.,
Reliance Group Holdings Inc. and Safety National Casualty
Corporation, as supplemented and amended by letter agreement
dated March 4, 1996. (exhibit 10.11) (8)
10.11 - SIG Holdings, Inc. 1992 Long-Term Incentive Plan. (exhibit
10.12) (8)
10.12 - Stockholders Agreement, dated as of October 5, 1995, among
the Company and the affiliate stockholders named therein.
(exhibit 10.30) (9)
10.13 - Reliance Standard Life Insurance Company Non-Qualified
Deferred Compensation Plan. (exhibit 10.14) (9)
10.14 - Reliance Standard Life Insurance Company Supplemental
Executive Retirement Plan. (exhibit 10.15) (9)
10.15 - Amended and Consolidated Surplus Debenture, in the amount of
$58,000,000, dated December 1, 1996, issued by Reliance
Standard Life Insurance Company of Texas to Delphi Financial
Group, Inc. (10)
10.16 - Indemnity Coinsurance Agreement and Administrative Services
Agreement, dated as of October 3, 1994, between Reliance
Standard Life Insurance Company and Protective Life Insurance
Company. (exhibit 10.21) (7)
10.17 - Indemnity Coinsurance Agreement, dated as of June 30, 1990,
between Reliance Standard Life Insurance Company and John
Alden Life Insurance Company (with exhibit 1 thereto).
(exhibit (10.22) (1)
10.18 - Indemnity Coinsurance Agreement, dated as of October 31,
1990, between Reliance Standard Life Insurance Company and
John Alden Life Insurance Company (with exhibit 1 thereto).
(exhibit 10.23) (1)
10.19 - Indemnity Coinsurance Agreement, dated as of March 31, 1992,
between Reliance Standard Life Insurance Company and
Washington National Life Insurance Company of New York (filed
with the Trust Agreement dated as of April 27, 1992, between
Reliance Standard Life Insurance Company and Washington
National Life Insurance Company of New York). (exhibit 10.24)
(1)
10.20 - Indemnity Coinsurance Agreement, dated as of December 31,
1992, between Reliance Standard Life Insurance Company and
Lamar Life Insurance Company. (exhibit 10.25) (1)
10.21 - Employment Agreement, dated March 18, 1994, for Robert M.
Smith, Jr. (exhibit 10.31) (7)
10.22 - Employment Agreement, dated December 22, 1995, for B.K.
Werner (10)
10.23 - SIG Holdings, Inc. Note Agreement, dated as of May 20, 1994
(8.5% Senior Secured Notes due 2003). (exhibit 10.25) (8)
10.24 - Borrower Pledge Agreement, dated as of May 20, 1994, between
SIG Holdings, Inc., and the Chase Manhattan Bank, N.A., as
collateral agent. (exhibit 10.26) (8)
10.25 - Subsidiary Pledge Agreement, dated as of March 5, 1996,
between SIG Holdings, Inc. and Bank of America National Trust
and Savings Association, as Administrative Agent. (exhibit
10.27) (8)
11.1 - Computation of Earnings per Share of Common Stock on Fully
Diluted Basis. (10)
21.1 - List of Subsidiaries of the Company. (10)
23.1 - Consent of Ernst & Young LLP. (10)
24.1 - Powers of Attorney. (10)
27 Financial Data Schedule (10)

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<PAGE> 24
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. - (CONTINUED)

(1) Incorporated herein by reference to the designated exhibit to the
Company's Registration Statement on Form S-1 dated September 30, 1993
(Registration No. 33-65828).
(2) Incorporated herein by reference to the designated exhibit to the
Company's Form 10-K for the year ended December 31, 1992.
(3) Incorporated herein by reference to the designated exhibit to the
Company's Registration Statement on Form S-1 dated March 13, 1990
(Registration No. 33-32827).
(4) Incorporated herein by reference to the designated exhibit to the
Company's Form 10-K for the year ended December 31, 1993.
(5) Incorporated herein by reference to the designated exhibit to the
Company's Registration Statement on Form S-8 dated August 8, 1994
(Registration No. 33-82576).
(6) Incorporated herein by reference to the designated exhibit to the
Company's Registration Statement on Form S-8 dated December 7, 1993
(Registration No. 33-72614).
(7) Incorporated herein by reference to the designated exhibit to the
Company's Form 10-K for the year ended December 31, 1994.
(8) Incorporated herein by reference to the designated exhibit to the
Company's Form 10-K for the year ended December 31, 1995.
(9) Incorporated herein by reference to the Company's Registration
Statement on Form S-4 dated January 30, 1996 (Registration No.
33-99164).
(10) Filed herewith.

(d) The following consolidated financial statement schedules of Delphi
Financial Group, Inc. and subsidiaries are included under Item 8 and are
presented beginning on page 47 of this Form 10-K:

Schedule I - Summary of Investments Other Than Investments in
Related Parties
Schedule II - Condensed Financial Information of Registrant
Schedule IV - Reinsurance
Schedule VI - Supplemental Information Concerning Property
-Casualty Operations

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

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<PAGE> 25
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Delphi Financial Group, Inc.

By: /S/ ROBERT ROSENKRANZ
-----------------------------------
Chairman of the Board, President and
Chief Executive Officer

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

<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----

<S> <C> <C>
/S/ ROBERT ROSENKRANZ Chairman of the Board, March 5, 1997
- ------------------------------- President and Chief Executive
(Robert Rosenkranz) Officer (Principal Executive
Officer)

* Director March 5, 1997
- -------------------------------
(Edward A. Fox)

* Director March 5, 1997
- -------------------------------
(Charles P. O'Brien)

* Director March 5, 1997
- -------------------------------
(Lewis S. Ranieri)

* Director March 5, 1997
- -------------------------------
(Thomas L. Rhodes)

/S/ ROBERT M. SMITH, JR . Director and March 5, 1997
- ------------------------------- Vice President
(Robert M. Smith, Jr.)

* Director March 5, 1997
- -------------------------------
(Thomas A. Sullivan)

* Director March 5, 1997
- -------------------------------
(B.K. Werner)

* Vice President and Treasurer March 5, 1997
- ------------------------------- (Principal Accounting and
(Jane R. Dunlap) Financial Officer)
</TABLE>

* BY: /S/ ROBERT ROSENKRANZ
-------------------------
Attorney-in-Fact

-24-

<PAGE> 26
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Income From
Continuing Income From
Operations Continuing Net
Before Interest Income From Operations Income Per
and Income Continuing Net Per Common Common
Revenues Tax Expense Operations Income Share Share
-------- ----------- ----------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
1996: First Quarter $101,868 $19,217 $10,246 $ 9,875 $ .64 $ .61
Second Quarter 120,731 24,509 13,333 7,103 .68 .36
Third Quarter 128,730 27,625 14,512 14,512 .74 .74
Fourth Quarter 136,003 28,268 15,763 15,763 .81 .81

1995: First Quarter $ 86,581 $ 9,338 $ 3,936 $ 3,497 $ .27 $ .24
Second Quarter 96,483 19,061 10,192 9,788 .71 .68
Third Quarter 92,293 16,665 8,709 8,312 .60 .57
Fourth Quarter 103,361 19,105 9,905 8,867 .68 .61

1994: First Quarter $ 88,766 $10,539 $ 4,977 $ 4,977 $ .34 $ .34
Second Quarter 93,234 12,490 6,200 6,200 .43 .43
Third Quarter 93,302 19,231 10,454 10,454 .72 .72
Fourth Quarter 89,999 7,634 4,313 4,187 .30 .29
</TABLE>

Computations of earnings per share for each quarter are made independently of
earnings per share for the year. Due to the transactions affecting the weighted
average number of shares outstanding in each quarter and due to the uneven
distribution of earnings and losses during the year, the sum of quarterly
earnings per share does not equal the earnings per share for the year.

The 1996 results reflect the inclusion of SIG from the date of the SIG Merger.
Prior-period results per share have been restated to reflect the 20% stock
dividend distributed on September 30, 1996. The Company discontinued its
long-term care insurance business during 1996 (see Note O of the Notes to the
Consolidated Financial Statements).

Reporting the results of operations on a quarterly basis requires the use of
numerous estimates throughout the year, primarily in the computation of
insurance reserves and the effective rate for federal income taxes. It is the
Company's practice to review estimates at the end of each quarter and, if
necessary, make appropriate adjustments, with the effect of these adjustments
being reported in current operations. Only at year-end is the Company able to
assess the accuracy of its previous quarterly estimates. The Company's fourth
quarter results include the effect of the difference between previous estimates
and actual year-end results. Therefore, the results of an interim period may not
be indicative of the results of the entire year.

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<PAGE> 27
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
Page
<S> <C>
Audited Consolidated Financial Statements of Delphi Financial Group, Inc. and Subsidiaries:

Report of Independent Auditors...................................................................... 27

Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and 1994.................... 28

Consolidated Balance Sheets - December 31, 1996 and 1995 ........................................... 29

Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1996, 1995 and 1994 ..... 30

Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994............................. 31

Notes to Consolidated Financial Statements.......................................................... 32

The following Consolidated Financial Statement Schedules of Delphi Financial Group, Inc. and
Subsidiaries are included under Item 14(d):

Schedule I, Summary of Investments Other Than Investments in Related Parties........................ 47

Schedule II, Condensed Financial Information of Registrant.......................................... 48

Schedule IV, Reinsurance............................................................................ 52

Schedule VI, Supplemental Information Concerning Property-Casualty Insurance Operations............. 53
</TABLE>

-26-

<PAGE> 28
REPORT OF INDEPENDENT AUDITORS

Shareholders and Directors
Delphi Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of Delphi Financial
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14(d).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Delphi
Financial Group, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.

As discussed in Note A to the consolidated financial statements, in 1994 the
Company changed its method of accounting for investments.

/s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania
February 10, 1997

-27-

<PAGE> 29
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Insurance premiums and policyholder fees ................... $ 335,233 $ 260,902 $ 248,512
Net investment income ...................................... 154,750 117,112 106,576
Net realized investment (losses) gains ..................... (2,651) 704 10,213
--------- --------- ---------
487,332 378,718 365,301
--------- --------- ---------
Benefits and expenses:
Benefits, claims and interest credited to policyholders .... 280,620 241,165 242,637
Commissions ................................................ 24,550 21,304 21,684
Amortization of cost of business acquired .................. 31,221 17,045 16,712
Premium and other taxes, licenses and fees ................. 11,575 9,611 8,680
Other operating expenses ................................... 39,747 25,424 25,694
--------- --------- ---------
387,713 314,549 315,407
--------- --------- ---------

Income from continuing operations before
interest and income tax expense ....................... 99,619 64,169 49,894

Interest expense .............................................. 18,269 13,257 12,252
--------- --------- ---------

Income from continuing operations before
income tax expense .................................... 81,350 50,912 37,642

Income tax expense ............................................ 27,496 18,170 11,698
--------- --------- ---------

Income from continuing operations ....................... 53,854 32,742 25,944

Discontinued operations, net of income tax benefit:
Loss from operations ....................................... (765) (2,278) (126)
Loss on disposal ........................................... (5,836) -- --
--------- --------- ---------

Net income.............................................. $ 47,253 $ 30,464 $ 25,818
========= ========= =========

Results per share of common stock:
Income from continuing operations.......................... $ 2.88 $ 2.25 $ 1.79
Discontinued operations, net of income tax benefit:
Loss from operations .................................... (0.04) (0.15) (0.01)
Loss on disposal ........................................ (0.31) -- --
--------- --------- ---------
Net income................................................. $ 2.53 $ 2.10 $ 1.78
========= ========= =========

Weighted average shares outstanding (in thousands) ......... 18,693 14,532 14,495
</TABLE>

See notes to consolidated financial statements.

-28-

<PAGE> 30
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Investments:
Fixed maturity securities, available for sale ............................ $ 1,891,512 $ 1,554,283
Cash and cash equivalents................................................. 89,711 16,685
Other investments......................................................... 313,784 220,563
----------- -----------
2,295,007 1,791,531
Cost of business acquired.................................................... 94,594 91,346
Reinsurance receivables...................................................... 214,529 183,077
Other assets................................................................. 174,157 192,155
Assets held in separate account.............................................. 79,619 64,901
----------- -----------
Total assets........................................................... $ 2,857,906 $ 2,323,010
=========== ===========

LIABILITIES:
Future policy benefits....................................................... $ 416,854 $ 380,339
Unpaid claims and claim expenses............................................. 509,720 118,370
Policyholder account balances................................................ 719,229 743,745
Corporate debt............................................................... 231,004 134,611
Advances from Federal Home Loan Bank......................................... 201,055 201,057
Securities sold under agreements to repurchase............................... 50,170 202,495
Other liabilities and policyholder funds..................................... 291,011 260,893
Liabilities related to separate account...................................... 71,898 58,685
----------- -----------
2,490,941 2,100,195
----------- -----------

SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par; 10,000,000 shares authorized...................... - -
Class A Common Stock, $.01 par; 40,000,000 shares authorized;
11,813,064 and 6,696,355 shares issued and outstanding, respectively...... 118 67
Class B Common Stock, $.01 par; 20,000,000 shares authorized;
6,258,944 and 5,215,788 shares issued and outstanding, respectively....... 63 52
Additional paid-in capital................................................... 240,203 87,734
Net unrealized depreciation on investments................................... (17,949) (34,832)
Retained earnings............................................................ 144,530 172,136
Treasury stock, at cost; 126,568 shares of Class A Common Stock.............. - (2,342)
----------- -----------
366,965 222,815
----------- -----------
Total liabilities and shareholders' equity............................. $ 2,857,906 $ 2,323,010
=========== ===========
</TABLE>

See notes to consolidated financial statements.

-29-

<PAGE> 31
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Shares Amounts Shares Amounts Shares Amounts
-------- --------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A COMMON STOCK:
Beginning balance................. 6,696 $ 67 5,901 $ 59 5,519 $ 55
Issuance of stock, exercise
of stock options and
conversion of shares........ 3,303 33 795 8 382 4
Stock dividend................. 1,941 19 - - - -
Retirement of Treasury Stock... (127) (1) - - - -
-------- --------- -------- -------- ------- ---------
Ending balance ................... 11,813 $ 118 6,696 $ 67 5,901 $ 59
======== ========= ======== ======== ======= =========
CLASS B COMMON STOCK:
Beginning balance................. 5,216 $ 52 5,866 $ 59 5,914 $ 59
Conversion of shares........... - - (650) (7) (48) -
Stock dividend................. 1,043 11 - - - -
-------- --------- -------- -------- ------- ---------
Ending balance ................... 6,259 $ 63 5,216 $ 52 5,866 $ 59
======== ========= ======== ======== ======= =========
CLASS A TREASURY STOCK:
Beginning balance................. 127 $ (2,342) - $ - - $ -
Retirement of Treasury Stock... (127) 2,342 - - - -
Receipt of Treasury Stock...... - - 127 (2,342) - -
-------- --------- -------- -------- ------- ---------
Ending balance ................... - $ - 127 $ (2,342) - $ -
======== ========= ======== ======== ======= =========
ADDITIONAL PAID-IN CAPITAL:
Beginning balance................. $ 87,734 $ 86,481 $ 82,993
Issuance of stock and
exercise of stock options.. 79,982 1,253 3,488
Stock dividend................. 74,579 - -
Retirement of Treasury Stock... (2,092) - -
--------- -------- ---------
Ending balance.................... $ 240,203 $ 87,734 $ 86,481
========= ======== =========
NET UNREALIZED (DEPRECIATION)
APPRECIATION ON INVESTMENTS:
Beginning balance................. $ (34,832) $(57,889) $ 2,007
Change in net unrealized
appreciation (depreciation). 16,883 23,057 (74,973)
Cumulative effect of change in
accounting.................. - - 15,077
--------- -------- ---------
Ending balance.................... $ (17,949) $(34,832) $ (57,889)
========= ======== =========
RETAINED EARNINGS:
Beginning balance................. $ 172,136 $141,672 $ 115,854
Net income..................... 47,253 30,464 25,818
Stock dividend................. (74,610) - -
Retirement of Treasury Stock... (249) - -
--------- -------- ---------
Ending balance.................... $ 144,530 $172,136 $ 141,672
========= ======== =========

TOTAL SHAREHOLDERS' EQUITY $ 366,965 $222,815 $ 170,382
========= ======== =========
</TABLE>

See notes to consolidated financial statements.

-30-

<PAGE> 32
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income ..................................................... $ 47,253 $ 30,464 $ 25,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in future policy benefits, unpaid claims and claim
expenses, reinsurance receivables and policyholder accounts 28,614 3,744 37,515
Amortization, principally the cost of business acquired
and investments ........................................... 26,978 19,099 14,754
Deferred costs of business acquired ......................... (28,718) (19,624) (21,077)
Net realized losses (gains) on investments .................. 2,651 (704) (10,213)
Net change in trading account securities .................... (6,995) (32,285) (5,797)
Other ....................................................... 28,042 25,593 5,982
----------- --------- ---------
Net cash provided by operating activities ................. 97,825 26,287 46,982
----------- --------- ---------

Investing activities:
Securities available for sale:
Purchases of investments and loans made ..................... (1,420,940) (332,147) (120,744)
Purchases of short-term investments ......................... -- (12,194) (688)
Sales of investments and receipts from repayment of loans ... 1,289,364 426,423 352,407
Sales of short-term investments ............................. 4,460 8,384 24,559
Maturities of investments ................................... 35,722 44,806 39,249
Net change in securities held under reverse
repurchase agreements ..................................... 156,558 179,631 (133,296)
Securities held to maturity:
Purchases of investments .................................... -- (10,327) (205,537)
Maturities of investments ................................... -- 15,165 5,198
Purchases of securities held under reverse
repurchase agreements ..................................... -- -- (93,270)
Cash acquired in SIG Merger, net of consideration paid ......... 37,313 -- --
Net payment to cede individual life business to reinsurer ...... -- -- (66,786)
Change in deposit in separate account .......................... (1,506) 1,077 10,213
----------- --------- ---------
Net cash provided (used) by investing activities .......... 100,971 320,818 (188,695)
----------- --------- ---------

Financing activities:
Deposits to policyholder accounts .............................. 59,460 13,580 9,972
Withdrawals from policyholder accounts ......................... (78,435) (172,876) (168,228)
Proceeds from issuance of common stock
and exercise of stock options ............................... 530 1,254 3,492
Borrowings under Credit Agreement .............................. 64,000 -- 91,000
Principal payments under Credit Agreement ...................... (14,000) (25,000) (91,000)
Advances from Federal Home Loan Bank ........................... -- -- 50,000
Change in amounts due to brokers and other
short-term financing ........................................ (5,000) (10,000) 5,000
Change in liability under reverse repurchase agreements ........ (152,325) (138,821) 149,209
----------- --------- ---------
Net cash (used) provided by financing activities .......... (125,770) (331,863) 49,445
----------- --------- ---------
Increase (decrease) in cash and cash equivalents .................. 73,026 15,242 (92,268)
Cash and cash equivalents at beginning of year .................... 16,685 1,443 93,711
----------- --------- ---------
Cash and cash equivalents at end of year ....................... $ 89,711 $ 16,685 $ 1,443
=========== ========= =========
</TABLE>

See notes to consolidated financial statements.

-31-

<PAGE> 33
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include the
accounts of Delphi Financial Group, Inc. ("DFG") and all of its wholly-owned
subsidiaries, including, among others, Reliance Standard Life Insurance Company
("RSLIC"), Safety National Casualty Corporation ("SNCC"), First Reliance
Standard Life Insurance Company ("FRSLIC") and Reliance Standard Life Insurance
Company of Texas ("RSLIC-Texas"). As of December 31, 1996, Rosenkranz & Company,
through ownership of shares of DFG's Class B Common Stock, has a 26% equity
interest in DFG on a fully diluted basis, which represents 68% of the combined
voting power of DFG's common stock. In addition, Mr. Robert Rosenkranz,
Chairman of the Board, President and Chief Executive Officer of DFG and the
beneficial owner of the corporate general partner of Rosenkranz & Company,
holds an irrevocable proxy to vote or owns directly or beneficially
additional shares of Class B Common Stock representing a 14% voting interest in
the Company on a fully diluted basis as of December 31, 1996. DFG and its
subsidiaries are herein collectively referred to as the "Company." All
significant intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made in the 1995 and 1994 consolidated
financial statements to conform with the 1996 presentation.

Nature of Operations. The Company is an insurance holding company engaged
through its subsidiaries in offering a diverse portfolio of group employee
benefit products including life, disability, excess workers' compensation and
personal accident insurance. The Company also offers asset accumulation
products, primarily annuities, to individuals and groups. The Company offers its
insurance products in all fifty states and the District of Columbia. The
Company's two product categories are group employee benefit products and asset
accumulation products, which represented approximately 99% and 1%, respectively,
of total insurance premiums and policyholder fees of $335.2 million for the year
ended December 31, 1996 and 46% and 46%, respectively, of the Company's reserves
and policyholder account balances of $1,645.8 million.

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

Investments. Fixed maturity securities principally include bonds and redeemable
preferred stocks. Effective January 1, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires
companies to segregate their portfolios into three categories: (i) held to
maturity, (ii) available for sale and (iii) trading. Securities held to maturity
are carried at amortized cost. Securities available for sale are carried at fair
value with changes in unrealized appreciation and depreciation charged directly
to shareholders' equity. Trading securities are carried at fair value with
changes in unrealized appreciation or depreciation charged to earnings. The
cumulative effect of adopting SFAS No. 115 was an increase to shareholders'
equity of $15.1 million, net of deferred income taxes of $8.1 million and a
reduction of cost of business acquired of $2.7 million. There was no effect on
net income as a result of the adoption of SFAS No. 115. For the years ended
December 31, 1996, 1995 and 1994, respectively, the change in net unrealized
appreciation (depreciation) related to available for sale securities which were
marked-to-market pursuant to SFAS No. 115 was $16.9 million, $23.0 million and
$(73.3) million, net of deferred income tax expense (benefit) of $9.1 million,
$12.4 million and $(39.4) million and a decrease (increase) in cost of business
acquired of $1.6 million, $21.4 million and $(28.4) million.

As of June 30, 1995, fixed maturity securities with an amortized cost of $450.3
million and a fair value of $422.7 million were transferred to the available for
sale category from the held to maturity category. Shareholders' equity was
reduced by net unrealized depreciation of $15.3 million, net of a deferred tax
benefit of $8.3 million and an increase in cost of business acquired of $4.0
million, related to the transferred securities. This transfer was made in
anticipation of future reductions of mortgage-backed securities in response to
concerns of rating agencies and insurance regulators regarding mortgage-backed
securities based upon unfavorable publicity about this category of securities
and, in particular, their higher risk classes. Although the Company's
mortgage-backed securities portfolio emphasizes the more predictable payment
classes, the Company has reduced its mortgage-backed securities holdings as a
result of such concerns.

-32-

<PAGE> 34
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Other investments consist primarily of trading account securities, balances with
independent investment managers and equity securities. Trading account
securities include bonds, common stocks and preferred stocks and are carried at
fair value with any changes in fair value included in net investment income.
Interest income, dividend income and realized gains and losses from trading
account securities are also included in net investment income. Balances with
independent investment managers principally represent investments in limited
partnerships and are reflected on the equity method, with earnings included in
net investment income. Equity securities are stated at fair value, with
unrealized appreciation or depreciation charged to shareholders' equity.

Net realized investment gains and losses, determined under the specific
identification method, are included in income. Declines in fair value of
investments which are considered to be other than temporary are reported as
realized losses.

Cost of Business Acquired. Costs relating to the acquisition of new business,
such as commissions and policy issue costs, are deferred when incurred. For
certain asset accumulation products, these costs are amortized in relation to
the incidence of expected gross profits over the life of the policies and
products. Deferred acquisition costs for life, accident and health and excess
workers' compensation insurance policies are amortized over the premium-paying
period or the expected life of the related policies. The present value of
estimated future profits, which was recorded in connection with the acquisition
of RSLIC and FRSLIC in 1987, is amortized in relation to premium income on life
and health lines of business and gross profits on annuity business. The
amortization of cost of business acquired was accelerated by $4.8 million before
taxes in 1996, primarily due to better than anticipated investment results. The
effect of the accelerated amortization was to decrease net income by $3.1
million, or $0.17 per share, for the year ended December 31, 1996. The
amortization of cost of business acquired was decelerated by $2.1 million before
taxes in 1994, primarily due to a decrease in investment income earned on asset
accumulation business. The effect of the decelerated amortization was to
increase net income by $1.4 million, or $0.09 per share, for the year ended
December 31, 1994.

Receivables from Reinsurers. Receivables from reinsurers for future policy
benefits, unpaid claims and claim expenses and policyholder account balances are
estimated in a manner consistent with the related liabilities associated with
the reinsured policies.

Separate Account. The separate account assets and liabilities represent funds
invested in a separately administered variable life insurance product for which
the policyholder, rather than the Company, bears the investment risk. The excess
of separate account assets over the related liabilities represents the Company's
deposit in the separate account which is maintained to support the operation of
the separate account program. The Company receives a proportionate share of the
income or loss earned by the assets of the separate account, which it generally
reinvests in the separate account.

Future Policy Benefits. The liabilities for future policy benefits for
traditional nonparticipating business, excluding annuity business, have been
computed using a net level method. Mortality, withdrawals and other assumptions
are based either on the Company's past experience or various actuarial tables,
modified as necessary for possible variations. Changes in these assumptions
could result in changes in these liabilities.

Unpaid Claims and Claim Expenses. The liability for unpaid claims and claim
expenses includes amounts determined on an individual basis for reported losses
and estimates of incurred but not reported losses developed on the basis of past
experience. The methods of making these estimates and establishing the resulting
reserves are continually reviewed and updated, and any resulting adjustments are
reflected in earnings currently. Reserves with a carrying value of $563.6
million have been discounted at rates ranging from 3.7% to 7.0%.

-33-
<PAGE> 35
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Policyholder Account Balances. Policyholder account balances are comprised of
the Company's reserves for interest-sensitive insurance products, including
annuities. Reserves for annuity products are equal to the policyholder's
accumulated value at any point in time.

Income Taxes. RSLIC-Texas and RSLIC are taxed as life insurance companies and
file a consolidated federal tax return. FRSLIC does not qualify as a life
insurance company for federal income tax purposes and files a separate federal
tax return. DFG, SNCC and the non-insurance subsidiaries of the Company file as
a separate subgroup. The Company computes a balance sheet amount for deferred
income taxes, which is included in other assets or other liabilities, at the
rates expected to be in effect when the underlying differences will be reported
in the Company's federal income tax returns.

Insurance Premiums and Policyholder Fees. The Company's group insurance products
consist primarily of short-duration contracts, and, accordingly, premiums for
these products are reported as earned over the contract period. The liabilities
for unearned premiums, included in other liabilities and policyholder funds,
represent the portion of the premiums written which applies to the unexpired
terms of the policies in force. Revenues from certain asset accumulation
products consist of policy charges for the cost of insurance, policy
administration and surrender fees. Deposits for asset accumulation products are
not recorded as premiums; instead the account balance is recorded as a
liability, since these products generally do not involve mortality or morbidity
risk.

Earnings Per Share. Earnings per share is computed by dividing net income
available for common shareholders by the weighted average number of shares
outstanding for the applicable period, adjusted for the incremental shares
attributable to common stock equivalents. Common stock equivalents include
common stock options and deferred shares.

Statements of Cash Flows. For purposes of the Statements of Cash Flows, the
Company defines cash equivalents as highly liquid debt instruments purchased
with maturities of three months or less. In 1995, the Company received 126,568
shares of the Company's Class A Common Stock with an aggregate market value of
$2.3 million in exchange for liquidating its entire limited partnership interest
in RSL Partners, L.P., a limited partnership whose primary asset is a limited
partnership interest in Rosenkranz & Company. This treasury stock was retired in
1996.

NOTE B - MERGER

On March 5, 1996, SIG Holdings, Inc. ("SIG") was merged into the Company (the
"SIG Merger") for consideration of approximately $131.9 million consisting of
$54.5 million of cash, net of approximately $1.0 million payable upon the
exercise of certain SIG stock options, which was funded from additional
borrowings under the Credit Agreement, and approximately 5.2 million shares of
the Company's Class A Common Stock, including shares of Class A Common Stock
reserved for issuance upon the exercise of stock options of SIG assumed by the
Company in connection with the merger (the "SIG Options"), plus additional
contingent consideration of up to $20.0 million. The contingent consideration
will be payable in shares of the Company's Class A Common Stock or, at the
option of the Company, in cash. No contingent consideration is due unless SIG's
cumulative net income exceeds $41.8 million for the two years ending December
31, 1997, $62.6 million for the three years ending December 31, 1998, or $83.5
million for the four years ending December 31, 1999, and the maximum amount is
triggered at cumulative net income levels of $75.3 million for the three-year
period or $104.4 million for the four-year period. The Company also assumed
$45.0 million of SIG's corporate debt. SIG, through its subsidiary SNCC, is a
provider of excess workers' compensation insurance products to the self-insured
market. As of March 5, 1996, SIG had total assets of $572.5 million, and
shareholders' equity was $96.8 million. The SIG Merger was accounted for using
the purchase accounting method with the results of SIG included in the Company's
results from the date of the SIG Merger. Goodwill recorded in connection with
the SIG Merger is being amortized on a straight-line basis over 40 years.

-34-
<PAGE> 36
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE B - MERGER - (CONTINUED)

The unaudited pro forma operating results, which assume the SIG Merger had
occurred at the beginning of each period, are as follows: total revenue of
$505.6 million and $487.2 million, which includes realized investment (losses)
gains of $(2.7) million, or $(0.09) per share after taxes, and $3.3 million, or
$0.11 per share after taxes, income from continuing operations of $56.3 million
and $50.7 million and earnings per share from continuing operations of $2.84 and
$2.57 for the years ended December 31, 1996 and 1995, respectively. Unaudited
pro forma net income, after losses from discontinued operations of $6.6 million,
or $0.33 per share, and $2.3 million, or $0.11 per share, would be $49.7
million, or $2.51 per share, and $48.4 million, or $2.46 per share, for the
years ended December 31, 1996 and 1995, respectively. In preparing the unaudited
pro forma data, adjustments have been made to reflect the purchase accounting
adjustments and interest expense on the additional borrowings under the Credit
Agreement that would have occurred. The pro forma weighted average numbers of
shares outstanding of 19.8 million and 19.7 million for the years ended December
31, 1996 and 1995, respectively, used in calculating the unaudited pro forma per
share data assume that all of the outstanding SIG Options were exercised at the
beginning of each period. The unaudited pro forma information does not purport
to be indicative of the operating results that actually would have been achieved
had the SIG Merger been consummated as of the respective dates indicated and
should not be construed as representative of future operating results.

NOTE C - INVESTMENTS IN SECURITIES

The amortized cost and fair value of investments in fixed maturity securities
are as follows:

<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities........................ $ 819,353 $ 2,419 $ (46,805) $ 774,967
Corporate securities.............................. 127,154 4,749 (2,865) 129,038
U.S. Treasury and other U.S. Government
guaranteed securities.......................... 678,541 7,060 (2,971) 682,630
Obligations of U.S. states, municipalities and
political subdivisions......................... 222,867 3,487 (8,262) 218,092
Securities held under reverse repurchase agreements 57,183 - (2,666) 54,517
Other fixed maturity securities................... 31,151 1,196 (79) 32,268
------------ ---------- ---------- -----------
Total fixed maturity securities................ $ 1,936,249 $ 18,911 $ (63,648) $ 1,891,512
============ ========== ========== ===========
</TABLE>

<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities........................ $ 973,051 $ 9,835 $ (56,234) $ 926,652
Corporate securities.............................. 134,991 1,246 (177) 136,060
U.S. Treasury and other U.S. Government
guaranteed securities.......................... 167,823 4,099 (533) 171,389
Obligations of U.S. states, municipalities and
political subdivisions......................... 74,365 210 (14,710) 59,865
Securities held under reverse repurchase agreements 214,089 864 (2,929) 212,024
Other fixed maturity securities................... 48,385 32 (124) 48,293
------------ ---------- ---------- -----------
Total fixed maturity securities................ $ 1,612,704 $ 16,286 $ (74,707) $ 1,554,283
============ ========== ========== ===========
</TABLE>

-35-
<PAGE> 37
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE C - INVESTMENTS IN SECURITIES - (CONTINUED)

The amortized cost and fair value of fixed maturity securities at December 31,
1996, by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because issuers may have the right to call or prepay
obligations, with or without prepayment penalties.

<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
(dollars in thousands)
<S> <C> <C>
Available for sale:
Mortgage-backed securities $ 866,607 $ 819,801
Other securities:
Less than one year 84,852 84,949
Greater than 1, up to 5 years 365,824 367,087
Greater than 5, up to 10 years 152,467 151,986
Greater than 10 years 466,499 467,689
----------- -----------
Total $ 1,936,249 $ 1,891,512
=========== ===========
</TABLE>

Net investment income was attributable to the following:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Gross investment income:
Fixed maturity securities...... $ 116,170 $ 91,277 $ 114,881
Other.......................... 55,018 37,404 3,654
---------- ---------- ----------
171,188 128,681 118,535
Less: Investment expenses... 16,438 11,569 11,959
---------- ---------- ----------
$ 154,750 $ 117,112 $ 106,576
========== ========== ==========
</TABLE>

As of December 31, 1996 and 1995, investments with a fair value of $6.4 million
and $3.8 million, respectively, had not been meeting contractual obligations for
at least one year.

Net realized investment (losses) gains arose from the following:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)

<S> <C> <C> <C>
Fixed maturity securities........... $ (5,947) $ (401) $ 9,048
Other investments................... 3,296 1,105 1,165
---------- ---------- ----------
$ (2,651) $ 704 $ 10,213
========== ========== ==========
</TABLE>

Proceeds from sales of investments in fixed maturity securities during 1996,
1995 and 1994 were $1,114.9 million, $338.8 million and $102.5 million,
respectively. Gross gains of $17.1 million, $13.8 million and $8.2 million and
gross losses of $21.7 million, $13.7 million and $1.8 million, respectively,
were realized on those sales during the years ended December 31, 1996, 1995 and
1994, respectively. Sales of fixed maturity securities and gross gains and
losses from such sales do not include sales of securities financed under reverse
repurchase agreements or of securities classified as trading account securities.

-36-
<PAGE> 38
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE C - INVESTMENTS IN SECURITIES - (CONTINUED)

The change in net unrealized appreciation (depreciation) in fair value was as
follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -----------
(dollars in thousands)

<S> <C> <C> <C>
Fixed maturity securities.... $ 13,684 $ 126,482 $ (207,116)
Equity securities............ 10,756 2,307 (2,763)
Trading account securities... 5,365 10,779 (3,014)
</TABLE>

Bonds and short-term investments with amortized costs of $25.2 million and $10.8
million at December 31, 1996 and 1995, respectively, are on deposit with various
states' insurance departments in compliance with statutory regulations.
Additionally, certain assets of the Company were restricted under the terms of
annuity reinsurance agreements. These agreements provide for the distribution of
assets to the reinsured companies covered under the agreements prior to any
general distribution to policyholders in the event of the Company's insolvency
or bankruptcy. The amount of assets restricted for this purpose was $153.4
million and $178.8 million at December 31, 1996 and 1995, respectively.

Other investments at December 31, 1996 and 1995 principally include trading
account securities of $115.4 million and $126.9 million, balances with
independent investment managers of $110.6 million and $58.3 million and equity
securities of $74.0 million and $27.9 million, respectively.

Summarized aggregate unaudited financial information for the entities in which
the balances with independent investment managers have been invested is shown
below:

<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
------------ -------------
(dollars in thousands)
<S> <C> <C>
Assets..................................... $ 11,830,750 $ 10,917,941
============ =============

Liabilities ............................... $ 6,832,777 $ 6,740,452
Partners' capital.......................... 4,997,973 4,177,489
------------ -------------
Total liabilities and partners' capital.... $ 11,830,750 $ 10,917,941
============ =============

Net income................................. $ 882,429 $ 795,093
============ =============
</TABLE>

NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

Derivatives held to hedge investment risks. The Company's mortgage-backed
securities portfolio subjects the Company to a degree of interest rate risk,
including prepayment and extension risk. Market prices of mortgage-backed
securities decline in an environment of increasing interest rates in a manner
similar to that of U.S. Treasury securities. Therefore, in order to reduce the
extent of this interest rate risk, the Company entered into short U.S. Treasury
futures contracts, the value of which will rise in such an environment. Since
the Company has taken a short position in these contracts, as the value of the
contract's underlying U.S. Treasury securities decrease or increase, the Company
recognizes a gain or a loss. These contracts reduce the Company's interest rate
risk, thereby effectively shortening the duration of the Company's
mortgage-backed securities portfolio from 5.6 years to 4.9 years at December 31,
1996, in line with the duration of the Company's interest sensitive liabilities.
Without the hedge, the duration of the mortgage-backed securities portfolio
would increase

-37-
<PAGE> 39
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK -
(CONTINUED)

during periods of increasing interest rates because fewer prepayments occur.
Conversely, the duration would decrease during periods of decreasing interest
rates because more prepayments would occur. Because these futures contracts
reduce the Company's exposure to the interest rate risk of the mortgage-backed
securities, they qualify as a hedge for accounting purposes. Realized losses on
closed futures contracts totaling $23.9 million and unrealized gains on open
futures contracts totaling $1.4 million at December 31, 1996 have been deferred
and will be amortized into investment income over the expected lives of the
mortgage-backed securities. If the securities being hedged are sold or otherwise
disposed of, the related realized gain or loss would be computed based upon the
difference between the adjusted amortized cost of the security and the proceeds
received. At December 31, 1996 and 1995, the Company had 880 and 2,354
outstanding short U.S. Treasury futures contracts hedging the Company's
mortgage-backed securities portfolio with fair values of $110.0 million and
$308.0 million and notional values of $102.0 million and $275.4 million,
respectively.

The Company invests in securities issued by trusts comprised of municipal bonds
rated "Aa" and above, which pay varying streams of principal and interest to the
security holder depending upon certain conditions, including the interest rate
environment. These municipal securities, similar to other fixed maturity
securities, are subject to interest rate risk. In order to reduce the extent of
this interest rate risk, the Company entered into short U.S. Treasury futures
contracts. Because these futures contracts reduce the Company's exposure to the
interest rate risk of the municipal securities, they qualify as a hedge for
accounting purposes. Realized losses on closed contracts totaling $4.9 million
and unrealized gains on open futures contracts totaling $1.8 million at December
31, 1996 have been deferred and will be amortized into investment income over
the expected term of the municipal securities. If the securities being hedged
are sold or otherwise disposed of, the related realized gain or loss would be
computed based upon the difference between the adjusted amortized cost of the
security and the proceeds received. At December 31, 1996 and 1995, the Company
had 760 and 1,222 outstanding short U.S. Treasury futures contracts hedging the
Company's municipal securities portfolio with fair values of $85.6 million and
$148.4 million and notional values of $76.0 million and $122.2 million,
respectively.

Concentrations of credit risk. As of December 31, 1996 and 1995, approximately
36% and 63%, respectively, of the Company's total invested assets were comprised
of mortgage-backed securities. The Company's mortgage-backed securities are
diversified with respect to size and geographic distribution of the underlying
mortgage loans. The Company also invests in certain non-investment grade
securities as determined by nationally recognized statistical rating agencies.
Non-investment grade securities included in fixed maturity securities had fair
values of $104.2 million and $121.8 million at December 31, 1996 and 1995,
respectively. Trading account securities include additional non-investment grade
securities with fair values of $52.9 million and $68.0 million at December 31,
1996 and 1995, respectively. In the aggregate, non-investment grade securities
constituted 7% and 11% of total invested assets at December 31, 1996 and 1995,
respectively. At December 31, 1996, the Company had no material
off-balance-sheet exposure to credit risk associated with counterparty
nonperformance on futures contracts.

The Company's only significant non-investment assets subject to credit risk are
its reinsurance receivables. To reduce its exposure to significant losses from
reinsurer insolvency, the Company monitors the financial condition of its
reinsurers, including, among other things, reviewing the companies' ratings by
A.M. Best Company ("A.M. Best"). Also, certain of the Company's reinsurance
agreements require the reinsurer to set up trust arrangements for the Company's
benefit in the event of certain ratings downgrades. The receivable from the
Company's largest reinsurer at December 31, 1996 was $132.5 million, or 62% of
total reinsurance receivables. This reinsurer is rated "A+" (Superior) by A.M.
Best.

-38-
<PAGE> 40
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE E - ACCIDENT AND HEALTH AND CASUALTY FUTURE POLICY BENEFITS AND UNPAID
CLAIMS AND CLAIM EXPENSES

The following table provides a reconciliation of the beginning and ending
accident and health and casualty future policy benefits and unpaid claims and
claim expenses:

<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year, net of reinsurance.................. $ 245,323 $ 219,405 $ 195,083
SNCC reserves at merger, net of reinsurance....................... 356,370 - -
Add:
Provisions for claims and claim expenses incurred in the
current year, net of reinsurance............................ 133,111 98,804 87,247
Decrease in estimated claims and claim expenses incurred
in prior years, net of reinsurance.......................... (3,461) (1,441) (1,537)
---------- ---------- ---------
Incurred claims and claim expenses during the current
year, net of reinsurance.................................... 129,650 97,363 85,710
---------- ---------- ---------
Deduct claims and claim expenses paid, net of reinsurance,
occurring during:
Current year................................................ 23,870 20,586 17,096
Prior year.................................................. 76,988 50,859 44,292
---------- ---------- ---------
100,858 71,445 61,388
---------- ---------- ---------
Balance at end of year, net of reinsurance........................ 630,485 245,323 219,405
Reinsurance receivables at end of year............................ 66,172 41,840 34,475
---------- ---------- ---------
Balance at end of year, gross of reinsurance...................... $ 696,657 $ 287,163 $ 253,880
========== ========== =========
</TABLE>

NOTE F - CORPORATE DEBT

The Company has outstanding borrowings pursuant to a Credit Agreement with Bank
of America National Trust and Savings Association and a group of lenders named
therein (the "Credit Agreement") which permits it to borrow up to $200.0 million
under a revolving loan arrangement. The amount of the outstanding borrowings was
$100.0 million and $50.0 million at December 31, 1996 and 1995, respectively. Of
the unused portion of the facility, $54.0 million is restricted for use in,
among other things, acquisitions or the redemption of the SIG Senior Notes (as
defined herein). The borrowings under the Credit Agreement accrue interest at a
floating rate which is indexed to various published interest indices. In
addition to interest on the outstanding borrowings, a non-use fee is charged on
the remaining unused commitment. The maximum amount of borrowings available
under the Credit Agreement will be reduced to the following amounts in October
of each year: 1999 - $180.0 million, 2000 - $150.0 million, 2001 - $110.0
million and 2002 - $60.0 million. The final maturity of the Credit Agreement is
on April 1, 2003. The debt is secured by a security interest in all of the
common stock and the surplus debenture of RSLIC-Texas, the issued and
outstanding common stock of substantially all of the Company's noninsurance
subsidiaries and, on a subordinated basis, the common stock of SNCC. The debt is
also subject to certain restrictions and financial covenants considered ordinary
for this type of borrowing. They include, among others, the maintenance of
certain financial ratios, minimum statutory surplus requirements for RSLIC and
SNCC, minimum consolidated equity requirements for the Company and certain
investment and dividend limitations. As of December 31, 1996, the Company was in
compliance in all material respects with all restrictions and covenants in the
Credit Agreement.

In 1993, the Company issued $85.0 million of 8.0% Senior Notes due 2003 (the
"Senior Notes"). The Senior Notes are not redeemable prior to maturity nor
entitled to any sinking fund. Interest on the Senior Notes is payable
semiannually on April 1 and October 1 of each year. In certain instances,
holders of the Senior Notes have the right to require the Company to repurchase
any or all of the Senior Notes owned by such holder at 101% of the principal
amount thereof, plus accrued and

-39-
<PAGE> 41
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE F - CORPORATE DEBT - (CONTINUED)

unpaid interest. The Senior Notes are senior unsecured obligations of the
Company and, as such, are effectively subordinated to all existing and future
obligations of the Company's subsidiaries, including the insurance subsidiaries'
obligations to policyholders. The terms of the indenture pursuant to which the
Senior Notes were issued contain certain covenants and restrictions which set
forth, among other things, limitations on incurrence of indebtedness by the
Company and its subsidiaries, limitations on payments of dividends on and
repurchases of stock of the Company and limitations on transactions with
stockholders and affiliates. As of December 31, 1996, the Company was in
compliance in all material respects with the terms of the indenture.

In conjunction with the SIG Merger, the Company assumed $45.0 million of SIG's
8.5% senior secured notes (the "SIG Senior Notes"). The SIG Senior Notes mature
in $9.0 million annual installments beginning in May 1999 and are collateralized
by all of the common stock of SNCC. The terms of the note agreement pursuant to
which the SIG Senior Notes were issued contain certain covenants and
restrictions which set forth, among others, minimum statutory requirements for
SNCC, minimum consolidated equity requirements for SIG, as well as the
maintenance of certain financial ratios. As of December 31, 1996, SIG was in
compliance in all material respects with the terms of the note agreement.

Interest paid during the years ended December 31, 1996, 1995 and 1994 totaled
$17.2 million, $12.8 million and $11.2 million, respectively.

NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

The Company maintains an investment program in which securities have been
financed using advances from the Federal Home Loan Bank of Pittsburgh ("FHLB").
As of December 31, 1996 and 1995, advances from the FHLB, including accrued
interest, totaled $201.1 million. Interest expense on the advances is included
as an offset to investment income on the financed securities. For the years
ended December 31, 1996 and 1995, the average advances outstanding were $200.0
million and the average interest rate was 6.2%. The advances had a weighted
average term of 3.8 years at December 31, 1996 and were collateralized by
mortgage-backed securities with a fair value of $245.3 million.

NOTE H - INCOME TAXES

Federal income tax expense is reconciled to the amount computed by applying the
statutory federal income tax rate to income from continuing operations before
federal income taxes as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Federal income tax at statutory rate .......................... $ 28,473 $ 17,819 $ 13,175
Dividends received deduction and tax-exempt income............. (2,747) (1,274) (658)
Tax recovery related to assumption of debt..................... - - (819)
Other.......................................................... 1,770 1,625 -
---------- ---------- ----------
$ 27,496 $ 18,170 $ 11,698
========== ========== ==========
</TABLE>

-40-
<PAGE> 42
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE H - INCOME TAXES - (CONTINUED)

Deferred tax assets and liabilities are determined based on the difference
between the book basis and tax basis of assets and liabilities using tax rates
in effect for the year in which the differences are expected to reverse. The
components of the net deferred tax liability (asset) are as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
(dollars in thousands)
<S> <C> <C>
Cost of business acquired....................................... $ 25,152 $ 25,429
Investments..................................................... 30,882 32,425
Future policy benefits and unpaid claims and claim expenses..... 8,846 -
Other........................................................... 951 2,066
---------- ----------
Gross deferred tax liabilities.............................. 65,831 59,920
---------- ----------
Future policy benefits and unpaid claims and claim expenses..... (8,246) (3,848)
Investments..................................................... (13,169) (22,445)
Other liabilities............................................... (18,423) -
Net operating loss carryforwards................................ (65) (7,971)
Other........................................................... (1,710) (2,709)
---------- ----------
Gross deferred tax assets................................... (41,613) (36,973)
---------- ----------
Net deferred tax liability.................................. $ 24,218 $ 22,947
========== ==========
Deferred tax expense ........................................... $ 3,537 $ 26,066
========== ==========
</TABLE>

Current tax expense (benefit), current tax liability (recoverable) and income
taxes paid are as follows:

<TABLE>
<CAPTION>
As of or for the Year Ended
December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Current tax expense (benefit) .................................... $ 23,959 $ (9,123) $ 7,171
Current tax liability (recoverable) .............................. 272 (16,419) 298
Income taxes paid (net of refunds of $12,465, $783 and $819, respectively) 4,887 7,589 6,596
</TABLE>

All of the Company's current and deferred income tax expense is due to federal
income taxes as opposed to state income taxes. At December 31, 1996, the Company
had available minimum tax credits of $1.2 million for tax purposes.

NOTE I - PRESENT VALUE OF FUTURE PROFITS

In connection with the acquisition of RSLIC and FRSLIC in 1987, the Company
recorded the present value of the estimated future profits of the business
acquired ("PVFP"). This PVFP, which is included in cost of business acquired on
the consolidated balance sheet, relates to all of the business acquired,
including group life and disability insurance, annuities and individual life
insurance. The PVFP related to the annuities is subject to accrual of interest
on the unamortized balance at the credited rate and amortization is a constant
percentage of the present value of estimated future gross profits on the
business. Changes in the estimates of future gross profits are accounted for
prospectively as adjustments to amortization and are included as amortization in
the table below. Amortization of PVFP for group life and disability insurance is
at the discount rate established at the time of the acquisition of RSLIC.

-41-
<PAGE> 43
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE I - PRESENT VALUE OF FUTURE PROFITS - (CONTINUED)

A summary of the activity related to the PVFP asset, which is included in the
cost of business acquired balance, is shown below:

<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year.................................. $ 26,898 $ 29,404 $ 34,324
Interest accrued.......................................... 639 522 433
Write-off related to reinsurance of individual business... - - (1,715)
Amortization.............................................. (3,884) (3,028) (3,638)
---------- ----------- ----------
Balance at end of year........................................ $ 23,653 $ 26,898 $ 29,404
========== ========== ==========
</TABLE>

An estimate of the percentage of the December 31, 1996 PVFP balance to be
amortized over each of the next five years is as follows: 1997 - 12%, 1998 -
11%, 1999 -10%, 2000 - 10% and 2001 - 9%.

NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of the Company's financial instruments are shown below using a
summarized version of the Company's assets and liabilities at December 31, 1996
and 1995. Because fair values for all balance sheet items are not required to be
disclosed pursuant to SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," the aggregate fair value amounts presented below do not
necessarily represent the underlying value of the Company.

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995
----------------------------- ---------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Fixed maturity securities, available for sale. $ 1,891,512 $ 1,891,512 $ 1,554,283 $ 1,554,283
Cash and cash equivalents..................... 89,711 89,711 16,685 16,685
Other investments............................. 313,784 313,784 220,563 220,563
Assets held in separate account............... 79,619 79,619 64,901 64,901

Liabilities:
Policyholder account balances:
Annuities ................................. 665,245 658,840 672,144 672,859
GICs....................................... 1,046 1,055 18,997 19,280
Corporate debt................................ 231,004 231,588 134,611 133,300
Advances from Federal Home Loan Bank.......... 201,055 205,754 201,057 210,135
Securities sold under agreements to repurchase 50,170 50,170 202,495 202,495
Liabilities related to separate account....... 71,898 71,898 58,685 58,685
</TABLE>

Fair values disclosed in the table above have been determined as follows:

The fair values for fixed maturity securities have been obtained from
broker-dealers and from nationally recognized statistical rating organizations.
The carrying values for all other invested assets approximate fair values based
on the nature of the investments. The carrying values of separate account assets
and liabilities are equal to fair value.

-42-
<PAGE> 44
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS - (CONTINUED)

Policyholder account balances are net of reinsurance receivables and the
carrying values have been decreased for related acquisition costs of $33.2
million and $35.7 million at December 31, 1996 and 1995, respectively. Fair
values for annuity liabilities were determined by deducting an estimate of the
future profits to be realized from the business, discounted at a current
interest rate, from the adjusted carrying values. Fair value for the GIC
liabilities represents the present value of future cash flows discounted at
current interest crediting rates.

The Company believes the fair value of its variable rate long-term debt is equal
to its carrying value. The Company pays a variable rate of interest on the debt
which reflects changed market conditions since the time the terms were
negotiated. The fair values of the Senior Notes and the SIG Senior Notes are
based on the expected cash flows discounted to net present value. The fair
values for advances from the FHLB were calculated using discounted cash flow
analyses based on the interest rates for the advances at the balance sheet date.
The fair value of the liability for securities sold under agreements to
repurchase approximates carrying value as the liability is very short-term in
nature, with amounts normally due in one month or less.

NOTE K - SHAREHOLDERS' EQUITY AND RESTRICTIONS

The Company's holders of Class A and Class B Common Stock are entitled to one
vote and ten votes per share, respectively. On August 30, 1996, the Company's
Board of Directors declared a 20% stock dividend distributed on September 30,
1996 to stockholders of record on September 16, 1996. Results per share and
applicable share amounts for prior periods have been restated to reflect the
stock dividend.

The Company's life insurance subsidiaries had consolidated statutory capital and
surplus of $180.3 million and $163.7 million at December 31, 1996 and 1995,
respectively. Consolidated statutory net income for the Company's life insurance
subsidiaries, after interest expense of $6.6 million, $8.4 million and $8.8
million, respectively, on the surplus debenture payable to DFG, was $19.9
million, $28.2 million and $36.4 million for the years ended December 31, 1996,
1995 and 1994, respectively. The Company's casualty insurance subsidiary, which
was acquired as a result of the SIG Merger, had statutory capital and surplus of
$139.8 million at December 31, 1996 and statutory net income of $23.5 million
for the year ended December 31, 1996. Payment of shareholder dividends is
regulated by insurance laws. Dividends are permitted based on, among other
things, the level of prior-year statutory surplus and net income. The Company's
insurance subsidiaries will be permitted to make dividend payments totaling
$37.2 million during 1997 without prior regulatory approval.

NOTE L - COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company's insurance subsidiaries are
defendants in litigation principally involving insurance company policy claims
and agent disputes, including compensatory and punitive damages. In the opinion
of management, the ultimate disposition of such litigation will not have a
material adverse effect upon the Company's financial condition, liquidity or
future results of operations.

NOTE M - STOCK OPTIONS

The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans because the alternative
fair value approach provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Accordingly, no
compensation expense has been recognized in the accompanying financial
statements for the Company's stock option plans because the exercise price of
the options granted equaled the market price of the underlying stock on the date
of grant.

-43-
<PAGE> 45
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE M - STOCK OPTIONS - (CONTINUED)

The Company's employee stock option plan provides for the granting of options to
key employees to purchase shares of the Company's Class A Common Stock (the
"Employee Option Plan"). Under the terms of the Employee Option Plan, a total of
1,980,000 shares of Class A Common Stock have been reserved for issuance under
the plan. The exercise price for options granted under this plan is the fair
market value of the underlying stock as of the date of the grant and the maximum
term of an option is ten years. The stock options granted under the Employee
Option Plan expire at various dates between 1997 and 2006. As of December 31,
1996, 625,033 options are remaining to be granted under the Employee Option
Plan.

The Company also has a stock option plan for the outside directors of the
Company (the "Directors Option Plan"). Under the Directors Option Plan, a
maximum of 60,000 shares of Class A Common Stock will be issuable upon the
exercise of options. The exercise price for options granted under this plan is
the fair market value of the underlying stock as of the date of the grant and
the maximum term of the options is ten years. The stock options granted under
the Directors Option Plan expire at various dates between 2004 and 2006 and vest
in five equal annual installments, commencing on the first anniversary date of
the grant. As of December 31, 1996, 31,200 options are remaining to be granted
under the Directors Option Plan.

In 1996, the Stock Option and Compensation Committee of the Company's Board of
Directors approved a long-term performance-based incentive plan for the
Company's chief executive officer (the "Performance Plan"), which provides for
the award of up to 288,000 shares or options for shares of the Company's Class A
Common Stock (72,000 restricted or deferred shares and options to purchase
216,000 shares) per year over a ten-year term contingent upon the Company
meeting specified annual performance goals. The restricted or deferred shares do
not vest until the earliest of the individual's retirement, disability or death
or a change of ownership of the Company. The exercise price of the options
awarded under the Performance Plan is the fair market value of the underlying
stock as of the date of the grant and the maximum term of the options is ten
years. The options become exercisable 30 days following the date of grant. For
the year ended December 31, 1996, 72,000 deferred shares and 216,000 options
have been earned under the Performance Plan. The Performance Plan, and the 1996
awards thereunder, are subject to approval by the Company's stockholders at the
Company's 1997 Annual Meeting. The Company recognized $2.1 million of
compensation expense for the year ended December 31, 1996 related to the
deferred shares.

Activity with respect to the options granted under the above plans for the years
ended December 31, 1996, 1995 and 1994 was as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Options Price Options Price Options Price
--------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding - beginning of year... 677,144 $ 6.25 735,524 $ 5.11 937,717 $ 3.77
Options granted........................... 274,400 30.38 88,200 14.74 134,714 14.03
Options forfeited......................... - - (3,900) 14.79 - -
Options exercised......................... (18,019) 2.26 (142,680) 5.48 (336,907) 4.94
--------- --------- ---------
Options outstanding - end of year......... 933,525 13.42 677,144 6.25 735,524 5.11
========= ========= =========

Exercisable options - end of year......... 550,757 4.76 515,933 3.70 623,410 3.51
</TABLE>

-44-
<PAGE> 46
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE M - STOCK OPTIONS - (CONTINUED)

The weighted average grant-date fair value of options granted during 1996 and
1995 was $15.18 and $5.17, respectively. As of December 31, 1996, the weighted
average remaining contractual life of options under the above option plans by
range of exercise price was as follows: 428,111 options outstanding and
exercisable with an exercise price of $2.26 have a contractual life of 0.9
years, 12,000 options outstanding and exercisable with an exercise price of
$7.61 have a contractual life of 5.5 years, 219,014 options outstanding, of
which 110,646 are exercisable, with exercise prices ranging from $13.96 to
$15.00 (weighted average exercise price of $14.30) have a weighted average
contractual life of 8.0 years and 274,400 options, of which none are exercisable
with exercise prices ranging from $23.96 to $31.13 (weighted average exercise
price of $30.38) have a contractual life of 10.0 years.

In connection with the SIG Merger, the Company assumed 7,197,260 SIG Options.
Upon the exercise of the SIG Options, the holder is entitled to receive (i)
.1056 of a share of Class A Common Stock for each SIG Option; plus (ii) an
additional number of shares of Class A Common Stock equal to (a) $1.58
multiplied by the number of SIG Options being exercised increased from time to
time by an interest component (the 90-day U.S. Treasury Bill rate) from the time
of the SIG Merger to the exercise date, divided by (b) the average closing share
price for the Company's Class A Common Stock for the ten days prior to the
exercise date. Pursuant to the terms of the SIG Merger, the exercise price of
$0.02 per SIG Option remained the same. The SIG Options were granted annually
from 1992 to 1996 and each grant vests over five years beginning in the fourth
year after the grant date. All of the SIG Options expire on October 1, 2006.
From March 5, 1996, the date of the SIG Merger, to December 31, 1996, 1,435,766
SIG Options were exercised for 246,300 shares of Class A Common Stock and 72,601
SIG Options were forfeited. As of December 31, 1996, 5,688,893 SIG Options,
equivalent to 924,621 shares of Class A Common Stock at that date, with a
weighted average contractual life of 9.8 years, were outstanding and 141,559 SIG
Options, equivalent to 23,008 shares of Class A Common Stock at that date, were
exercisable.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
stock options under the fair value method of that statement. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions for 1996 and 1995: risk-free
interest rates ranging from 5.2% to 6.4%, volatility factor of the expected
market price of the Company's common stock of .26, expected life of the options
ranging from five to ten years and dividend yields of 0%. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different than
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.

Had the provisions of SFAS No. 123 been adopted, the Company's pro forma
information for the years ended December 31, 1996 and 1995 would be as follows:
net income of $44.7 million and $30.4 million and earnings per share of $2.39
and $2.10, respectively. This information may not be representative of the
effects on pro forma net income in future years.

NOTE N - REINSURANCE

The Company assumes and cedes reinsurance on both a coinsurance and a risk
premium basis. The Company obtains reinsurance for amounts above certain
retention limits which vary with age, plan of insurance and underwriting
classification. Amounts of standard risks in excess of those limits are
reinsured. Indemnity reinsurance treaties do not provide absolute protection to
the Company since the ceding insurer remains responsible for policy claims to
the extent the reinsurer fails to pay such claims.

-45-
<PAGE> 47
DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31, 1996

NOTE N - REINSURANCE - (CONTINUED)

The Company, through RSLIC, entered into a transaction effective July 1, 1994 to
cede, through a 100% indemnity coinsurance agreement, its in-force block of
individual life insurance policies to Protective Life Insurance Company. This
transaction did not include the Company's variable universal life insurance
product. All premiums earned and losses incurred by the Company on these
products after July 1, 1994 have been ceded to the reinsurer pursuant to the
terms of the agreement. The balance sheet reflects future policy benefits and
policyholder account balances (which were $89.9 million and $42.6 million,
respectively, at December 31, 1996) offset by equivalent receivables from the
reinsurer reflected as assets.

A summary of reinsurance activity follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Premium income assumed......................... $ 62,626 $ 49,850 $ 42,904
Premium income ceded........................... 61,516 57,507 51,012
Benefits, claims, and interest credited ceded.. 63,525 48,206 46,483
</TABLE>

NOTE O - SIGNIFICANT INVESTMENTS

The fair values of investments in any one issuer, excluding U.S. Government
obligations, whose value represents 10% or more of shareholders' equity at
December 31, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
<S> <C>
Fixed Maturity Securities:
Federal Home Loan Mortgage Corporation, Series 1465..................... $ 40,150
Prudential Home Mortgage Securities Co., Series 1993-30................. 50,730
Residential Funding Mortgage Securities Inc., Series 1993-S27........... 38,202

All of the above fixed maturity securities are investment-grade securities.

Balances with Independent Investment Managers:
Ferd L.P................................................................ 55,691
</TABLE>

NOTE P - DISCONTINUED OPERATIONS

The Company discontinued its long-term care insurance business during 1996. This
is expected to be accomplished by means of a sale, which is intended to be
consummated by mid-1997. This business was purchased in December 1994 and was
expected to become a significant part of the Company's operations. The Company
exited this business due to its continued losses attributable to lower than
expected sales and profit levels and decided to concentrate its resources on
other opportunities such as product and distribution enhancements for the
Company's group employee benefit products. The loss on the disposal of this
business is primarily attributable to the write-off of deferred acquisition
costs and goodwill associated with the business and a provision of $1.4 million,
net of a tax benefit of $0.8 million, for operating losses during the phase-out
period. The actual operating loss for this business for the period subsequent to
its discontinuance did not materially differ from the loss provided for.
Operating losses from this business are presented net of a tax benefit of $0.4
million, $1.2 million and $0.1 million for the years ended December 31, 1996,
1995 and 1994, respectively. Revenues from the long-term care insurance business
totaled $1.6 million, $1.1 million and $0.0 million for the years ended December
31, 1996, 1995 and 1994, respectively. The net liabilities associated with this
business of $4.3 million at December 31, 1996 are included in other liabilities
in the consolidated balance sheet and consist primarily of policy liabilities
and accruals. The 1995 and 1994 financial statements have been restated to
reflect the discontinuance of this business.

-46-
<PAGE> 48
SCHEDULE I

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Amount
Shown in
Amortized Fair Balance
Type of Investment Cost Value Sheet
- ------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Fixed maturity securities available for sale (1):

U.S. Government backed mortgage-backed securities........ $ 305,887 $ 289,460 $ 289,460
Other mortgage-backed securities......................... 560,720 530,341 530,341
U.S. Treasury and other U.S. Government
guaranteed securities................................. 688,470 692,313 692,313
Obligations of U.S. states, municipalities and political
subdivisions......................................... 222,867 218,092 218,092
Corporate securities..................................... 127,154 129,038 129,038
Other fixed maturity securities.......................... 31,151 32,268 32,268
------------- ------------ -------------

Total fixed maturity securities....................... 1,936,249 1,891,512 1,891,512

Equity securities (primarily common stock).................. 63,282 74,018 74,018
Cash and cash equivalents................................... 89,711 89,711 89,711
Other investments. . ....................................... 227,179 239,766 239,766
------------- ------------ -------------
Total investments..................................... $ 2,316,421 $ 2,295,007 $ 2,295,007
============= ============ =============
</TABLE>

- ----------
(1) Fixed maturity securities available for sale are carried at fair value.
Amortized cost is shown net of write-downs.

-47-
<PAGE> 49
SCHEDULE II

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Fixed maturity securities, available for sale....................... $ 54,517 $ 54,183
Cash and other invested assets (including cash and
cash equivalents of $1,035 and $8,793 at December 31,
1996 and 1995, respectively)..................................... 1,142 9,096
Investment in subsidiaries.......................................... 481,283 276,253
Surplus debenture due from subsidiary............................... 58,000 65,000
Other assets........................................................ 17,206 30,194
---------- ----------
Total assets..................................................... $ 612,148 $ 434,726
========== ==========

LIABILITIES:
Corporate debt...................................................... $ 184,649 $ 134,611
Securities sold under agreements to repurchase...................... 50,170 43,879
Other liabilities................................................... 10,364 33,421
---------- ----------
245,183 211,911
---------- ----------
SHAREHOLDERS' EQUITY:
Class A Common Stock................................................ 118 67
Class B Common Stock................................................ 63 52
Additional paid-in capital.......................................... 240,203 87,734
Net unrealized depreciation on investments, net of deferred taxes... (17,949) (34,832)
Retained earnings................................................... 144,530 172,136
Treasury Stock...................................................... - (2,342)
---------- ----------
366,965 222,815
---------- ----------
Total liabilities and shareholders' equity....................... $ 612,148 $ 434,726
========== ==========
</TABLE>

See notes to financial statements.

-48-
<PAGE> 50
SCHEDULE II (CONTINUED)

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Equity in undistributed earnings
of subsidiaries........................ $ 84,872 $ 52,999 $ 37,564
Interest from subsidiaries............... 6,981 8,747 9,191
Dividends from subsidiaries.............. 1,600 1,600 7,670
Other net investment (loss) income....... (2,365) (61) 2,644
Realized investment losses............... - (572) (5,270)
---------- ---------- ----------
91,088 62,713 51,799
---------- ---------- ----------
Expenses:
Operating expenses....................... 5,661 1,978 389
Interest expense......................... 14,232 13,328 13,962
---------- ---------- ----------
19,893 15,306 14,351
---------- ---------- ----------

Income before income tax expense... 71,195 47,407 37,448

Income tax expense.......................... 23,942 16,943 11,630
---------- ---------- ----------

Net income ........................ $ 47,253 $ 30,464 $ 25,818
========== ========== ==========
</TABLE>

See notes to financial statements.

-49-
<PAGE> 51
SCHEDULE II (CONTINUED)

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income................................................. $ 47,253 $ 30,464 $ 25,818
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Equity in undistributed earnings of subsidiaries........ (56,143) (34,099) (25,074)
Change in accrued investment income..................... 286 3,384 (2,828)
Change in other assets and other liabilities............ 4,119 (61) (3,467)
Change in current and deferred income taxes............. 8,025 5,818 (6,420)
Amortization, principally of investments and debt
issuance costs...................................... 1,341 749 838
Net realized losses on investments...................... - 572 5,270
Change in amounts due to subsidiaries................... (21,865) 10,338 20,603
---------- ---------- ----------
Net cash (used) provided by operating activities..... (16,984) 17,165 14,740
---------- ---------- ----------

Investing activities:
Purchases of investments................................... (14,688) (15,210) (627)
Purchases of short-term investments........................ - (875) (1,758)
Sales of investments....................................... 21,897 8,067 -
Sales and maturities of short-term investments............. 200 996 1,629
Net change in securities held under reverse
repurchase agreements................................... (7,470) 103,419 7,220
Sales of investments in subsidiaries....................... - - 7,000
Purchases of investments in subsidiaries................... (54,534) (4,600) (7,121)
---------- ---------- ----------
Net cash (used) provided by investing activities........ (54,595) 91,797 6,343
---------- ---------- ----------

Financing activities:
Proceeds from issuance of common stock and exercise of
stock options........................................... 530 1,254 3,492
Borrowings under Credit Agreement.......................... 64,000 - 91,000
Principal payments under Credit Agreement.................. (14,000) (25,000) (91,000)
Payments received on surplus debenture..................... 7,000 18,739 14,962
Repayment of affiliated debt............................... - - (9,800)
Change in borrowings under reverse repurchase agreements .. 6,291 (96,636) (28,282)
---------- ---------- ----------
Net cash provided (used) by financing activities........ 63,821 (101,643) (19,628)
---------- ---------- ----------
(Decrease) increase in cash and cash equivalents.............. (7,758) 7,319 1,455
Cash and cash equivalents at beginning of year................ 8,793 1,474 19
---------- ---------- ----------
Cash and cash equivalents at end of year................ $ 1,035 $ 8,793 $ 1,474
========== ========== ==========
</TABLE>

See notes to financial statements.

-50-
<PAGE> 52
SCHEDULE II (CONTINUED)

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and related notes of Delphi Financial
Group, Inc. and Subsidiaries.

The Company received cash dividends from subsidiaries of $1.6 million, $1.6
million and $7.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

-51-
<PAGE> 53
SCHEDULE IV

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
REINSURANCE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Life insurance in force as of
December 31, 1996........... $ 45,013,763 $ 6,611,333 $ 10,788,577 $ 49,191,007 21.9 %
============ ============ ============ ============ ====
Year ended December 31, 1996:
Insurance premiums and
policyholder fees:
Life insurance and annuity $ 124,955 $ 21,679 $ 36,385 $ 139,661 26.1 %
Accident and health insurance 150,396 37,265 26,241 139,372 18.8 %
Casualty insurance (1)... 58,772 2,572 - 56,200 - %
------------ ------------ ------------ ------------
Total insurance premiums and
policyholder fees........... $ 334,123 $ 61,516 $ 62,626 $ 335,233
============ ============ ============ ============

Life insurance in force as of
December 31, 1995........... $ 36,929,009 $ 4,944,355 $ 11,516,374 $ 43,501,028 26.5 %
============ ============ ============ ============ ====
Year ended December 31, 1995:
Insurance premiums and
policyholder fees:
Life insurance and annuity $ 125,283 $ 25,400 $ 32,689 $ 132,572 24.7 %
Accident and health insurance 144,101 31,869 16,098 128,330 12.5 %
------------ ------------ ------------ ------------
Total insurance premiums and
policyholder fees........... $ 269,384 $ 57,269 $ 48,787 $ 260,902
============ ============ ============ ============

Life insurance in force as of
December 31, 1994........... $ 39,858,730 $ 4,010,127 $ 9,710,891 $ 45,559,494 21.3 %
============ ============ ============ ============ ====
Year ended December 31, 1994:
Insurance premiums and
policyholder fees:
Life insurance and annuity $ 119,106 $ 17,375 $ 28,534 $ 130,265 21.9 %
Accident and health insurance 137,514 33,637 14,370 118,247 12.2 %
------------ ------------ ------------ ------------
Total insurance premiums and
policyholder fees........... $ 256,620 $ 51,012 $ 42,904 $ 248,512
============ ============ ============ ============
</TABLE>

- ----------
(1) Reflects the acquisition of excess workers' compensation business acquired
as a result of the merger with SIG Holdings, Inc. on March 5, 1996.

-52-
<PAGE> 54
SCHEDULE VI

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS (1)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Deferred policy acquisition costs.................. $ 2,397

Reserves for unpaid claims and claim expenses...... 380,826

Discount, if any, deducted from above (2).......... 168,827

Unearned premiums.................................. 17,865
</TABLE>

<TABLE>
<CAPTION>
Period from
March 5, 1996 to
December 31, 1996
-----------------
<S> <C>
Earned premiums.................................... $ 56,200

Net investment income.............................. 25,028

Claims and claim expenses incurred related to:

Current year................................... 28,290
Prior years.................................... 7,358

Amortization of deferred policy acquisition costs.. 7,998

Paid claims and claim adjustment expenses.......... 24,693

Premiums written................................... 45,480
</TABLE>

- ----------
(1) Reflects the acquisition of excess workers' compensation business acquired
as a result of the merger with SIG Holdings, Inc. on March 5, 1996.

(2) Based on interest rates ranging from 3.7% to 6.2%.

-53-

<PAGE> 1

RELIANCE STANDARD LIFE INSURANCE COMPANY

1996 SENIOR MANAGEMENT INCENTIVE PLAN

FOR THE TWELVE MONTH PERIOD
JANUARY 1, 1996 THROUGH DECEMBER 31, 1996

<PAGE> 2

I OBJECTIVE

To promote profitable growth of Reliance Standard Life Insurance Company
("RSL") by providing a financial incentive plan that will compensate its
eligible employees for the achievement of results recommended by the
Corporate Compensation Committee (the "Committee") of the Board of
Directors of Reliance Standard Life Insurance Company (the "Board") and
ratified by the Board. Thus, RSL will attract and retain employees of the
highest caliber who will demonstrate outstanding performance and will
assist in the achievement of overall objectives.

II ADMINISTRATION

The Reliance Standard Life Senior Management Incentive Plan (the "Plan")
will be supervised by the Committee.

The Committee shall have the authority to recommend procedures for the
administration of the Plan to the Board for approval and to take any and
all action necessary to implement such procedures. Any references in this
document to the Board shall include any committee designated by the Board
from time to time to exercise authority with respect to the Plan,
including the Executive Committee of the Board.

III INCENTIVE PARTICIPATION

Eligibility to participate in the Plan is restricted to the positions
outlined in Exhibit B. The approved percentages relate to the employees'
December 31, 1995 base salary. Changes in incentive rates or participants
shall be approved by the Committee and the Board.

Each participant will be notified of his or her participation in the Plan,
either in terms of the applicable percentage participation or dollar
amount, if the specified results are achieved.

IV METHOD

Targets for Operating Results and Personal Objectives, as well as
participants and payout schedules, must be submitted to the Committee and
approved by the Board. The bonus paid is allocated to the achievement of
the established objectives as outlined in Exhibit C (Method of
Computation) and is subject to the Management Pool available as outlined
in Exhibit A (Management Pool).

V DISTRIBUTION

The bonus hereinafter provided to each participant in the Plan shall not
be distributed until the amounts are determined and verified.
Distribution shall be made to eligible participants no later than 60 days
following the last day of the year for the performance achieved for the
previous year.

<PAGE> 3

VI PAYMENT OF INCENTIVE AND GENERAL GUIDELINES

No employee shall participate in more than one Incentive Compensation
Plan, except as required by transfer within a given year.

Except as provided below, an employee must be employed by RSL at the close
of the year in order to participate in and receive compensation under the
Plan. If employment is terminated during the year on account of death,
disability, or retirement, he or she may participate proportionately for
the part of the year he or she was employed prior to termination. If
employment is terminated during the year for the convenience of RSL, but
not for cause or by resignation, he or she will participate to the extent
(if any) deemed appropriate by the member of RSL senior management
directly responsible for the division in which the employee was formerly
employed (or, alternatively, the President), at his or her sole
discretion. If an employee is terminated for cause after the close of the
year but prior to the date for actual payment of compensation under this
Plan no such compensation will be paid.

If an employee terminates employment (other than on account of death,
disability, or retirement) after the close of the year but prior to the
date for actual payment of compensation under this Plan, the member of RSL
senior management directly responsible for the division in which the
employee was formerly employed (or, alternatively, the President) will
unilaterally determine, at his or her sole discretion, whether and to what
extent (if any), under the circumstances, payment of incentive
compensation to the former employee under the terms of the Plan would be
appropriate.

Participants hired or promoted during the year to a participating position
will become a participant on the first day of the month following
permanent assignment to a participating position after having been
approved by the Committee and the Board of Directors.

This Plan does not constitute a contract between RSL and the participants,
and no participant shall have any legal rights by reason of the existence
of this Plan. It may be changed, modified, amended or terminated at any
time by the Committee or the Board of Directors.

No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
the same shall be void; and, if any participant hereunder should become
bankrupt or attempt to participate, alienate, sell, assign, pledge,
encumber or charge any right or benefit hereunder, then such right or
benefit shall, at the discretion of the Committee or the Board of
Directors, cease and terminate. RSL may offset any claim it has against
the participant against any amount to which a participant may otherwise be
entitled to hereunder, but rights hereunder shall not otherwise be subject
to debts or liabilities of the participant.

<PAGE> 4

VII RESPONSIBILITY

The Committee is responsible for establishing appropriate rationale,
strategy and targets within the organizational structure for approval by
the Board of Directors.

If the agreed upon operating strategy for RSL is changed during the year,
objectives and strategies in the Plan may be changed accordingly, with
approval of the Committee or the Board of Directors.

RSL is responsible for providing full financial data to establish
appropriate rates to compute results, obtaining approval of the Plan, and
for coordination of the total program.

<PAGE> 5

EXHIBIT A

MANAGEMENT POOL

I. THE POOL

A pool will be established for the purpose of paying incentive
compensation to senior officers. The pool will be based on a percentage
(2.7%) of the excess by which Delphi's pre-tax income, excluding actual
earnings by Safety National, per the Elements of Profit, exceeds 10% of
beginning equity (before application of FAS 115).

The total pool amount available will be the maximum amount which could be
paid to participants in this plan and will be based on the following
formula:

Minimum pre-tax earnings for Delphi, which must be achieved before
any incentive compensation will be paid, will be 10% of beginning
equity without regard for FAS 115 adjustments.

Beginning equity (1-1-96) $ 222,815
FAS 115 adjustment 34,832
-----------
257,647
-----------

Times 10% (minimum earnings) $ 25,765
===========

This amount of $25,765 will be subtracted from the actual pre-tax
earnings of Delphi Financial Group as per Form 10-K, excluding
actual earnings by Safety National as per the Elements of Profit,
and the result multiplied by the pool (multiplier) percentage of
2.7%.

For example, if the actual pre-tax earnings, excluding income
attributable to SIG, exactly matched budget of $52,417, the pool
amount would be $719 as follows:

Pre-tax earnings $ 52,417
Minimum earnings (25,765)
-----------
Pool 26,652
(Multiplier) percentage x 2.7 %
-----------
Pool available $ 719
===========
If actual earnings deviate by 10% from plan earnings, either over or
under, the pool (multiplier) percentage is adjusted.

<PAGE> 6

EXHIBIT A

MANAGEMENT POOL - (Continued)

If actual pre-tax earnings for Delphi (excluding SIG) exceed
budgeted pre-tax earnings ($52,417) by 10% or more, the multiplier
of 2.7% will be increased to 4.2%. Therefore, pre-tax earnings must
be at least $57,659 in order to achieve a multiplier of 4.2%.

Also, if actual pre-tax earnings for Delphi (excluding SIG) are less
than budgeted pre-tax earnings ($52,417) by 10% or more, the
multiplier will be reduced to 1.7%. Therefore, if pre-tax earnings
decrease to $47,175 or less, the multiplier will decrease to 1.7%

<PAGE> 7

EXHIBIT B

SENIOR MANAGEMENT PARTICIPANTS

BONUS
NAME POSITION PERCENTAGE
_______________________________________________________________________________

Charles P. O'Brien President & Chief Executive Officer 75%

Wayne M. Benseler Vice President & Chief Actuary 60%

Jane R. Dunlap Vice President, Finance 60%

Lawrence E. Daurelle Vice President & Treasurer 45%

Chad Coulter Vice President, Secretary &
General Counsel 40%

Kenneth R. Hamm Vice President, Group Actuary 40%

Paul J. Kehoe Vice President, Asset
Accumulation Products 40%

<PAGE> 8

EXHIBIT C

METHOD OF COMPUTATION

Achievement of specific operating results for Delphi Financial Group, Inc., and
subsidiaries, as described in Exhibit E, have been assigned percentages as shown
on the chart in Exhibit D. The percentage of achievement is determined pro rata
based on the actual achievement at year-end. These percentages are then
aggregated and added to the percentage of achievement awarded to each
participant for personal objectives, as described in Exhibit F. If results
exactly equaled plan, these percentages would total 120%.

The actual sum of these percentages will be multiplied by the participation
percentage (as shown on Exhibit B) and salary as of December 31, 1995 (as shown
on Exhibit G) to determine the amount of incentive compensation.

<PAGE> 9

EXHIBIT D

1996 INCENTIVE COMPENSATION PLAN OBJECTIVES

Life Companies Asset
Earnings Per "Spread" Group Accumulation
Share Income Production Production Expenses
- ------------- ------------ ------------- ------------- -------------
Objective Objective Objective Objective Objective
($) % ($000) % ($000) % ($000) % ($000) %
- -------- ---- --------- --- --------- --- --------- --- --------- ---

3.90 40.0 63,100 75.0 74,300 15.0 140,000 10.0 39,600 25.0

3.58 32.5 57,900 60.0 69,200 12.5 120,000 7.5 40,600 20.0

3.26 25.0 52,700 45.0 64,100 10.0 100,000 5.0 41,600 15.0

2.94 17.5 47,500 30.0 59,000 7.5 80,000 2.5 42,600 10.0

2.62 10.0 42,300 15.0 53,900 5.0 60,000 0.0 43,600 5.0

<PAGE> 10

EXHIBIT E

OBJECTIVES DEFINED

1. EARNINGS PER SHARE (Objective $3.26)

A. Earnings per share (EPS) will be "Income from Continuing Operations"
divided by "weighted average shares outstanding" as reported on the
Consolidated Statements of Income per Form 10-K for Delphi Financial
Group, Inc.

2. LIFE INSURANCE COMPANIES OPERATING RESULTS (Objective $52,700)

A. This objective will be "the spread" per the Elements of Profit on page
two of the monthly financial package for RSL only. Change in DAC will
be excluded to the extent that it is either accelerated or decelerated
based on corporate investment results.

3. GROUP PRODUCTION (Objective $64,100)

A. All production generated through the efforts of RSL and affiliates will
be considered, including business written by Reliance Standard Life
Insurance Company of Texas (RSL-T) and First Reliance Standard Life
Insurance Company (FRSL).

B. Group Production is defined as total new annualized production for
Group Life, Disability (LTD and Weekly Income), Dental, and Special
Risk before deduction of reinsurance. Reinsurance assumed will be
included only if the contract provides for risk transfer and material
economic value.

C. New production will be determined using the Paid Annualized Premium
Production Report from the internal financial package, with certain
adjustments. Any policy that has an effective date of September 30,
1996 or prior and has not been approved by the Underwriting department
will not be included in the 1996 incentive calculation.

D. For the three-year Special risk policies which are fully paid at
inception, the first year's annualized premium (before discount factor)
will count as production.

E. If a submitted policy does not remain in force for twelve months,
production will be reduced in the year that the policy lapses. In the
case of submitted production in 1995 not equaling paid production in
1996, adjustments will be made to the Annualized Paid Production Report
in 1996. Likewise, should submitted production in 1996 not equal paid
production in 1997, adjustments will be made to the Annualized Paid
Production Report in 1997.

<PAGE> 11

4. ASSET ACCUMULATION PRODUCTION (Objective $100,000)

A. Components of asset accumulation production will include FPA, GIC,
SPDA, MVA, Group annuities and variable products.

B. Blocks of annuity business acquired, regardless of the source, will be
counted in determining actual asset accumulation production.

C. Reinsurance assumed will be considered for purposes of determining
achievement of this objective only if the contract provides for risk
transfer and has material economic value.

4. EXPENSES (Objective $41,600)

A. The objective is defined as total general expenses on an accrual basis
including investment expenses allocated to the investment function by
RSL. The objective will be the statutory general expense as shown on
the "Statutory Income Statements" report in the monthly financial
package ($39,200) plus RSL expenses allocated to investment or
corporate functions ($2,400) also shown on the same report.

<PAGE> 12

EXHIBIT F

PERSONAL OBJECTIVES

At the 1995 fall planning meeting each senior officer who attended established
personal goals and objectives to be achieved during 1996.

Achievement of these goals and objectives will be reviewed at year-end 1996 and
a percentage (up to 20%) will be assigned based on results.

<PAGE> 1

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

dated as of December 5, 1996

among

DELPHI FINANCIAL GROUP, INC.,

THE LENDERS NAMED HEREIN,

THE BANK OF NEW YORK,
NATIONSBANK, N.A. (SOUTH) and
FLEET NATIONAL BANK,

as Co-Agents

and

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,

as Administrative Agent

Arranged by BA SECURITIES, INC.

<PAGE> 2

The following Table of Contents has been inserted for convenience
only and does not constitute a part of this Agreement.

TABLE OF CONTENTS

Page

SECTION 1. DEFINITIONS AND ACCOUNTING TERMS. . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . 28
1.3 Accounting and Financial Determinations . . . . . . . 28

SECTION 2. THE COMMITMENTS AND THE LOANS. . . . . . . . . . . 29
2.1 Loan Commitment . . . . . . . . . . . . . . . . . . . 29
2.2 Types of Loans. . . . . . . . . . . . . . . . . . . . 29
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . 30
2.4 Funding Reliance. . . . . . . . . . . . . . . . . . . 31
2.5 Continuation and Conversion Elections . . . . . . . . 31
2.6 Repayment of Loans; Restated Notes. . . . . . . . . . 33
2.7 Loan Accounts; Record Keeping . . . . . . . . . . . . 33

SECTION 3. INTEREST AND FEES, ETC . . . . . . . . . . . . . . 34
3.1 Interest Rates. . . . . . . . . . . . . . . . . . . . 34
3.2 Default Interest Rate . . . . . . . . . . . . . . . . 36
3.3 Interest Payment Dates. . . . . . . . . . . . . . . . 36
3.4 Setting and Notice of Rates . . . . . . . . . . . . . 36
3.5 Computation of Fees and Interest. . . . . . . . . . . 36
3.6 Fees. . . . . . . . . . . . . . . . . . . . . . . . . 37

SECTION 4. REDUCTION OR TERMINATION OF THE COMMITMENTS;
PAYMENTS AND PREPAYMENTS. . . . . . . . . 38
4.1 Voluntary Reduction or Termination of the
Commitments . . . . . . . . . . . . . . . . . . . . . 38
4.2 Voluntary Prepayments . . . . . . . . . . . . . . . . 38
4.3 Mandatory Prepayments . . . . . . . . . . . . . . . . 39
4.4 Mandatory Reduction in the Commitments. . . . . . . . 41
4.5 Payments by the Borrower. . . . . . . . . . . . . . . 41
4.6 Sharing of Payments . . . . . . . . . . . . . . . . . 42
4.7 Setoff. . . . . . . . . . . . . . . . . . . . . . . . 43
4.8 Net Payments. . . . . . . . . . . . . . . . . . . . . 43

SECTION 5. CHANGES IN CIRCUMSTANCES . . . . . . . . . . . . . 44
5.1 Increased Costs . . . . . . . . . . . . . . . . . . . 44
5.2 Change in Rate of Return. . . . . . . . . . . . . . . 45
5.3 Basis for Determining Interest Rate Inadequate or
Unfair. . . . . . . . . . . . . . . . . . . . . . . . 46
5.4 Changes in Law Rendering Certain Loans Unlawful . . . 47
5.5 Funding Losses. . . . . . . . . . . . . . . . . . . . 47
5.6 Right of Lenders to Fund Through Other Offices. . . . 47

<PAGE> 3

5.7 Discretion of Lenders as to Manner of Funding . . . . 48
5.8 Conclusiveness of Statements; Survival of
Provisions. . . . . . . . . . . . . . . . . . . . . . 48
5.9 Replacement of Lenders. . . . . . . . . . . . . . . . 48

SECTION 6. COLLATERAL AND OTHER SECURITY. . . . . . . . . . . 49
6.1 Borrower. . . . . . . . . . . . . . . . . . . . . . . 49
6.2 Further Assurances. . . . . . . . . . . . . . . . . . 49

SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 50
7.1 Organization, etc. . . . . . . . . . . . . . . . . . 50
7.2 Authorization. . . . . . . . . . . . . . . . . . . . 50
7.3 No Conflict. . . . . . . . . . . . . . . . . . . . . 50
7.4 Governmental Consents. . . . . . . . . . . . . . . . 51
7.5 Validity . . . . . . . . . . . . . . . . . . . . . . 51
7.6 Financial Statements.. . . . . . . . . . . . . . . . 51
7.7 Material Adverse Change. . . . . . . . . . . . . . . 54
7.8 Litigation and Contingent Obligations. . . . . . . . 54
7.9 Liens. . . . . . . . . . . . . . . . . . . . . . . . 54
7.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . 54
7.11 Pension and Welfare Plans. . . . . . . . . . . . . . 54
7.12 Investment Company Act . . . . . . . . . . . . . . . 55
7.13 Public Utility Holding Company Act . . . . . . . . . 55
7.14 Margin Regulation. . . . . . . . . . . . . . . . . . 56
7.15 Collateral . . . . . . . . . . . . . . . . . . . . . 56
7.16 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 56
7.17 Accuracy of Information. . . . . . . . . . . . . . . 57
7.18 Environmental Warranties . . . . . . . . . . . . . . 57
7.19 Proceeds . . . . . . . . . . . . . . . . . . . . . . 59
7.20 Insurance. . . . . . . . . . . . . . . . . . . . . . 59
7.21 Securities Laws. . . . . . . . . . . . . . . . . . . 59
7.22 Governmental Authorizations. . . . . . . . . . . . . 59
7.23 Representations in Other Agreements True and
Correct . . . . . . . . . . . . . . . . . . . . . . . 60
7.24 Business Locations; Trade Names. . . . . . . . . . . 60
7.25 Solvency . . . . . . . . . . . . . . . . . . . . . . 60
7.26 Insurance Licenses.. . . . . . . . . . . . . . . . . 60
7.27 Reinsurance. . . . . . . . . . . . . . . . . . . . . 61
7.28 Compliance with Laws . . . . . . . . . . . . . . . . 61
7.29 No Default . . . . . . . . . . . . . . . . . . . . . 61
7.30 Pledged Shares . . . . . . . . . . . . . . . . . . . 61
7.31 Indebtedness Permitted . . . . . . . . . . . . . . . 62
7.32 Replacement of Schedules . . . . . . . . . . . . . . 62

SECTION 8. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 62
8.1 Reports, Certificates and Other Information . . . . . 62
8.2 Corporate Existence; Foreign Qualification. . . . . . 71

<PAGE> 4

8.3 Books, Records and Inspections. . . . . . . . . . . . 71
8.4 Insurance . . . . . . . . . . . . . . . . . . . . . . 71
8.5 Taxes and Liabilities . . . . . . . . . . . . . . . . 71
8.6 Pension Plans and Welfare Plans . . . . . . . . . . . 72
8.7 Compliance with Laws. . . . . . . . . . . . . . . . . 72
8.8 Maintenance of Permits. . . . . . . . . . . . . . . . 72
8.9 Environmental Compliance. . . . . . . . . . . . . . . 72
8.10 Best Rating. . . . . . . . . . . . . . . . . . . . . 73
8.11 Dividends. . . . . . . . . . . . . . . . . . . . . . 73

SECTION 9. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 73
9.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . 73
9.2 Consolidation, Merger, etc. . . . . . . . . . . . . . 75
9.3 Asset Disposition, etc. . . . . . . . . . . . . . . . 76
9.4 Dividends, etc. . . . . . . . . . . . . . . . . . . . 76
9.5 Investments . . . . . . . . . . . . . . . . . . . . . 77
9.6 Other Senior Indebtedness; Subsidiary Senior
Notes; Trust Documents; Master Letter of Credit
Agreement . . . . . . . . . . . . . . . . . . . . . . 79
9.7 Take or Pay Contracts . . . . . . . . . . . . . . . . 79
9.8 Regulations G and U . . . . . . . . . . . . . . . . . 79
9.9 Subsidiaries. . . . . . . . . . . . . . . . . . . . . 79
9.10 Other Agreements . . . . . . . . . . . . . . . . . . 79
9.11 Business Activities. . . . . . . . . . . . . . . . . 80
9.12 Change of Location or Name . . . . . . . . . . . . . 80
9.13 Transactions with Affiliates . . . . . . . . . . . . 81
9.14 Reinsurance. . . . . . . . . . . . . . . . . . . . . 81
9.15 Books of Business. . . . . . . . . . . . . . . . . . 82
9.16 Ownership of RSL, SIG Holdings and Safety
National. . . . . . . . . . . . . . . . . . . . . . . 82

SECTION 10. FINANCIAL COVENANTS. . . . . . . 82
10.1 Minimum Surplus. . . . . . . . . . . . . . . . . . . 82
10.2 Consolidated Equity of the Borrower. . . . . . . . . 82
10.3 Operating Leverage of RSL. . . . . . . . . . . . . . 83
10.4 Debt to Capital. . . . . . . . . . . . . . . . . . . 83
10.5 Risk-Based Capital . . . . . . . . . . . . . . . . . 83
10.6 Capital Expenditures . . . . . . . . . . . . . . . . 83
10.7 Cash Coverage Ratio. . . . . . . . . . . . . . . . . 83

SECTION 11. CONDITIONS. . . . . . . . . . . . . . . . . . . . 84
11.1 Effectiveness of Agreement; Initial Borrowing. . . . 84
11.2 Acquisition Loans. . . . . . . . . . . . . . . . . . 86
11.3 All Loans. . . . . . . . . . . . . . . . . . . . . . 87

<PAGE> 5

SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT
12.1 Events of Default. . . . . . . . . . . . . . . . . . 88
12.2 Effect of Event of Default . . . . . . . . . . . . . 91

SECTION 13. THE ADMINISTRATIVE AGENT. . . . . . . . . . . . . 91
13.1 Authorization and Action . . . . . . . . . . . . . . 91
13.2 Liability of the Administrative Agent. . . . . . . . 92
13.3 BofA NT&SA and Affiliates. . . . . . . . . . . . . . 92
13.4 Lender Credit Decision . . . . . . . . . . . . . . . 93
13.5 Indemnification. . . . . . . . . . . . . . . . . . . 93
13.6 Successor Agents . . . . . . . . . . . . . . . . . . 93
13.7 Collateral Matters . . . . . . . . . . . . . . . . . 94
13.8 Co-Agents. . . . . . . . . . . . . . . . . . . . . . 95

SECTION 14. ASSIGNMENTS AND PARTICIPATIONS. . . . . . . . . . 95
14.1 Assignments. . . . . . . . . . . . . . . . . . . . . 95
14.2 Participations . . . . . . . . . . . . . . . . . . . 97
14.3 Disclosure of Information. . . . . . . . . . . . . . 98
14.4 Foreign Transferees. . . . . . . . . . . . . . . . . 98

SECTION 15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 99
15.1 Waivers and Amendments . . . . . . . . . . . . . . . 99
15.2 Notices. . . . . . . . . . . . . . . . . . . . . . .100
15.3 Regulation U . . . . . . . . . . . . . . . . . . . .101
15.4 Payment of Costs and Expenses. . . . . . . . . . . .101
15.5 Indemnity. . . . . . . . . . . . . . . . . . . . . .102
15.6 Subsidiary References. . . . . . . . . . . . . . . .102
15.7 Captions . . . . . . . . . . . . . . . . . . . . . .102
15.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . .102
15.9 Counterparts . . . . . . . . . . . . . . . . . . . .102
15.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE . . . .103
15.11 Service of Process. . . . . . . . . . . . . . . . .103
15.12 Successors and Assigns. . . . . . . . . . . . . . .104
15.13 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . .104
15.14 Replacement of Existing Credit Agreement. . . . . .104

<PAGE> 6

SCHEDULES AND EXHIBITS

SCHEDULES

SCHEDULE 2.1 Lenders and Percentages
SCHEDULE 7.6 Dividends
SCHEDULE 7.8 Litigation & Contingent Obligations
SCHEDULE 7.10 Subsidiaries
SCHEDULE 7.11 ERISA
SCHEDULE 7.16 Taxes
SCHEDULE 7.18 Environmental Matters
SCHEDULE 7.20 Insurance
SCHEDULE 7.24 Business Locations; Trade Names
SCHEDULE 7.26 Licenses
SCHEDULE 7.27 Reinsurance
SCHEDULE 9.1 Liens

EXHIBITS

EXHIBIT A Form of Restated Note
EXHIBIT B Form of Notice of Borrowing
EXHIBIT C Form of Continuation/Conversion Notice
EXHIBIT D Form of Compliance Certificate
EXHIBIT E-1 Form of Opinion of Chad Coulter, counsel to the
Borrower and SIG Holdings and general counsel of
the Reliance Standard Insurance Companies
EXHIBIT E-2 Form of Opinion of Jeffrey Otto, general
counsel of Safety National
EXHIBIT F Form of Officer's Certificate (Borrower)
EXHIBIT G Form of Assignment Agreement
EXHIBIT H Form of Second Borrower Reaffirmation Agreement
EXHIBIT I Form of SIG Holdings Reaffirmation Agreement
EXHIBIT J Form of Preliminary Financing Request
EXHIBIT K Form of Confidentiality Letter

<PAGE> 7

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of December 5, 1996 (the "Third Restatement Date"), among DELPHI
FINANCIAL GROUP, INC., a Delaware corporation (herein, called the
"Borrower"), the lenders party hereto (herein, together with any
Eligible Assignees thereof, collectively called the "Lenders" and
each individually called a "Lender"), THE BANK OF NEW YORK,
NATIONSBANK, N.A. (SOUTH) and FLEET NATIONAL BANK, as co-agents
for the Lenders (herein, collectively called the "Co-Agents" and
each individually called a "Co-Agent") and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (herein, called "BofA
NT&SA"), as administrative agent for the Lenders (herein in such
capacity, together with any successors thereto in such capacity,
called the "Administrative Agent").

Recitals

WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and
certain of the Lenders entered into a Second Amended
and Restated Credit Agreement, dated as of December 13, 1995 (as
amended or modified through the date hereof, the "Existing Credit
Agreement"), whereby the Lenders agreed to make revolving loans
to the Borrower in an aggregate principal amount not to exceed
$200,000,000 at any one time;

WHEREAS, the Borrower, the Administrative Agent, the Co-Agents and the
Lenders desire to enter into this Agreement in
amendment and restatement of the Existing Credit Agreement,
subject to the terms and conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the mutual promises
herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

SECTION 1. DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.1 Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and
plural forms of the terms defined):

"Acquired Person" shall mean any Person acquired upon the
consummation of an Acquisition permitted by the terms of this
Agreement.

<PAGE> 8

"Acquisition" shall mean any transaction or series of
transactions for the purpose of or resulting, directly or
indirectly, in (a) the acquisition of all or substantially all of
the assets of a Person, or of any business or division of a
Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity
securities (or warrants, options, or other rights to acquire any
of the foregoing) of any Person, or otherwise causing any Person
to become a Subsidiary of the Borrower, or (c) a merger or
consolidation or any other combination of the Borrower or one of
its Subsidiaries with another Person (other than a Person that is
a Subsidiary of the Borrower immediately prior to such merger or
consolidation); provided that the Borrower or such Subsidiary is
the surviving entity, in each case subject to and to the extent
permitted by the terms of this Agreement.

"Adjusted Capital" shall mean, as to any of the Reliance
Standard Insurance Companies as of any date, the total amount
shown on line 27, page 23, column 1 of the Annual Statement of
each of the Reliance Standard Insurance Companies and, as to
Safety National as of any date, the total amount shown on line
25, page 22, column 1 of the Annual Statement of Safety National,
or, in each case, an amount determined in a consistent manner for
any date other than one as of which an Annual Statement is
prepared.

"Administrative Agent" - see Preamble.

"Administrative Agent's Office" shall mean 231 South LaSalle
Street, Chicago, Illinois 60697, or such other address
designated by the Administrative Agent (or any successor agent)
to the Borrower and the Lenders from time to time.

"Affected Lender" - see Section 5.4.

"Affiliate" shall mean, as to any Person, any other Person
which, directly or indirectly, owns, holds, controls, is
controlled by or is under common control with such Person
(including all beneficial control as a trustee, guardian or other
fiduciary). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or
indirectly, power (a) to vote 10% or more of the securities (on a
fully diluted basis) having ordinary voting power for the
election of directors or managing general partners of such
Person; or (b) to direct or cause the direction of the management
and policies of such Person whether through the ownership of
voting securities, membership interests, by contract or
otherwise.

<PAGE> 9

"Agreement" shall mean this Third Amended and Restated
Credit Agreement, as the same may be amended or modified from
time to time in whole or in part.

"Amounts Available for Dividends" shall mean, as to any
Person, the maximum amount of dividends such Person is or
eventually would be permitted to pay without necessitating
approval of the Department under the then-current rules
regulating such dividends whether or not such dividends are taken
at such time.

"Annual Statement" shall mean, as to any insurance company,
the annual financial statement of such insurance company as
required to be filed with the Department, together with all
exhibits or schedules filed therewith, prepared in conformity
with SAP. References to amounts on particular exhibits,
schedules, lines, pages and columns of the Annual Statement are
based on the format promulgated by the NAIC for 1995 Life,
Accident and Health Insurance Company Annual Statements or 1995
Property and Casualty Insurance Company Annual Statements, as
applicable. If such format is changed in future years so that
different information is contained in such items or they no
longer exist, it is understood that the reference is to
information consistent with that reported in the referenced item
in the 1995 Annual Statement of such insurance company.

"Applicable Base Rate Margin" - see Section 3.1(d).

"Applicable Insurance Codes" shall mean, as to any insurance
company, the insurance code of any state where such insurance
company is domiciled or doing insurance business and any
successor statute of similar import, together with the
regulations thereunder, as amended or otherwise modified and in
effect from time to time. References to sections of the
Applicable Insurance Code shall be construed to also refer to
successor sections.

"Applicable Offshore Rate Margin" - see Section 3.1(c).

"Assignment Agreement" - see Section 14.1.

"Average Life" shall mean, as of the date of determination,
with respect to any Indebtedness, the quotient obtained by
dividing (a) the sum of the products of the numbers of years from
the date of determination to the dates of each successive
scheduled principal payment of such Indebtedness multiplied by
the amount of such scheduled principal payment by (b) the sum of
all such scheduled principal payments.

<PAGE> 10

"BAI" shall mean Bank of America Illinois, an Illinois
banking corporation.

"Base Rate" shall mean, for any day, the higher of (a) 0.50%
per annum above the latest Federal Funds Effective Rate and
(b) the rate of interest in effect for such day as publicly
announced from time to time by BofA NT&SA in San Francisco,
California, as its "reference rate." The "reference rate" is a
rate set by BofA NT&SA based upon various factors including BofA
NT&SA's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced
rate. Any change in the reference rate announced by BofA NT&SA
shall take effect at the opening of business on the date
specified in the public announcement of such change.

"Base Rate Loan" shall mean a Loan that bears interest based
on the Base Rate.

"BofA NT&SA" - see Preamble.

"Borrower" - see Preamble.

"Borrower Pledge Agreement" - see Section 6.1(a).

"Borrowing" shall mean a borrowing hereunder consisting of
Loans of the same type made to the Borrower on the same day by
the Lenders pursuant to Section 2, and, with respect to Offshore
Rate Loans, having the same Interest Period.

"Borrowing Date" shall mean any date on which a Borrowing
occurs under Section 2.3.

"Breakage Costs" - see Section 5.5.

"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in Chicago, New
York City or San Francisco are authorized or required by law to
close and, if the applicable Business Day relates to any Offshore
Rate Loan, shall mean such a day on which dealings are carried on
in the applicable offshore dollar interbank market.

"Calculation Period" shall mean, with respect to any ratio
or calculation, the period for which such ratio or calculation is
being calculated.

"Capital and Surplus" shall mean, as to any of the Reliance
Standard Insurance Companies as of any date, the total amount
shown on line 38, page 3, column 1 of the Annual Statement of

<PAGE> 11

each of the Reliance Standard Insurance Companies and, as to
Safety National as of any date, the total amount shown on line
25, page 3, column 1 of the Annual Statement of Safety National,
or, in each case, an amount determined in a consistent manner for
any date other than one as of which an Annual Statement is
prepared.

"Capitalized Lease Liabilities" shall mean, with respect to
any Person, all monetary obligations of such Person under any
leasing or similar arrangement which, in accordance with GAAP,
would be classified as a capitalized lease, and, for purposes of
this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP,
and the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the
lessee without payment of a penalty.

"Cash Coverage Ratio" shall mean, with respect to any
Calculation Period, the ratio of (a) (i) Statutory EBT of RSL,
plus (ii) without duplication, pre-tax income (excluding
interest) of the Borrower and its Subsidiaries, plus (iii)
Amounts Available for Dividends from Safety National to SIG
Holdings, in each case calculated for the four consecutive Fiscal
Quarters immediately preceding the date of calculation with
respect to which information necessary to make such calculation
is then available, plus (iv) cash and Cash Equivalents owned by
the Borrower, the Investment Subsidiaries and the Other
Investment Subsidiaries as of the end of such Calculation Period,
plus (v) the Fixed Income Securities Value as of the end of such
Calculation Period; provided that any cash and Cash Equivalents
and fixed income securities referred to in clauses (iv) and (v)
are free and clear of all Liens (other than Liens in favor of the
Lenders hereunder, if any), to (b) Projected Fixed Charges of the
Borrower and its Subsidiaries for the next succeeding four
consecutive Fiscal Quarters.

"Cash Equivalents" shall mean (a) securities with maturities
of six (6) months or less from the date of acquisition issued or
fully guaranteed or insured by the United States Government or
any agency thereof, (b) certificates of deposit, eurodollar time
deposits, overnight bank deposits, bankers' acceptances and
repurchase agreements of any Lender or any other commercial bank
whose unsecured long-term debt obligations are rated at least
BBB- by Standard & Poor's or Baa3 by Moody's having maturities of
six (6) months or less from the date of acquisition, and
(c) commercial paper rated at least "A-2" by Standard & Poor's or
"P-2" by Moody's, or carrying an equivalent rating by a

<PAGE> 12

nationally recognized rating agency, if both of the two named
rating agencies cease publishing ratings of investments.

"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.

"CERCLIS" shall mean the Comprehensive Environmental
Response Compensation Liability Information System List.

"Change in Control" shall be deemed to have occurred at such
times as: (a) the Borrower ceases to own, free and clear of all
Liens (other than Liens created under the Borrower Pledge
Agreement), at least 100% of the outstanding shares of voting
stock and voting power of RSL-Texas on a fully diluted basis
(other than as a result of any (i) merger of RSL-Texas into, or
consolidation of RSL-Texas with, RSL or (ii) liquidation or
dissolution of RSL-Texas whereby all of the capital stock and
other equity interests of RSL owned by RSL-Texas immediately
prior to such liquidation or dissolution are distributed to the
Borrower); (b) the Parent ceases to own at least 51% of the
voting power of the outstanding voting stock of the Borrower on a
fully diluted basis; or (c) individuals who as of the Effective
Date constitute the Borrower's Board of Directors (together with
any new director whose election by the Borrower's Board of
Directors or whose nomination for election by the Borrower's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for
election was previously so approved), for any reason, cease to
constitute a majority of the directors at any time then in
office.

"Charges" - see Section 4.8.

"Closing Date" shall mean February 23, 1993.

"Co-Agents" or "Co-Agent" - see Preamble.

"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, or, as the
context requires, applicable provisions of prior laws.

"Collateral" shall mean all of the collateral security
described or provided for in Section 6 together with all property
and/or rights on or in which a Lien is now or hereafter granted
by any Person to the Administrative Agent (or to any agent,
trustee or other party acting on behalf of the Administrative
Agent) for the benefit of the Lenders, pursuant to the Pledge

<PAGE> 13

Agreements or any other instruments or documents provided for
herein or delivered hereunder or in connection herewith.

"Commitments" - see Section 2.1.

"Compliance Certificate" - see Section 8.1.5.

"Consolidated Capital Expenditures" - see Section 10.6.

"Consolidated Equity" shall mean, with respect to the
Borrower, the sum of (a) stockholders' equity of the Borrower and
its Subsidiaries calculated on a consolidated basis in accordance
with GAAP, but excluding any unrealized gains (losses) on
securities as determined in accordance with FAS 115 and (b) the
component of the capitalization reflected on the Borrower's
consolidated balance sheet constituting Preferred Securities, so
long as such Preferred Securities, the Indebtedness of the
Borrower issued in connection with such Preferred Securities, and
the Contingent Obligation, if any, of the Borrower incurred in
connection with the issuance of the Preferred Securities would
not, in any case, be included as a liability on the Borrower's
consolidated balance sheet in accordance with GAAP.

"Consolidated Funded Debt" shall mean, without duplication,
the sum of (a) all Borrowings hereunder, (b) all Indebtedness
under the Other Senior Indebtedness, (c) Letters of Credit drawn
and unreimbursed under the Master Letter of Credit Agreement, and
(d) Indebtedness as defined under clauses (a) and (b) of the
definition thereof, all as calculated on a consolidated basis in
accordance with GAAP.

"Contingent Obligation" shall mean any agreement,
undertaking or arrangement by which any Person guarantees,
endorses or otherwise becomes or is contingently liable upon (by
direct or indirect agreement, contingent or otherwise, to provide
funds for payment, to supply funds to, or otherwise to invest in,
a debtor, or otherwise to assure a creditor against loss), the
debt, obligation or other liability of any other Person (other
than by endorsements of instruments in the course of collection),
or guarantees the payment of dividends or other distributions
upon the shares of any other Person. The amount of any Person's
obligation under any Contingent Obligation shall (subject to any
limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum outstanding principal amount, if
larger) of the debt, obligation or other liability outstanding
thereunder as to which such Contingent Obligation applies.

"Continuation/Conversion Date" shall mean any date on which,
under Section 2.5, the Borrower (a) converts Loans of one Type to

<PAGE> 14

another Type, or (b) continues as Offshore Rate Loans of the same
Type, but with a new Interest Period, Offshore Rate Loans having
Interest Periods expiring on such date.

"Continuation/Conversion Notice" - see Section 2.5(b).

"Controlled Group" shall mean all members of a controlled
group of corporations and all members of a controlled group of
trades or businesses (whether or not incorporated) under common
control which, together with the Borrower, are treated as a
single employer under section 414(b) or section 414(c) of the
Code or section 4001 of ERISA. For purposes of this definition,
the term Borrower shall be deemed to include, but not be limited
to, any and all Subsidiaries of the Borrower.

"Debt to Capital Ratio" shall mean, at any date of
determination, the ratio of (a) Consolidated Funded Debt to
(b)(i) Consolidated Funded Debt, plus (ii) Consolidated Equity of
the Borrower.

"Default" shall mean any condition or event, which has not
been cured or waived, which constitutes an Event of Default or
which with the giving of notice or lapse of time or both would
become an Event of Default.

"Department" see Section 7.6(a)(i).

"Disposition" - see Section 4.3(a).

"Dollars" and the sign "$" shall mean lawful money of the
United States of America.

"Effective Date" shall mean the date on which all conditions
precedent set forth in Section 11 are satisfied or waived by all
Lenders or with respect to the payment of any fee payable
hereunder, waived by the Person entitled to receive such payment.

"Eligible Assignee" shall mean any bank (including, without
limitation, any Federal Reserve Bank), insurance company, pension
fund, mutual fund, investment fund or other financial
institution.

"Environmental Claims" shall mean all claims, complaints,
notices or inquiries by any Governmental Authority or other
Person alleging potential liability or responsibility for
violation of any Environmental Law, or for release or injury to
the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or

<PAGE> 15

responsibility for damages (punitive or otherwise), cleanup,
removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief,
resulting from or based upon the presence, placement, discharge,
emission or release (including intentional or unintentional,
negligent or non-negligent, sudden or non-sudden, accidental or
non-accidental, placement, spills, leaks, discharges, emissions
or releases) of any Hazardous Material at, in, or from property,
whether or not owned by any of the Borrower or any of the
Borrower's Subsidiaries.

"Environmental Laws" shall mean all federal, state or local
laws, statutes, common law duties, rules, regulations,
ordinances, codes and guidelines (including common law, consent
decrees and administrative orders), together with all
administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters; including, without
limitation, CERCLA, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the
Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, and the Emergency Planning and Community
Right-to-Know Act.

"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.

"Eurocurrency Reserve Percentage" shall mean, for any day
for any Interest Period, the maximum reserve percentage
(expressed as a decimal, rounded upward to the next 1/100th of
1%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time by the FRB for
determining the maximum reserve required (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"). Without limiting the effect of the
foregoing, the Eurocurrency Reserve Percentage shall reflect any
other reserves required to be maintained by the Administrative
Agent against (a) any category of liabilities that includes
deposits by reference to which the Offshore Rate (Reserve
Adjusted) is to be determined, or (b) any category of extensions
of credit or other assets that includes Offshore Rate Loans. For
purposes of this Agreement, any Offshore Rate Loans hereunder
shall be deemed to be "Eurocurrency liabilities," as defined in
Regulation D, and, as such, shall be deemed to be subject to such
reserve requirements without the benefit of, or credit for,
proration, exceptions or offsets which may be available to the
Administrative Agent from time to time under Regulation D. The

<PAGE> 16

Offshore Rate (Reserve Adjusted) shall be adjusted automatically
as to all Offshore Rate Loans then outstanding as of the
effective date of any change in the Eurocurrency Reserve
Percentage.

"Event of Default" - see Section 12.1.

"Existing Credit Agreement" - see first recital.

"Existing Revolving Loans" shall mean the Revolving Loans
made by the Lenders under the Existing Credit Agreement and
evidenced by the Existing Revolving Notes.

"Existing Revolving Notes" shall mean the promissory notes
in favor of the Lenders evidencing the Revolving Loans under the
Existing Credit Agreement.

"Fair Market Value" shall mean with respect to any publicly-
traded security the average closing price for such security on
the largest exchange on which such security is traded (or if not
traded on an exchange, then the average of the closing bid and
ask prices quoted over-the-counter) over the ten trading days
(exclusive of "ex-dividend" and similar dates) prior to the date
of the determination (as such prices are reported in The Wall
Street Journal (Midwest Edition) or if not so reported, in any
nationally recognized financial journal or newspaper).

"FAS" shall mean any statement or pronouncement of the
Financial Accounting Standards Board.

"Federal Funds Effective Rate" shall mean, for any day, the
rate set forth in the weekly statistical release designated as
H.15(519), or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor,
"H.15(519)") for the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such
rate is not so published for any such preceding Business Day, the
rate for such day will be the arithmetic mean as determined by
the Administrative Agent of the rates for the last transaction in
overnight Federal funds arranged prior to 8:00 a.m. (Chicago
time) on that day by each of three leading brokers of Federal
funds transactions in New York City selected by the
Administrative Agent.

"Fiscal Quarter" or "FQ" shall mean any fiscal quarter of a
Fiscal Year.

"Fiscal Year" or "FY" shall mean any period of twelve
consecutive calendar months ending on December 31; references to

<PAGE> 17

a Fiscal Year with a number corresponding to any calendar year
(e.g., the "1995 Fiscal Year") refer to the Fiscal Year ending on
December 31 occurring during such calendar year.

"Fixed Income Securities Value" shall mean the sum of
(a) ninety-five percent (95%) of the Fair Market Value of the
Borrower's, the Investment Subsidiaries' and the Other Investment
Subsidiaries' publicly-traded fixed income securities
constituting Investment Grade Securities, plus (b) seventy
percent (70%) of the Fair Market Value of the Borrower's, the
Investment Subsidiaries' and the Other Investment Subsidiaries'
publicly-traded fixed income securities which are not Investment
Grade Securities and which are rated at least "BB-" by Standard &
Poor's or "Ba3" by Moody's.

"FRB" shall mean the Board of Governors of the Federal
Reserve System, and any Governmental Authority succeeding to any
of its principal functions.

"FRSL" shall mean First Reliance Standard Life Insurance
Company, a New York insurance company.

"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the
circumstances as of the date of determination.

"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by
any of the foregoing.

"Hazardous Material" shall mean: (a) any "hazardous
substance," as defined by CERCLA; (b) any "hazardous waste," as
defined by the Resource Conservation and Recovery Act, as
amended; (c) any petroleum product; or (d) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material
or substance within the meaning of any other applicable federal,
state or local law, regulation or ordinance (including consent
decrees and administrative orders binding upon the Borrower or
any of its Subsidiaries) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous

<PAGE> 18

waste, substance or material, all as amended or hereafter
amended.

"IBOR" shall mean, with respect to any Interest Period, the
rate of interest per annum determined by the Administrative Agent
as the rate at which dollar deposits in the approximate amount of
BAI's Offshore Rate Loan for such Interest Period would be
offered by BofA NT&SA's Grand Cayman Branch, Grand Cayman B.W.I.
(or such other office as may be designated for such purpose by
BofA NT&SA), to major banks in the offshore dollar interbank
market at their request at approximately 10:00 A.M. (Chicago
time) two (2) Business Days prior to the commencement of such
Interest Period.

"IMR/AVR" shall mean, as to any of the Reliance Standard
Insurance Companies at a particular date, the interest
maintenance reserve of such Reliance Standard Insurance
Companies, computed in accordance with SAP as reported on line
11.4, page 3, column 1 of the Annual Statement, plus the asset
valuation reserve of such Reliance Standard Insurance Companies,
computed in accordance with SAP as reported on line 24.1, page 3,
column 1 of the Annual Statement.

"Income Taxes" shall mean any Taxes in which the base is
measured by net income.

"Indebtedness" shall mean, with respect to any Person at any
date, without duplication: (a) all obligations of such Person
for borrowed money or in respect of loans, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other
similar instruments; (c) all obligations in respect of letters of
credit, whether or not drawn, and bankers' acceptances issued for
the account of such Person; (d) all Capitalized Lease Liabilities
of such Person; (e) all Interest Rate and Currency Exchange
Agreement Obligations of such Person; (f) all obligations of such
Person secured by a contractual Lien; (g) all trade payables of
such Person; (h) as to the Borrower only, all other items
(exclusive of negative goodwill) which, in accordance with GAAP,
would be included as liabilities on the liability side of the
balance sheet of such Person; (i) whether or not so included as
liabilities in accordance with GAAP, all obligations of such
Person to pay the deferred purchase price of property or
services, and Indebtedness secured by a Lien on property owned or
being purchased by such Person (including Indebtedness arising
under conditional sales or other title retention agreements)
whether or not such Indebtedness shall have been assumed by such
Person or is limited in recourse; (j) any Indebtedness of another
Person secured by a Lien on any assets of such first Person,
whether or not such Indebtedness is assumed by such first Person;

<PAGE> 19

(k) any Indebtedness of a partnership in which such Person is a
general partner; and (l) all Contingent Obligations of such
Person whether or not in connection with the foregoing; provided,
that Indebtedness of any Person shall not include Permitted
Transactions of such Person; and provided, further, that to the
extent the calculation of the consolidated Indebtedness of any
Person would include both the amount of any Contingent Obligation
of such Person and the amount of the underlying Indebtedness to
which such Contingent Obligation relates, such calculation shall
be made including such amount only once.

"Indemnified Parties" - see Section 15.5.

"Indenture" shall mean the Indenture, dated as of October 8,
1993, between the Borrower and Fleet National Bank (successor to
Shawmut Bank Connecticut, N.A.), as trustee, as the same may be
amended from time to time in accordance with the terms of this
Agreement.

"Interest Payment Date" shall mean, as to any Offshore Rate
Loan, the last day of each Interest Period applicable to such
Loan and each date such Loan is converted into another Type of
Loan and, as to any Base Rate Loan, the last Business Day of each
calendar month; provided, however, that if any Interest Period
for an Offshore Rate Loan exceeds three months, the date that
falls three months after the beginning of such Interest Period
and after each Interest Payment Date thereafter is also an
Interest Payment Date.

"Interest Period" shall mean, as to any Offshore Rate Loan,
the period commencing on the Borrowing Date of such Loan or on
the Continuation/Conversion Date on which such Loan is converted
into or continued as an Offshore Rate Loan, and ending on the
date one, two, three or six months thereafter as selected by the
Borrower in its Notice of Borrowing or Continuation/Conversion
Notice; provided that:

(a) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall
be extended to the following Business Day unless the result
of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;

(b) any Interest Period that begins on
the last Business Day of a calendar month (or
on a day for which there is no numerically
corresponding day in the calendar month at the
end of such Interest Period)

<PAGE> 20

shall end on the last Business Day of the calendar month at
the end of such Interest Period; and

"Interest Rate and Currency Exchange Agreement Obligations"
shall mean, with respect to any Person, all net liabilities of
such Person under interest rate swap agreements, foreign currency
exchange agreements, interest rate cap agreements, interest rate
collar agreements, options or futures contracts or agreements or
arrangements related to interest rates or currency exchange
rates.

"Invested Assets" shall mean, as to any of the Reliance
Standard Insurance Companies as of any date, the amount reported
on line 10A, page 2, column 1 of the Annual Statement of each of
the Reliance Standard Insurance Companies and, as to Safety
National as of any date, the amount reported on line 8A, page 2,
column 1 of the Annual Statement of Safety National, or, in each
case, an amount determined in a consistent manner for any date
other than one as of which an Annual Statement is prepared.

"Investment" shall mean, as to any Person, any investment in
any Person, whether by means of share purchase, capital
contribution, loan, time deposit or otherwise (other than
investments by separate accounts of the Reliance Standard
Insurance Companies in the ordinary course of business).

"Investment Grade Preferred Stocks" shall mean preferred
stocks which are rated at least "NAIC P2" by the NAIC, "BBB-" by
Standard & Poor's, "baa3" by Moody's, "BBB-" by Fitch Investor
Services, Inc., "BBB-" by Duff & Phelps Credit Rating Co., Inc.,
or carrying an equivalent rating by a nationally recognized
rating agency, if each of the named rating agencies cease
publishing ratings of investments.

"Investment Grade Securities" shall mean non-equity
securities which are rated at least "NAIC 2" by the NAIC, "BBB-"
by Standard & Poor's, "Baa3" by Moody's, "BBB-" by Fitch Investor
Services, Inc., "BBB-" by Duff & Phelps Credit Rating Co., Inc.,
or carrying an equivalent rating by a nationally-recognized
rating agency, if each of the named rating agencies cease
publishing ratings of investments.

"Investment Subsidiaries" shall mean the Investment
Subsidiaries as such term is defined in the Master Letter of
Credit Agreement.

<PAGE> 21

"LC Administrative Agent" shall mean the Administrative
Agent as such term is defined in the Master Letter of Credit
Agreement.

"LC Liabilities" shall mean the Liabilities as such term is
defined in the Master Letter of Credit Agreement.

"LC Obligations" shall mean the LC Obligations as such term
is defined in the Master Letter of Credit Agreement.

"Lenders" or "Lender" - see Preamble.

"Lending Office" shall mean, with respect to any Lender, any
office designated by such Lender in its sole discretion beneath
its signature hereto (or in an Assignment Agreement) or otherwise
from time to time by written notice to the Borrower and the
Administrative Agent, as a Lending Office for purposes hereunder.
A Lender may designate separate Lending Offices for the purposes
of making, maintaining or continuing Base Rate Loans or Offshore
Rate Loans and, with respect to Offshore Rate Loans, such Lending
Office may be a foreign branch or an Affiliate of such Lender or
such Lender's holding company.

"Letters of Credit" shall mean the Letters of Credit as such
term is defined in the Master Letter of Credit Agreement.

"Liabilities" shall mean all obligations of the Borrower
and/or any of its Subsidiaries to the Lenders, the Administrative
Agent or the Arranger, howsoever created, arising or evidenced,
whether direct or indirect, joint or several, absolute or
contingent, or now or hereafter existing, or due or to become
due, which arise out of or in connection with this Agreement, the
Notes, if any, or the other Related Documents.

"Licenses" - see Section 7.26; individually, a "License".

"Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), claim or other priority or preferential
arrangement of any kind or nature whatsoever.

"Limited Partnership" shall mean an entity in which any
Person holds a Limited Partnership Investment.

"Limited Partnership Investments" shall mean, as to any
Person, Investments in limited partnership interests by such
Person in partnerships with general partners other than the
Borrower or its Affiliates (other than Investments by separate
accounts of the Reliance Standard Insurance Companies in such

<PAGE> 22

limited partnership interests in the ordinary course of
business).

"Litigation" shall mean any litigation (including, without
limitation, any governmental proceeding or arbitration
proceeding), tax audit or investigative proceeding, claim,
lawsuit, and/or investigation pending or threatened against or
involving the Borrower, any of its Subsidiaries or other
Affiliates or any of its or their businesses or operations.

"Loan(s)" - see Section 2.1.

"Master Letter of Credit Agreement" shall mean that certain
Master Letter of Credit Agreement, dated as of December 31, 1993,
as amended, among the Borrower, the Investment Subsidiaries, the
lenders party thereto, and BofA NT&SA (as successor to
Continental Bank) as administrative agent, as the same may be
further amended or modified from time to time as permitted by
this Agreement.

"Material Adverse Change" or "Material Adverse Effect" shall
mean any change, event, action, condition or effect which
individually or in the aggregate (a) impairs the validity or
enforceability of this Agreement, the Notes, if any, or any other
Related Document, or (b) subjects any officer of the Borrower or
any of its Subsidiaries to criminal liability which could
reasonably be expected to materially and adversely affect the
Borrower, any of the Reliance Standard Insurance Companies or
Safety National or the Borrower and its Subsidiaries taken as a
whole, or (c) materially and adversely affects the consolidated
business, operations, prospects or financial condition of the
Borrower and its Subsidiaries taken as a whole, or (d) impairs
the ability of the Borrower or any of its Subsidiaries to perform
their respective obligations under this Agreement and the Related
Documents.

"Material Litigation" or "Material Litigation Development"
shall mean any Litigation, or development in any Litigation, as
the case may be (a) which involves this Agreement, any Related
Document or other transactions contemplated hereby or thereby, or
(b) which could reasonably be expected to have a Material Adverse
Effect.

"Moody's" shall mean Moody's Investors Service, Inc. and any
successor thereto.

"Multiemployer Pension Plan" shall mean a multiemployer plan
as defined in section 4001(a)(3) of ERISA with respect to which

<PAGE> 23

the Borrower or any other Controlled Group member is or has,
within the preceding six years, been required to contribute.

"NAIC" shall mean the National Association of Insurance
Commissioners, or any successor organization.

"Net Income" shall mean, for any Person for any Calculation
Period, the net income (or loss) of such Person for such
Calculation Period as determined in accordance with GAAP.

"Net Proceeds" shall mean, with respect to any Disposition
or Sale by any Person, the aggregate amount of cash and readily
marketable Cash Equivalents received by such Person in respect of
such Disposition or Sale minus the sum of (a) reasonable costs
and expenses (including costs of discontinuance and Taxes other
than Income Taxes) incurred in connection with such Disposition
or Sale and required to be paid in cash and (b) the estimated
Income Tax to be paid by such Person in connection with such
Disposition or Sale. Upon calculation of Net Proceeds, the
Borrower shall deliver to the Administrative Agent an accounting
(a copy of which shall promptly be delivered to the Lenders by
the Administrative Agent) of the items deducted from the cash or
Cash Equivalents related to such Disposition or Sale pursuant to
clauses (a) and (b). For purposes of this definition, the Net
Proceeds received by any Person in respect of any Disposition or
Sale shall include such cash or Cash Equivalents as may be
received ("subsequent cash proceeds") by such Person at any time
or from time to time, when such subsequent cash proceeds are
actually received, in connection with the sale, transfer, lease
or other disposition, or otherwise in respect of any
consideration other than cash or readily marketable Cash
Equivalents received by such Person in respect of such
Disposition or Sale, less the estimated Income Tax to be paid in
connection with the receipt of such subsequent cash proceeds that
were not theretofore deducted in computing Net Proceeds.

"1995 Annual Statements" - see Section 7.6(a)(ii).

"1996 Quarterly Statements" - see Section 7.6(a)(ii).

"Non-Use Fee" - see Section 3.6(b).

"Note Exchange Agreement" shall mean that certain Note
Exchange Agreement, dated as of December 30, 1993, between RSL
and the Trust pursuant to which RSL acquired the Trust Notes from
the Trust and transferred the Subsidiary Senior Notes to the
Trust in exchange for the Trust Notes, as the same may be amended
or modified from time to time as permitted by this Agreement.

<PAGE> 24

"Notes" shall mean the promissory notes in favor of the
Lenders, each substantially in the form of Exhibit A, with blanks
appropriately completed in conformity herewith, evidencing the
Loans, together with any promissory notes issued and accepted by
any of the Lenders in replacement of or substitution therefor.

"Notice of Borrowing" shall mean a notice in substantially
the form of Exhibit B hereto.

"Offshore Rate Loans" shall mean any portion of the Loans
which bears interest at a rate determined by reference to the
Offshore Rate (Reserve Adjusted).

"Offshore Rate (Reserve Adjusted)" shall mean, for any
Interest Period, with respect to Offshore Rate Loans comprising
part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/100th of 1%) determined by the
Administrative Agent as follows:

Offshore Rate = IBOR
(Reserve Adjusted) 1.00 - Eurocurrency Reserve Percentage

The Offshore Rate (Reserve Adjusted) shall be adjusted
automatically as to all Offshore Rate Loans then outstanding as
of the effective date of any change in the Eurocurrency Reserve
Percentage.

"Original Surplus Debentures" shall mean the Surplus
Debentures of RSL-Texas, each dated November 6, 1987, in the
original principal amounts of $160,000,000 and $35,000,000,
respectively, which Surplus Debentures will be replaced by the
Surplus Debenture.

"Other Investment Subsidiaries" shall mean DFG Corporation,
a Delaware corporation, APDEL LLC, a Delaware limited liability
company, and such other Subsidiaries of the Borrower from time to
time which are engaged primarily in making Investments for their
own account; provided that to the extent required under the
Borrower Pledge Agreement the capital stock of any such
Subsidiary has been pledged to the Administrative Agent and the
Administrative Agent has a first priority perfected Lien with
respect thereto.

"Other Senior Indebtedness" shall mean, collectively, the
Senior Notes and the SIG Notes.

"Parent" shall mean Rosenkranz & Company, a New York limited
partnership.

<PAGE> 25

"Payment Date" shall mean the date of each payment in each
calendar year as set forth in Section 2.6, or, if any such day is
not a Business Day, the next succeeding Business Day.

"Pension Plan" shall mean a Single Employer Pension Plan, or
a Multiemployer Pension Plan to which the Borrower or any other
Controlled Group member may have liability.

"Percentage" shall mean, relative to any Lender, the
percentage set forth opposite such Lender's name on Schedule 2.1
(or set forth in an Assignment Agreement, as such Percentage may
be adjusted from time to time pursuant to Assignment Agreement(s)
executed by such Lender and its Eligible Assignee) and delivered
pursuant to Section 14.1.

"Permitted Liens" - see Section 9.1.

"Permitted Transactions" shall mean (a) transactions in
which an investor sells U.S. Government Securities or mortgage-backed
securities, including, without limitation, securities
issued by the Government National Mortgage Association and the
Federal Home Loan Mortgage Corporation, while simultaneously
contracting to repurchase "substantially the same" (as determined
by the Public Securities Association and GAAP) securities for a
later settlement, (b) transactions in which an investor lends
cash to a primary dealer and the primary dealer collateralizes
the borrowing of the cash with certain securities,
(c) transactions in which an investor lends securities to a
primary dealer and the primary dealer collateralizes the
borrowing of the securities with cash collateral, and
(d) transactions in which an investor makes loans of securities
to a broker dealer under an agreement requiring such loans to be
continuously secured by cash collateral or U.S. Government
Securities.

"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, limited liability
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit
corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or
department thereof).

"Pledge Agreements" shall mean, collectively, the Borrower
Pledge Agreement and the Subsidiary Pledge Agreement.

"Preferred Securities" shall mean preferred securities
issued by a limited liability company, business trust or similar

<PAGE> 26

entity, all of the common securities of which are owned by the
Borrower and which is formed solely for the purpose of issuing
such preferred securities and investing the proceeds of such
issuance in debt securities of the Borrower; provided that the
Borrower's repayment obligations under such debt securities shall
be subordinated to the Liabilities on terms satisfactory to the
Required Lenders.

"Process Agent" - see Section 15.11.

"Projected Fixed Charges" shall mean, as to any Person for
any period, (a) the scheduled principal amount payable on
Consolidated Funded Debt of such Person for such period, plus
(b) interest expense on Consolidated Funded Debt of such Person
for such period (assuming that for purposes of calculating the
Cash Coverage Ratio pursuant to Section 10.7 the interest rate on
Consolidated Funded Debt of the Borrower and its Subsidiaries as
of the date for which such calculation is made shall be deemed to
be the interest rate applicable to such Consolidated Funded Debt
for the next succeeding four consecutive Fiscal Quarters, as such
interest rate may be effectively adjusted for all or part of such
period pursuant to any contracts, agreements or other
arrangements under which Interest Rate and Currency Exchange
Agreement Obligations have been or may be incurred), plus (c)
dividends declared or required to be paid for such period on the
capital stock of such Person (other than dividends payable in
capital stock of such Person), plus (d) dividends declared or
required to be paid for such period on any Preferred Securities.

"Proposal Letter" shall mean that certain proposal letter,
sent to the Borrower on October 23, 1996, by BofA NT&SA and
accepted by the Borrower.

"Qualification" shall mean, with respect to any certificate
covering any financial statements, a qualification to such
certificate or financial statements (such as a "subject to" or
"except for" statement therein) (a) resulting from a limitation
on the scope of examination of such financial statements or the
underlying data, (b) as to the capability of the Person whose
financial statements are certified to continue operations as a
going concern, or (c) which could be eliminated by changes in
financial statements or notes thereto covered by such certificate
(such as by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so
eliminated by the making of any such change and after giving
effect thereto would occasion a Default; provided, that neither
of the following shall constitute a Qualification: (i) a
consistency exception relating to a change in accounting
principles with which the independent public accountants for the

<PAGE> 27

Person whose financial statements are being certified have
concurred; or (ii) a qualification relating to the outcome or
disposition of threatened Litigation, pending Litigation being
contested in good faith, pending or threatened claims or
contingencies which cannot be determined with sufficient
certainty to permit such financial statements to be qualified.

"Reference Departments" shall mean the Department of the
State of Illinois, in the case of RSL, the State of Missouri, in
the case of Safety National, the State of New York, in the case
of FRSL and the State of Texas, in the case of RSL-Texas.

"Regulation D" shall mean Regulation D (or any successor
regulation) promulgated by the FRB as from time to time in
effect.

"Regulation G" shall mean Regulation G (or any successor
regulation) promulgated by the FRB as from time to time in
effect.

"Regulation U" shall mean Regulation U (or any successor
regulation) promulgated by the FRB as from time to time in
effect.

"Reinsurance Agreements" shall mean any agreement, contract,
treaty, certificate or other arrangement (other than a Surplus
Relief Reinsurance Agreement) by which any of the Reliance
Standard Insurance Companies or Safety National agrees to
transfer or cede to another insurer all or part of the liability
assumed or assets held by any one of the Reliance Standard
Insurance Companies or Safety National under a policy or policies
of insurance or under a reinsurance agreement assumed by any one
of the Reliance Standard Insurance Companies. Reinsurance
Agreements shall include, but not be limited to, any agreement,
contract, treaty, certificate or other arrangement (other than a
Surplus Relief Reinsurance Agreement) which is treated as such by
the applicable Department or Reference Department.

"Related Documents" shall mean the Notes, if any, the Pledge
Agreements, the Surplus Debenture, the Tax Sharing Agreements,
the Second Borrower Reaffirmation Agreement, the SIG Holdings
Reaffirmation Agreement and any and all other documents or
instruments furnished or required to be furnished pursuant to
Section 6 or Section 11, as the same may be amended or modified
from time to time.

"Release" shall mean a "release," as such term is defined in
CERCLA.

<PAGE> 28

"Reliance Standard Insurance Companies" shall mean RSL-Texas, RSL and FRSL.

"Replaced Lender" - see Section 5.9.

"Replacement Lender" - see Section 5.9.

"Reportable Event" shall have the meaning assigned to such
term in section 4043 of ERISA, except such term shall not include
any event as to which the requirement of giving thirty days
notice to the Pension Benefit Guaranty Corporation or any
successor thereto has been waived.

"Required Lenders" shall mean Lenders having at least 51% of
the Commitments, or if the Commitments have terminated or
expired, 51% of the aggregate Loans outstanding at such time.

"Responsible Officer" shall mean, in the case of any
corporate Person, any of the following officers of such Person:
the chief executive officer, the president; the chief financial
officer; the chief operating officer; the chief investment
officer; the general counsel, the secretary; the treasurer or any
vice president and, in the case of a partnership, any of the
foregoing officers of its general partner. If any of the titles
of the preceding officers of such corporate Person are changed
after the date hereof, the term "Responsible Officer" shall
thereafter mean any officer performing substantially the same
functions as are presently performed by one or more of the
officers listed in the first sentence of this definition.

"Restated Facility Amount" - see Section 2.1.

"Revolver Termination Date" shall mean the earlier of
(a) April 1, 2003 or (b) the date of termination in whole of the
Commitments pursuant to Section 4.1, 4.3, 4.4 or 12.2.

"Risk Assets" shall mean fixed income securities which are
not Investment Grade Securities, common stock (other than capital
stock of the Federal Home Loan Bank of Pittsburgh), preferred
stock which is not an Investment Grade Preferred Stock, mortgage
loans (other than mortgage loans meeting the definition of U.S.
Government Securities) and real estate (other than the property
known as 2501 Parkway, Philadelphia, Pennsylvania or any other
building and site at which RSL's primary administrative offices
may be located and the property known as 2043 Woodland Parkway,
St. Louis, Missouri or any other building and site at which
Safety National's primary administrative office may be located);
provided, however that the term "Risk Assets" shall not in any
case include Investments in the Borrower or its Subsidiaries.

<PAGE> 29

"Risk-Based Capital" shall mean, with respect to any
insurance company, the ratio of Adjusted Capital of such
insurance company to the Company Action Level of such insurance
company (as determined by the NAIC or the applicable Reference
Department). In the event that there is a conflict between the
Risk-Based Capital formulas adopted by the NAIC and the
applicable Reference Department, the calculation of the Reference
Department shall govern.

"RSL" shall mean Reliance Standard Life Insurance Company,
an Illinois insurance company.

"RSL-Texas" shall mean Reliance Standard Life Insurance
Company of Texas, a Texas insurance company.

"Safety National" shall mean Safety National Casualty
Corporation, a Missouri insurance corporation.

"Sale" - see Section 4.3(b).

"SAP" shall mean, as to any insurance company, the statutory
accounting practices prescribed or permitted by the Reference
Department.

"Second Borrower Reaffirmation Agreement" - see Section
11.1.4.

"Senior Notes" shall mean the $85,000,000 original principal
amount of 8% Senior Notes due 2003 issued by the Borrower
pursuant to the Indenture, as such notes may be amended or
modified in accordance with the terms of this Agreement.

"SIG Acquisition" shall mean the acquisition by SIG Holdings
of all of the outstanding capital stock of the Missouri
corporation known as SIG Holdings, Inc. and, indirectly, Safety
National pursuant to the terms of the SIG Merger Agreement.

"SIG Acquisition Documents" shall mean the SIG Merger
Agreement, the SIG Stockholders Agreement, and the other
agreements, documents and instruments pursuant to which the SIG
Acquisition is consummated, as the same may be amended or
modified in accordance with this Agreement.

"SIG Holdings" shall mean SIG Holdings, Inc., a Delaware
corporation, formerly known as SIG Holdings Acquisition Corp.

"SIG Holdings Reaffirmation Agreement" - see Section 6.1(d).

<PAGE> 30

"SIG Merger Agreement" shall mean that certain Agreement and
Plan of Merger, dated as of October 5, 1995, among a Missouri
corporation known as SIG Holdings, Inc., the Borrower and SIG
Holdings, whereby such Missouri corporation was merged with and
into SIG Holdings with SIG Holdings being the surviving
corporation under the laws of the State of Delaware.

"SIG Note Agreement" shall mean that certain SIG Note
Agreement, dated as of May 20, 1994, among SIG Holdings and the
Purchasers named in Schedule I thereto, as the same may be
amended or modified in accordance with the terms of this
Agreement.

"SIG Notes" shall mean the $45,000,000 original principal
amount 8.50% Senior Secured Notes due May 20, 2003 issued
pursuant to the SIG Note Agreement and assumed by SIG Holdings,
as such notes may be amended or modified in accordance with the
terms of this Agreement.

"SIG Pledge Agreement" shall mean that certain Pledge
Agreement, dated as of May 20, 1994, between SIG Holdings and The
Chase Manhattan Bank, N.A., as collateral agent, as the same may
be amended or modified in accordance with the terms of this
Agreement.

"SIG Stockholders Agreement" shall mean that certain
Stockholders Agreement, dated as of October 5, 1995, among the
individuals named therein and the Borrower.

"Single Employer Pension Plan" shall mean a pension plan as
such term is defined in section 3(2) of ERISA, other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA, to
which the Borrower or any other Controlled Group member may have
liability, including any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of
being deemed to be a contributing sponsor under section 4069 of
ERISA.

"Solvent", as to any Person on a particular date, shall mean
that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such
Person, (b) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay
the probable liabilities of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize
upon its assets and pay its debts and other obligations,
Contingent Obligations and other commitments as they mature in

<PAGE> 31

the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities
mature, (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is
engaged and (f) such Person has not made any transfer or incurred
any obligation, with the intent to hinder, delay or defraud
either present or future creditors of such Person. For the
purposes of this definition, in computing the amount of any
Contingent Obligation at any time, it is intended that such
Contingent Obligation will be computed at the amount which, in
light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become
an actual or matured liability.

"Standard & Poor's" shall mean Standard & Poor's Ratings
Services, a division of The McGraw Hill Corporation, Inc., and
any successor thereto.

"Statutory EBT" shall mean, as to any of the Reliance
Standard Insurance Companies as of any date, the amount reported
on line 29, page 4, column 1 of the Annual Statement of each of
the Reliance Standard Insurance Companies and, as to Safety
National as of any date, the amount reported on line 14B, page 4,
column 1 of the Annual Statement of Safety National, or, in each
case, an amount determined in a consistent manner for any date
other than one as of which an Annual Statement is prepared.

"Statutory Financial Statements" - see Section 7.6(a)(i).

"Statutory Liabilities" shall mean, as to any of the
Reliance Standard Insurance Companies as of any date, the amount
reported on line 28, page 3, column 1 of the Annual Statement of
each of the Reliance Standard Insurance Companies and, as to
Safety National as of any date, the amount reported on line 21,
page 3, column 1 of the Annual Statement of Safety National, or,
in each case, an amount determined in a consistent manner for any
date other than one as of which an Annual Statement is prepared.

"Subsidiary" shall mean, as to any Person, any corporation,
partnership, limited liability company, limited liability
partnership, joint venture, trust, association or other
unincorporated organization (other than a limited partnership in
which such Person acts solely as a limited partner) of which or
in which such Person and such Person's Subsidiaries own directly
or indirectly an aggregate of more than 50% of (a) the combined

<PAGE> 32

voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors, if it is a corporation, (b) the capital interest or
partnership interest, if it is a partnership, joint venture or
similar entity, or (c) the beneficial interest, if it is a trust,
association or other unincorporated organization; provided,
however that the term "Subsidiary" shall not refer to any Person
whose equity interests are held solely by the separate accounts
of the Reliance Standard Insurance Companies in the ordinary
course of business.

"Subsidiary Pledge Agreement" shall mean that certain
Subsidiary Pledge Agreement, dated as of March 5, 1996, between
SIG Holdings and the Administrative Agent, as the same may be
amended or modified from time to time.

"Subsidiary Senior Notes" shall mean, collectively, the
senior notes of the Investment Subsidiaries originally issued to
RSL and acquired by the Trust pursuant to the terms of the Note
Exchange Agreement, as the same may be amended or modified from
time to time as permitted by this Agreement.

"Surplus Debenture" shall mean the Surplus Debenture of RSL-Texas, dated
December 1, 1996 or such later date as required by
the Texas Department, in the original principal amount of
$58,000,000, as the same may be amended or modified in accordance
with this Agreement, a certified copy of which will be delivered
to the Administrative Agent (which shall deliver copies to the
Lenders) upon execution.

"Surplus Relief Reinsurance Agreements" shall mean any
agreement whereby any of the Reliance Standard Insurance
Companies or Safety National assumes or cedes business under a
reinsurance agreement that would be considered a "financing-type"
reinsurance agreement as determined in accordance with the
Statement of Financial Accounting Standards 113 or any successor
thereto.

"Tax Claim" - see Section 8.1.23.

"Tax Returns and Reports" shall mean all returns, reports
and information required to be filed with any Governmental
Authority with regard to Taxes.

"Tax Sharing Agreements" shall mean that certain Tax
Preparation and Allocation Agreement, dated February 7, 1990,
between RSL and RSL-Texas, and that certain Tax Preparation and
Allocation Agreement, dated April 4, 1990, among the Borrower and
its Subsidiaries party thereto, as amended, certified copies of

<PAGE> 33

which have been delivered to the Administrative Agent, and any
other similar agreement entered into by the Borrower, any of the
Reliance Standard Insurance Companies or Safety National from
time to time with the approval of the Administrative Agent, as
such agreements may be amended or modified or superseded from
time to time as permitted by this Agreement.

"Taxes" or "Tax" shall mean all taxes of any nature
whatsoever and however denominated, including, without
limitation, retaliatory, income, premium, withholding, guaranty
fund and similar assessments, excise, import, governmental fees,
duties and all other charges, as well as additions to tax,
penalties and interest thereon, imposed by any Governmental
Authority.

"Third Restatement Date" shall mean the date of this
Agreement as set forth in the Preamble.

"Transferee" - see Section 14.3.

"Trust" shall mean the Amherst Financial Trust, an Illinois
trust formed pursuant to the Trust Agreement.

"Trust Agreement" shall mean that certain Trust Agreement,
dated as of December 30, 1993, between RSL and the Trustee, as
the same may be amended or modified from time to time as
permitted by this Agreement.

"Trust Documents" shall mean the Note Exchange Agreement,
the Trust Agreement, the Subsidiary Senior Notes, the Trust Notes
and the Trust Note Guaranties, as the same may be amended or
modified from time to time as permitted by this Agreement.

"Trust Note Guaranties" shall mean, collectively, the
guaranty of each Subsidiary Senior Note made by the Borrower and
each of the Investment Subsidiaries (other than the primary
obligor on such note) in favor of the Trust, as the same may be
amended or modified from time to time as permitted by this
Agreement.

"Trust Notes" shall mean the senior notes of the Trust
issued to RSL pursuant to the terms of the Note Exchange
Agreement, as the same may be amended or modified from time to
time pursuant to this Agreement.

"Trustee" shall mean the Trustee as such term is defined in
the Master Letter of Credit Agreement.

<PAGE> 34

"Type(s) of Loans" or "Type" - see Section 2.2. The various
Types of Loans under this Agreement are as follows: Base Rate
Loans and Offshore Rate Loans.

"UCC" shall mean the Uniform Commercial Code or comparable
statute or any successor statutes thereto, as in effect from time
to time in the relevant jurisdiction.

"U.S. Government Securities" shall mean obligations of, or
obligations guaranteed as to principal and interest by, the
United States Government or any agency or instrumentality
thereof.

"Welfare Plan" shall mean a "welfare plan," as such term is
defined in section 3(1) of ERISA.

SECTION 1.2 Other Definitional Provisions.

(a) All terms defined in this Agreement shall have the
above-defined meanings when used in any Related Document, or
any certificate, report or other document made or delivered
pursuant to this Agreement, unless the context therein shall
clearly otherwise require.

(b) The words "hereof," "herein,"
"hereunder" and similar terms when used in this
Agreement shall refer to this Agreement as a
whole and not to any particular provision of
this Agreement.

(c) The words "amended or modified" when used in this
Agreement or any Related Document shall mean with respect to
this Agreement or any Related Document such document as from
time to time, in whole or in part, amended, modified,
supplemented, restated, refinanced, refunded or renewed.

(d) In the computation of periods of time in this
Agreement from a specified date to a later specified date,
the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."

SECTION 1.3 Accounting and Financial Determinations. For
purposes of this Agreement, unless otherwise specified, all
accounting terms used herein or in any Related Document shall be
interpreted, all accounting determinations and computations
hereunder or thereunder shall be made, and all financial

<PAGE> 35

statements required to be delivered hereunder or thereunder shall
be prepared, in accordance with GAAP.

SECTION 2. THE COMMITMENTS AND THE LOANS

SECTION 2.1 Loan Commitment. Subject to the terms and
conditions of this Agreement and relying on the representations
and warranties herein set forth, each of the Lenders, severally
and for itself alone, agrees to make loans (herein, collectively,
called "Loans" and individually called a "Loan") to the Borrower
on a revolving basis from time to time from the Effective Date
until the Revolver Termination Date in such Lender's Percentage
of such aggregate amounts as the Borrower may from time to time
request from all Lenders. The aggregate principal amount of
Loans which any Lender shall be committed to have outstanding to
the Borrower shall not at any one time exceed the amount set
forth opposite such Lender's name on Schedule 2.1 hereto. The
aggregate principal amount of all Loans which shall be committed
to be outstanding hereunder to the Borrower shall not at any one
time exceed $200,000,000 (or such reduced amount as may be fixed
pursuant to Section 2.6, 4.1, 4.4 or 12.2) (the "Restated
Facility Amount"). The foregoing commitment of each Lender is
herein called its "Commitment" and, collectively, called the
"Commitments".

Notwithstanding anything in the foregoing to the
contrary, the aggregate principal amount of all Loans outstanding
at any time shall not exceed $102,000,000 plus up to $98,000,000
(or such reduced amount as may be fixed pursuant to Section 2.6,
4.1, 4.4 or 12.2); provided that such additional $98,000,000
shall be used solely for the purposes permitted by the
immediately following sentence (it being acknowledged that, as of
the date hereof, Loans representing $47,000,000 of such
additional amount have been used for the purpose described in
clause (i) of such sentence and remain outstanding). To effect
the foregoing, $98,000,000 of the Commitments shall be set aside
and reserved for the following uses, and may not be borrowed by
the Borrower for any purpose other than: (i) to pay the
consideration in connection with the acquisition, construction or
improvement of property, or the acquisition of shares of stock or
other equity interests by the Borrower to the extent permitted by
this Agreement, the Indenture and the SIG Note Agreement and/or
(ii) to redeem the SIG Notes in full.

SECTION 2.2 Types of Loans. The Loans shall be denominated
as Base Rate Loans or Offshore Rate Loans (each being herein
called a "Type" of Loan), as the Borrower shall specify in the
related Notice of Borrowing or Continuation/Conversion Notice

<PAGE> 36

pursuant to Section 2.3 or Section 2.5. Base Rate Loans and
Offshore Rate Loans may be outstanding at the same time;
provided, that (a) in the case of Offshore Rate Loans, not more
than five (5) different Interest Periods shall be outstanding at
any one time for all such Loans, and (b) unless any applicable
amounts are paid pursuant to Section 5.5, the Borrower shall
specify Types of Loans and Interest Periods such that no payment
or prepayment of any principal on any Loan shall result in an
interruption of any Interest Period.

SECTION 2.3 Procedure for Borrowing.

(a) Each Borrowing shall be made upon the Borrower's
irrevocable written notice (or by telephone promptly confirmed in
writing) delivered to the Administrative Agent in the form of a
Notice of Borrowing (which notice must be received by the
Administrative Agent prior to 11:00 a.m. (Chicago time) (i) three
(3) Business Days prior to the requested Borrowing Date, in the
case of Offshore Rate Loans, and (ii) on the requested Borrowing
Date, in the case of Base Rate Loans, specifying:

(A) the amount of such Borrowing, which
shall be in an aggregate minimum amount of $1,000,000
or any larger integral multiple thereof in excess
thereof;

(B) the requested Borrowing Date, which
shall be a Business Day;

(D) with respect to any Borrowing comprised
of Offshore Rate Loans, the duration of the Interest
Period applicable to such Loans included in such
notice. If any Notice of Borrowing fails to specify
the duration of the Interest Period for any Borrowing
comprised of Offshore Rate Loans, such Interest Period
shall be three (3) months; provided that no Interest
Period shall extend beyond the Revolver Termination
Date.

(b) The Administrative Agent will promptly notify each
Lender of its receipt of any Notice of Borrowing and of the
amount of such Lender's Percentage of that Borrowing.

(c) Each Lender will make the amount of its Percentage
of each Borrowing available to the Administrative Agent for the
account of the Borrower at the Administrative Agent's Office by

<PAGE> 37

1:00 p.m. (Chicago time) on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative
Agent. The proceeds of all such Loans will then be made
available to the Borrower by the Administrative Agent by wire
transfer in accordance with written instructions provided to the
Administrative Agent by the Borrower of like funds as received by
the Administrative Agent.

SECTION 2.4 Funding Reliance. Unless the Administrative
Agent shall have been notified by telephone, confirmed in
writing, by any Lender by 11:30 a.m., Chicago time, on the
relevant Borrowing Date that such Lender will not make available
the amount which would constitute its Percentage of the related
Borrowing, the Administrative Agent may assume, subject to the
satisfactory fulfillment by the Borrower of the applicable
conditions precedent set forth in Section 11, that such Lender
shall make such amount available to the Administrative Agent and,
in reliance upon such assumption the Administrative Agent may
(but shall not be required to) make available to the Borrower a
corresponding amount. If and to the extent that such Lender
shall not make such amount available to the Administrative Agent,
such Lender and the Borrower severally agree to repay the
Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date
the Administrative Agent made such amount available to the
Borrower to the date such amount is repaid to the Administrative
Agent, (a) if repaid by the Borrower, at the interest rate
applicable at the time to the Type of Loans comprising such
Borrowing and (b) if repaid by a Lender, at the Federal Funds
Effective Rate.

SECTION 2.5 Continuation and Conversion Elections.

(a) As to any Loans comprising a Borrowing, the
Borrower may, upon irrevocable written notice to the
Administrative Agent in accordance with clause (b) below:

(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable
Interest Period, in the case of Offshore Rate Loans, to
convert any such Loans (or any part thereof in an amount not
less than $1,000,000, or that is in an integral multiple
thereof in excess thereof) into any other Type of Loans; or

(ii) elect, as of the last day of the applicable
Interest Period, to continue any Offshore Rate Loans having
Interest Periods expiring on such day (or any part thereof
in an amount not less than $1,000,000, or that is in an
integral multiple thereof in excess thereof);

<PAGE> 38

provided, that if at any time the aggregate amount of Offshore
Rate Loans in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than
$1,000,000, such Offshore Rate Loans shall automatically convert
into Base Rate Loans, and on and after such date the right of the
Borrower to continue such Loans as, and convert such Loans into,
Offshore Rate Loans, as the case may be, shall terminate.

(b) The Borrower shall deliver a Continuation/
Conversion Notice in substantially the form of Exhibit C (a
"Continuation/Conversion Notice") to be received by the
Administrative Agent not later than 11:00 a.m. (Chicago time) at
least (i) three Business Days in advance of the Continuation/
Conversion Date, if the Loans are to be converted into or
continued as Offshore Rate Loans, and (ii) one Business Day in
advance of the Continuation/Conversion Date, if the Loans are to
be converted into Base Rate Loans, specifying:

(A) the proposed Continuation/Conversion
Date;

(B) the aggregate amount of Loans to be
converted or renewed;

(D) in the case of the continuation of
Offshore Rate Loans or conversions into Offshore Rate
Loans, the duration of the requested Interest Period.

(c) If upon the expiration of any Interest Period
applicable to Offshore Rate Loans, the Borrower has failed to
select timely a new Interest Period to be applicable to such
Offshore Rate Loans, the Borrower shall be deemed to have elected
to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.

(d) The Administrative Agent will promptly notify each
Lender of its receipt of a Continuation/Conversion Notice, or, if
no timely notice is provided by the Borrower, the Administrative
Agent will promptly notify each Lender of the details of any
automatic conversion to Base Rate Loans. All conversions and
continuations shall be made ratably according to the respective
outstanding principal amounts of the Loans held by each Lender
with respect to which the notice was given.

<PAGE> 39

(e) Unless the Required Lenders otherwise consent,
during the existence of a Default, the Borrower may not elect to
have a Loan converted into or continued as an Offshore Rate Loan.

(f) After giving effect to any conversion or
continuation of Loans, there may not be more than five (5)
different Interest Periods in effect for all Loans hereunder.

SECTION 2.6 Repayment of Loans; Restated Notes. The
outstanding principal amount of the Loans shall be payable (and
the Borrower agrees to pay such Loans) on each Payment Date,
commencing with the Payment Date occurring on the dates set forth
below to and including the Revolver Termination Date, in an
amount sufficient to reduce the outstanding principal amount of
the Loans plus any unused Commitments to the principal amount set
forth opposite the Payment Date set forth below:

Maximum Outstanding
Payment Date Loans

October 1, 1999 $180,000,000
October 1, 2000 $150,000,000
October 1, 2001 $110,000,000
October 1, 2002 $ 60,000,000
April 1, 2003 $ 0

On each Payment Date, the Commitments shall be correspondingly
and permanently reduced in accordance with Section 4.4. The
Loans of each Lender shall be payable (and the Borrower agrees to
pay all such Loans) on the Revolver Termination Date.
Notwithstanding any other provision contained in this Agreement
to the contrary, any repayment of the Loans pursuant to this
Section 2.6 shall be deemed to first repay the principal amount
of Loans used to consummate acquisitions, construction or
improvement of property or the acquisition of stock and other
equity interests permitted under this Agreement (including,
without limitation, any Acquisition).

SECTION 2.7 Loan Accounts; Record Keeping. (a) The Loans
made by each Lender shall be evidenced by one or more loan
accounts or records maintained by such Lender in the ordinary
course of business and the Administrative Agent. The loan
accounts or records maintained by the Administrative Agent and
each Lender shall be conclusive absent manifest error of the
amount and date of the Loans made by the Lenders to the Borrower
and the interest and payments thereon; provided, that in the
event of a conflict between information recorded by the
Administrative Agent and any Lender as to such Lender's Loans,
the records of the Administrative Agent, absent manifest error,

<PAGE> 40

shall control. Any failure to so record or any error in doing so
shall not, however, limit or otherwise affect the obligations of
the Borrower hereunder, including, without limitation, the
obligation to pay any amount owing with respect to the Loans.

(b) Upon the request of any Lender made through the
Administrative Agent, the Loans made by such Lender may be
evidenced by one or more Notes, instead of loan accounts. Any
Lender under the Existing Credit Agreement that requests a Note
under this Agreement pursuant to the immediately preceding
sentence shall receive such Note in exchange for and replacement
of any Restated Revolving Note executed and delivered to such
Lender by the Borrower under the Existing Credit Agreement. Each
such Lender shall endorse on the schedules annexed to its Note(s)
the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the Borrower with
respect thereto. Each such Lender is irrevocably authorized by
the Borrower to endorse its Note(s) and each Lender's record
shall be conclusive absent manifest error with respect to such
endorsement; provided, however, that the failure of a Lender to
make, or an error in making, a notation thereon with respect to
any Loan shall not limit or otherwise affect the obligations of
the Borrower hereunder or under any such Note to such Lender.

SECTION 3. INTEREST AND FEES, ETC.

SECTION 3.1 Interest Rates. With respect to each Loan, the
Borrower hereby promises to pay interest on the unpaid principal
amount thereof for the period commencing on the date of such Loan
until such Loan is paid in full, as follows:

(a) At all times while such Loan or any portion
thereof is a Base Rate Loan, at a rate per annum equal to
the Base Rate from time to time in effect plus the
Applicable Base Rate Margin.

(b) At all times while such Loan or any portion
thereof is an Offshore Rate Loan, at a rate per annum equal
to the Offshore Rate (Reserve Adjusted) from time to time in
effect plus the Applicable Offshore Rate Margin.

(c) For purposes hereof, the applicable Offshore Rate
margin ("Applicable Offshore Rate Margin") shall be
determined based on the Debt to Capital Ratio and the higher
of the then current rating of the Senior Notes by Moody's
and Standard & Poor's, all in the manner reflected in the
chart below, or, if each of the

<PAGE> 41

named rating agencies cease rating the Senior Notes,
carrying an equivalent rating by a nationally recognized
rating agency. If the Senior Notes are defeased, repaid or
otherwise not rated, then the applicable rating will be that
of any other unsecured Indebtedness issued by the Borrower
and rated by any of the foregoing rating agencies as
provided in the immediately preceding sentence. If, for
purposes of such chart, the ratings of any nationally
recognized rating agency other than Moody's or Standard &
Poor's become applicable, the rating of such agency shall be
incorporated by reference into such chart as if set forth
therein. If neither Moody's nor Standard & Poor's nor any
other nationally recognized rating agency rates the Senior
Notes or such other unsecured Indebtedness of the Borrower,
the pricing shown below in the far right column will be
applicable. Any adjustment in the Applicable Offshore Rate
Margin as a result of a change in the Debt to Capital Ratio
shall be effective upon receipt by the Administrative Agent
of a Compliance Certificate pursuant to Section 8.1.5 (a
copy of which shall promptly be delivered to the Lenders by
the Administrative Agent) setting forth the calculation of
such Debt to Capital Ratio, and any adjustment in the
Applicable Offshore Rate Margin as a result of a change in
the rating of the Senior Notes or such other unsecured
Indebtedness, if applicable, by Moody's, Standard & Poor's
or such other nationally recognized rating agency shall be
effective as of the effective date of the change in such
rating; provided that, notwithstanding the foregoing, in no
event will the Applicable Offshore Rate Margin or the
Applicable Base Rate Margin (as determined below) be reduced
at any time when a Default has occurred and is continuing.

Applicable Offshore Rate Margin

Rating
--------------------------------------------
Below
Debt to Capital BBB/Baa2 BBB-/ BB+/ BB+/Ba1 or
Ratio or above Baa3 Ba1 Not Rated
- --------------- ------- -------- ------- ----------

>= .45 .550% .700% 1.000% 1.375%

> .35 but < .45 .500% .625% .875% 1.125%

<= .35 .450% .500% .750% 1.000%

<PAGE> 42

(d) For purposes hereof, the applicable Base Rate margin
("Applicable Base Rate Margin") shall be equal to the greater of
(i) the Applicable Offshore Rate Margin (as determined above)
minus 1.00% or (ii) zero (0); provided that any change in the
Applicable Base Rate Margin shall be determined in the same
manner as set forth in clause (c) above with respect to a change
in the Applicable Offshore Rate Margin.

SECTION 3.2 Default Interest Rate. Notwithstanding the
provisions of Section 3.1, in the event that any Default shall
occur, the Borrower hereby promises to pay, upon demand therefor
by the Administrative Agent, interest on the unpaid principal
amount of the Loans (and interest thereon to the extent permitted
by law) for the period commencing on the date of such Default
until such Loans are paid in full or such Default is cured or
waived in accordance with Sections 12.2 and 15.1 at a rate per
annum equal to the Base Rate from time to time in effect (but not
less than the Base Rate as at such date of demand), plus the
Applicable Base Rate Margin, plus 2% per annum.

SECTION 3.3 Interest Payment Dates. Interest on each Loan
shall be paid in arrears on each Interest Payment Date. Interest
shall also be paid on the date of any prepayment of Offshore Rate
Loans under Section 4.1, 4.2 or 4.3 for the portion of the Loans
so prepaid and upon payment (including prepayment) in full
thereof and during the existence of any Default, interest shall
be paid on demand of the Administrative Agent at the request or
with the consent of the Required Lenders. After the Revolver
Termination Date (by acceleration or otherwise), accrued interest
on the Loans shall be payable on demand.

SECTION 3.4 Setting and Notice of Rates. The applicable
Offshore Rate shall be determined by the Administrative Agent.
Each determination of the applicable Offshore Rate shall be
conclusive and binding upon the parties hereto, in the absence of
demonstrable error. If the Administrative Agent is unable to
determine such a rate, the provisions of Section 5.3 shall apply.
The Administrative Agent shall, upon written request of the
Borrower or any Lender, deliver to the Borrower or such Lender a
statement showing the computations used by the Administrative
Agent in determining any applicable Offshore Rate hereunder.

SECTION 3.5 Computation of Fees and Interest. Fees and
interest on Offshore Rate Loans shall be computed for the actual
number of days elapsed on the basis of a 360-day year, and
interest on Base Rate Loans shall be computed for the actual
number of days elapsed on the basis of a 365-day year. Each
determination of an interest rate by the Administrative Agent

<PAGE> 43

shall be conclusive and binding on the Borrower and the Lenders
in the absence of manifest error.

SECTION 3.6 Fees. The Borrower agrees to pay the following
fees (all such fees being nonrefundable):

(a) The Borrower agrees to pay the fees set forth in
the Proposal Letter for the sole benefit of the
Administrative Agent;

(b) Without duplication, the Borrower agrees to pay to
the Administrative Agent, for the benefit of the Lenders
ratably according to their respective Percentages, a non-use
fee ("Non-Use Fee") on the average daily unused Commitments,
payable quarterly in arrears on the last Business Day of
each Fiscal Quarter (commencing with the first such date
occurring after the Effective Date for the period from the
Effective Date through and including such date) and on the
Revolver Termination Date at a rate per annum equal to an
amount determined based on the higher of the then current
rating of the Senior Notes by Moody's and Standard & Poor's,
all in the manner reflected in the chart below, or, if each
of the named rating agencies cease rating the Senior Notes,
carrying an equivalent rating by a nationally recognized
rating agency. If the Senior Notes are defeased, repaid or
otherwise not rated, then the applicable rating will be that
of any other unsecured Indebtedness issued by the Borrower
and rated by any of the foregoing rating agencies as
provided in the immediately preceding sentence. If, for
purposes of such chart, the ratings of any nationally
recognized rating agency other than Moody's or Standard &
Poor's become applicable, the rating of such agency shall be
incorporated by reference into such chart as if set forth
therein. If neither Moody's nor Standard & Poor's nor any
other nationally recognized rating agency rates the Senior
Notes or such other unsecured Indebtedness of the Borrower,
the Non-Use Fee shown below in the far right column will be
applicable. Any adjustment in the Non-Use Fee as a result
of a change in the rating of the Senior Notes or such other
unsecured Indebtedness, if applicable, by Moody's, Standard
& Poor's or such other nationally recognized rating agency
shall be effective as of the effective date of the change in
such rating; provided that, notwithstanding the foregoing,
in no event will the Non-Use Fee be reduced at any time when
a Default has occurred and is continuing.

<PAGE> 44

Rating
------------------------------------------
Below
BBB/Baa2 BBB-/ BB+ BB+/Ba1 or
or above Baa3 Ba1 Not Rated
-------- ----- ----- ----------

Non-Use Fee .150% .175% .250% .325%

SECTION 4. REDUCTION OR TERMINATION OF THE COMMITMENTS;
PAYMENTS AND PREPAYMENTS

SECTION 4.1 Voluntary Reduction or Termination of the
Commitments. The Borrower may from time to time prior to the
Revolver Termination Date on at least three (3) Business Days'
prior written or telephonic notice (promptly confirmed in
writing) received by the Administrative Agent (which shall
promptly advise each Lender thereof) permanently reduce the
amount of the Commitments (such reduction to be pro rata among
the Lenders according to their respective Percentages) to an
amount not less than the aggregate unpaid principal amount of the
Loans then outstanding. Any such reduction shall be in an
aggregate amount of $2,000,000 or an integral multiples of
$500,000 in excess thereof. The Borrower may at any time on at
least thirty (30) Business Days' prior written notice permanently
terminate the Commitments upon payment in full of the Loans (and
any fees or interest accrued thereon) and all other Liabilities.

SECTION 4.2 Voluntary Prepayments. The Borrower may from
time to time prepay the Loans in whole or in part; provided, that
(a) the Borrower shall give the Administrative Agent (which shall
promptly advise each Lender) not less than two (2) Business Days'
prior written or telephonic notice (promptly confirmed in
writing) thereof, specifying the date and amount of prepayment,
(b) unless any prepayment of Offshore Rate Loans shall be
accompanied by any amounts to be paid with respect thereto
pursuant to Section 5.5, Offshore Rate Loans shall be prepaid
only on the last day of the Interest Period relating thereto,
(c) each partial prepayment shall be in a principal amount of
$1,000,000 or in integral multiples of $100,000 in excess thereof
and (d) any prepayment of Offshore Rate Loans shall include
accrued interest to the date of prepayment on the amount so
prepaid. Any prepayment of the Loans pursuant to this Section
4.2 shall be deemed to first repay the principal amount of Loans
used to consummate acquisitions, construction or improvement of
property or the acquisition of stock and other equity interests
permitted under this Agreement (including, without limitation,
any Acquisition).

<PAGE> 45

SECTION 4.3 Mandatory Prepayments. The Borrower shall make
mandatory prepayments of the Loans as follows:

(a) If, on any date, the Borrower or any of its
Subsidiaries shall sell, assign, lease, transfer,
contribute, convey, issue or otherwise dispose of, or grant
options, warrants or other rights with respect to, any of
its assets (any of the foregoing being a "Disposition"),
other than a Disposition (i) permitted under Section 9.2,
(ii) permitted under Section 9.3, or (iii) to the Borrower
or its directly owned Subsidiaries, and such Disposition
results in Net Proceeds in excess of $200,000, the Borrower
shall promptly notify the Administrative Agent (which shall
promptly notify the Lenders) of such Disposition, including
the amount of Net Proceeds received by the Borrower or any
Subsidiary in respect of such Disposition (and the amount
and other type of consideration so received) and an amount
equal to such Net Proceeds shall be promptly applied after
the receipt from time to time of such Net Proceeds to repay
the outstanding principal of the Loans (together with any
interest accrued thereon). To the extent the Net Proceeds
of any such Disposition exceeds the amount of the Loans then
outstanding (together with any interest accrued thereon),
or, at the time of such Disposition, the Loans shall have
been paid in full, such Net Proceeds shall be applied to
repay, first, any remaining Liabilities, second, any Letters
of Credit drawn and unreimbursed (including any interest
accrued thereon) and, third, any other remaining LC
Liabilities then due and owing.

(b) If, on any date, the Borrower or any of its
Subsidiaries shall sell, issue or grant options, contingent
interest rights, warrants or other rights with respect to
any of its equity securities and, with respect to clause
(iii) below only, debt securities (any of the foregoing
being a "Sale"), the Borrower shall promptly notify the
Administrative Agent (which shall promptly notify the
Lenders) of such Sale, including the amount of Net Proceeds
received by the Borrower or any Subsidiary in respect of
such Sale (and the amount and other type of consideration so
received) and an amount equal to such Net Proceeds (or, in
the case of a Sale of the type referenced in clause (iii)
below, 40% of such Net Proceeds in excess of $50,000,000)
shall be promptly applied after the receipt from time to
time of such Net Proceeds to repay

<PAGE> 46

outstanding principal of the Loans (together with any
interest accrued thereon). To the extent such amount of the
Net Proceeds in respect of such Sale as is required to be
applied to the Loans under the immediately preceding
sentence exceeds the amount of the Loans then outstanding
(together with any interest accrued thereon), or, at the
time of such Sale, the Loans shall have been paid in full,
the amount of such Net Proceeds shall be applied to repay,
first, any remaining Liabilities, second, any Letters of
Credit drawn and unreimbursed (including any interest
accrued thereon) and, third, any other remaining LC
Liabilities then due and owing. Notwithstanding anything
contained in this Section 4.3(b) to the contrary, no
prepayment hereunder shall be required with respect to: (i)
the issuance of common stock or preferred stock of the
Borrower or any options, contingent interest rights,
warrants or other rights related thereto; (ii) the issuance
of Preferred Securities; (iii) the issuance of debt
securities of the Borrower; provided, that unless such debt
securities (A) are issued to refinance existing Indebtedness
of the Borrower constituting Consolidated Funded Debt or (B)
require that no payment of principal be made with respect to
such debt securities on or prior to the Revolver Termination
Date, not less than 40% of the Net Proceeds therefrom in
excess of $50,000,000 shall be applied to prepay the
principal of the Loans (together with any interest accrued
on such principal) as provided above; (iv) a Sale which
results in Net Proceeds of less than $200,000; (v) Sales to
the Borrower or any of its Subsidiaries; or (vi) stock
options granted to or exercised by members of management of
the Borrower or any of its Subsidiaries or related in any
way to its earnings or performance.

In connection with the application of the Net Proceeds of
any Disposition or Sale as set forth in Sections 4.3(a) and
4.3(b), respectively, the Borrower and the Administrative Agent
hereby agree that any Net Proceeds not applied to the payment of
the Loans (together with any interest accrued thereon) and the
remaining Liabilities shall be promptly turned over by the
Administrative Agent to the Borrower unless the LC Administrative
Agent notifies the Administrative Agent that any LC Obligations
or LC Liabilities are then outstanding under the Master Letter of
Credit Agreement in which case the Administrative Agent shall
promptly turn over such excess Net Proceeds to the LC
Administrative Agent for application of such excess Net Proceeds
by the LC Administrative Agent to the payment of the LC

<PAGE> 47

Obligations and the remaining LC Liabilities. The Administrative
Agent shall have no obligation to determine the accuracy of any
amount of the LC Obligations or LC Liabilities claimed to be
owing by the LC Administrative Agent under the Master Letter of
Credit Agreement or confirm such amount with the Borrower.

SECTION 4.4 Mandatory Reduction in the Commitments. Each
payment, prepayment or repayment on the Loans pursuant to Section
2.6, 4.1, 4.3(a) or 4.3(b) shall automatically and permanently
ratably reduce the Commitments and the Restated Facility Amount
by an amount equal to such repayment. Each reduction in the
Commitments pursuant to this Section 4.4 shall be deemed to first
apply to that portion of the Commitments available to consummate
the acquisition, construction or improvement of property or the
acquisition of stock or other equity interests permitted by this
Agreement (including, without limitation, any Acquisition).

SECTION 4.5 Payments by the Borrower. (a) All payments to
be made by the Borrower hereunder shall be made without set-off,
recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by the Borrower shall be made to
the Administrative Agent for the account of the Lenders at the
Administrative Agent's Office, and shall be made in Dollars and
in immediately available funds, no later than 1:00 p.m. (Chicago
time) on the date specified herein. The Administrative Agent
will promptly distribute to each Lender its pro rata share (based
on its Percentage) (or other applicable share as expressly
provided herein) of such payment in like funds as received. The
Borrower shall have no responsibility or liability for the
Administrative Agent's failure or delay in making any
distribution pursuant to the immediately preceding sentence. Any
payment received by the Administrative Agent later than 1:00 p.m.
(Chicago time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall
continue to accrue.

(b) Subject to the provisions set forth in the definition
of "Interest Period" herein, whenever any payment is due on a day
other than a Business Day, such payment shall be made on the
following Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the
case may be.

(c) Unless the Administrative Agent receives notice from
the Borrower prior to the date on which any payment is due to the
Lenders that the Borrower will not make such payment in full as
and when required, the Administrative Agent may assume that the
Borrower has made such payment in full to the Administrative
Agent on such date in immediately available funds and the

<PAGE> 48

Administrative Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such
due date an amount equal to the amount then due such Lender. If
and to the extent the Borrower has not made such payment in full
to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such
Lender, together with interest thereon at the Federal Funds
Effective Rate for each day from the date such amount is
distributed to such Lender until the date repaid.

SECTION 4.6 Sharing of Payments.

(a) If any Lender shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of
offset or otherwise) on account of the Loans (other than
pursuant to the terms of Section 5 or 14) in excess of its
pro rata share (based on its Percentage) of payments and
other recoveries obtained by all Lenders of the Loans on
account of principal of and interest on the Loans, such
Lender shall purchase from the other Lenders such
participation in the Loans as shall be necessary to cause
such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that
if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and each Lender
which has sold a participation to the purchasing Lender
shall repay to the purchasing Lender the purchase price to
the ratable extent of such recovery together with an amount
equal to such selling Lender's ratable share (according to
the proportion of (i) the amount of such selling Lender's
required repayment to the purchasing Lender to (ii) the
total amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered.

(b) The Borrower agrees that any Lender so purchasing
a participation from another Lender pursuant to
Section 4.6(a) may, to the fullest extent permitted by law,
exercise all its rights of payment (including pursuant to
Section 4.7) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in
the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent
practicable,

<PAGE> 49

exercise its rights in respect to such secured claim in a
manner consistent with the rights of the Lenders entitled
under this Section 4.6(b) to share in the benefits of any
recovery of such secured claim.

SECTION 4.7 Setoff. Except as prohibited by the Trust
Indenture Act of 1939, as amended, each Lender shall, upon the
occurrence of any Event of Default described in Section 12.1.1
or, with the consent of the Required Lenders, upon the occurrence
of any other Event of Default, have the right to appropriate and
apply to the payment of the Liabilities owing to it (whether or
not then due), and (as security for such Liabilities), the
Borrower hereby grants to each Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or
moneys of the Borrower then or thereafter maintained with such
Lender. Any such appropriation and application shall be subject
to the provisions of Section 4.6. Each Lender agrees promptly to
notify the Borrower and the Administrative Agent after any such
setoff and application made by such Lender; provided, however,
that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of each
Lender under this Section 4.7 are in addition to other rights and
remedies (including other rights of setoff under applicable law
or otherwise) which such Lender may have.

SECTION 4.8 Net Payments. All payments by the Borrower of
principal of, and interest on, the Loans and all other amounts
payable hereunder shall be made free and clear of and without
deduction for any present or future income, stamp or other Taxes,
fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, other than Taxes
imposed on or measured by any Lender's net income or receipts
(such non-excluded items being called "Charges"). In the event
that any withholding or deduction from any payment to be made by
the Borrower hereunder is required in respect of any Charges
pursuant to any applicable law, rule or regulation, then the
Borrower will:

(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;

(b) promptly forward to the Administrative Agent an
official receipt or other documentation satisfactory to the
Administrative Agent evidencing such payment to such
authority; and

(c) pay to the Administrative Agent for the account of
the Lenders such additional amount or amounts as are
necessary to ensure that the net amount

<PAGE> 50
actually received by each Lender will equal the
full amount such Lender would have received had no
such withholding or deduction been required
(including any withholding or deduction applicable
to additional amounts payable under this Section 4.8).

Upon request of the Borrower, each Lender that is organized under
the laws of a jurisdiction other than the United States of
America or any state thereof shall, prior to the due date of any
payments with respect to the Loans, execute and deliver to the
Borrower, on or about the first scheduled payment date in each
calendar year, a United States Internal Revenue Service Form 4224
or Form 1001, as may be applicable (or any successor form),
appropriately completed; provided, that any Lender which is
prospectively unable to deliver such form solely as a result of a
change in applicable tax laws occurring subsequent to the Third
Restatement Date shall nevertheless be entitled to the benefits
of this Section 4.8. Without prejudice to the survival of any
other agreement of the Borrower hereunder or under any other
document, the agreement of the Borrower contained in this Section
4.8 shall survive satisfaction of the Liabilities and termination
of this Agreement.

SECTION 5. CHANGES IN CIRCUMSTANCES

SECTION 5.1 Increased Costs. If (a) Regulation D, or
(b) after the Third Restatement Date, the adoption of any
applicable law, rule or regulation, or any change in any of the
foregoing, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof,
or compliance by any Lender (or any Lending Office of such
Lender) with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable
agency,

(i) shall subject any Lender (or any Lending Office of
such Lender) to any tax, duty or other charge with respect
to its Offshore Rate Loans or its obligation to make
Offshore Rate Loans or shall change the basis of taxation of
payments to any Lender of the principal of or interest on
its Offshore Rate Loans or any other amounts due under this
Agreement in respect of its Offshore Rate Loans or its
obligation to make Offshore Rate Loans (except for changes
in the rate of Tax, other than Taxes covered by Section 4.8,
on the overall gross or net income of such Lender or its
Lending Office); or

<PAGE> 51

(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed
by the FRB, but excluding any reserve included in the
determination of interest rates pursuant to Section 3),
special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by,
any Lender (or any Lending Office of such Lender); or

(iii) shall impose on any Lender (or its Lending
Office) any other condition affecting its Offshore Rate
Loans;

and the result of any of the foregoing is to increase the cost to
(or in the case of Regulation D referred to above, to impose a
cost on) such Lender (or any Lending Office of such Lender) of
making or maintaining any Offshore Rate Loans or to reduce the
amount of any sum received or receivable by such Lender (or the
Lending Office or such Lender) under this Agreement or under its
Loans or its Commitment with respect thereto, then within thirty
(30) days after demand by such Lender (which demand shall be
accompanied by a written statement setting forth the basis of
such demand), the Borrower shall pay directly to such Lender such
additional amount or amounts as will compensate such Lender for
such increased cost or such reduction.

SECTION 5.2 Change in Rate of Return. If, after the Third
Restatement Date, any change in, or the introduction, adoption,
effectiveness, interpretation, reinterpretation or phase-in of,
any law or regulation, directive, guideline, decision or request
including, without limitation, any law or guideline pursuant to
or arising out of the July 1988 report of the Basle Committee on
Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital
Standards" (whether or not having the force of law) of any court,
central bank, regulator or other Governmental Authority or
comparable agency charged with the interpretation or
administration thereof affects or would affect the amount of
capital required or expected to be maintained by any Lender or
any person controlling such Lender, and such Lender reasonably
determines that the rate of return on its or such controlling
Person's capital as a consequence of the Loans made by or
Commitment of such Lender (or any participating interest therein
held by such Lender) is reduced to a level below that which such
Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case the
Borrower shall, within thirty (30) days after written demand by
such Lender to the Borrower, pay directly to such Lender
additional amounts sufficient to compensate such Lender or such

<PAGE> 52

controlling Person for such reduction in rate of return;
provided, that such Lender shall have used reasonable efforts to
minimize such additional amounts. A written statement of such
Lender as to any such additional amount or amounts (including
calculations thereof in reasonable detail) shall, in the absence
of demonstrable error, be conclusive and binding on the Borrower.
In determining such amount, such Lender may use any method of
averaging and attribution that it shall deem reasonably
applicable. Each Lender shall notify the Borrower of any event
of which it has knowledge, occurring after the date hereof, which
will entitle such Lender to compensation pursuant to this
Section 5.2.

SECTION 5.3 Basis for Determining Interest Rate Inadequate
or Unfair. If with respect to any Interest Period:

(a) deposits in Dollars (in the applicable amounts)
are not being offered to the Administrative Agent in the
interbank eurodollar market for such Interest Period, or the
Administrative Agent otherwise determines (which
determination shall be binding and conclusive on all
parties) that by reason of circumstances affecting the
interbank eurodollar market adequate and reasonable means do
not exist for ascertaining the applicable Offshore Rate; or

(b) any Lender advises the Administrative Agent that
the Offshore Rate (Reserve Adjusted), as determined by the
Administrative Agent, will not adequately and fairly reflect
the cost to such Lender of maintaining or funding such Loan
for such Interest Period, or that the making or funding of
Offshore Rate Loans has become impracticable as a result of
an event occurring after the date of this Agreement which in
the opinion of such Lender materially changes such Loans,

then, so long as such circumstances shall continue:

(i) the Administrative Agent shall promptly
notify the Borrower and the Lenders thereof,

(ii) no Lender shall be under any obligation to
make, continue or convert into Offshore Rate Loans so
affected, and

(iii) on the last day of the then current
Interest Period for Offshore Rate Loans so affected,
such Offshore Rate Loans shall, unless

<PAGE> 53

then repaid in full, automatically convert to Base Rate
Loans.

SECTION 5.4 Changes in Law Rendering Certain Loans
Unlawful. In the event that any change in (including the
adoption of any new) applicable laws or regulations, or any
change in the interpretation of applicable laws or regulations by
any governmental or other regulatory body charged with the
administration thereof, should make it unlawful for a Lender or
the Lending Office of such Lender ("Affected Lender") to make,
maintain or fund Offshore Rate Loans, then (a) the Affected
Lender shall promptly notify each of the other parties hereto,
(b) the obligation of all Lenders to make, continue or convert
into Offshore Rate Loans made unlawful for the Affected Lender
shall, upon the effectiveness of such event, be suspended for the
duration of such unlawfulness, and (c) on the last day of the
current Interest Period for Offshore Rate Loans (or, in any
event, if the Affected Lender so requests, on such earlier date
as may be required by the relevant law, regulation or
interpretation), the Offshore Rate Loans shall, unless then
repaid in full, automatically convert to Base Rate Loans;
provided, that conversion of an Offshore Rate Loan to a Base Rate
Loan pursuant to this Section 5.4 shall not subject the Borrower
to Breakage Costs under Section 5.5.

SECTION 5.5 Funding Losses. The Borrower hereby agrees
that upon demand by any Lender (which demand shall be accompanied
by a written statement setting forth the basis for the
calculations of the amount being claimed) the Borrower will
indemnify such Lender against any loss or expense which such
Lender may sustain or incur (including, without limitation, any
loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender
to fund or maintain Offshore Rate Loans) (collectively, "Breakage
Costs"), as reasonably determined by such Lender, as a result of
(a) any payment or prepayment or conversion of any Offshore Rate
Loans of such Lender on a date other than the last day of an
Interest Period for such Offshore Rate Loan, or (b) any failure
of the Borrower to borrow, continue or convert any portion of the
Loans on a date specified therefor in a Notice of Borrowing or
Continuation/Conversion Notice pursuant to this Agreement. For
this purpose, all notices to the Administrative Agent pursuant to
this Agreement shall be deemed to be irrevocable.

SECTION 5.6 Right of Lenders to Fund Through Other Offices.
Each Lender may, if it so elects, fulfill its Commitment as to
Offshore Rate Loans by causing its Lending Offices to make such
Offshore Rate Loans; provided, that in such event for the

<PAGE> 54

purposes of this Agreement, such Offshore Rate Loans shall be
deemed to have been made by such Lender and the obligation of the
Borrower to repay such Offshore Rate Loans shall nevertheless be
to such Lender and shall be deemed held by it, to the extent of
such Offshore Rate Loans, for the account of such branch or
affiliate.

SECTION 5.7 Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary,
each Lender shall be entitled to fund and maintain its funding of
all or any part of its Loans in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Lender had
actually funded and maintained each Offshore Rate Loan during
each Interest Period for such Loan through the purchase of
deposits having a maturity corresponding to such Interest Period
and bearing an interest rate equal to the Offshore Rate (Reserve
Adjusted) for such Interest Period.

SECTION 5.8 Conclusiveness of Statements; Survival of
Provisions. Determinations and statements of any Lender pursuant
to Section 5.1 through Section 5.5 shall be conclusive absent
demonstrable error. The provisions of Sections 5.1, 5.2, 5.4,
5.5 and this Section 5.8 shall survive termination of this
Agreement.

SECTION 5.9 Replacement of Lenders. If any Lender shall
become affected by any of the changes or events described in
Sections 5.1, 5.2, 5.3 or 5.4 (any such Lender being hereinafter
referred to as a "Replaced Lender") and shall petition the
Borrower for any increased cost or amounts thereunder, then in
such case, the Borrower may, within thirty (30) days after such
petition and upon at least five (5) Business Days' written notice
to the Administrative Agent and such Replaced Lender, designate a
replacement lender (a "Replacement Lender") acceptable to the
Administrative Agent in its reasonable discretion, to which such
Replaced Lender shall, subject to its receipt (unless a later
date for the remittance thereof shall be agreed upon by the
Borrower and such Replaced Lender) of all amounts claimed by such
Replaced Lender under Section 5.1, 5.2, 5.3 or 5.4, assign all
(but not less than all) of its rights, obligations, Loans and
Commitment hereunder; provided, that all Liabilities (except
Liabilities which by the terms hereof survive the payment in full
of the Loans and termination of this Agreement) due and payable
to such Replaced Lender shall be paid in full as of the date of
such assignment. Upon any assignment by any Lender pursuant to
this Section 5.9 becoming effective, the Replacement Lender shall
thereupon be deemed to be a "Lender" for all purposes of this
Agreement and such Replaced Lender shall thereupon cease to be a

<PAGE> 55

"Lender" for all purposes of this Agreement and shall have no
further rights or obligations hereunder (except Liabilities which
by the terms hereof survive the payment in full of the Loans and
termination of this Agreement). Notwithstanding any Replaced
Lender's failure or refusal to assign its rights, obligations,
Loans and Commitment under this Section 5.9, such Replaced Lender
shall cease to be a "Lender" for all purposes of this Agreement
(except to the limited extent set forth above) and the
Replacement Lender substituted therefor upon payment to such
Replaced Lender by the Replacement Lender of all amounts set
forth in this Section 5.9 without any further action of such
Replaced Lender.

SECTION 6. COLLATERAL AND OTHER SECURITY

SECTION 6.1 Borrower. (a) On the Closing Date, the
Borrower executed and delivered to the Administrative Agent a
pledge agreement (herein, as the same may be amended or modified,
called the "Borrower Pledge Agreement") covering, among other
things, all of the issued and outstanding capital stock and
surplus debentures of RSL-Texas (including, without limitation,
the Original Surplus Debentures) and the issued and outstanding
capital stock of the Borrower's Subsidiaries (other than Delphi
Brokerage Company) directly owned by the Borrower.

(b) Concurrently with or prior to the Third Restatement
Date, the Borrower shall execute and deliver to the
Administrative Agent the Second Borrower Reaffirmation Agreement,
whereby the Borrower will reaffirm its obligations and
liabilities under the Borrower Pledge Agreement.

(c) Concurrently with or prior to any other Acquisition
permitted by the terms of this Agreement, the Borrower shall, or
shall cause its Subsidiaries to, comply with Section 11.3.1(b).

(d) Concurrently with or prior to the Third Restatement
Date, the Borrower shall cause SIG Holdings to execute and
deliver to the Administrative Agent the SIG Holdings
Reaffirmation Agreement, in substantially the form attached
hereto as Exhibit J (the "SIG Holdings Reaffirmation Agreement"),
whereby SIG Holdings will reaffirm its obligations and
liabilities under the Subsidiary Pledge Agreement.

SECTION 6.2 Further Assurances. The Borrower (a) delivered
to the Administrative Agent on the Closing Date, and agrees that
upon request of the Administrative Agent it shall promptly
deliver or cause to be delivered to the Administrative Agent, in
due form for transfer, all chattel paper, instruments, securities

<PAGE> 56

and documents of title, if any, at any time representing all or
any of the Collateral, and (b) shall promptly execute and deliver
or cause to be executed and delivered to the Administrative
Agent, in due form for filing or recording (and pay the cost of
filing or recording the same in all public offices deemed
necessary by the Administrative Agent), such further assignment
agreements, security agreements, pledge agreements, instruments,
consents, waivers, financing statements, stock or bond powers,
searches, releases, and other documents in addition to those
documents executed and delivered by the Borrower on the Closing
Date or the Third Restatement Date and do such other acts and
things, all as the Administrative Agent may from time to time
request to establish and maintain to the satisfaction of the
Administrative Agent a valid perfected Lien on all Collateral
(free of all other Liens except as permitted under this Agreement
and the Related Documents) to secure payment of the Liabilities.

SECTION 7. REPRESENTATIONS AND WARRANTIES

To induce the Lenders to enter into this Agreement and to
make the Loans hereunder, the Borrower represents and warrants to
the Administrative Agent and to each of the Lenders that as of
the Third Restatement Date and as of each Borrowing Date:

SECTION 7.1 Organization, etc. The Borrower and each of
its Subsidiaries is a corporation, partnership or limited
liability company duly organized or formed, validly existing and
in good standing under the laws of the state of its incorporation
or formation; and each of the Borrower and its Subsidiaries is
duly qualified to transact business and in good standing as a
foreign corporation, partnership or limited liability company
authorized to do business in each jurisdiction where the nature
of its business makes such qualification necessary or failure to
so qualify could have a Material Adverse Effect.

SECTION 7.2 Authorization. The Borrower (a) has (or had at
the time of execution, delivery or performance thereof) the power
to execute, deliver and perform this Agreement and the Related
Documents and (b) has or had taken all necessary action to
authorize the execution, delivery and performance by it of this
Agreement and the Related Documents.

SECTION 7.3 No Conflict. The execution, delivery and
performance by the Borrower of this Agreement and the Related
Documents, does not and will not, or did not at the time of
execution thereof (a) contravene or conflict with any provision
of any law, statute, rule or regulation, (b) contravene or
conflict with, result in any breach of, or constitute a default

<PAGE> 57

under, any agreement or instrument binding on it or its
Subsidiaries (including, without limitation, any writ, judgment,
injunction or other similar court order), (c) result in the
creation or imposition of or the obligation to create or impose
any Lien (except for Permitted Liens) upon any of the property or
assets of the Borrower or its Subsidiaries or (d) contravene or
conflict with any provision of the articles of incorporation,
by-laws, certificate of limited partnership or partnership
agreement (as applicable) of the Borrower or any of its
Subsidiaries.

SECTION 7.4 Governmental Consents. Except as have been
obtained, no order, consent, approval, license, authorization or
validation of, or filing, recording or registration with or
exemption by, any governmental or public body or authority, or
any subdivision thereof, is, or was at the time of execution
thereof, required in connection with the execution, delivery and
performance by the Borrower of this Agreement or the Related
Documents.

SECTION 7.5 Validity. The Borrower has, or prior to the
date of the effectiveness of this Agreement and the initial
Borrowing hereunder will have, duly executed and delivered this
Agreement and the Related Documents and each of such documents
constitutes, or upon execution and delivery will constitute, the
legal, valid and binding obligation of the Borrower enforceable
in accordance with its terms.

SECTION 7.6 Financial Statements.

(a) Statutory Financial Statements.

(i) The Annual Statements, or the quarterly
statements, as the case may be, of each of the Reliance
Standard Insurance Companies and Safety National including,
without limitation, the provisions made therein for
investments and the valuation thereof, reserves, policy and
contract claims and Statutory Liabilities, in each case as
filed with the appropriate Governmental Authority of its
state of domicile (the "Department") and delivered to each
Lender prior to the execution and delivery of this
Agreement, as of, and for the 1995 Fiscal Year, and as of
the end of, and for, the Fiscal Quarters ended March 31,
1996, June 30, 1996 and September 30, 1996 (collectively,
the "Statutory Financial Statements"), have been prepared in
accordance with SAP applied on a consistent basis. Each
such Statutory Financial Statement was in compliance in all
material respects with applicable law

<PAGE> 58

when filed. The Statutory Financial Statements fairly
present the financial condition, the results of operations,
changes in equity and changes in financial position of each
of the Reliance Standard Insurance Companies and Safety
National as of and for the respective dates and periods
indicated therein in accordance with SAP applied on a
consistent basis. Except for liabilities and obligations,
including, without limitation, reserves, policy and contract
claims and Statutory Liabilities (all of which have been
computed in accordance with SAP), disclosed or provided for
in the Statutory Financial Statements, the Reliance Standard
Insurance Companies and Safety National did not have, as of
the respective dates of each of such financial statements
any liabilities or obligations (whether absolute or
contingent and whether due or to become due) which, in
conformity with SAP, applied on a consistent basis, would
have been required to be or should be disclosed or provided
for in such financial statements. All books of account of
the Reliance Standard Insurance Companies and Safety
National fully and fairly disclose, in all material
respects, all of the transactions, properties, assets,
investments, liabilities and obligations of the Reliance
Standard Insurance Companies and Safety National and all of
such books of account are in the possession of each of the
Reliance Standard Insurance Companies and Safety National
and are true, correct and complete in all material respects.

(ii) The investments of each of the Reliance
Standard Insurance Companies and Safety National reflected
in the Annual Statements filed with the Department with
respect to each of the Reliance Standard Insurance
Companies' and Safety National's 1995 Fiscal Year (the "1995
Annual Statements"), as updated through the September 30,
1996 quarterly statements (the "1996 Quarterly Statements"),
comply in all material respects with all applicable
requirements of the applicable Department as to investments
which may be made by such Reliance Standard Insurance
Company and Safety National.

(iii) The provisions made in the 1995 Annual
Statements and in the 1996 Quarterly Statements for
reserves, policy and contract claims and Statutory
Liabilities are in compliance in all material respects with
the requirements of the applicable Department and have been
computed in accordance with SAP.

<PAGE> 59

(iv) Marketable securities and short term investments
reflected, with respect to the Reliance Standard Insurance
Companies, in line 10A, page 2, column 1 and, with respect to
Safety National, in line 8A, page 2, column 1, of their
respective 1995 Annual Statements and in the 1996 Quarterly
Statements are valued at cost, amortized cost or market value, as
noted on such Statutory Financial Statements and as required by
applicable law.

(v) There has been no change, event, action,
condition or effect which individually or in the aggregate
materially and adversely affects the consolidated business,
operations, financial prospects or condition of the Reliance
Standard Insurance Companies taken as a whole or Safety
National since December 31, 1995. Except as set forth on
Schedule 7.6, no dividends or other distributions have been
declared, paid or made upon any shares of capital stock of
any of the Reliance Standard Insurance Companies or Safety
National nor have any shares of capital stock of any of the
Reliance Standard Insurance Companies or Safety National
been redeemed, retired, purchased or otherwise acquired
since December 31, 1995, other than as reflected in the
balance sheets of the Reliance Standard Insurance Companies
or Safety National.

(b) GAAP Financial Statements.

(i) The audited consolidated financial statements
of the Borrower as of the end of, and for, the 1995 Fiscal
Year, and as of the end of, and for, the Fiscal Quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996
copies of which have been furnished to the Administrative
Agent and each of the Lenders, have been prepared in
conformity with GAAP applied on a consistent basis, and
accurately present the financial condition of the Borrower
and each of its Subsidiaries as at such dates and the
results of operations for the periods then ended.

(ii) There has been no change, event, action,
condition or effect which individually or in the aggregate
materially and adversely affects the consolidated business,
operations, financial prospects or condition of the Borrower
or its Subsidiaries taken as a whole since December 31,
1995. Except as set forth on Schedule 7.6, no dividends or
other distributions have been declared, paid or made upon
any

<PAGE> 60

shares of capital stock of the Borrower or any of its
Subsidiaries, nor have any shares of capital stock of the
Borrower or any of its Subsidiaries been redeemed, retired,
purchased or otherwise acquired, since December 31, 1995.

(iii) With respect to any representation and
warranty which is deemed to be made after the date hereof by
the Borrower, the condensed balance sheet and condensed
statements of operations, of stockholders' equity and of
cash flows, which as of such date shall most recently have
been furnished by or on behalf of the Borrower to each
Lender for the purposes of or in connection with this
Agreement or any transaction contemplated hereby, shall have
been prepared in accordance with GAAP consistently applied
(except as disclosed therein), and shall present fairly (in
a condensed manner) the consolidated financial condition of
the corporations covered thereby as at the dates thereof and
for the periods then ended, subject, in the case of
quarterly financial statements, to normal year-end and audit
adjustments.

SECTION 7.7 Material Adverse Change. No Material Adverse
Change has occurred since December 31, 1995.

SECTION 7.8 Litigation and Contingent Obligations. No
Material Litigation is pending or threatened except as set forth
(including estimates of the Dollar amounts involved) in
Schedule 7.8. The Borrower and its Subsidiaries have no material
Contingent Obligations other than (a) as provided for or
disclosed on Schedule 7.8 or in the financial statements referred
to in Section 7.6 or (b) any Contingent Obligation consisting of
a guarantee by the Borrower with respect to any payment
obligations under Preferred Securities.

SECTION 7.9 Liens. None of the assets of the Borrower or
any of its Subsidiaries is subject to any Lien, except for
Permitted Liens.

SECTION 7.10 Subsidiaries. The Borrower has no
Subsidiaries except as set forth on Schedule 7.10.

SECTION 7.11 Pension and Welfare Plans.

(a) During the twelve-consecutive-month period prior
to the Third Restatement Date and prior to the date of any
Loan hereunder, no steps have been taken to terminate any
Single Employer Pension Plan or Welfare

<PAGE> 61

Plan or completely or partially withdraw from any Pension
Plan which termination or withdrawal is reasonably likely to
have a Material Adverse Effect and no contribution failure
has occurred with respect to any Pension Plan sufficient to
give rise to a Lien under section 302(f) of ERISA;

(b) no condition exists or event or transaction has
occurred with respect to any Single Employer Pension Plan or
Multiemployer Pension Plan which could reasonably be
expected to result in the incurrence by the Borrower or any
other member of the Controlled Group of any material
liability, fine, Tax or penalty;

(c) except as disclosed in Schedule 7.11, neither the
Borrower nor any other member of the Controlled Group has
any material vested or contingent liability with respect to
any post-retirement benefit under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of
Title I of ERISA;

(d) with respect to each Single Employer Pension Plan
maintained or contributed to by Borrower or any other
Controlled Group member which is intended to qualify under
section 401 of the Code, a favorable determination letter
has been received from the Internal Revenue Service stating
that such Pension Plan so qualifies and the Borrower is not
aware of anything that has occurred since the date of
issuance of such determination letter which could reasonably
be expected to cause any such Single Employer Pension Plan
to cease to qualify under section 401 of the Code; and

(e) no Single Employer Pension Plan maintained by or
contributed to by the Borrower or any other member of the
Controlled Group and subject to section 302 of ERISA or
section 412 of the Code has incurred an accumulated funding
deficiency as defined in section 302(a)(2) of ERISA and
section 412(a) of the Code, whether or not waived.

SECTION 7.12 Investment Company Act. Neither the Borrower
nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.

SECTION 7.13 Public Utility Holding Company Act. Neither
the Borrower nor any of its Subsidiaries is a "holding company,"
or a "subsidiary company" of a "holding company," or an

<PAGE> 62

"affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

SECTION 7.14 Margin Regulation. Neither the Borrower nor
any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the
meaning of Regulation G or Regulation U.

SECTION 7.15 Collateral. As security for the Liabilities,
the Administrative Agent has possession of all Collateral which
consists of instruments or securities as defined in the UCC and
has a valid, first priority perfected Lien on the Collateral.
Except as set forth on Schedule 9.1, there are no Liens or UCC
financing statements on file naming the Borrower or any of its
Subsidiaries as debtor, except for Permitted Liens.

SECTION 7.16 Taxes.

(a) The Borrower and each of its Subsidiaries have
filed all material Tax Returns and Reports required by law
to have been filed by them and have paid or provided
adequate reserves for all Taxes thereby shown to be owing,
except any such Taxes which are being diligently contested
in good faith by appropriate proceedings and for which
adequate reserves have been established and are being
maintained in accordance with GAAP. Except as set forth on
Schedule 7.16, there is no ongoing audit or, to the
Borrower's knowledge, other governmental investigation of
the tax liability of the Borrower or its Subsidiaries and
there is no unresolved claim by a taxing authority
concerning the Borrower's or any of its Subsidiaries' tax
liability, for any period for which returns have been filed
or were due. The liability stated for Taxes as of December
31, 1995 in the financial statements described in
Section 7.6 is sufficient in all material respects for all
Taxes as of such date.

(b) All life insurance reserves shown as such on
federal tax returns (other than individual annuity
contracts) of each of the Reliance Standard Insurance
Companies qualify as life insurance reserves under section
816(b) of the Code or under former section 801(b) of the
Code.

<PAGE> 63

(c) All current Reinsurance Agreements among the Reliance
Standard Insurance Companies and Safety National and their
respective Affiliates have, at all times, been conducted on an
arm's-length basis.

(d) Each of RSL and RSL-Texas is a life insurance
company as defined in section 816 of the Code.

(e) RSL and RSL-Texas are includable life insurance
companies as described in section 1504(c)(1) of the Code.

SECTION 7.17 Accuracy of Information. All factual
information heretofore (as supplemented) or contemporaneously
furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Administrative Agent or any Lender
for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all other such factual
information hereafter furnished by or on behalf of the Borrower
to the Administrative Agent or any Lender will be, true and
accurate in every material respect on the date as of which such
information is dated or certified and as of the Third Restatement
Date, and such information is not, or shall not be, as the case
may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.

SECTION 7.18 Environmental Warranties. Except as set forth
in Schedule 7.18:

(a) to the best of Borrower's knowledge after due
inquiry, all facilities and real property (including
underlying groundwater) owned or leased by the Borrower or
any of its Subsidiaries have been, and continue to be, as of
the date hereof, in compliance with all Environmental Laws,
except where such noncompliance could not reasonably be
expected to have a Material Adverse Effect;

(b) there have been no, and as of the date hereof
there continue to be no, written Environmental Claims
pending or threatened against the Borrower or any of its
Subsidiaries;

(c) to the best of Borrower's knowledge after due
inquiry, as of the date hereof, there have been no releases
of Hazardous Materials at, on or under any property now or
previously owned or leased by the Borrower or any of its
Subsidiaries that, individually

<PAGE> 64

or in the aggregate, have, or could reasonably be expected
to have, a Material Adverse Effect;

(d) the Borrower and its Subsidiaries possess and are
in compliance with all permits, certificates, approvals and
licenses under Environmental Laws and necessary for their
businesses, except where such failure to have or to be in
compliance with such permits, certificates, approvals or
licenses could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;

(e) to the best of Borrower's knowledge after due
inquiry, no property now or previously owned or leased by
the Borrower or any of its Subsidiaries is listed or
formally proposed for listing on the National Priorities
List pursuant to CERCLA, on the CERCLIS or on any similar
state list of sites requiring investigation or clean-up;

(f) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under
any property now or previously owned or leased by the
Borrower or any of its Subsidiaries that could, individually
or in the aggregate, reasonably be expected to have a
Material Adverse Effect;

(g) to the actual knowledge of the Borrower after due
inquiry, neither the Borrower nor any of its Subsidiaries
has directly transported or directly arranged for the
transportation of any Hazardous Material to any location
which is listed or formally proposed for listing on the
National Priorities List pursuant to CERCLA, on the CERCLIS
or on any similar state list or which is the subject of
federal, state, Governmental Authority or local enforcement
actions or other investigations which could, individually or
in the aggregate, reasonably be expected to result in a
Material Adverse Effect with any remedial work, damage to
natural resources or personal injury, including claims under
CERCLA;

(h) there are no polychlorinated biphenyls above 50
ppm or friable asbestos present at any property now or
previously owned or leased by the Borrower or any of its
Subsidiaries that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
and

<PAGE> 65

(i) no conditions exist at, on or under any property
now or previously owned or leased by the Borrower or any of
its Subsidiaries which would reasonably be expected to give
rise to a liability under any Environmental Law, except for
liabilities that would not, individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect.

Notwithstanding the foregoing, to the extent the Borrower's
representations in this Section 7.18 relate to property leased or
previously owned by the Borrower such representations are limited
to the actual knowledge of the Borrower.

SECTION 7.19 Proceeds. The proceeds of the Loans will be
used (a) for the costs, expenses, fees and Taxes incurred by the
Borrower in connection herewith, including, without limitation,
costs, expenses, fees and Taxes incurred pursuant to
Section 15.4, (b)(i) to pay the consideration in connection with
the acquisition, construction or improvement of property, or the
acquisition of shares of stock or other equity interests by the
Borrower to the extent permitted by this Agreement, the Indenture
and the SIG Note Agreement and/or (ii) to redeem the SIG Notes in
full, and (c) for other valid corporate purposes permitted
hereunder.

SECTION 7.20 Insurance. Schedule 7.20 sets forth a true
and correct summary of all insurance carried by the Borrower and
its Subsidiaries. The Borrower and its Subsidiaries are
adequately insured for their benefit under policies issued by
insurers of recognized responsibility. No notice of any pending
or threatened cancellation or material premium increase has been
received by the Borrower or any of its Subsidiaries with respect
to any of such insurance policies. The Borrower and its
Subsidiaries are in compliance with all material conditions
contained in such insurance policies.

SECTION 7.21 Securities Laws. Neither the Borrower nor any
of its Affiliates, nor, to the best of their knowledge, anyone
acting on behalf of any such Person, has directly or indirectly
offered any interest in the Existing Revolving Loans, the Loans
or any other Liabilities for sale to, or solicited any offer to
acquire any such interest from, or has sold any such interest to,
any Person that would subject the issuance or sale of the
Existing Revolving Loans, the Loans or any other Liabilities to
registration under the Securities Act of 1933, as amended.

SECTION 7.22 Governmental Authorizations. The Borrower and
its Subsidiaries have all licenses, franchises, permits and other

<PAGE> 66

governmental authorizations necessary for all businesses
presently carried on by them (including ownership and leasing of
the real and personal property owned and leased by them), except
where failure to obtain such licenses, franchises, permits and
other governmental authorizations would not have a Material
Adverse Effect.

SECTION 7.23 Representations in Other Agreements True and
Correct. Each of the representations and warranties contained in
each Related Document (each as originally executed
notwithstanding any amendment, modification or termination
thereof except to the extent consented to by the Required
Lenders) is true and correct.

SECTION 7.24 Business Locations; Trade Names.
Schedule 7.24 lists each of the locations where the Borrower or
any of its Subsidiaries maintains an office, a place of business
or any records together with each corporate, fictitious or trade
name under or by which the Borrower or any of its Subsidiaries
conducts or has conducted its business.

SECTION 7.25 Solvency. The Borrower and each of its
Subsidiaries is, and after consummation of this Agreement and
after giving effect to all Indebtedness incurred and Liens
created by the Borrower and each of its Subsidiaries in
connection herewith and therewith and the application of proceeds
therefrom will be, Solvent.

SECTION 7.26 Insurance Licenses. Schedule 7.26 lists all
of the jurisdictions in which each of the Reliance Standard
Insurance Companies, Safety National, and after consummation of
any other Acquisition permitted by this Agreement, each Acquired
Person (to the extent applicable) hold licenses (including,
without limitation, licenses or certificates of authority from
applicable insurance departments), permits or authorizations to
transact insurance and reinsurance business (collectively, the
"Licenses"). No such License is the subject of a proceeding for
suspension or revocation or any similar proceedings and, to the
best knowledge of the Borrower, there is no sustainable basis for
such a suspension or revocation and no such suspension or
revocation is threatened by any state insurance department.
Schedule 7.26 indicates that line or lines of insurance which
each of the Reliance Standard Insurance Companies, Safety
National and such Acquired Person are permitted to be engaged in
with respect to each License therein listed. The Reliance
Standard Insurance Companies, Safety National and such Acquired
Person do not transact any insurance business, directly or
indirectly, in any state or jurisdiction other than those
enumerated on Schedule 7.26, where such business requires any

<PAGE> 67

license, permit, governmental approval, consent or other
authorization (other than those obtained).

SECTION 7.27 Reinsurance. Except as set forth on
Schedule 7.27, all Persons with whom the Reliance Standard
Insurance Companies, Safety National and, after consummation of
any other Acquisition permitted by this Agreement, each Acquired
Person (to the extent applicable) have ceded any obligations with
respect to any Reinsurance Agreements or Surplus Relief
Reinsurance Agreements (other than, in the case of Safety
National, Persons formed as captive insurers to which Safety
National cedes liabilities in the ordinary course of its
insurance business) have a rating of "A-" or better by A.M. Best
Company or, on the effective date of such Reinsurance Agreements
or Surplus Relief Reinsurance Agreements, had such a rating.

SECTION 7.28 Compliance with Laws. None of the Borrower or
any of its Subsidiaries is in violation of any law, ordinance,
rule, regulation, order, policy, guideline or other requirement
of any Governmental Authority, if the effect of such violation
could reasonably be expected to have a Material Adverse Effect
and no such violation has been alleged and each of the Borrower
and its Subsidiaries (a) has filed in a timely manner all
reports, documents and other materials required to be filed by it
with any Governmental Authority, if such failure to so file could
reasonably be expected to have a Material Adverse Effect; and the
information contained in each of such filings is true, correct
and complete in all material respects and (b) has retained all
records and documents required to be retained by it pursuant to
any law, ordinance, rule, regulation, order, policy, guideline or
other requirement of any Governmental Authority, if the failure
to so retain such records and documents could reasonably be
expected to have a Material Adverse Effect.

SECTION 7.29 No Default. Neither the Borrower nor any of
its Subsidiaries is in default under any agreement or instrument
to which the Borrower or any of its Subsidiaries is a party or by
which any of their respective properties or assets is bound or
affected, which default could reasonably be expected to
materially and adversely affect the financial condition or
operations of the Borrower and its Subsidiaries taken as a whole.

SECTION 7.30 Pledged Shares. All of the shares of capital
stock of the Borrower and its Subsidiaries are duly authorized
and validly issued and are fully paid and non-assessable. The
shares of capital stock of the Borrower's Subsidiaries pledged
pursuant to the Pledge Agreements represent 100% of the issued
and outstanding capital stock of such Subsidiaries. All of the
shares of capital stock and surplus debentures, including,

<PAGE> 68

without limitation, the Surplus Debenture, of the Borrower's
Subsidiaries pledged as Collateral are owned by the Borrower
(other than the capital stock of Safety National which is wholly-owned by
SIG Holdings).

SECTION 7.31 Indebtedness Permitted. The Loans to be
made with respect to any Notice of Borrowing submitted by the
Borrower under this Agreement are and at the time of the
incurrence of the Indebtedness evidenced by such Loans will be
permitted under the Indenture and will not be in violation or
breach of any term contained therein.

SECTION 7.32 Replacement of Schedules. Any Schedule
delivered to the Lenders under this Section 7 may be amended and
replaced with the consent of the Required Lenders (such consent
not to be unreasonably withheld) so that the representations and
warranties set forth in this Section 7 shall be true and correct
at the time made by the Borrower; provided that the consent of
the Required Lenders shall not be required to (a) amend Schedule
7.20, (b) to amend Schedule 7.24 to add additional locations
thereto within the continental United States of America or (c) to
amend Schedule 7.26 to add additional Licenses.

SECTION 8. AFFIRMATIVE COVENANTS

The Borrower agrees that, on and after the Effective Date
and for so long thereafter as any Lender has any Commitment
hereunder or any of the Liabilities remain unpaid or outstanding,
the Borrower will:

SECTION 8.1 Reports, Certificates and Other Information.
Unless otherwise provided herein, furnish or cause to be
furnished to the Administrative Agent and each Lender:

8.1.1 Audit Report. As soon as available, but in any
event within one hundred (100) days after the end of each
Fiscal Year of the Borrower:

(a) copies of the audited consolidated balance sheet,
statement of earnings, stockholders' equity and cash flows
of the Borrower as at the end of such Fiscal Year and an
unaudited consolidating balance sheet of the Borrower as of
the end of such Fiscal Year and the related statements of
earnings for such Fiscal Year, in each case setting forth
the figures as of the end of, and for, the previous year,
prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected
therein, certified (as

<PAGE> 69

to the consolidated balance sheet, statement of earnings,
stockholders' equity and cash flows only) without
Qualification by Ernst & Young (or such other independent
certified public accountants of recognized standing
acceptable to the Required Lenders); and

(b) a certificate from such accountants containing a
computation of, and showing compliance with, each of the
financial ratios and restrictions contained in Sections 9.5
and 10, and to the effect that, in making the examination
necessary for the signing of the annual audit report of the
Borrower by such accountants, they have not become aware of
any non-compliance by the Borrower under this Agreement or
the Related Documents or any Default;

8.1.2 Quarterly Reports. As soon as available, but in
any event within fifty-two (52) days after the end of each
Fiscal Quarter of each Fiscal Year of the Borrower, copies
of the unaudited consolidated balance sheet, statement of
earnings, stockholders' equity and cash flows of the
Borrower as at the end of and for such Fiscal Quarter and an
unaudited consolidating balance sheet of the Borrower as of
the end of such Fiscal Quarter and the related unaudited
statements of earnings for such Fiscal Quarter and the
portion of the Fiscal Year through such Fiscal Quarter, and
with respect to the consolidated balance sheet, statement of
earnings, stockholders' equity and cash flows setting forth
in comparative form the figures as of the end of, and for,
the corresponding periods of the previous Fiscal Year and
the previous Fiscal Quarter, prepared in reasonable detail
and in accordance with GAAP applied consistently throughout
the periods reflected therein and certified by the chief
financial officer of the Borrower as presenting fairly the
financial condition and results of operations of the
Borrower and its Subsidiaries (subject to normal year-end
and audit adjustments);

8.1.3 Tax Returns and Reports. If requested by the
Administrative Agent, copies of all federal, state, local
and foreign Tax Returns and Reports filed by the Borrower
and any of its Subsidiaries;

8.1.4 SAP Financial Statements.

(a) As soon as possible, but in any event within
seventy (70) days after the end of each Fiscal Year of

<PAGE> 70

each of the Reliance Standard Insurance Companies, Safety
National, and, after the consummation of any other
Acquisition permitted under this Agreement, each Acquired
Person (to the extent applicable), a copy of the Annual
Statement of such Reliance Standard Insurance Company,
Safety National and such Acquired Person for such Fiscal
Year prepared in accordance with SAP and accompanied by the
certification of the chief financial officer of such
Reliance Standard Insurance Company, Safety National and
such Acquired Person that such financial statement presents
fairly, in accordance with SAP, the financial condition and
results of operations of such Reliance Standard Insurance
Company, Safety National and such Acquired Person as of the
end of, and for, the period then ended;

(b) As soon as possible, but in any event within
fifty-two (52) days after the end of each Fiscal Quarter of
each Fiscal Year of each of the Reliance Standard Insurance
Companies, Safety National, and, after the consummation of
any other Acquisition permitted under this Agreement, each
Acquired Person (to the extent applicable) a copy of the
quarterly statement of such Reliance Standard Insurance
Company, Safety National and such Acquired Person for such
Fiscal Quarter, all prepared in accordance with SAP and
accompanied by the certification of the chief financial
officer of such Reliance Standard Insurance Company, Safety
National and such Acquired Person that all such financial
statements present fairly in accordance with SAP the
financial condition and results of operations of such
Reliance Standard Insurance Company, Safety National and
such Acquired Person as of the end of, and for, the period
then ended;

(c) Within thirty (30) days after being delivered to
any of the Reliance Standard Insurance Companies, Safety
National, and, after consummation of any other Acquisition
permitted under this Agreement, each Acquired Person (to the
extent applicable), any final Triennial Examination Report
issued by the Department or the NAIC;

(d) Within one hundred (100) days after the close of
each Fiscal Year of each of the Reliance Standard Insurance
Companies, Safety National, and, after consummation of any
other Acquisition permitted under this Agreement, each
Acquired Person (to the extent applicable), a copy of the
"Statement of Actuarial

<PAGE> 71

Opinion" and "Management Discussion and Analysis" for such
Reliance Standard Insurance Company, Safety National and
such Acquired Person which is provided to the applicable
Department (or equivalent information should the Department
no longer require such a statement) as to the adequacy of
loss reserves of such company. Such opinion shall be in the
format prescribed by the Department;

8.1.5 Compliance Certificate. Contemporaneously with
the furnishing of a copy of each set of the statements and
reports provided for in Sections 8.1.1 and 8.1.2, a duly
completed certificate, substantially in the form of
Exhibit D (the "Compliance Certificate"), signed by the
chief financial officer of the Borrower, containing, among
other things, a computation of, and showing compliance with,
each of the applicable financial ratios and restrictions
contained in Sections 9 and 10 (including a calculation of
the Debt to Capital Ratio) and to the effect that as of such
date, to the best of Borrower's knowledge, no Default has
occurred and is continuing, or, if there is any such event,
describing it and the steps, if any, being taken to cure it;

8.1.6 Auditors' Materials. Promptly upon receipt
thereof, copies of all management letters and reports
regarding the Borrower or any of its Subsidiaries submitted
to the Borrower or its Subsidiaries by independent public
accountants in connection with each annual audit report made
by such accountants of the books of the Borrower or any of
its Subsidiaries;

8.1.7 Business Plan and Projections. As soon as
available, but in any event no later than sixty (60) days
after the beginning of each Fiscal Year, updated projections
of the Borrower, including, without limitation, the
operating cash flow of the Borrower for such Fiscal Year and
the statutory income statement of RSL, Safety National and,
after consummation of any other Acquisition permitted by
this Agreement, each Acquired Person (to the extent
applicable) for such Fiscal Year;

8.1.8 Reports to SEC and to Shareholders. Promptly
upon the filing or making thereof, copies of each filing and
report made by the Borrower or any of its Subsidiaries with
or to any securities exchange or the Securities and Exchange
Commission and of each

<PAGE> 72

communication from the Borrower to shareholders generally in
their capacity as shareholders;

8.1.9 Notice of Default, Litigation and License
Matters. Promptly and without delay upon learning of the
occurrence of any of the following, written notice thereof,
describing the same and the steps being taken by the
Borrower with respect thereto:

(a) the occurrence of a Default,

(b) the institution of any Material Litigation or the
occurrence of any Material Litigation Development,

(c) the commencement of any dispute which might lead
to the material modification, transfer, revocation,
suspension or termination of this Agreement or any Related
Document, or

(d) any Material Adverse Change;

8.1.10 Insurance and Actuarial Reports.

(a) written notification thirty (30) days prior to any
cancellation or material change of any insurance policy
listed on Schedule 7.20 by the Borrower or any of its
Subsidiaries, and within five (5) Business Days after
receipt of any notice (whether formal or informal) of
cancellation or material change by any of its insurers if,
in either case, such cancellation or change could reasonably
be expected to cause a Material Adverse Change; and

(b) promptly for each Reliance Standard Insurance
Company, Safety National, and after consummation of any
other Acquisition permitted by this Agreement, each Acquired
Person (to the extent applicable) to the Administrative
Agent (which shall promptly furnish to the Lenders) all
actuarial reports required to be delivered to the
Department;

8.1.11 ERISA Liability. Promptly upon learning of the
occurrence of the following, written notice thereof
describing the same and the steps being taken by Borrower
with respect thereto:

(a) the failure of the Borrower or any other member of
the Controlled Group to make a required contribution to any
Single Employer Pension Plan if

<PAGE> 73

such failure is sufficient to give rise to a Lien under
section 302(f)(1) of ERISA or accumulated funding deficiency
under section 302 of ERISA,

(b) the institution of any steps by the Borrower or
any other member of the Controlled Group to withdraw from,
or the institution of any steps by the Borrower or any other
member of the Controlled Group to terminate, any Pension
Plan which could reasonably be expected to result in
liability to the Pension Benefit Guaranty Corporation or any
successor thereto or such Pension Plan in excess of
$10,000,000,

(c) the taking of any action with respect to a Single
Employer Pension Plan which could reasonably be expected to
result in the requirement that the Borrower or any of its
Subsidiaries furnish a bond or other security to the Pension
Benefit Guaranty Corporation or any successor thereto or
such Single Employer Pension Plan, or

(d) the occurrence of any event with respect to any
Single Employer Pension Plan which could reasonably be
expected to result in the incurrence by the Borrower or any
of its Subsidiaries of any liability, fine, Tax or penalty
in excess of $10,000,000;

8.1.12 Pension Plan Withdrawals. With respect to each
Multiemployer Pension Plan which is a "multi-employer plan,"
as defined in section 4001 of ERISA as to which any member
of the Controlled Group may incur any liability, written
notice thereof, as soon as it has reason to believe (on the
basis of the most recent information available to it) that
the sum of (a) the withdrawal liability that would be
incurred by the Controlled Group if all members of the
Controlled Group were to completely withdraw from all
multi-employer plans as to which any member of the
Controlled Group has an obligation to contribute, and
(b) the aggregate amount of the outstanding withdrawal
liability (without unaccrued interest) incurred by the
Controlled Group to multi-employer plans, would exceed
$10,000,000;

8.1.13 Information Concerning the Parent and the
Subsidiaries. Promptly upon learning thereof, written
notice of

<PAGE> 74

(a) the occurrence with respect to any of its
Subsidiaries or the Parent of any of the events the
occurrence of which in relation to the Borrower would
constitute an Event of Default under Section 12.1.3;

(b) the execution of any agreement by any of its
Subsidiaries to merge with or consolidate into or with, or
purchase or otherwise acquire all or substantially all of
the assets or stock of any class of, or any partnership or
joint venture interest in, any other Person, or for the
sale, transfer, lease or conveyance by any of its
Subsidiaries of all or any substantial part of its assets or
sale or assignment without recourse of any of its
receivables; and

8.1.14 Environmental Liabilities. Promptly upon
learning thereof, written notice (together with copies, if
available) of all Environmental Claims against the Borrower
or any of its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect and that relates to the Borrower's or any
Subsidiary's,

(a) properties or facilities, or

(b) compliance with Environmental Laws, together with
a description of the steps being taken by the Borrower or
such Subsidiary with respect thereto;

8.1.15 [Intentionally omitted];

8.1.16 Insurance Holding Company Filings. Copies of
all material Insurance Holding Company System Act filings
with Governmental Authorities by the Borrower which seek
approval of Governmental Authorities with respect to
transactions between the Borrower and its Affiliates or
which relate to dividends no later than ten (10) Business
Days after such filings are made;

8.1.17 Insurance Licenses. Within ten (10) Business
Days of such notice, notice of actual suspension,
termination or revocation of any License or material
restriction thereon of any of the Reliance Standard
Insurance Companies, Safety National, and after consummation
of any other Acquisition permitted hereunder, each Acquired
Person (to the extent

<PAGE> 75

applicable) by any Governmental Authority or of receipt of
notice from any Governmental Authority notifying any of the
Reliance Standard Insurance Companies, Safety National or
such Acquired Person of a scheduled hearing (which is not
withdrawn within ten (10) days) relating to such a
suspension, termination, revocation or restriction,
including any request by a Governmental Authority which
commits any of the Reliance Standard Insurance Companies,
Safety National or such Acquired Person to take, or refrain
from taking, any action or which otherwise materially and
adversely affects the authority of any of the Reliance
Standard Insurance Companies, Safety National or such
Acquired Person to conduct its business;

8.1.18 Insurance Proceedings. Within ten (10)
Business Days of such notice, notice of any pending or
threatened investigation or regulatory proceeding (other
than routine periodic investigations or reviews) by any
Governmental Authority concerning the business, practices or
operations of any of the Reliance Standard Insurance
Companies, Safety National, and, after consummation of any
other Acquisition permitted under this Agreement, each
Acquired Person (to the extent applicable) including any
agent or managing general agent thereof, which could
reasonably be expected to have a Material Adverse Effect;

8.1.19 Changes in Applicable Insurance Code.
Promptly, upon knowledge of the Borrower, any of the
Reliance Standard Insurance Companies, Safety National, or,
after consummation of any other Acquisition permitted under
this Agreement, each Acquired Person (to the extent
applicable) to the Administrative Agent (who shall promptly
deliver such notice to the Lenders), notice of any actual or
proposed material changes in any Applicable Insurance Code
which could reasonably be expected to cause a Material
Adverse Change;

8.1.20 Reinsurance Agreements. Promptly, notice of
any material change or modification to any Reinsurance
Agreements or Surplus Relief Reinsurance Agreements whether
entered into before or after the Closing Date including
Reinsurance Agreements, if any, which were in a runoff mode
on the Closing Date, which change or modification could have
a Material Adverse Effect;

<PAGE> 76

8.1.21 Investments. Within fifty-two (52) days of the
end of each Fiscal Quarter and one hundred (100) days of the
end of each Fiscal Year, (a) a list of the Limited
Partnership Investments of the Borrower and its Subsidiaries
and the Borrower's best estimates of capital account changes
and performance as to each of such Limited Partnership
Investments (based on information provided by the managers
of such partnerships) and (b) an updated calculation of the
aggregate Limited Partnership Investments' standard
deviation of monthly rates of return and a comparison of
such standard deviation to that of the S&P 500 and the
Salomon Bond Index (or their equivalents);

8.1.22 Revenue Agent Notices. Promptly, and in any
event within ten (10) days of receipt, any revenue agent's
reports or statutory notices of deficiency related to the
Borrower or any of its Subsidiaries which could reasonably
be expected to have a Material Adverse Effect;

8.1.23 Notice of Tax Claim. Prompt notice to the
Administrative Agent of the commencement of any claim,
audit, examination, notice of deficiency, or other change or
adjustment by any Governmental Authority (a "Tax Claim"), or
of the extension of any statute of limitations regarding
Taxes which could reasonably be expected to have a Material
Adverse Effect;

8.1.24 Other Tax Information. Upon request, promptly
to the Administrative Agent copies of all correspondence
(including without limitation, notices, requests,
explanations, determinations, schedules, charts and lists)
delivered to any Governmental Authority in connection with
any Tax Claim or Taxes and any protest, petition or refund
suit filed on behalf of any Subsidiaries in connection with
any Tax Claim or Taxes;

8.1.25 Tax Sharing Agreements. Promptly an executed
copy of any Tax Sharing Agreement permitted by this
Agreement executed after the Third Restatement Date; and

8.1.26 Other Information. From time to time such
other information and certifications concerning the Borrower
and any of its Subsidiaries as the Administrative Agent or a
Lender may reasonably request.

<PAGE> 77

SECTION 8.2 Corporate Existence; Foreign Qualification. Do
and cause to be done at all times all things necessary to
(a) maintain and preserve the existence of the Borrower and each
of its Subsidiaries, except as otherwise permitted pursuant to
Section 9.2(a), (b) be, and ensure that each of its Subsidiaries
are, duly qualified to do business and in good standing in each
jurisdiction where the nature of their business makes such
qualification necessary or failure to so qualify could have a
Material Adverse Effect, and (c) comply, and cause its
Subsidiaries to comply, with all contractual obligations and
requirements of law binding upon such entity, except to the
extent that the failure to comply therewith could not in the
aggregate have a Material Adverse Effect.

SECTION 8.3 Books, Records and Inspections.

(a) Maintain, and cause each of its Subsidiaries to
maintain, complete and accurate books and records;

(b) permit, and cause each of its Subsidiaries to
permit, access at reasonable times by the Administrative
Agent and each Lender to its books and records;

(c) permit, and cause each of its Subsidiaries to
permit, the Administrative Agent and each Lender to inspect
at reasonable times its properties and operations; and

(d) permit, and cause each of its Subsidiaries to
permit, the Administrative Agent and each Lender to discuss
its business, operations and financial condition with its
officers.

SECTION 8.4 Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible insurance
companies, or, as permitted by applicable law, to self-insure,
with respect to its properties and business against such
casualties and contingencies and of such types and in such
amounts as is customary in the case of similar businesses.

SECTION 8.5 Taxes and Liabilities.

(a) Pay, and cause each of its Subsidiaries to pay,
when due all Taxes and other material liabilities, except as
contested in good faith and by appropriate proceedings with
respect to which reserves have been established, and are
being maintained, in accordance with GAAP if and so long as
forfeiture of any part of

<PAGE> 78

the Collateral will not result from the failure to pay any
such Taxes or other material liabilities during the period
of any such contest;

(b) cause each of the Reliance Standard Insurance
Companies (other than FRSL) to continue to qualify as life
insurance companies under section 816 of the Code, except to
the extent failure to so qualify would not materially
adversely impact the cash under the Tax Sharing Agreements
which would have been available to the Borrower if such
Reliance Standard Insurance Company had continued to qualify
as a life insurance company; and

(c) cause each of the Reliance Standard Insurance
Companies to promptly file consolidated federal tax returns
and to include all such companies on such returns, except to
the extent failure to so file a consolidated federal tax
return would not adversely impact the cash under the Tax
Sharing Agreements which would have been available to the
Borrower if such Reliance Standard Insurance Company had
filed a consolidated federal tax return.

SECTION 8.6 Pension Plans and Welfare Plans. Maintain each
Single Employer Pension Plan and Welfare Plan in compliance in
all material respects with all applicable requirements of law,
and any rules and regulations related thereto.

SECTION 8.7 Compliance with Laws. Comply, and cause each
of its Subsidiaries to comply, with all federal, state and local
laws, rules and regulations related to its businesses (including,
without limitation, all such laws, rules and regulations relating
to Hazardous Materials or the disposal thereof) if the failure so
to comply could have a Material Adverse Effect.

SECTION 8.8 Maintenance of Permits. Maintain, and cause
each of its Subsidiaries to maintain, all permits, licenses and
consents as may be required for the conduct of its business by
any state, federal or local government agency or instrumentality
(including, without limitation, the Licenses and any such
license, consent or permit relating to Hazardous Materials or the
disposal thereof) if the failure to maintain such licenses,
permits and consents could have a Material Adverse Effect.

SECTION 8.9 Environmental Compliance. Maintain, and cause
each of its Subsidiaries to maintain, (a) all material permits,
approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and use and operate

<PAGE> 79

all of its facilities and properties in material compliance with
all Environmental Laws, and (b) appropriate procedures for the
handling of all Hazardous Materials in material compliance with
all applicable Environmental Laws, and materially comply with
such procedures at all times.

SECTION 8.10 Best Rating. Cause RSL and Safety National at
all times to maintain a rating by A.M. Best Company of "A-" or
better; provided, that no violation of this Section 8.10 shall
occur unless such rating is not achieved within two years from
the date of violation.

SECTION 8.11 Dividends. To the maximum extent permitted by
law, without necessitating approval of the Department, cause each
of the Reliance Standard Insurance Companies and Safety National
to make dividends or principal or interest payments on surplus
debentures, including, without limitation, the Surplus Debenture,
to the Borrower, RSL-Texas, RSL or SIG Holdings, as applicable,
to the extent necessary to satisfy the Liabilities.

SECTION 9. NEGATIVE COVENANTS

The Borrower agrees that, on and after the Effective Date
and for so long thereafter as any Lender has any Commitment
hereunder or any of the Liabilities remains unpaid or
outstanding, the Borrower will:

SECTION 9.1 Liens. Not, and not permit any of its
Subsidiaries to, create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except for the
following (collectively called "Permitted Liens"):

(a) Liens in favor of the Administrative Agent for the
benefit of the Lenders pursuant to this Agreement and the
Related Documents;

(b) Liens for current Taxes not delinquent or for
Taxes being contested in good faith and by appropriate
proceedings and with respect to which adequate reserves are
being maintained in accordance with GAAP;

(c) Liens in connection with the acquisition or
leasing of fixed or capital assets after the date hereof to
the extent permitted under Section 10.6 and attaching only
to the property being acquired, provided the Indebtedness
secured thereby does not exceed ninety percent (90%) of the
fair market value of such property at the time of
acquisition thereof;

<PAGE> 80

(d) Liens shown on Schedule 9.1;

(e) Liens incurred in the ordinary course of business
in connection with worker's compensation, unemployment
insurance or other forms of governmental insurance or
benefits or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds;

(f) Liens of mechanics, carriers, materialmen and
other like Liens arising in the ordinary course of business
in respect of obligations which are not delinquent or which
are being contested in good faith and by appropriate
proceedings and with respect to which adequate reserves are
being maintained in accordance with GAAP;

(g) Liens arising in the ordinary course of business
for sums being contested in good faith and by appropriate
proceedings and with respect to which adequate reserves are
being maintained in accordance with GAAP, or for sums not
due, and in either case not involving any deposits or
advances for borrowed money or the deferred purchase price
of property or services;

(h) Liens in favor of the Federal Home Loan Bank of
Pittsburgh;

(i) Liens incurred in connection with the acquisition
of Investments permitted by this Agreement, including,
without limitation, Liens in favor of the holders of the SIG
Notes with respect to the capital stock of Safety National
pursuant to the SIG Pledge Agreement;

(j) Liens arising in connection with reverse
repurchase agreements entered into in the ordinary course of
business;

(k) Liens in favor of the LC Administrative Agent for
the benefit of the Lenders pursuant to the Master Letter of
Credit Agreement and the Related Documents (as defined in
the Master Letter of Credit Agreement); and

(l) Liens pursuant to trust or other security
arrangements in connection with reinsurance agreements under

<PAGE> 81

which insurance liabilities are ceded to any of the Reliance
Standard Insurance Companies or Safety National.

SECTION 9.2 Consolidation, Merger, etc. Not, and not
permit any of its Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other Person, or
purchase or otherwise acquire all or substantially all of the
assets of any Person (or of any division thereof) except:

(a) any Subsidiary of the Borrower may liquidate or
dissolve voluntarily into, and may merge with and into, the
Borrower or any other Subsidiary of the Borrower; provided
that with respect to any merger between Subsidiaries of the
Borrower the percentage of the equity and voting power of
the surviving Subsidiary owned by the Borrower immediately
after such merger shall not be less than the greatest
percentage of the equity and voting power owned by the
Borrower in any Subsidiary party to such merger immediately
prior thereto;

(b) so long as no Default has occurred and is
continuing or would occur after giving effect thereto, the
Borrower and its Subsidiaries may purchase or acquire,
through merger, consolidation or otherwise, all or
substantially all of the assets or capital stock of a Person
so long as the purchase price of all such assets and capital
stock plus the purchase price paid for books of insurance
business purchased by any of the Reliance Standard Insurance
Companies and Safety National pursuant to Section 9.15,
taken in the aggregate from and after the Third Restatement
Date, does not exceed thirty percent (30%) of the
Consolidated Equity of the Borrower, as determined after
giving effect to the applicable purchase or acquisition,
including for such purpose any increase in Consolidated
Equity of the Borrower arising from the issuance by the
Borrower of common stock or warrants, options or other
rights with respect to the Borrower's common stock in
connection with such purchase or acquisition (not including,
for purposes of calculating any purchase price with respect
to any purchase or acquisition under this Section 9.2(b),
any part of such price that is represented by such common
stock, warrants, options or other rights); and

(c) any Subsidiary (other than any of the Reliance
Standard Insurance Companies and Safety National) engaged
primarily in investing in securities may voluntarily

<PAGE> 82

dissolve or liquidate so long as its net assets are
distributed in accordance with the proportionate equity
interests of its shareholders, partners or other beneficial
owners.

SECTION 9.3 Asset Disposition, etc. Not, and not permit
any of its Subsidiaries to, sell, assign, lease, transfer,
contribute, convey or otherwise dispose of, or grant options,
warrants or other rights with respect to, any of its assets to
any Person, unless:

(a) such sale, assignment, transfer, lease,
contribution, conveyance or other disposition is in the
ordinary course of its business;

(b) the book value of such assets net of related
liabilities, together with the net book value of all other
assets sold, transferred, leased, contributed or conveyed
otherwise than in the ordinary course of business by the
Borrower or any of its Subsidiaries pursuant to this clause
since the Effective Date, does not exceed $10,000,000;

(c) such sale, transfer, lease, contribution,
conveyance or other disposition has been consented to in
writing by the Required Lenders (it being understood such
Required Lenders shall have no obligation to so consent); or

(d) such sale, transfer, contribution or conveyance is
in connection with any liquidation, dissolution,
consolidation or merger permitted under Section 9.2.

SECTION 9.4 Dividends, etc. Except for (a) dividends made
on preferred stock of the Borrower when no Default has occurred,
(b) dividends made on common stock of the Borrower when no
Default has occurred which do not, in any Fiscal Year, exceed 4%
of the Consolidated Equity of the Borrower as of December 31 of
the Fiscal Year immediately preceding the Fiscal Year in which
such dividend is to be made, (c) the repurchase or redemption of
capital stock of the Borrower when no Default has occurred in an
annual amount which does not exceed 4% of the Consolidated Equity
of the Borrower as of December 31 of the Fiscal Year immediately
preceding the Fiscal Year in which such repurchase or redemption
occurs (provided, however, that if dividends are to be made on
common stock of the Borrower and the repurchase or redemption of
capital stock of the Borrower are to occur in the same Fiscal
Year, such dividends and the repurchase or redemption of such
capital stock may not exceed, in the aggregate, 4% of the

<PAGE> 83

Consolidated Equity of the Borrower as of December 31 of the
immediately preceding Fiscal Year), and (d) in addition to
clauses (a) through (c), repurchases of capital stock of the
Borrower when no Default has occurred in an aggregate amount not
to exceed $20,000,000 during the term of this Agreement, not
(i) declare, pay or make any dividend or distribution (in cash,
property or obligations) on any shares of any class of capital
stock (now or hereafter outstanding) of the Borrower or on any
warrants, options or other rights with respect to any shares of
any class of capital stock (now or hereafter outstanding) of the
Borrower (other than dividends or distributions payable in its
common stock or warrants to purchase its common stock or splitups
or reclassifications of its stock into additional or other shares
of its common stock) or apply, or permit any of its Subsidiaries
to apply, any of its funds, property or assets to the purchase,
redemption, sinking fund or other retirement of any shares of any
class of capital stock (now or hereafter outstanding) of the
Borrower or any option, warrant or other right to acquire shares
of the Borrower's capital stock (other than any such payment
pursuant to stock appreciation rights granted and exercised in
accordance with applicable rules and regulations of the
Securities and Exchange Commission); or (ii) make any deposit for
any of the foregoing purposes.

SECTION 9.5 Investments. Not, and not permit any of its
Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Investments in Cash Equivalents;

(b) the recapitalization of the Investment
Subsidiaries as contemplated by and in connection with the
Master Letter of Credit Agreement and the Trust Documents,
and in the ordinary course of business, Investments by the
Borrower in any of its Subsidiaries, or by any such
Subsidiary in any of its or the Borrower's Subsidiaries or
the Borrower, by way of contributions to capital or loans or
advances; and

(c) other Investments by any of the Borrower and its
Subsidiaries which shall not violate any of the following
guidelines:

(i) All Investments by the Reliance Standard
Insurance Companies, Safety National and any Acquired
Person (if an insurance company) shall be in compliance
with the Applicable Insurance Code(s) of each Reliance
Standard Insurance Company's, Safety National's and
such Acquired

<PAGE> 84

Person's state of domicile or approved by the
applicable Department;

(ii) Investments by the Reliance Standard
Insurance Companies, Safety National and, after
consummation of any other Acquisition permitted by this
Agreement, each Acquired Person (if an insurance
company) in Risk Assets shall not exceed (in the
aggregate) 10% of the aggregate Invested Assets of the
Reliance Standard Insurance Companies, Safety National
and such Acquired Person;

(iii) Investments by the Borrower and its
Subsidiaries in Limited Partnership Investments shall
not exceed 1.00 times the Consolidated Equity of the
Borrower;

(iv) Investments by the Borrower and its
Subsidiaries in securities of a single issuer (other
than (A) U.S. Government Securities; (B) overnight
investments in securities rated at least A-2 by
Standard & Poor's or P-2 by Moody's which are purchased
through short-term asset management accounts offered by
any commercial banks organized under the laws of the
United States which are Lenders or which have a
combined capital and surplus in excess of $500,000,000;
(C) repurchase agreements collateralized by any of the
securities referenced in clauses (A) and (B) above or
clause (2) below; and (D) investments in the Borrower
or any of its Affiliates) shall not exceed (1) except
as to securities covered by clause (2) below, the
lesser of 2% of the consolidated total assets of the
Borrower and its Subsidiaries or 20% of Consolidated
Equity of the Borrower; or (2) as to asset-backed
securities backed by a single pool of assets that are
Investment Grade Securities, 5% of the consolidated
total assets of the Borrower and its Subsidiaries;

provided, however, that for purposes of applying Section 9.5(c),
Investments by Subsidiaries of the Borrower which are not wholly-owned
Subsidiaries shall only be taken into account to the extent
that the Borrower's direct or indirect proportionate equity
interest of such Subsidiary is taken into account in calculating
Consolidated Equity of the Borrower.

<PAGE> 85

SECTION 9.6 Other Senior Indebtedness; Subsidiary Senior
Notes; Trust Documents; Master Letter of Credit Agreement. Not,
and not permit any of its Subsidiaries to:

(a) other than as permitted by this Agreement, enter
into any amendment or modification of the Other Senior
Indebtedness or the Subsidiary Senior Notes which (i)
increases the principal of or rate of interest on the Other
Senior Indebtedness or the Subsidiary Senior Notes, (ii)
shortens the stated maturity or Average Life of the Other
Senior Indebtedness or the Subsidiary Senior Notes, or (iii)
would otherwise have a Material Adverse Effect; or

(b) enter into any amendment or modification of any
Trust Document (other than the Subsidiary Senior Notes,
subject to the restrictions set forth in clause (a) above)
or the Master Letter of Credit Agreement or any document or
instrument executed in connection therewith which is in any
manner materially adverse to the interests of the Lenders.

SECTION 9.7 Take or Pay Contracts. Not, and not permit any
of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other
property or services if such arrangement by its express terms
requires that payment be made by the Borrower or such Subsidiary
regardless of whether such materials, supplies, other property or
services are delivered or furnished to it.

SECTION 9.8 Regulations G and U. Not, and not permit any
of its Subsidiaries to, use or permit any proceeds of the Loans
to be used, either directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of "purchasing or
carrying margin stock" within the meaning of Regulations G and U.

SECTION 9.9 Subsidiaries. Notwithstanding any provision of
this Agreement to the contrary, not, and not permit any of its
Subsidiaries to, create or permit to exist any Subsidiary other
than the Subsidiaries listed on Schedule 7.10 unless the
Administrative Agent and the Lenders are promptly notified of the
creation or existence of any such Subsidiary.

SECTION 9.10 Other Agreements. Not, and not permit any of
its Subsidiaries to, enter into any agreement containing any
provision which (a) would be violated or breached by the
performance of its obligations hereunder or under any instrument
or document delivered or to be delivered by it hereunder or in
connection herewith, (b) other than in connection with the

<PAGE> 86

issuance of the Letters of Credit under the Master Letter of
Credit Agreement, or the SIG Note Agreement, prohibits or
restricts the creation or assumption of any Lien (other than
Permitted Liens) upon its properties, revenues or assets (whether
now owned or hereafter acquired) as security for the Liabilities
hereunder, (c) other than the SIG Note Agreement, prohibits or
restricts the ability of any of its Subsidiaries to make
dividends or advances or payments to the Borrower, (d) other than
the Master Letter of Credit Agreement, prohibits or restricts the
ability of the Borrower or any of its Subsidiaries to amend or
otherwise modify this Agreement or any other document executed in
connection herewith, or (e) other than the SIG Note Agreement,
constitutes an agreement to a limitation or restriction of the
type described in clauses (a) through (d) with respect to any
other Indebtedness.

SECTION 9.11 Business Activities. Not, and not permit any
of its Subsidiaries to, (a) engage in any type of business except
(i) the businesses in which the Borrower and its Subsidiaries are
presently engaged as of the date hereof, (ii) credit life, health
insurance, and investment management services for Persons other
than the Borrower and its Subsidiaries, (iii) the acquisition or
origination of financial assets, including but not limited to
mortgage, automobile and other consumer finance loans, and the
origination of securitizations based on such financial assets,
(iv) any other line of insurance business which the Borrower and
its Subsidiaries are presently licensed to write, as indicated on
Schedule 7.26, and as to which the Borrower or the applicable
Subsidiary notifies the Administrative Agent (which shall
promptly notify the Lenders) in writing prior to its engaging in
such business of its intent to engage in such business and that
it does not reasonably anticipate that the premiums derived from
such business will exceed twenty percent (20%) of the aggregate
insurance premiums to be received by the Borrower and its
Subsidiaries during the Fiscal Year next following the date of
such written notice and (v) in the case of Safety National, such
lines of property and casualty business (whether or not it is
presently licensed to write such lines) as may be incidental to
the sale and marketing of the lines of business in which it is
presently engaged, or (b) substantially alter the methods by
which the Borrower or its Subsidiaries conduct such business.

SECTION 9.12 Change of Location or Name. Not, and not
permit any of its Subsidiaries to, change (a) the location of its
principal place of business, chief executive office, major
executive office, chief place of business or records concerning
its business and financial affairs, or (b) its name or the name
under or by which it conducts its business, in each case without
first giving the Administrative Agent at least thirty (30) days'

<PAGE> 87

advance written notice thereof (which notice shall promptly be
delivered to the Lenders by the Administrative Agent) and having
taken any and all action required or desirable to maintain and
preserve the Lien on Collateral in favor of the Administrative
Agent for the benefit of the Lenders as contemplated hereby free
and clear of any other Lien whatsoever except for Permitted
Liens; provided, however, that notwithstanding the foregoing,
neither the Borrower nor any of its Subsidiaries shall change the
location of its principal place of business, chief executive
office, major executive office, chief place of business or
records concerning its business and financial affairs to any
place outside the contiguous continental United States of
America.

SECTION 9.13 Transactions with Affiliates. Not, and not
permit any of its Subsidiaries to, enter into, or cause, suffer
or permit to exist any arrangement, Reinsurance Agreement,
Surplus Relief Reinsurance Agreement, contract with or investment
in any of its other Affiliates which is not a directly or
indirectly wholly-owned Subsidiary of the Borrower unless such
arrangement (a) is fair and equitable to the Borrower or such
Subsidiary, (b) is of a sort which would be entered into by a
prudent Person in the position of the Borrower or such Subsidiary
with a Person which is not one of its Affiliates, and (c) is on
terms which are not less favorable to the Borrower or such
Subsidiary than are obtainable from a Person which is not one of
its Affiliates.

SECTION 9.14 Reinsurance.

(a) Not, and not permit its Subsidiaries to, enter
into Surplus Relief Reinsurance Agreements which in the
aggregate provide statutory pre-tax gain to the Reliance
Standard Insurance Companies and/or Safety National of more
than an aggregate benefit of the amount then outstanding of
more than $10,000,000. Except as set forth in Schedule
7.27, any Surplus Relief Reinsurance Agreements entered into
under this Section 9.14(a) shall be with responsible
reinsurers rated "A-" or better by A.M. Best Company.

(b) Not, and not permit its Subsidiaries to, make any
change or modification to any Reinsurance Agreement which
change or modification could have a Material Adverse Effect.
Except as set forth on Schedule 7.27, any Reinsurance
Agreement pursuant to which the Borrower or any of the
Reliance Standard Insurance Companies or Safety National
cede any liabilities as to which the failure of such
reinsurer to perform its

<PAGE> 88

obligations thereunder could reasonably be expected to have
a Material Adverse Effect shall be with responsible
reinsurers rated "A-" or better by A.M. Best Company or with
reinsurers reasonably acceptable to the Required Lenders.

SECTION 9.15 Books of Business. Not, and not permit any of
the Reliance Standard Insurance Companies, Safety National or any
Acquired Person to, purchase books of insurance business with a
purchase price which, when aggregated with the purchase price for
all other books of business and for assets and capital stock
purchases pursuant to Section 9.2(b), taken in the aggregate from
and after the Third Restatement Date, exceeds thirty percent
(30%) of the Consolidated Equity of the Borrower, determined as
provided in Section 9.2(b).

SECTION 9.16 Ownership of RSL, SIG Holdings and Safety
National. (a) Not permit RSL-Texas to cease to own, free and
clear of all Liens (other than Liens created under the Borrower
Pledge Agreement), at least 100% of the outstanding shares of
voting stock and voting power of RSL on a fully diluted basis,
except as a result of any merger, consolidation, liquidation or
dissolution referenced in clause (a) of the definition of Change
of Control, whereafter this clause (a) shall apply to the
Borrower rather than to RSL-Texas; (b) not cease to own, free and
clear of all Liens (other than Liens created under the Borrower
Pledge Agreement), at least 100% of the outstanding voting stock
and voting power of SIG Holdings and (c) not permit SIG Holdings
to cease to own, free and clear of all Liens (other than Liens
created by the SIG Pledge Agreement and the Subsidiary Pledge
Agreement), at least 100% of the outstanding shares of voting
stock and voting power of Safety National on a fully diluted
basis.

SECTION 10. FINANCIAL COVENANTS

The Borrower agrees that, on and after the Effective Date
and for so long thereafter as any Lender has any Commitment
hereunder or any of the Liabilities remain unpaid or outstanding,
it will:

SECTION 10.1 Minimum Surplus. Not permit Capital and
Surplus plus IMR/AVR of RSL to be less than $150,000,000 at any
time and not permit Capital and Surplus of Safety National to be
less than $75,000,000 at any time.

SECTION 10.2 Consolidated Equity of the Borrower. Not
permit Consolidated Equity of the Borrower at any time to be less

<PAGE> 89

than $275,000,000 plus 50% of the consolidated Net Income of the
Borrower and its Subsidiaries for the period beginning on January
1, 1997 and ending on the applicable date of calculation. This
calculation shall be made as of the end of each Fiscal Quarter
for the Fiscal Quarter then ended.

SECTION 10.3 Operating Leverage of RSL. Not permit the
ratio of Statutory Liabilities minus IMR/AVR of RSL to Capital
and Surplus plus IMR/AVR of RSL to exceed 15.0:1 at any time.
This ratio shall be measured as of the end of each Fiscal Quarter
for the Fiscal Quarter then ended.

SECTION 10.4 Debt to Capital. Not permit the Debt to
Capital Ratio to exceed at any time during any Fiscal Year set
forth below the ratio set forth opposite such Fiscal Year:

Fiscal Year Ratio

1996 .50:1
1997 .50:1
1998 and thereafter .45:1

This ratio shall be measured as of the end of each Fiscal
Quarter for the Fiscal Quarter then ended.

SECTION 10.5 Risk-Based Capital. Not permit the Risk-Based
Capital of RSL to fall below 140% and not permit the Risk-Based
Capital of Safety National to fall below 105%. This ratio shall
be measured as of the end of each Fiscal Year for the Fiscal Year
then ended.

SECTION 10.6 Capital Expenditures. Not permit Consolidated
Capital Expenditures of the Borrower to exceed $3,000,000 in any
Fiscal Year; provided, that to the extent Consolidated Capital
Expenditures actually made by the Borrower in any Fiscal Year are
less than the amount permitted for that Fiscal Year, the Borrower
may carry over the additional amount to any succeeding Fiscal
Year.

For purposes hereof, "Consolidated Capital Expenditures"
shall mean, for any period, the capital expenditures of the
Borrower and its Subsidiaries for such period as determined in
accordance with GAAP.

SECTION 10.7 Cash Coverage Ratio. Not permit the Cash
Coverage Ratio of the Borrower to be less than 1.4 to 1 as of the
end of any Fiscal Quarter.

<PAGE> 90

SECTION 11. CONDITIONS

The effectiveness of this Agreement and the obligation of
each of the Lenders to make its Loans as provided for hereunder
is subject to the performance by the Borrower of all of its
obligations under this Agreement and to the satisfaction of the
following conditions precedent:

SECTION 11.1 Effectiveness of Agreement; Initial Borrowing.
In the case of the effectiveness of this Agreement and the
initial Borrowing hereunder, the Administrative Agent shall have
received on or before the Effective Date all of the following,
each, except to the extent otherwise specified below, duly
executed by a Responsible Officer of the Borrower, dated the
Third Restatement Date (or such earlier date as shall be
satisfactory to the Administrative Agent and each of the
Lenders), in form and substance satisfactory to the
Administrative Agent, and each in sufficient number of signed
counterparts to provide one for each Lender (except that with
respect to the Notes, if any, to be delivered pursuant to Section
11.1.2 below, the Borrower shall be required to deliver one
original Note to each of the respective Lenders):

11.1.1 An executed copy of this Agreement;

11.1.2 If requested by a Lender, an appropriately
completed Note executed by a Responsible Officer of the
Borrower payable to the order of such Lender in the amount
set forth opposite such Lender's name on Schedule 2.1;

11.1.3 Favorable opinions of Chad Coulter, counsel to
the Borrower and SIG Holdings and general counsel of each of
the Reliance Standard Insurance Companies and Jeffrey Otto,
general counsel of Safety National, substantially in the
form of Exhibits E-1 and E-2, respectively, in each case,
addressing such other legal matters as the Administrative
Agent may require;

11.1.4 An executed Second Borrower Reaffirmation
Agreement in substantially the form of Exhibit I (the
"Second Borrower Reaffirmation Agreement");

11.1.5 An executed SIG Holdings Reaffirmation
Agreement;

11.1.6 An officer's certificate of the Borrower
substantially in the form of Exhibit F and dated as of the
date hereof, signed by the president or a

<PAGE> 91

vice-president of the Borrower and attested to by the
secretary or assistant secretary of the Borrower and SIG
Holdings, together with certified copies of the Borrower's,
the Reliance Standard Insurance Companies', SIG Holdings and
Safety National's certificate or articles of incorporation,
by-laws and, as to the Borrower and SIG Holdings, incumbency
and resolutions;

11.1.7 Evidence of the good standing of the Borrower,
the Reliance Standard Insurance Companies, SIG Holdings and
Safety National in the jurisdiction in which such Person is
incorporated or domiciled;

11.1.8 Evidence that the Borrower shall have paid to
the Administrative Agent the fees and expenses provided for
herein;

11.1.9 Evidence satisfactory to the Administrative
Agent that each of the Related Documents have been executed
and delivered and are in full force and effect without
amendment or modification except for amendments or
modifications acceptable to the Administrative Agent;

11.1.10 Certified copies of each material consent,
license and approval required in connection with the
execution, delivery, performance, validity and
enforceability of this Agreement and the Related Documents;

11.1.11 Certificate of a Responsible Officer of the
Borrower that there are no material insurance regulatory
proceedings pending or threatened against any of the
Reliance Standard Insurance Companies, SIG Holdings or
Safety National;

11.1.12 A certificate of a Responsible Officer of the
Borrower, dated the Third Restatement Date, as to the
matters set forth in Sections 11.3.2 through 11.3.5;

11.1.13 An officer's certificate, signed by a
Responsible Officer of the Borrower, certifying that since
December 31, 1995, no event has occurred which individually
or in the aggregate could have a Material Adverse Effect;

11.1.14 A certified list of the Responsible Officers
and directors of the Borrower;

<PAGE> 92

11.1.15 A certified calculation of the Debt to Capital
Ratio calculated based on Consolidated Funded Debt and
Consolidated Equity of the Borrower as of the end of the
Fiscal Quarter immediately preceding the Third Restatement
Date; and

11.1.16 Such other information and documents as may
reasonably be required or requested by the Administrative
Agent and the Administrative Agent's counsel.

SECTION 11.2 Acquisition Loans. In addition to the
satisfaction of the conditions precedent in Section 11.1, the
obligation of the Lenders to make Loans to consummate any
Acquisition permitted by this Agreement is subject to the
following further conditions precedent:

11.2.1 The Borrower shall have delivered to the
Administrative Agent and the Lenders in form and detail
satisfactory to the Administrative Agent and the Required
Lenders,

(a) at least twenty (20) days prior to any
requested Borrowing, a duly executed preliminary
financing request, substantially in the form of
Exhibit J, outlining the aggregate principal amount of
any requested Borrowing which the Borrower will request
to facilitate or consummate such Acquisition; and

(b) duly executed pledge agreements, security
agreements, mortgages, hypothecation agreements,
amendments, financing statements and other documents as
the Administrative Agent and the Required Lenders shall
deem necessary or appropriate whereby the Borrower or
the applicable Subsidiary shall grant to the
Administrative Agent, for the benefit of the Lenders, a
first priority lien on, and security interest in, (i)
with respect to any Acquisition by the Borrower or any
of its Subsidiaries (other than any Subsidiary which is
an insurance company) of the type referenced in clause
(b) of the definition of Acquisition, the capital stock
or partnership or membership interests of such Acquired
Person and (ii) with respect to any Acquisition by the
Borrower or any of its Subsidiaries (other than any
Subsidiary which is an insurance company) of the type
referenced in clause (a) of the definition of
Acquisition, the assets of such Acquired Person, in
each case as the Administrative Agent and the Required
Lenders shall request;

<PAGE> 93

11.2.2 The Borrower shall have delivered to the
Administrative Agent and the Lenders certified copies of any
acquisition agreements, letters of intent, asset purchase
agreements, stock purchase agreements or other related
documentation or instruments proposed to be executed and
delivered in connection therewith as the Administrative
Agent or the Required Lenders shall request;

11.2.3 The Borrower shall have delivered to the
Administrative Agent and the Lenders such other information
and documents as may reasonably be required or requested by
the Administrative Agent, the Required Lenders and the
Administrative Agents's counsel.

SECTION 11.3 All Loans. In addition to the satisfaction of
the conditions precedent in Section 11.1, the obligation of each
Lender to make each Loan is subject to the following further
conditions precedent:

11.3.1 The Administrative Agent shall have received an
appropriately completed Notice of Borrowing duly executed by
the president or chief financial officer of the Borrower.

11.3.2 No Default exists or will result from the
making of such Loan.

11.3.3 The representations and warranties of the
Borrower contained in Section 7 and in the Related
Documents, as updated from time to time in a manner
reasonably acceptable to the Required Lenders, are true and
correct in all material respects with the same effect as
though made (in such updated form) on the Third Restatement
Date.

11.3.4 No Material Litigation exists except as
disclosed on Schedule 7.8, and since the Third Restatement
Date no Material Litigation Development has occurred with
respect to any Litigation so disclosed on Schedule 7.8.

11.3.5 No Letter of Credit shall be drawn and
unreimbursed under the Master Letter of Credit Agreement.

<PAGE> 94

SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT

SECTION 12.1 Events of Default. An "Event of Default"
shall exist if any one or more of the following events (herein
collectively called "Events of Default") shall occur and be
continuing:

12.1.1 Non-Payment of Loans, etc.

(a) Default in the payment or prepayment when due of
any principal of or interest on any Loan; or

(b) Default and continuance for five (5) days in the
payment when due of any other amount owing by the Borrower
pursuant to this Agreement or any Related Documents.

12.1.2 Non-Payment of Other Indebtedness. Default in
the payment when due (subject to any applicable grace
period), whether by acceleration or otherwise, of any
Indebtedness of the Borrower or any of its Subsidiaries
(other than Indebtedness in respect of this Agreement) in an
aggregate amount at any one time in excess of $5,000,000 or
default in the performance or observance of any obligation
or condition with respect to any such Indebtedness if the
effect of such default in performance or observance is to
accelerate the maturity of any such Indebtedness or to
permit the holder or holders thereof, or any trustee or
agent for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity.

12.1.3 Bankruptcy, Insolvency, etc. The Borrower or
any of its Subsidiaries becomes insolvent or generally fails
to pay, or admits in writing its inability to pay, debts as
they become due; or the Borrower or any of its Subsidiaries
applies for, consents to, or acquiesces in the appointment
of, a trustee, receiver or other custodian for the Borrower
or any of its Subsidiaries or any property thereof, or makes
a general assignment for the benefit of creditors; or, in
the absence of such application, consent or acquiescence, a
trustee, receiver or other custodian is appointed for the
Borrower or any of its Subsidiaries or for a substantial
part of the property of any thereof and is not discharged
within thirty (30) days; or any bankruptcy, reorganization,
debt arrangement, or other case or proceeding under any

<PAGE> 95

bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution,
not under any bankruptcy or insolvency law, of a
Subsidiary), is commenced in respect of the Borrower or any
of its Subsidiaries and if such case or proceeding is not
commenced by the Borrower or any of its Subsidiaries, it is
consented to or acquiesced in by the Borrower or any of its
Subsidiaries or remains for thirty (30) days undismissed; or
the Borrower or any of its Subsidiaries takes any corporate
action to authorize, or in furtherance of, any of the
foregoing.

12.1.4 Defaults Under this Agreement. Failure by the
Borrower to comply with or perform any of the covenants or
agreements of the Borrower set forth in Sections 8.1.9, 9
(other than Sections 9.5, 9.7, 9.9 and 9.12 which shall be
governed by Section 12.1.5) or 10.

12.1.5 Other Noncompliance with this Agreement.
Failure by the Borrower or any of its Subsidiaries to comply
with or perform any other provision of this Agreement or the
Related Documents applicable to it (other than those listed
in Sections 12.1.1, 12.1.2, 12.1.4 or those constituting an
Event of Default under any of the other provisions of this
Section 12) and continuance of such failure for thirty
(30) days after notice thereof to the Borrower from the
Administrative Agent.

12.1.6 Representations and Warranties. Any
representation or warranty made by the Borrower, or any of
its Subsidiaries herein or in any of the Related Documents
is false or misleading in any material respect as of the
date hereof or as of the date hereafter certified, or any
schedule, certificate, financial statement, report, notice,
or other writing furnished by the Borrower, or any of its
Subsidiaries to the Administrative Agent or any Lender is
false or misleading in any material respect on the date as
of which the facts therein set forth are stated or
certified.

12.1.7 Pension Plans. With respect to any Single
Employer Pension Plan there shall exist a deficiency of more
than $10,000,000 in the plan assets available to satisfy the
benefits guaranteeable under ERISA with respect to such
plan, and (a) such plan is terminated or (b) the Borrower or
any other member of its

<PAGE> 96

Controlled Group withdraws from or institutes steps to
withdraw from such plan and such withdrawal is reasonably
likely to result in liability to the Borrower in excess of
$10,000,000, or (c) a Reportable Event shall occur with
respect to such plan which constitutes reasonable grounds
for the termination of such plan by the Pension Benefit
Guaranty Corporation or any successor thereto and which is
reasonably likely to result in liability of the Borrower in
excess of $10,000,000.

12.1.8 Adverse Judgment. One or more final judgments
or decrees (other than judgments or decrees against any
Subsidiary which is an insurance company in the ordinary
course of business) shall be entered against the Borrower or
any of its Subsidiaries involving, in the aggregate, a
liability (not covered by collectible insurance or
indemnification) of $10,000,000 or more and all such
judgments or decrees shall not have been vacated, satisfied,
discharged or stayed or bonded pending appeal within ten
(10) consecutive days from the entry thereof.

12.1.9 Related Documents. The Borrower or any of its
Subsidiaries shall fail to comply with any of the provisions
of the Related Documents applicable to it within any
applicable grace period; or any of the Related Documents
shall fail to remain in full force and effect and such
failure shall continue for ten (10) days; or any action
shall be taken by the Borrower or any of its Subsidiaries to
discontinue any of the Related Documents or to assert the
invalidity of any thereof.

12.1.10 Change in Control. The occurrence of a Change
in Control.

12.1.11 Default under Master Letter of Credit
Agreement. The occurrence of an Event of Default as defined
in the Master Letter of Credit Agreement.

SECTION 12.2 Effect of Event of Default. If any Event of
Default described in Section 12.1.3 shall occur and be
continuing, the Commitments (if they have not theretofore
terminated) shall immediately and automatically terminate and all
Liabilities shall become immediately and automatically due and
payable, all without presentment, demand, protest or notice of
any kind which presentment, demand, protest and notice are hereby
expressly waived; and, in the case of any other Event of Default,

<PAGE> 97

the Administrative Agent may (or shall, upon the written request
of the Required Lenders) declare the Commitments (if they have
not theretofore terminated) to be terminated and all Liabilities
to be due and payable, whereupon the Commitments (if they have
not theretofore terminated) shall immediately terminate and all
Liabilities shall become immediately due and payable, all without
presentment, demand, protest or notice of any kind (which
presentment, demand, protest or notice are hereby expressly
waived). The Administrative Agent shall promptly advise the
Borrower and each Lender of any such declaration, but failure to
do so shall not impair the effect of such declaration.
Notwithstanding the foregoing or any provision of Section 15.1,
the effect as an Event of Default of any event described in
Section 12.1.3 may be waived by the written concurrence of the
Lenders holding 100% of the aggregate unpaid principal amount of
the Loans, and the effect as an Event of Default of any other
event described in this Section 12 may be waived as provided in
Section 15.1.

SECTION 13. THE ADMINISTRATIVE AGENT

SECTION 13.1 Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers to the
extent provided herein or in any document or instrument delivered
hereunder or in connection herewith, together with such other
action as may be reasonably incidental thereto. As to matters
not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of this Agreement or any
Related Documents) the Administrative Agent shall not be required
to exercise any discretion, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required
Lenders and such instructions shall be binding upon all Lenders.
Under no circumstances shall the Administrative Agent be required
to take any action which exposes the Administrative Agent to
personal liability or which is contrary to this Agreement or to
the Related Documents or applicable law.

SECTION 13.2 Liability of the Administrative Agent.
Neither the Administrative Agent nor any of its directors,
officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection
with this Agreement and the Related Documents, except for its or
their own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, the Administrative
Agent (a) may treat any Lender as such until the Administrative
Agent receives an executed Assignment Agreement entered into

<PAGE> 98

between a Lender and an Eligible Assignee pursuant to
Section 14.1; (b) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and
other experts or consultants selected by it; (c) shall not be
liable for any action taken or omitted to be taken in good faith
by the Administrative Agent in accordance with the advice of
counsel, accountants, consultants or experts; (d) makes no
warranty or representation to any Lender and shall not be
responsible to any Lender for any recitals, statements,
warranties or representations, whether written or oral, made in
or in connection with this Agreement or the Related Documents;
(e) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, obligations,
covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including, without
limitation, any books and records) of the Borrower; (f) shall not
be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of
this Agreement, any Related Document, any Collateral or other
support or security, or any other document furnished in
connection with any of the foregoing; and (g) shall incur no
liability under or in respect of this Agreement or any Related
Document by action upon any written notice, statement,
certificate, order, telephone message, facsimile or other
document which the Administrative Agent believes in good faith to
be genuine and correct and to have been signed, sent or made by
the proper Person.

SECTION 13.3 BofA NT&SA and Affiliates. With respect to
the Loans made by it, BofA NT&SA shall have the same rights and
powers under this Agreement and the Related Documents as any
other Lender and may exercise the same as though it were not the
Administrative Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include BofA NT&SA in its
individual capacity. BofA NT&SA and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of,
and generally engage in any kind of business with, the Borrower
and any of its Subsidiaries and any Person who may do business
with or own securities of the Borrower or any of its
Subsidiaries, all as if BofA NT&SA were not the Administrative
Agent and without any duty to account therefor to the Lenders.

SECTION 13.4 Lender Credit Decision. Each Lender
acknowledges that it has, independently and without reliance upon
the Administrative Agent or any other Lender and based on the
financial statements referred to in Section 7.6 and such other
documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement.
Each Lender also acknowledges that it will, independently and

<PAGE> 99

without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement.

SECTION 13.5 Indemnification. The Lenders agree to
indemnify the Administrative Agent (to the extent not reimbursed
by the Borrower), ratably according to their Percentages, from
and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or assessed against the Administrative
Agent in any way relating to or arising out of this Agreement or
the Related Documents, or any action taken or omitted by the
Administrative Agent under this Agreement or the Related
Documents; provided, that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limiting any of the
foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its Percentage of any expenses
(including reasonable counsel fees) incurred by the
Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment,
waiver or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under this Agreement or the Related
Documents to the extent that the Administrative Agent is not
reimbursed for such expenses by the Borrower. All obligations
provided for in this Section 13.5 shall survive termination of
this Agreement.

SECTION 13.6 Successor Agents. The Administrative Agent
may resign at any time and the Administrative Agent may be
removed at any time with cause by the Required Lenders upon
thirty (30) days prior written notice thereof to the
Administrative Agent. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint a successor
agent. If no successor agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment within
thirty (30) days after the retiring agent's giving of notice of
resignation or the Required Lenders' removal of the retiring
agent, then the retiring agent may, on behalf of the Lenders,
appoint a successor agent which shall be a commercial bank having
a combined capital and surplus of at least $250,000,000. Upon
the acceptance of any appointment as agent hereunder by a
successor agent, such successor agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and

<PAGE> 100

duties of the retiring agent, and the retiring agent shall be
discharged from its duties and obligations in its capacity as
agent under this Agreement. After any retiring agent's
resignation or removal hereunder as agent, the provisions of this
Section 13 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was agent under this
Agreement.

SECTION 13.7 Collateral Matters. (a) The Administrative
Agent is authorized on behalf of all the Lenders, without the
necessity of any notice to or further consent from the Lenders,
from time to time to take any action with respect to any
Collateral or the Related Documents which may be necessary to
perfect and maintain perfected the security interest in and Liens
upon the Collateral granted pursuant to the Related Documents.

(b) The Lenders irrevocably authorize the
Administrative Agent, at its option and in its discretion, to
release any Lien granted to or held by the Administrative Agent
upon any Collateral (i) upon termination of the Commitments and
payment in full of all Loans and all other Liabilities known to
the Administrative Agent and payable under this Agreement or any
Related Document; (ii) constituting property sold or to be sold
or disposed of as part of or in connection with any disposition
permitted hereunder; (iii) constituting property in which the
Borrower or any of its Subsidiaries owned no interest at the time
such Lien was granted or at any time thereafter; (iv)
constituting property leased to the Borrower or any of its
Subsidiaries under a lease which has expired or been terminated
in a transaction permitted under this Agreement or is about to
expire and which has not been, and is not intended by the
Borrower or such Subsidiary to be, renewed or extended; (v)
consisting of an instrument evidencing Indebtedness or other debt
instrument, if the indebtedness evidenced thereby has been paid
in full; or (vi) if approved, authorized or ratified in writing
by the Required Lenders or all the Lenders, as the case may be,
as provided in Section 15.1. Upon request by the Administrative
Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or
items of Collateral pursuant to this Section 13.7.

(c) Each Lender agrees with and in favor of each other
(which agreement shall not be for the benefit of the Borrower or
any of its Subsidiaries) that the Borrower's obligation to such
Lender under this Agreement and the Related Documents is not and
shall not be secured by any real property collateral now or
hereafter acquired by such Lender.

<PAGE> 101

SECTION 13.8 Co-Agents. None of the Lenders identified on
the facing page or signature pages of this Agreement as a
"co-agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those
applicable to all Lenders as such. Without limiting the
foregoing, none of the Lenders so identified as a "co-agent"
shall have or be deemed to have any fiduciary relationship with
any Lender. Each Lender acknowledges that it has not relied, and
will not rely, on any of the Lenders so identified in deciding to
enter into this Agreement or in taking or not taking action
hereunder.

SECTION 14. ASSIGNMENTS AND PARTICIPATIONS

SECTION 14.1 Assignments.

(a) Each Lender shall have the right at any time to
assign, with the consent of the Administrative Agent and the
Borrower (which consent will not unreasonably be withheld),
to any Eligible Assignee, all or any part of such Lender's
rights and obligations under this Agreement and the Related
Documents including its rights in respect of its Loan and
its Note. Any such assignment shall be pursuant to an
assignment agreement, substantially in the form of Exhibit G
(an "Assignment Agreement"), duly executed by such Lender
and the Eligible Assignee, and acknowledged by the
Administrative Agent. Although its failure to do so will
not affect any of the rights or obligations provided for
therein or herein, the Borrower agrees, if it has consented
to an assignment hereunder, to duly acknowledge any
Assignment Agreement executed by any assigning Lender
promptly after its receipt of the same.

(b) Each assignment may be made on a pro rata or non-pro rata basis,
at the option of the assigning Lender, with
respect to all rights and obligations of the assigning
Lender including the Loans and its Note. Each assignment
shall be in an amount equal to or in excess of $5,000,000
(except for assignments of the entire unpaid balance, if
less than $5,000,000, of the Loans of a Lender or to another
Lender). In the case of any such assignment, upon the
fulfillment of the conditions in Section 14.1(c), this
Agreement shall be deemed to be amended to the extent, and
only to the extent, necessary to reflect the addition of
such Eligible Assignee, and such Eligible Assignee shall for

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all purposes be a Lender party hereto and shall have, to the
extent of such assignment, the same rights and obligations
as a Lender hereunder.

(i) the Assignment Agreement shall have been
executed by the parties thereto,

(ii) the Assignment Agreement shall have been
acknowledged by the Administrative Agent and consented to by
the Borrower (which consent shall not be unreasonably
withheld),

(iii) either the assigning Lender or the Eligible
Assignee shall have paid a processing fee of $3,000 to the
Administrative Agent for its own account; provided that the
Eligible Assignee shall be solely responsible for such
processing fee with respect to any assignment pursuant to
Section 5.9, and

(iv) the assigning Lender and the Administrative
Agent shall have agreed upon a date upon which such
assignment shall become effective. Upon such assignment
becoming effective, the Administrative Agent shall forward
all payments of interest, principal, fees and other amounts
that would have been made to the assigning Lender, in
proportion to the percentage of the assigning Lender's
rights transferred, to the Eligible Assignee.

(d) Upon the effectiveness of any assignment, the
assigning Lender shall be relieved from its obligations
hereunder to the extent of the obligations so assigned
(except to the extent, if any, that the Borrower, any other
Lender or the Administrative Agent have rights against such
assigning Lender as a result of any default by such Lender
under this Agreement). Promptly following the effectiveness
of each assignment, the Administrative Agent shall furnish
to the Borrower and each Lender a revised Schedule 2.1,
revised to reflect such assignment. Notwithstanding
anything contained in this Agreement to the contrary, any
Lender may at any time assign all or any portion of its
rights under this Agreement and the Restated Notes issued to
it to a Federal Reserve Bank; provided, that no such
assignment

<PAGE> 103

shall release a Lender from any of its obligations
hereunder.

SECTION 14.2 Participations.

(a) Each Lender may grant participations in all or any
part of its Commitment, its Loans and its Note to any
commercial bank or other financial institution. A
participant shall not have any rights under this Agreement
or any other document delivered in connection herewith (the
participant's rights against such Lender in respect of such
participation to be those set forth in the agreement
executed by such Lender in favor of the participant relating
thereto, which agreement with respect to such participation
shall not restrict such Lender's ability to make any
modification, amendment or waiver to this Agreement without
the consent of the participant except that the consent of
such participant may be required in connection with matters
requiring the consent of all of the Lenders under Section
15.1). Notwithstanding the foregoing, each participant
shall have the rights of a Lender pursuant to Section 4.6
and 5; provided that with respect to Section 5, the
Borrower's liability shall be no greater than if such Lender
had not participated its Commitment and Loans to such
participant hereunder. All amounts payable by the Borrower
under this Agreement shall be determined as if the Lender
had not sold such participation. In the event of any such
sale by a Lender of participating interests to a
participant, such Lender's obligations under this Agreement
shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall
remain the holder of any obligation for all purposes under
this Agreement, and the Borrower and the Administrative
Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and
obligations under this Agreement.

(b) Limitation of Rights of any Participant.
Notwithstanding anything in the foregoing to the contrary,

(i) no participant shall have any direct rights
hereunder,

(ii) the Borrower, the Administrative Agent and
the Lenders, other than the selling Lender, shall deal
solely with the selling Lender and shall not be

<PAGE> 104

obligated to extend any rights or make any payment to, or
seek any consent of, the participant,

(iii) no participation shall relieve the selling
Lender of any of its other obligations hereunder and such
Lender shall remain solely responsible for the performance
thereof, and

(iv) except as agreed by the Lender and its
participant to the extent permitted under Section 14.2(a),
no participant, other than an affiliate of the selling
Lender, shall be entitled to require such Lender to take or
omit to take any action hereunder, except that such Lender
may agree with such participant that such Lender will not,
without participant's consent, take any action which would,
affect any principal, interest or fee in which the
participant has an ownership or beneficial interest.

SECTION 14.3 Disclosure of Information. The Borrower
authorizes each Lender to disclose to any participant, assignee
or Eligible Assignee (each, a "Transferee") and any prospective
Transferee any and all financial and other information in such
Lender's possession concerning the Borrower and its Subsidiaries
which has been delivered to such Lender by the Borrower in
connection with such Lender's credit evaluation of the Borrower
prior to entering into this Agreement or which has been delivered
to such Lender by the Borrower pursuant to this Agreement;
provided, that such information is public information at the time
of disclosure or such Lender has obtained a confidentiality
letter from such Transferee, substantially in the form of Exhibit
K, prior to such disclosure (except that, in connection with
disclosure to a Transferee or prospective Transferee that is an
insurance company or an Affiliate of an insurance company, such
Lender shall obtain the prior written consent of the Borrower).

SECTION 14.4 Foreign Transferees. If, pursuant to this
Section 14, any interest in this Agreement or any Loan or a Note
is transferred to any Transferee which is organized under the
laws of any jurisdiction other than the United States or any
state thereof, the transferor Lender shall cause such Transferee
(other than any participant), and may cause any participant,
concurrently with the effectiveness of such transfer,

(a) to represent to the transferor Lender (for the
benefit of the transferor Lender, the Administrative Agent
and the Borrower) that under applicable law and treaties no
Taxes will be required to be withheld by the Administrative
Agent,

<PAGE> 105

(b) to represent to the Borrower or the transferor
Lender that under applicable law and treaties no Taxes will
be required to be withheld with respect to any payments to
be made to such Transferee in respect of the Loans or a
Note,

(c) to furnish to the transferor Lender, the
Administrative Agent and the Borrower either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 (wherein such transfer claims entitlement to
complete exemption from U.S. federal withholding tax on all
interest payments hereunder), and

(d) to agree (for the benefit of the transferor
Lender, the Administrative Agent and the Borrower) to
provide the transferor Lender, the Administrative Agent and
the Borrower a new Form 4224 or Form 1001 upon the
obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and
regulations and amendments duly executed and completed by
such Transferee, and to comply from time to time with all
applicable U.S. laws and regulations with regard to such
withholding tax exemption.

SECTION 15. MISCELLANEOUS

SECTION 15.1 Waivers and Amendments. The provisions of
this Agreement and of each Related Document may from time to time
be amended, modified or waived, if such amendment, modification
or waiver is in writing and consented to by the Borrower and the
Required Lenders; provided that no such amendment, modification
or waiver:

(a) which would modify any requirement hereunder that
any particular action be taken by all Lenders or by the
Required Lenders, shall be effective without the consent of
each Lender;

(b) which would modify this Section 15.1, change the
definition of "Required Lenders," change any Percentage for
any Lender (except pursuant to an Assignment Agreement),
reduce any fees or any other amount payable to any Lender,
extend the Revolver Termination Date, or subject any Lender
to any additional obligations, shall be effective without
the consent of each Lender;

<PAGE> 106

(c) which would permit the release of all or
substantially all of the Collateral, shall be effective
without the consent of each Lender;

(d) which would extend the due date for, or reduce the
amount of, any payment or prepayment (including, without
limitation, any prepayment required pursuant to Section 4.3)
of principal of or interest on any Loan, or fee shall be
effective without the consent of each Lender; provided that
any Lender may waive any fees payable to such Lender
hereunder without the consent of any other Lender; or

(e) which would affect adversely the interests, rights
or obligations or the Administrative Agent (in such
capacity), shall be effective without consent of the
Administrative Agent.

SECTION 15.2 Notices. All notices, requests and other
communications to any party hereunder shall be in writing
(including bank wire, telex, facsimile or similar writing) and
shall be given to such party at its address, facsimile or telex
number set forth on the signature pages hereof or such other
address, facsimile or telex number as such party may hereafter
specify for such purpose by written notice to the Administrative
Agent and the Borrower. Each such notice, request or other
communication shall be effective (a) if given by facsimile or
telex, when such facsimile or telex is transmitted to the telex
number specified in this Section and the appropriate answerback
is received, (b) if given by mail, seventy-two (72) hours after
such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (c) if given by any
other means, when delivered at the address specified in this
Section, provided that notices to the Administrative Agent under
Sections 3, 4 and 13 shall not be effective until received by the
Administrative Agent.

SECTION 15.3 Regulation U. Each Lender represents that it
in good faith is not relying, either directly or indirectly, upon
any margin stock (as such term is defined in Regulation U
promulgated by the Board of Governors of the Federal Reserve
System) as collateral security for the extension or maintenance
by it of any credit provided for in this Agreement.

SECTION 15.4 Payment of Costs and Expenses. The Borrower
agrees to pay on demand all expenses of the Administrative Agent
and, with respect to clause (d) below after the occurrence of an
Event of Default, the Lenders (including the reasonable fees and
out-of-pocket expenses of counsel for the Administrative Agent

<PAGE> 107

and the Lenders and of local counsel, if any, who may be retained
by such counsel) in connection with

(a) the negotiation, preparation, execution and
delivery of this Agreement and of each Related Document,
including schedules and exhibits, and any amendments,
waivers, consents, supplements or other modifications to
this Agreement or any Related Document as may from time to
time hereafter be required, whether or not the transactions
contemplated hereby or thereby are consummated, and

(b) the filing, recording, refiling or rerecording of
any of the Related Documents (including the Pledge
Agreements) and/or any Uniform Commercial Code financing
statements relating thereto and all amendments, supplements
and modifications to any thereof and any and all other
documents or instruments of further assurance required to be
filed or recorded or refiled or rerecorded by the terms
hereof or of the Related Documents, and

(c) the preparation and/or review of the form of any
document or instrument relevant to this Agreement or any
Related Document, and

(d) the negotiation of any restructuring or "work-out", whether or
not consummated, of any Liabilities.

The Borrower further agrees to pay, and to save the Co-Agents,
the Administrative Agent and the Lenders harmless from all
liability for, any stamp or other Taxes which may be payable in
connection with the execution or delivery of this Agreement, the
Borrowings hereunder, or the issuance of the Notes or any other
Related Documents. The Borrower also agrees to reimburse the Co-Agents,
the Administrative Agent and each Lender upon demand for
all reasonable expenses (including reasonable attorneys' fees and
legal expenses) incurred by the Administrative Agent or such
Lender in connection with the enforcement of any Liabilities and
the consideration of legal issues relevant thereto. All
obligations of the Borrower provided for in this Section 15.4
shall survive termination of this Agreement.

SECTION 15.5 Indemnity. The Borrower agrees to indemnify
the Administrative Agent, each Lender and each of their
respective directors, officers, employees, persons controlling or
controlled by any of them or their respective agents,
consultants, attorneys and advisors (the "Indemnified Parties")

<PAGE> 108

and hold each Indemnified Party harmless from and against any and
all liabilities, losses, claims, damages, costs and expenses of
any kind to which any of the Indemnified Parties may become
subject, whether directly or indirectly (including, without
limitation, the reasonable fees and disbursements of counsel for
any Indemnified Party), relating to or arising out of this
Agreement, the Related Documents or any actual or proposed use of
the proceeds of the Loans hereunder; provided, that no
Indemnified Party shall have the right to be indemnified
hereunder for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction. All obligations
of the Borrower provided for in this Section 15.5 shall survive
termination of this Agreement.

SECTION 15.6 Subsidiary References. The provisions of this
Agreement relating to Subsidiaries shall apply only during such
times as the Borrower has one or more Subsidiaries.

SECTION 15.7 Captions. Section captions used in this
Agreement are for convenience only, and shall not affect the
construction of this Agreement.

SECTION 15.8 GOVERNING LAW. THIS AGREEMENT AND THE NOTES
SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
ALL OBLIGATIONS OF THE BORROWER AND RIGHTS OF THE CO-AGENTS, THE
ADMINISTRATIVE AGENT AND THE LENDERS IN RESPECT OF THE
LIABILITIES EXPRESSED HEREIN OR IN THE RELATED DOCUMENTS SHALL BE
IN ADDITION TO AND NOT IN LIMITATION OF THOSE PROVIDED BY
APPLICABLE LAW.

SECTION 15.9 Counterparts. This Agreement may be executed
in any number of counterparts and by the different parties on
separate counterparts and each such counterpart shall be deemed
to be an original, but all such counterparts shall together
constitute but one and the same agreement. When counterparts
executed by all the parties shall have been lodged with the
Administrative Agent (or, in the case of any Lender as to which
an executed counterpart shall not have been so lodged, the
Administrative Agent shall have received telegraphic, facsimile,
telex or other written confirmation from such Lender of execution
of a counterpart hereof by such Lender), this Agreement shall
become effective as of the Effective Date, and at such time the
Administrative Agent shall notify the Borrower and each Lender.

SECTION 15.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE.
THE BORROWER, ON BEHALF OF ITSELF AND EACH SUBSIDIARY, (A) HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY ILLINOIS STATE OR
FEDERAL COURT SITTING IN CHICAGO, ILLINOIS OVER ANY ACTION OR

<PAGE> 109

PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
RELATED DOCUMENTS, AND THE BORROWER HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL COURT, AND
(B) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST THE CO-AGENTS, THE ADMINISTRATIVE AGENT OR ANY LENDER OR
THE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY OF ANY
THEREOF, ARISING OUT OF OR RELATING TO THIS AGREEMENT, IN ANY
COURT OTHER THAN AS HEREINABOVE SPECIFIED IN THIS SECTION 15.10.
THE BORROWER, ON BEHALF OF ITSELF AND EACH SUBSIDIARY, HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY ACTION OR PROCEEDING (WHETHER BROUGHT BY THE BORROWER, ANY
SUBSIDIARY, THE CO-AGENTS, THE ADMINISTRATIVE AGENT, ANY LENDER,
OR OTHERWISE) IN ANY COURT HEREINABOVE SPECIFIED IN THIS SECTION
15.10 AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE
ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT
ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE. THE
BORROWER ON BEHALF OF ITSELF AND EACH SUBSIDIARY AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

SECTION 15.11 Service of Process. The Borrower on behalf
of itself and each Subsidiary has appointed CT Corporation System
(the "Process Agent"), with an office on the date hereof at 208
South LaSalle Street, Chicago, Illinois 60604, United States, as
its agent to receive on behalf of the Borrower and its
Subsidiaries and its property service of copies of the summons
and complaint and any other process which may be served in any
such action or proceeding, provided that a copy of such process
is also mailed by registered or certified mail, postage prepaid,
to the Borrower at its address specified pursuant to Section
15.2. Such service may be made by mailing or delivering a copy
of such process to the Borrower in care of the Process Agent at
the Process Agent's above address, and the Borrower hereby
irrevocably authorizes and directs the Process Agent to accept
such service on its behalf. The Borrower agrees to indemnify
such Process Agent in connection with all matters relating to its
appointment as agent of the Borrower for such purposes, to enter
into any agreement relating to such appointment which such
Process Agent may customarily require, and to pay such Process
Agent's customary fees upon demand. As an alternative method of
service, the Borrower for itself and its Subsidiaries also
irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such
process to the Borrower at its address specified pursuant to
Section 15.2. Nothing in this Section 15.11 shall affect the
right of the Administrative Agent or any Lender to serve legal

<PAGE> 110

process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or
proceeding against the Borrower or its properties in the courts
of any other jurisdictions.

SECTION 15.12 Successors and Assigns. This Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns; provided,
however, that:

(a) the Borrower may not assign or transfer its rights
or obligations hereunder without the prior written consent
of the Administrative Agent and all the Lenders; and

(b) the rights of the Lenders to make assignments or
grant participations are subject to the provisions of
Section 14.

SECTION 15.13 WAIVER OF JURY TRIAL. THE BORROWER, THE CO-AGENTS,
THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY RELATED DOCUMENT
OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH,
OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDING
OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS
AGREEMENT.

SECTION 15.14 Replacement of Existing Credit Agreement.
This Agreement amends and restates the Existing Credit Agreement,
and each of the Notes amends and restates and is issued in
substitution for each of the Existing Revolving Notes. Upon the
effectiveness of this Agreement: (a) each of the Lenders, as
applicable, shall return its Existing Revolving Note to the
Borrower, marked to indicate that the Existing Revolving Note has
been replaced by the Note; and (b) all loans made pursuant to the
Existing Credit Agreement outstanding on such date shall be
deemed to be loans hereunder, shall be evidenced by the Notes, if
any, and shall be entitled to all of the benefits and bear all of
the obligations of this Agreement.

* * *

<PAGE> 111

Delivered at Chicago, Illinois, as of the day and year first
above written.

DELPHI FINANCIAL GROUP, INC.

By: /s/ JANE R. DUNLAP
Name: Jane R. Dunlap
Title: Vice President & Treasurer

Notice Address

Address: Delphi Capital Mgmt.,Inc.
650 Madison Avenue
New York, NY 10022
Attention: Robert Rosenkranz
Telephone: 212-838-7000
Facsimile: 212-838-7598

<PAGE> 112

BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
capacity as Administrative Agent

By: /s/ GARY R. PEET
Name: Gary R. Peet
Title: Senior Vice President

BANK OF AMERICA ILLINOIS

By: /s/ ELIZABETH M. BISHOP
Name: Elizabeth M. Bishop
Title: Vice President

Lending Office (Base Rate
Loans)

Address: 231 South LaSalle Street
Chicago, Illinois 60697
Attention: Deborah Lacy
Telephone: (312) 828-1784
Facsimile: (312) 974-9626

Lending Office (Offshore Rate
Loans)

Address: 231 South LaSalle Street
Chicago, Illinois 60697
Attention: Deborah Lacy
Telephone: (312) 828-1784
Facsimile: (312) 974-9626

Notice Address

Address: 231 South LaSalle St.#9L
Chicago, Illinois 60697
Attention: Nita Savage
Telephone: (312) 828-4854
Facsimile: (312) 987-0889

<PAGE> 113
BANK OF MONTREAL

By: /s/ K. DANIEL STREIFF
Name: K. Daniel Streiff
Title: Director

Lending Office (Base Rate Loans)

Address: 115 South LaSalle Street
Chicago, IL 60603
Attention: Josie M. Nichols
Telephone: (312) 750-3748
Facsimile: (312) 750-3798

Lending Office (Offshore Rate Loans)

Address: 115 South LaSalle Street
Chicago, IL 60603
Attention: Josie M. Nichols
Telephone: (312) 750-3775
Facsimile: (312) 750-3798

Notice Address:
115 South LaSalle Street
Chicago, IL 60603
Attention: Josie M. Nichols
Telephone: (312) 750-3748
Facsimile: (312) 750-3798

<PAGE> 114

THE BANK OF NEW YORK

By: /s/ ROBERT P. DONOHUE
Name: Robert P. Donohue
Title: Assistant Treasurer

Lending Office (Base Rate Loans)

Address: One Wall Street
New York, NY 10286
Attention: Maria I. Hernandez
Telephone: (212) 635-7912
Facsimile: (212) 809-9520

Lending Office (Offshore Rate Loans)

Address: One Wall Street
New York, NY 10286
Attention: Maria I. Hernandez
Telephone: (212) 635-7912
Facsimile: (212) 809-9520

Notice Address:

Insurance Division
One Wall Street, 17th Floor
New York, NY 10286

<PAGE> 115

CORESTATES BANK, N.A.

By: /s/ H. DAVID TAMIMIE
Name: David Tamimie
Title: Vice President

Lending Office (Base Rate Loans)

Address: 1339 Chestnut Street
Philadelphia, PA 19107
Attention: Louise Claire
Telephone: (215) 786-7454
Facsimile: (215) 973-2045

Lending Office (Offshore Rate Loans)

Address: 1339 Chestnut Street
Philadelphia, PA 19107
Attention: Louise Claire
Telephone: (215) 786-7454
Facsimile: (215) 973-2045

Notice Address: 1339 Chestnut Street
Philadelphia, PA 19107
Attention: Louise Claire
Telephone: (215) 786-7454
Facsimile: (215) 973-2045

<PAGE> 116

DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES

By: /s/ JOHN S. MC GILL
Name: John S. McGill
Title: Vice President

By: /s/ ECKHARD OSENBERG
Name: Eckhard Osenberg
Title: Assistant Vice President

Lending Office (Base Rate Loans)

Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan A. Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108

Lending Office (Offshore Rate Loans)

Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan A. Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108

Notice Address:

Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan A. Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108

<PAGE> 117

DRESDNER BANK AG, NEW YORK BRANCH AND/OR
GRAND CAYMAN BRANCH

By: /s/ THOMAS J. NADRAMIA
Name: Thomas J. Nasramia
Title: Vice President

By: /s/ JOHN W. SWEENEY
Name: John W. Sweeney
Title: Assitant Vice President

Lending Office (Base Rate Loans)

Address: 75 Wall Street
New York, NY 10005-2889
Attention: Mona Karout
Telephone: (212) 429-2287
Facsimile: (212) 429-2130

Lending Office (Offshore Rate Loans)

Address: 75 Wall Street
New York, NY 10005-2889
Attention: Mona Karout
Telephone: (212) 429-2287
Facsimile: (212) 429-2130

Notice Address:
75 Wall Street
New York, NY 10005-2889
Attention: Michael T. Fabiano
Telephone: (212) 429-2224
Facsimile: (212) 429-2524

<PAGE> 118

MELLON BANK, N.A.

By: /s/ SALLY J. SCHURKO
Name: Sally J. Schurko
Title: Vice President

Lending Office (Base Rate Loans)

Address: 3 Mellon Bank Center, 23rd FL
Loan Administration
Pittsburgh, PA 15259
Attention: Kerri Michener
Telephone: (412) 234-1869
Facsimile: (412) 234-5049

Lending Office (Offshore Rate Loans)

Address: 3 Mellon Bank Center, 23rd FL
Loan Administration
Pittsburgh, PA 15259
Attention: Kerri Michener
Telephone: (412) 234-1869
Facsimile: (412) 234-5049

Notice Address:

Address: 3 Mellon Bank Center, 23rd FL
Loan Administration
Pittsburgh, PA 15259
Attention: Kerri Michener
Telephone: (412) 234-1869
Facsimile: (412) 234-5049

<PAGE> 119

NATIONSBANK, N.A. (SOUTH)
in its individual corporate
capacity

By: /s/ Gregory A. Seib
Name: Gregory A. Seib
Title: Officer

Lending Office (Base Rate Loans)

Address: NationsBank N.A. (South)
600 Peachtree St NE 21st Fl
Atlanta, GA 30308
Attention: Gregory A. Seib
Telephone: 404-607-4092
Facsimile: 404-607-6318

Lending Office (Offshore Rate Loans)

Address: NationsBank N.A. (South)
600 Peachtree St NE 21st Fl
Atlanta, GA 30308
Attention: Gregory A. Seib
Telephone: 404-607-4092
Facsimile: 404-607-6318

Notice Address:

Attention: Gregory A. Seib
Telephone: 404-607-4092
Facsimile: 404-607-6318

<PAGE> 120

FLEET NATIONAL BANK

By: /s/ MILDRED W. CHAVARRIA
Name: Mildred W. Chavarria
Title: Vice President

Lending Office (Base Rate Loans)

Address: 777 Main Street
Hartford, CT 06118
Attention: Icy Mounds / Emilie Jones
Telephone: (203)986-4639/(203)956-4098
Facsimile: (203) 986-1094

Lending Office (Offshore Rate Loans)

Address: 777 Main Street
Hartford, CT 06118
Attention: Icy Mounds / Emilie Jones
Telephone: (203)986-4639/(203)956-4098
Facsimile: (203) 986-1094

Notice Address: 777 Main Street
Hartford, CT 06118

Attention: R.J. Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264

<PAGE> 1

RELIANCE STANDARD LIFE INSURANCE COMPANY OF TEXAS

CONSOLIDATED SURPLUS DEBENTURE

$58,000,000 December 1, 1996

FOR VALUE RECEIVED and subject to the terms, conditions,
restrictions, and limitations contained herein, Reliance Standard
Life Insurance Company of Texas, a Texas life insurance company
("RSL Texas"), promises to pay Delphi Financial Group, Inc., a
Delaware corporation ("Delphi"), the principal amount of
$58,000,000 upon the schedule provided for herein, together with
interest on the unpaid balance thereof at the rate provided for
herein.

Interest will accrue on the outstanding principal amount
of this Surplus Debenture at an interest rate equal to nine and
one-half percent (9-1/2%) per annum (the "Rate"), and shall be
computed for the actual number of days elapsed on the basis of a
365-day year. Interest on this Surplus Debenture will be payable
on March 1, June 1, September 1, and December 1 of each year (each
such date being referred to herein as a "Payment Date"), commencing
March 1, 1997.

The outstanding principal amount of this Surplus
Debenture will be payable in accordance with the following
schedule:

1997: $3,750,000 on each Payment Date

1998: $4,250,000 on each Payment Date

1999: $6,500,000 on each Payment Date

Both principal of and interest on this Surplus Debenture
will be due and payable at the offices of Delphi or at such other
address as may be specified in writing by the holder hereof.

1. On or before each Payment Date, the Surplus of RSL
Texas (as hereinafter defined) will be calculated as of the most
recent date practicable (each such date being hereinafter referred
to as a "Calculation Date").

2. On each Payment Date, RSL Texas will pay to Delphi
the lesser of (a) the amount of accrued but unpaid interest on the
unpaid principal balance of this Surplus Debenture or (b) the
amount by which the Surplus of RSL Texas exceeds $500,000 (the
"Surplus Floor") as of the immediately preceding Calculation Date.

<PAGE> 2

3. If, on any Payment Date, the Surplus of RSL Texas as
of the immediately preceding Calculation Date does not exceed the
Surplus Floor by an amount sufficient to pay all interest hereon
then due under paragraph 2(a), the interest which is due but not
paid shall be payable thereafter at such time or from time to time
as the Surplus of RSL Texas exceeds the Surplus Floor.

4. On each Payment Date, RSL Texas will pay to Delphi
the lesser of (a) the applicable principal installment amount
provided for in the schedule set forth above or (b) the amount by
which the Surplus of RSL Texas exceeds the Surplus Floor as of the
immediately preceding Calculation Date.

5. If, on any Payment Date, the Surplus of RSL Texas as
of the immediately preceding Calculation Date does not exceed the
Surplus Floor by an amount sufficient to pay the entire installment
of principal hereof then due under paragraph 4(a), the remaining
unpaid portion of such principal installment (together with
interest thereon, which shall accrue at the Rate) shall be payable
thereafter at such time or from time to time as the Surplus of RSL
Texas exceeds the Surplus Floor.

6. For purposes of this Surplus Debenture, the term
"Surplus of RSL Texas" shall mean, as of any Calculation Date, the
remainder obtained after subtracting the carrying value of the
insurance subsidiaries of RSL Texas (after reducing such carrying
value by the amount of any dividends or distributions paid or made
by such subsidiaries to RSL Texas after such Calculation Date but
prior to the immediately succeeding Payment Date), from the sum of
the following:

(a) "aggregate write-ins for other than special surplus
funds" of RSL Texas;

(b) "surplus notes" of RSL Texas;

(d) "aggregate write-ins for special surplus funds" of RSL
Texas;

(e) "unassigned funds (surplus)" of RSL Texas;

(f) any amounts required to be carried as liabilities with
respect to outstanding surplus debentures issued by RSL
Texas; and

(g) any similar item or entry of RSL Texas having the same
effect as any of items (a) through (f) of this paragraph
6.

The items listed in clauses (a) through (g) of this paragraph 6
will be calculated in accordance with accounting practices required
or permitted from time to time by the Texas Department of
Insurance.

<PAGE> 3

7. The obligation of RSL Texas to pay this Surplus
Debenture will not otherwise be or constitute a liability of RSL
Texas or a claim against any of its assets except in the event of
liquidation of RSL Texas, and in no event will this Surplus
Debenture be considered or treated as a current or fixed liability
or obligation of RSL Texas except to the extent required by the
Texas insurance laws or regulations.

8. In the event of the liquidation of RSL Texas, this
Surplus Debenture will become immediately due and payable and will
be superior to and in preference of the rights and claims of the
shareholders of RSL Texas; provided, however, that to the extent
required by applicable law, all obligations, rights and claims
hereunder are expressly subordinated to the claims of (a)
policyholders, insureds and beneficiaries under insurance contracts
or policies issued by RSL Texas, and (b) a supervisor, conservator
or receiver of RSL Texas appointed by the Commissioner of Insurance
of the State of Texas.

9. All payments made hereunder will be credited first
to accrued but unpaid interest hereon, if any, and the balance of
such payment will be credited to the principal amount hereof.

10. Nothing contained herein shall be construed as
prohibiting RSL Texas from merging or consolidating with any other
corporation or from selling or reinsuring any part of its business,
or from acquiring all of any part of the assets of any other
corporation. In the event that RSL Texas consolidates or merges
into another corporation or transfers all or substantially all of
its assets to any other corporation, the corporation into which RSL
Texas is consolidated or merged or to which the assets of RSL Texas
are transferred will assume the liability of RSL Texas hereunder.

11. By acceptance and as a part of the consideration for
the issuance hereof, Delphi expressly acknowledges that it has been
informed and has knowledge that this Surplus Debenture has not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and that RSL Texas has issued this
Surplus Debenture pursuant to exemptions from registration
available under such acts or laws. Delphi further expressly
acknowledges and agrees that it is acquiring this Surplus Debenture
for investment purposes and not with a view toward a public
distribution hereof and that this Surplus Debenture may not be sold
or otherwise transferred in the absence of an effective
registration statement with respect hereto or an exemption from
registration under the Securities Act of 1933, as amended, or any
other applicable securities laws.

<PAGE> 4

12. If this Surplus Debenture is collected through
judicial proceedings, RSL Texas agrees, subject to the conditions
and restrictions contained herein, to pay all reasonable legal fees
and disbursements incurred by the holder hereof (whether Delphi,
any pledgee of Delphi or any successor of either) in connection
with such collection.

13. This Surplus Debenture may be prepaid at any time or
from time to time without premium or penalty to the extent that the
Surplus of RSL Texas exceeds the Surplus Floor on the Calculation
Date immediately preceding the date of any proposed prepayment.
Prepayments of this Surplus Debenture will be applied to the
principal installments hereof in the inverse order of their
maturity.

14. Pursuant to 28 Tex. Admin. Code Sec. 7.7(e), RSL Texas
will not make any repayment of principal or payment of interest
hereunder which does not comply with the payment schedule provided
for in this Surplus Debenture unless it has given written notice
thereof to the Texas Commissioner of Insurance at least 15 days
before the date scheduled for such repayment or payment.

15. No recourse shall be had for the payment of the
principal of, or the interest on, this Surplus Debenture, or any
claims based hereon or otherwise in respect hereof, against any
incorporator, stockholder, officer, employee or director, past,
present or future, of RSL Texas, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.

16. This Surplus Debenture will be governed by and
construed in accordance with the laws of the State of Texas
(without regard to principles of conflicts of laws embodied
therein).

17. This Surplus Debenture will be binding upon RSL
Texas and its successors and assigns.

18. This Surplus Debenture is executed and delivered in
replacement of, and shall supercede, Surplus Debentures No. 001 and
002, issued by RSL Texas (then known as Coronado Life Insurance
Company) to Delphi (then known as RSL Holding Company, Inc.) on
November 6, 1987.

RELIANCE STANDARD LIFE INSURANCE
COMPANY OF TEXAS

By: /s/ CHARLES P. O'BRIEN
-------------------------
Charles P. O'Brien
President and
Chief Executive Officer

<PAGE> 1
EXHIBIT 10.22

SAFETY NATIONAL CASUALTY CORPORATION
EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") has been entered into as of this
22nd day of December, 1995, by and between Safety National Casualty Corporation,
a Missouri stock insurance corporation (the "Company"), and B.K. Werner, an
individual and resident of the State of Missouri (the "Executive").

RECITALS

The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its sole shareholder to reinforce and
encourage the continued attention and dedication of the Executive to the Company
as a member of the Company's management and to assure that the Company will have
the continued dedication of the Executive. The Board desires to provide for the
continued employment of the Executive on the terms hereof, and the Executive is
willing to commit himself to continue to serve the Company. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.

IT IS AGREED AS FOLLOWS:

SECTION 1: DEFINITIONS AND CONSTRUCTION

1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following words and phrases, whether or not capitalized, shall
have the meanings specified below, unless the context plainly requires a
different meaning.

1.1(a) "BOARD" means the Board of Directors of the Company.

1.1(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.

1.1(c) "CONTINUING MANAGEMENT" includes Duane A. Hercules,
Harold F. Ilg, Terrence T. Schoeninger, Gerald R. Scott, B.K. Werner and Mark A.
Wilhelm, or such of them as are then serving as executives or officers of the
Company, but, in the case of Sections 3.3 and 3.5, not the Executive.

1.1(d) "EMPLOYMENT PERIOD" means the period beginning on the
Effective Date and ending on December 31, 1998 subject to the options to renew
such Employment Period as described in Section 2.1 hereof.

1.1(e) "EFFECTIVE DATE" shall mean January 1, 1996.

1.1(f) "MERGER AGREEMENT" means that certain Agreement and
Plan of Merger among SIG Holdings, Inc., Delphi Financial Group, Inc.
("Delphi"), and SIG Holdings Acquisition Corporation dated as of October 5,
1995.
<PAGE> 2
1.1(g) "TERM" means the period that begins on the Effective
Date and ends on the earlier of: (i) the close of business on December 31, 1998
(the "Initial Term") or the close of business on the last day of the First
Renewal Term (as hereafter defined), if applicable, or the close of business on
the last day of any Subsequent Renewal Term (as hereinafter defined), if
applicable, or (ii) the DATE OF TERMINATION as defined in Section 3.7.

1.2 GENDER AND NUMBER. When appropriate, pronouns in this Agreement used
in the masculine gender include the feminine gender, words in the singular
include the plural, and words in the plural include the singular.

1.3 HEADINGS. All headings in this Agreement are included solely for ease
of reference and do not bear on the interpretation of the text. Accordingly, as
used in this Agreement, the term "Section" means the text that accompanies the
specified Section of this Agreement.

SECTION 2: TERMS AND CONDITIONS OF EMPLOYMENT.

2.1 PERIOD OF EMPLOYMENT. Throughout the Initial Term of this Agreement,
the Executive shall remain in the employ of the Company in accordance with the
terms and provisions of this Agreement. The Executive may, at his election by
written notice delivered to the Company prior to the end of the Initial Term
extend the period of employment hereunder until December 31, 1999 (the "First
Renewal Term"). After the expiration of the First Renewal Term, the Company and
the Executive may, with the prior written consent of Delphi, extend the period
of employment hereunder for additional one year periods (a "Subsequent Renewal
Term").

2.2 POSITIONS AND DUTIES.

2.2(a) Throughout the Term of this Agreement, the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be commensurate in all material
respects with those assigned to, or held and exercised by, the Executive on the
Effective Date of this Agreement.

2.2(b) Throughout the Term of this Agreement (but excluding
any periods of vacation and sick leave to which he is entitled), the Executive
shall devote full attention and time during normal business hours to the
business and affairs of the Company and shall use his best efforts to perform
faithfully and efficiently such responsibilities as are assigned to him under or
in accordance with this Agreement; provided that, it shall not be a violation of
this paragraph for the Executive to (i) serve on corporate, civic and charitable
boards or committees, (ii) deliver lectures or fulfill speaking engagements, or
(iii) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement.

2.3 SITUS OF EMPLOYMENT. Throughout the Term of this Agreement, the
Executive's services shall be performed at the headquarters and operations
center of the Company which shall be located in the office in St. Louis,
Missouri where the Executive was employed on the Effective Date.
<PAGE> 3
2.4 COMPENSATION. The Executive's annual compensation and other benefits
described in this Section 2.4, shall be provided by the Company.

2.4(a) ANNUAL BASE SALARY. For the first calendar year within
the Term of this Agreement, the Executive shall receive an annual base salary of
one hundred and thirty thousand dollars ($130,000.00), which shall be paid in
equal or substantially equal biweekly installments. During the Term of this
Agreement, the annual base salary payable to the Executive shall be reviewed
thereafter by the Board at least annually and may be adjusted upward as a result
of such review; provided, however that such annual base salary shall not be
reduced after any increase thereof. "Annual Base Salary" as used herein shall
mean the annual base salary for a then current year.

2.4(b) CHRISTMAS BONUS. In addition to the Annual Base Salary,
the Executive shall be awarded an Annual Christmas Bonus in an amount equal to
1/24th of the Annual Base Salary.

2.4(c) SPLIT DOLLAR LIFE INSURANCE PREMIUMS. Throughout the
Term of this Agreement (and thereafter, subject to Sections 4.1(e), 4.2, and 4.3
hereof), the Company shall pay in December of each of 1996, 1997 and 1998
premiums and advance premiums in the aggregate respective annual amounts of
$547,282, $482,419 and $477,724 to CNA Insurance Companies on a split-dollar
life insurance policy (Policy No. 02000552) issued as a last survivor joint
policy on the lives of the Executive and his spouse by Valley Forge Life
Insurance Company (the "Split-Dollar Policy").

2.4(d) INCENTIVE, SAVINGS AND RETIREMENT PLANS. Throughout the
Term of this Agreement, the Executive shall be entitled to participate in all
incentive, savings and retirement plans generally available to other peer
executives of the Company.

2.4(e) WELFARE BENEFIT PLANS. Throughout the Term of this
Agreement (and thereafter, subject to Section 4.1(c) hereof), the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company or by Delphi with
respect to the employees of the Company (including, with limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs) to the extent
generally available to other peer executives of the Company.

2.4(f) EXPENSES. Throughout the Term of this Agreement, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the policies, practices
and procedures generally applicable to other peer executives of the Company.

2.4(g) FRINGE BENEFITS. Throughout the Term of this Agreement,
the Executive shall be entitled to such fringe benefits as generally are
provided as of the Effective Date to other peer executives of the Company,
including, without limitation, as of the date hereof reimbursement for the dues
incurred by the Executive in connection with professional associations,
societies and organizations which the Executive and the Company deem appropriate
for the performance of his duties hereunder.
<PAGE> 4
2.4(h) OFFICE AND SUPPORT STAFF. Throughout the Term of this
Agreement, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to secretarial and other assistance
at least equal to those generally provided to other peer executives of the
Company.

2.4(i) VACATION. Throughout the Term of this Agreement, the
Executive shall be entitled to paid vacation at least equal to the plans,
policies, programs and practices generally provided with respect to other peer
executives of the Company.

SECTION 3: TERMINATION OF EMPLOYMENT.

3.1 DEATH. The Executive's employment shall terminate automatically upon
the Executive's death during the Employment Period.

3.2 DISABILITY. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 7.1 of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the thirtieth (30th) day after receipt of
such notice by the Executive (the "Disability Effective Date"), provided that,
within the thirty (30) days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall have the meaning set forth in the Company's
then-current long-term disability policy or, if no such policy is then in
effect, "Disability" shall mean that the Executive has been unable to perform
the services required or the Executive hereunder on a full-time basis for a
period of one hundred eighty (180) consecutive business days by reason of a
physical and/or mental condition which has been certified by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreements as to acceptability not to be
withheld unreasonably).

3.3 TERMINATION FOR CAUSE. Upon the unanimous recommendation of the
Continuing Management, the Board may terminate the Executive's employment during
the Employment Period for "Cause," which shall mean termination based upon: (i)
the Executive's willful and continued failure to perform substantially his
duties with the Company (other than as a result of incapacity due to physical or
mental condition), after a demand for substantial performance is delivered to
him by the Continuing Management, which specifically identifies the manner in
which the Executive has not substantially performed his duties, (ii) the
Executive's willful commission of misconduct which is materially injurious to
the Company, monetarily or otherwise, (iii) the Executive's material breach of
any provision of this Agreement, (iv) the Department of Insurance of the State
of Missouri or the regulatory authority in any state in which the Company may
then be domiciled, issues a written recommendation, direction or order which
prohibits the Executive from continuing to serve as an executive officer of the
Company; or (v) the Executive's conviction of or plea of nolo contendere to a
felony, provided that any right of appeal has been exercised or has lapsed. For
purposes of this paragraph, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done, without good
faith and without reasonable belief that the act or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until (i) he receives a
Notice of Termination
<PAGE> 5
(as defined in Section 3.6) from the Continuing Management, (ii) he is given the
opportunity, with counsel, to be heard before the Continuing Management, and
(iii) the Continuing Management finds, in its good faith opinion, that the
Executive was guilty of the conduct set forth in the Notice of Termination.

3.4 GOOD REASON. The Executive may terminate his employment with the
Company for "Good Reason," which shall mean termination based upon:

(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 2.2 or any other action by the Company which results in
a material diminution in such position, authority, duties or responsibilities,
excluding for this purpose any action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;

(ii)(a) the failure by the Company or any affiliate of the
Company to continue in effect any benefit or compensation plan, stock ownership
plan, life insurance plan, health and accident plan or disability plan to which
the Executive is entitled as specified in Section 2.4 such that any or all of
such failures shall materially and adversely affect the Executive's benefits or
compensation hereunder taken as a whole unless any such discontinuation of any
such benefit or plan is applicable to all Company executives provided, however,
that the non-payment of premiums and advance premiums on the Split-Dollar Policy
shall constitute "Good Reason" thereby permitting the Executive to terminate his
employment hereunder", (b) the taking of any action by the Company which would
adversely affect the Executive's participation in, or materially reduce the
Executive's benefits under, any plans described in Section 2.4 such that the
taking of any such action or actions shall materially and adversely affect the
Executive's benefits or compensation hereunder taken as a whole unless any such
reduction in benefits is applicable to all plan participants; provided, however
that the non-payment of premiums and advance premiums on the Split-Dollar Policy
shall constitute "Good Reason" thereby permitting the Executive to terminate his
employment hereunder, or deprive the Executive of any material fringe benefit
enjoyed by the Executive as described in Section 2.4(f), or (c) the failure by
the Company to provide the Executive with the number of paid vacation days to
which the Executive is entitled as described in Section 2.4(h) such that any or
all of such failures shall materially and adversely affect the Executive's
benefits or compensation hereunder taken as a whole.

(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 2.3;

(iv) a material breach by the Company of any provision of this
Agreement; or

(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement.

3.5 ANNUAL TERMINATION OPTION. With the unanimous consent of the
Continuing Management, the Board may terminate the Executive's employment
hereunder upon its determination that the Executive has failed to satisfactorily
perform his duties hereunder as an executive of the Company (the "Annual
Termination Option") by giving the Executive Notice of Termination (as
<PAGE> 6
defined in Section 3.6), which notice will be signed on behalf of the Board and
by each member of the Continuing Management and shall be given not more than
fifteen days prior to the first day of January of the then current year of the
Term and not less than ten days prior to such first day of January, which
termination shall become effective on December 31 of the then current year.

3.6 NOTICE OF TERMINATION. Any termination by the Company for Cause or
Disability, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party, given in accordance with Section 7.1. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which, except as otherwise provided for herein, (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth a reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than fifteen (15) days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.

3.7 DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the Date of Termination shall be the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by reason of Death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be, (iii) if the Executive's
employment is terminated pursuant to the Annual Termination Option, the Date of
Termination shall be December 31 of the then current year, or (iv) if the
Executive's employment is terminated by the Company other than for Cause, Death,
Disability or pursuant to the Annual Termination Option, the Date of Termination
shall be the date of receipt of the Notice of Termination.

SECTION 4: CERTAIN BENEFITS UPON TERMINATION.

4.1 TERMINATION FOR GOOD REASON, OR OTHER THAN FOR CAUSE OR OTHER THAN
PURSUANT TO THE ANNUAL TERMINATION OPTION. If, during the Employment Period: (i)
the Company shall terminate the Executive's employment other than for Cause or
other than pursuant to the Annual Termination Option, or (ii) the Executive
shall terminate employment with the Company for Good Reason, the Executive shall
be entitled to the benefits provided below:

4.1(a) "ACCRUED OBLIGATIONS": Within five (5) business days
after the Date of Termination, the Company shall pay to the Executive the sum of
(i) the Executive's Annual Base Salary through the Date of Termination to the
extent not previously paid, (ii) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon), and (iii) an
accrued vacation pay; in each case to the extent not previously paid.
<PAGE> 7
4.1(b) "LUMP SUM PAYMENT": Within five (5) business days after
the Date of Termination, the Company shall make a lump-sum cash payment to the
Executive in an amount equal to the Executive's base salary that the Executive
would be entitled to receive from the Company for the longer of: (i) the
remainder of the Employment Period (including the First Renewal Term, whether or
not the Executive has elected to renew at the Date of Termination) or (ii) 18
months, at the rate of the then-current Annual Base Salary of the Executive.

4.1(c) "WELFARE BENEFIT CONTINUATION": For at least the longer
of: (i) the remainder of the Employment Period (including any First Renewal
Term, whether or not the Executive has elected to renew at the Date of
Termination) or (ii) 18 months after the Date of Termination, or for such longer
period as any plan, program, practice or policy may provide or as otherwise set
forth herein, the benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section 2.4(d) shall
continue as if the Executive's employment had not been terminated, in accordance
with the plans, practices, programs or policies of the Company as those provided
generally to other peer executives and their families; provided, however, that
if the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the end of the
Employment Period (including any First Renewal Term, whether or not the
Executive has elected to renew at the Date of Termination) and to have retired
on the last day of such period.

4.1(d) "OTHER BENEFITS": To the extent not previously paid or
provided, the Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be paid or provided
for which the Executive and/or the Executive's family is currently participating
and is eligible to receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of the Company as those
provided generally to other peer executive and their families.

4.1(e) The Company shall continue to pay all remaining
premiums and advance premiums, when due, with respect to the Split-Dollar Policy
as set forth in 2.4(c).

4.2 DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 4.1(a) (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within five (5) days of the Date of
Termination), (ii) payment, when due, of all remaining premiums and advance
premiums with respect to the Split-Dollar Policy as set forth in Section 2.4(c),
and (iii) the timely payment or provision of Other Benefits (as defined in
Section 4.1(d)), including death benefits pursuant to the terms of any plan,
policy, or arrangement of the Company.
<PAGE> 8
4.3 DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (as defined in Section 4.1(a)) (which shall be
paid to the Executive in a lump sum in cash within five (5) days of the Date of
Termination), (ii) payment when due of all remaining premiums and advance
premiums with respect to the Split-Dollar Policy as set forth in Section 2.4(c),
and (iii) the timely payment or provision of Other Benefits (as defined in
Section 4.1(d)) including disability benefits pursuant to the terms of any plan,
policy or arrangement of the Company.

4.4 TERMINATION FOR CAUSE PURSUANT TO THE ANNUAL TERMINATION OPTION OR
OTHER THAN GOOD REASON. If the Executive's employment shall be terminated for
Cause or pursuant to the Annual Termination Option during the Employment Period,
this Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive Accrued Obligations (as
defined in Section 4.1(a)). If the Executive terminates his employment with the
Company during the Employment Period (excluding a termination for Good Reason),
this Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations (as defined in Section 4.1(a)) and the timely
payment or provision of Other Benefits (as defined in Section 4.1(d)). In such
cash, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within thirty (30) days of the Date of Termination. If the Executive's
employment shall terminate for the reasons stated in this Section, the
provisions of Section 5 shall continue to apply.

4.5 NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section 4.1(c)
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or an affiliate of the Company and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement with the Company. Amounts which
are vested benefits of which the Executive is otherwise entitled to receive
under any plan, program, policy or practice of, or any contract or agreement
with, the Company or an affiliate of the Company at or subsequent to the Date of
Termination, shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.

4.6 FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.

4.7 RESOLUTION OF DISPUTES. If there shall be any dispute between the
Company and the Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or pursuant to
the Annual Termination Option, or (ii) in the event of any termination of
employment by the Executive, whether Good Reason existed, then, unless and until
there is a final, nonappealable judgement by a court of competent jurisdiction
declaring that such termination was for Cause or pursuant to the Annual
Termination Option or that the determination by the Executive of the existence
of Good Reason was not made in good faith, the Company shall pay into an escrow
account with a financial institution selected by the Executive (which escrowed
funds shall not be withdrawn until such a final, nonappealable judgment is
rendered with respect thereto) all amounts that the Company would be required to
pay or provide pursuant to Section 4.1 as though
<PAGE> 9
such termination were by the Company other than for Cause or other than pursuant
to the Annual Termination Option or by the Executive with Good Reason, and the
Company shall provide all benefits (or cause the provision thereof), to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company or Delphi would be required to pay or provide pursuant to
Section 4.1 as though such termination were by the Company other than for Cause
and other than pursuant to the Annual Termination Option or by the Executive
with Good Reason.

SECTION 5: NON-COMPETITION; CONFIDENTIAL INFORMATION; INJUNCTIVE RELIEF.

5.1 NON-COMPETE AGREEMENT. It is agreed that either: (i) during the Term
of this Agreement and for a period ending two years thereafter; or (ii) if the
Executive's employment is terminated during the Term of this Agreement with
Cause or for other than Good Reason by the Executive, then until the date two
years after the Date of Termination, the Executive shall not, without the prior
written approval of the Board, directly or indirectly, compete in any way with
the business of the Company. For the purpose of this Section, the term "compete
in any way with the business of the Company" shall mean the entering into or
attempting to enter into any business competitive with the excess workers'
compensation, excess unemployment compensation or excess workers' compensation
surety business of the Company in any geographic area where the Company conducts
business during the Employment Period. The words "directly or indirectly" as
they modify the word "compete" shall include acting as a director, officer,
agent, representative, employee or consultant of any enterprise which so
competes and includes any direct or indirect participation in such competing
enterprise as a material creditor, owner, lender, partner, limited partner,
joint venturer or stockholder (except as a stockholder holding less than one
percent interest in a corporation whose shares are traded on a national
securities exchange or quoted on the National Association of Securities Dealers
Automated Quotation System).

5.2 CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company which shall have been obtained by the
Executive during the Executive's employment by the Company and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement) (the
"Confidential Information"). After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company, or as may otherwise be required by law or legal process,
communicate or divulge any Confidential Information to anyone other than the
Company and those designated by it. In addition, upon termination of the
Executive's employment, the Executive shall return to the Company all
Confidential Information in the Executive's possession or control and shall not
retain any such materials or make and retain any copies thereof.

5.3 INJUNCTIVE RELIEF. The Executive acknowledges that it would be
difficult to measure the damage to the Company from any breach by the Executive
of the terms set forth in Section 5.1 or Section 5.2, that injury to the Company
from any such breach would be incalculable and irremediable, and that monetary
damages would therefore be an inadequate remedy for any such breach.
Accordingly, the Executive agrees that if he breaches Section 5.1 or Section
5.2, the Company shall be entitled, in addition to the other remedies it may
have, to a preliminary and permanent injunction to restrain any such breach by
the Executive. Upon the determination of a final, nonappealable judgement by a
court of competent jurisdiction declaring that the Executive has breached
Section 5.1
<PAGE> 10
or Section 5.2, he shall indemnify the Company and hold the Company harmless
against any loss, cost, liability or expense incurred by the Company by reason
of the breach or nonfulfillment of any agreement, representation or warranty
contained in Section 5.1 or Section 5.2.

SECTION 6: MERGERS AND CONSOLIDATIONS; ASSIGNABILITY.

If the Company is merged or consolidated into or with any other entity or
entities, or in the event that substantially all of the assets of the Company or
any such entity are sold or otherwise transferred to another entity, the
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the continuing entity or the entity resulting from such merger,
conversion or consolidation or the entity to which such assets are sold or
transferred. In addition, this Agreement shall be binding upon the company and
its subsidiaries, if any, and any successor entity including any receiver,
rehabilitation, liquidator or regulator. Except as provided in the immediately
preceding sentence, this Agreement shall not be assignable by the Company or any
such entity. This Agreement shall not be assignable by the Executive, but in the
event of his death it shall be binding upon and inure to the benefit of the
Executive's legal representatives, heirs and executors to the extent required to
effectuate its terms. This Agreement shall be binding upon and shall inure to
the benefit of the Company and any successor or assignee of the Company. For the
purposes of this Agreement, the term "successor" shall include any person, firm,
corporation or other business entity which at any time, whether by merger,
purchase or otherwise, shall acquire all or substantially all of the assets or
business of the Company.

SECTION 7: MISCELLANEOUS.

7.1 NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses as set forth below or to such other address as one party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.

Notice to Executive:

Mr. B.K. Werner
14 Clermont Lane
St. Louis, MO 63124

Notice to Company:

Safety National Casualty Corporation
2043 Woodland Parkway
St. Louis, MO 63146
Attn: President

7.2 VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
<PAGE> 11
7.3 WITHHOLDING. The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

7.4 WAIVER. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of the
Agreement or the failure to assert any right the Executive or the Company may
have hereunder shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.

7.5 INDEMNIFICATION OF EXECUTIVE. If the Company breaches any section of
this Agreement, the Executive shall be entitled to pursue his remedies at law,
and the Company agrees to indemnify the Executive and hold the Executive
harmless against any loss, cost, liability or expense incurred by the Executive
by reason of the breach or non-fulfillment of any agreement, representation or
warranty contained in this Agreement.

7.6 APPLICABLE LAW; ENTIRE AGREEMENT. This Agreement shall be governed by
and construed in accordance with the laws of the State of Missouri, without
reference to its conflict of law principles. This Agreement contains the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any and all other agreements regarding the same whether oral or in
writing.

IN WITNESS WHEREOF, the Executive and the Company have caused this
Agreement to be executed as of the day and year first above written.

SAFETY NATIONAL CASUALTY CORPORATION

By: /s/ TERRENCE T. SCHOENINGER
-----------------------------------
Name: Terrence T. Schoeninger
Title: President

By: /s/ B.K. WERNER
-----------------------------------
Executive: B.K. Werner

<PAGE> 1
EXHIBIT 11.1

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Computation for consolidated statements of income:
Income from continuing operations............................. $ 53,854 $ 32,742 $ 25,944
Discontinued operations, net of income tax benefit
Loss from operations....................................... (765) (2,278) (126)
Loss on disposal........................................... (5,836) - -
---------- ---------- ----------
Net income.................................................... $ 47,253 $ 30,464 $ 25,818
========== ========== ==========

Weighted average number of common shares
outstanding during the periods............................. 17,276 14,092 13,864
Add common equivalent shares (determined using
the "treasury stock" method) representing shares
issuable upon exercise of stock options and deferred shares 1,417 440 631
---------- ---------- ----------
Weighted average number of common shares used
in computation of earnings per share....................... 18,693 14,532 14,495
========== ========== ==========

Results per share of common stock:
Income from continuing operations.......................... $ 2.88 $ 2.25 $ 1.79
Discontinued operations, net of income tax benefit:
Loss from operations.................................... (0.04) (0.15) (0.01)
Loss on disposal........................................ (0.31) - -
---------- ---------- ----------
Net income................................................. $ 2.53 $ 2.10 $ 1.78
========== ========== ==========

Assuming full dilution:
Weighted average common shares outstanding.................... 18,693 14,532 14,495
Incremental common shares applicable to stock
options based on the more dilutive of
the common stock ending or average (during
the period) market value per share......................... 9 4 6
---------- ---------- ----------
Weighted average common shares, assuming full dilution........ 18,702 14,536 14,501
========== ========== ==========

Results per share of common stock, assuming full dilution:
Income from continuing operations.......................... $ 2.88 $ 2.25 $ 1.79
Discontinued operations, net of income tax benefit:
Loss from operations.................................... (0.04) (0.15) (0.01)
Loss on disposal........................................ (0.31) - -
---------- ---------- ----------
Net income................................................. $ 2.53 $ 2.10 $ 1.78
========== ========== ==========
</TABLE>

<PAGE> 1
EXHIBIT 21.1

DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF THE REGISTRANT

Reliance Standard Life Insurance Company of Texas (Incorporated in Texas), a
subsidiary of Delphi Financial Group, Inc.

Reliance Standard Life Insurance Company (Incorporated in Illinois), a
subsidiary of Reliance Standard Life Insurance Company of Texas.

First Reliance Standard Life Insurance Company (Incorporated in New York), a
subsidiary of Reliance Standard Life Insurance Company.

SIG Holdings, Inc. (Incorporated in Delaware), a subsidiary of Delphi Financial
Group, Inc.

Safety National Casualty Corporation (Incorporated in Missouri), a subsidiary of
SIG Holdings, Inc.

RSL Investors, Inc. (Incorporated in Delaware), a subsidiary of Delphi Financial
Group, Inc.

Chestnut Investors II, Inc. (Incorporated in Delaware), a subsidiary of Delphi
Financial Group, Inc.

Chestnut Investors III, Inc. (Incorporated in Delaware), a subsidiary of Delphi
Financial Group, Inc.

Chestnut Investors IV, Inc. (Incorporated in Delaware), a subsidiary of Delphi
Financial Group, Inc.

DFG II Corporation (Incorporated in Delaware), a subsidiary of Delphi Financial
Group, Inc.

DFG Corporation (Incorporated in Delaware), a subsidiary of DFG II Corporation.

APDEL LLC (Organized in Delaware), a subsidiary of DFG II Corporation and
Chestnut Investors IV, Inc.

Delphi Capital Management, Inc. (Incorporated in Delaware), a subsidiary of
Delphi Financial Group, Inc.

RSL Marketing, Inc. (Incorporated in Nevada), a subsidiary of Delphi Financial
Group, Inc.

Delphi Brokerage Company (Incorporated in Delaware), a subsidiary of Delphi
Financial Group, Inc.

Delphi Funding L.L.C. (Organized in Delaware), a subsidiary of Delphi Financial
Group, Inc.

<PAGE> 1

EXHIBIT 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-42634) pertaining to the Employee
Nonqualified Stock Option Plan, (Form S-8 No. 33-72614)
pertaining to the Employee Stock Purchase Plan, (Form S-8 No.
33-99164) pertaining to the SIG Holdings, Inc. 1992 Long-Term
Incentive Plan, and (Form S-3 No. 33-77028) and in the related
Prospectus pertaining to the Shelf Registration of securities of
Delphi Financial Group, Inc. of our report dated February 10,
1997 with resepct to the consolidated financial statements and
schedules of Delphi Financial Group, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.

/s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania
March 5, 1997

<PAGE> 1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a
director and/or officer of Delphi Financial Group, Inc., a Delaware
corporation (the "Company"), hereby constitutes and appoints Robert
Rosenkranz and Robert M. Smith, Jr. or either of them his or her
true and lawful attorney(s)-in-fact and agent(s), with full power
of substitution and resubstitution, for him or her and in his or
her place and stead in any and all capacities, to execute one or
more Annual Reports for the Company's fiscal year ended December
31, 1996, on Form 10-K pursuant to the Securities Exchange Act of
1934, as amended, or such other form as such attorney(s)-in-fact
may deem necessary or desirable, any amendments thereto, and all
additional amendments thereto in such form as either of them may
approve, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorney(s)-in-fact and agent(s)
full power and authority to do and perform each and every act and
thing requisite and necessary to be done to the end that such
Annual Report or Annual Reports shall comply with the Securities
Exchange Act of 1934, as amended, and the applicable rules and
regulations of the Securities and Exchange Commission adopted or
issued pursuant thereto, as fully and to all intents and purposes
as he or she might or could do in person, hereby ratifying and
confirming all that said attorney(s)-in-fact and agent(s) or his
substitute or resubstitute, may lawfully do or cause to be done by
virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 27th day of January, 1997.

/s/ EDWARD A. FOX
---------------------
Edward A. Fox
Director

<PAGE> 2

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 27th day of January, 1997.

/s/ CHARLES P. O'BRIEN
-------------------------
Charles P. O'Brien
Director

<PAGE> 3

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 27th day of January, 1997.

/s/ Lewis S. Ranieri
------------------------
Lewis S. Ranieri
Director

<PAGE> 4

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 27th day of January, 1997.

/s/ Thomas L. Rhodes
-----------------------
Thomas L. Rhodes
Director

<PAGE> 5

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 27th day of January, 1997.

/s/ THOMAS A. SULLIVAN
-------------------------
Thomas A. Sullivan
Director

<PAGE> 6

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 7th day of February, 1997.

/s/ B.K. WERNER
--------------------
B.K. Werner
Director

<PAGE> 7

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand this 24th day of January, 1997.

/s/ JANE R. DUNLAP
---------------------
Jane R. Dunlap
Vice President & Treasurer

<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,891,512
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,205,296
<CASH> 89,711
<RECOVER-REINSURE> 214,529
<DEFERRED-ACQUISITION> 94,594
<TOTAL-ASSETS> 2,857,906
<POLICY-LOSSES> 926,574
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 719,229
<NOTES-PAYABLE> 231,004
0
0
<COMMON> 181
<OTHER-SE> 366,784
<TOTAL-LIABILITY-AND-EQUITY> 2,857,906
335,233
<INVESTMENT-INCOME> 154,750
<INVESTMENT-GAINS> (2,651)
<OTHER-INCOME> 0
<BENEFITS> 280,620
<UNDERWRITING-AMORTIZATION> 31,221
<UNDERWRITING-OTHER> 94,141
<INCOME-PRETAX> 81,350
<INCOME-TAX> 27,496
<INCOME-CONTINUING> 53,854
<DISCONTINUED> (6,601)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,253
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.53
<RESERVE-OPEN> 369,871
<PROVISION-CURRENT> 28,290
<PROVISION-PRIOR> 7,358
<PAYMENTS-CURRENT> 249
<PAYMENTS-PRIOR> 24,444
<RESERVE-CLOSE> 380,826
<CUMULATIVE-DEFICIENCY> 9,448

</TABLE>