AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 2003

REGISTRATION NO. 333-108857

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

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

AMENDMENT NO. 1 TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

UNITED NATIONAL GROUP, LTD.
(Exact name of registrant as specified in its charter)

<Table>

CAYMAN ISLANDS 6399 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</Table>

---------------------
WALKER HOUSE, 87 MARY STREET

P.O. BOX 908GT

GEORGE TOWN, GRAND CAYMAN
CAYMAN ISLANDS
(345) 949-0100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
NATIONAL REGISTERED AGENTS, INC.
440 NINTH AVENUE, FIFTH FLOOR
NEW YORK, NEW YORK 10001
(800) 767-1553
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------

COPIES TO:

<Table>

ELLIOTT V. STEIN, ESQ. PHYLLIS G. KORFF, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SKADDEN, ARPS, SLATE,
51 WEST 52ND STREET MEAGHER & FLOM LLP
NEW YORK, NY 10019 FOUR TIMES SQUARE
(212) 403-1000 NEW YORK, NY 10036
FACSIMILE: (212) 403-2000 (212) 735-3000
FACSIMILE: (212) 735-2000
</Table>

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

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box: [ ]
---------------------

CALCULATION OF REGISTRATION FEE

<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------

Class A common shares, $0.0001 par value per share.......... $175,000,000 $14,158(3)
- ----------------------------------------------------------------------------------------------------------------
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</Table>

(1) Includes Class A common shares, if any, that may be sold pursuant to the
underwriters' overallotment option.

(2) Estimated solely for the purposes of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3) This amount has been previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED , 2003

PROSPECTUS

[UNITED NATIONAL GROUP LOGO]
UNITED NATIONAL GROUP, LTD.
CLASS A COMMON SHARES
----------------------

This offering is the initial public offering of Class A common shares of
United National Group. Prior to this offering there has been no public market
for our Class A common shares. All of the Class A common shares are being sold
by United National Group. We have two classes of common shares outstanding,
Class A common shares and Class B common shares. Each Class A common share is
entitled to one vote, while each Class B common share is entitled to ten votes.
In addition, each Class B common share is convertible into one Class A common
share.

We currently expect the initial public offering price of our Class A common
shares to be between $ and $ per share. We have applied to
have our Class A common shares approved for quotation on the Nasdaq National
Market under the symbol "UNGL."

INVESTING IN OUR CLASS A COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------

<Table>
<Caption>
PER SHARE TOTAL
--------- -----

Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to United National Group......... $ $
</Table>

The underwriters may also purchase up to an additional Class A
common shares from us at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
overallotments.

Neither the Securities and Exchange Commission nor any regulatory body has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

The Class A common shares will be ready for delivery on or about
, 2003.
----------------------

MERRILL LYNCH & CO.

BANC OF AMERICA SECURITIES LLC DOWLING & PARTNERS SECURITIES, LLC

FOX-PITT, KELTON KEEFE, BRUYETTE & WOODS, INC.

----------------------
The date of this prospectus is , 2003.

TABLE OF CONTENTS

<Table>
<Caption>
PAGE
----

Summary..................................................... 1
Risk Factors................................................ 8
Cautionary Note Regarding Forward-Looking Statements........ 29
Use of Proceeds............................................. 30
Dividend Policy............................................. 30
Capitalization.............................................. 31
Dilution.................................................... 32
Pro Forma Financial Information............................. 33
Selected Historical Financial Data.......................... 38
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 40
Industry Background and Trends.............................. 60
Business.................................................... 63
Regulation.................................................. 82
Management.................................................. 90
Principal Shareholders...................................... 102
Our Relationship with Fox Paine & Company................... 106
Certain Relationships and Related Transactions.............. 109
Description of Share Capital................................ 111
Shares Eligible for Future Sale............................. 119
Material Tax Considerations................................. 121
Underwriting................................................ 134
Legal Matters............................................... 137
Experts..................................................... 137
Where You Can Find More Information......................... 137
Enforceability of Civil Liabilities Under United States
Federal Securities Laws and Other Matters................. 137
Index to Financial Statements............................... F-1
Glossary of Selected Insurance Terms........................ G-1
</Table>

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

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information that is different from, or in addition to, that contained in this
prospectus. We are offering to sell and seeking offers to buy our Class A common
shares only in states and jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our Class A common shares.
---------------------

In this prospectus, unless the context requires otherwise: (1) "United
National Group" refers to United National Group, Ltd., an exempted company
incorporated with limited liability under the laws of the Cayman Islands; (2)
"we," "us" and "our" refer to United National Group and its subsidiaries as a
whole; (3) our "U.S. Operations" refers to the insurance and related operations
conducted by American Insurance Service, Inc., and its subsidiaries, including
American Insurance Adjustment Agency, Inc., Diamond State Insurance Company,
J.H. Ferguson & Associates, LLC, United National Casualty Insurance Company,
United National Insurance Company and United National Specialty Insurance
Company; (4) our "U.S. Insurance Subsidiaries" refers to United National
Insurance Company, Diamond State Insurance Company, United National Specialty
Insurance Company and United National Casualty Insurance Company; (5) "U.N.
Barbados" refers to Wind River Insurance Company (Barbados), Ltd.; (6) "U.N.
Bermuda" refers to Wind River Insurance Company (Bermuda), Ltd.; (7) our
"Non-U.S. Operations" refers to the insurance and reinsurance and related
operations of U.N. Barbados and U.N. Bermuda; (8) "Fox Paine & Company" refers
to Fox Paine & Company, LLC and affiliated investment funds; (9) our articles of
association refers to our articles of association as they will be amended and
restated immediately prior to completion of this offering; and (10) "$" or
"dollars" refers to U.S. dollars.

SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. While we have highlighted what we believe to be the most important
information about us and this offering in this summary, this summary does not
contain all of the information you should consider before investing in our Class
A common shares. You should read this entire prospectus carefully, including
"Risk Factors," "Cautionary Note Regarding Forward-Looking Statements" and the
consolidated financial statements and accompanying notes beginning on page F-1
for a more complete understanding of our business and this offering before
investing in our Class A common shares. We have included a glossary of insurance
terms that are used in this prospectus beginning on page G-1.

OUR BUSINESS

United National Group is a holding company formed on August 27, 2003
under the laws of the Cayman Islands to acquire our U.S. Operations.

Through our U.S. Operations we are a leading specialty property and
casualty insurer with a 43-year history of operating in the specialty insurance
markets. In 2002, United National Insurance Company was the sixth largest excess
and surplus lines, or "E&S," insurance company according to Business Insurance,
and we were the 11th largest E&S insurance group according to A.M. Best, in each
case on the basis of direct premiums written. Our Non-U.S. Operations, which
consist of recently formed Barbados-based and Bermuda-based insurance companies,
are expected to begin offering insurance and reinsurance products to third
parties and reinsurance to our U.S. Operations in the near future.

We write specialty insurance products that are designed to meet the
specific needs of targeted niche insurance markets. These niche markets are
typically well-defined, homogeneous groups of insureds to which, due to some
particular risk exposure, standard market insurers do not offer insurance
coverage. Examples of products that we write for these markets include property
and casualty insurance for social service agencies, insurance for equine
mortality risks and insurance for vacant property risks. We believe that our
specialty insurance product focus and niche market strategy have enabled us to
outperform the property and casualty industry as a whole. For example, our
combined ratio, based on our statutory financial statements and calculated as an
unweighted average, was 13.8 percentage points better than that of the property
and casualty industry as a whole over the past 20 years, based on data from A.M.
Best.

Our financial goal is to provide a superior return to our shareholders by
achieving underwriting profits and by steadily increasing our shareholders'
equity over the long term. We have produced a 95.4% combined ratio, based on our
statutory financial statements and calculated as an unweighted average, over the
last 20 years, and we have reported an underwriting profit, based on our
statutory financial statements, in 19 of the past 20 years.

Our U.S. Insurance Subsidiaries currently are rated "A" (Excellent) by
A.M. Best, which assigns ratings to each insurance company transacting business
in the United States. "A" (Excellent) is the third highest rating of sixteen
rating categories.

ACQUISITION OF OUR U.S. OPERATIONS

On September 5, 2003, Fox Paine & Company made a capital contribution of
$240.0 million to us, in exchange for 10.0 million Class B common shares and
14.0 million Series A preferred shares, and we acquired Wind River Investment
Corporation, the holding company for our U.S. Operations, from a group of family
trusts affiliated with the Ball family of Philadelphia, Pennsylvania.

To effect this acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We purchased the
remainder with consideration consisting of 2.5 million Class A common shares,
3.5 million Series A preferred shares and senior notes issued by Wind River
Investment Corporation having an aggregate principal amount of approximately
$72.8 million. Of the remaining $140.0 million
1

contributed to us, we then contributed $80.0 million to our U.S. Operations,
used $43.5 million to capitalize our Non-U.S. Operations and will use the
remaining $16.5 million to fund fees and expenses incurred in connection with
the acquisition. See "Our Relationship with Fox Paine & Company."

For a chart showing our organizational structure, see
"Business -- Corporate Organization."

OUR COMPETITIVE STRENGTHS

We believe certain characteristics distinguish us from our competitors,
including:

- ESTABLISHED REPUTATION IN THE SPECIALTY INSURANCE INDUSTRY. We
were founded in 1960 and have a 43-year operating history in the
E&S and specialty admitted insurance markets.

- EXPERIENCED MANAGEMENT TEAM. Our experienced management team has
an average of over 22 years of experience in the insurance industry
and has been with us for an average of 15 years.

- EXTENSIVE SPECIALIZED NICHE UNDERWRITING CAPABILITIES. We have an
experienced, focused underwriting organization of 63 dedicated
underwriting professionals, which has contributed to a 95.4%
combined ratio, based on our statutory financial statements and
calculated as an unweighted average, over the past 20 years.

- WELL-ESTABLISHED PROCESSES AND PROCEDURES. We have developed
critical, customized processes and procedures that enable us to
underwrite and analyze the results of our business and capitalize
quickly on business opportunities.

- STRONG MARKET RELATIONSHIPS. We have strong, longstanding
relationships with our reinsurers and with our professional general
agencies, which extend 17 years on average for our ten largest
reinsurers and eight years on average across all of our general
agency relationships.

- BALANCE SHEET STRENGTH. We maintain conservative underwriting and
investment policies that we believe have enabled us to maintain at
least an "A" (Excellent) rating or better from A.M. Best for 17
consecutive years.

OUR STRATEGY

Our financial goal is to provide a superior return to our shareholders by
achieving underwriting profits and through steadily increasing our shareholders'
equity over the long term. We intend to reach our goal by:

- MAINTAINING A LEADERSHIP ROLE IN THE E&S AND SPECIALTY ADMITTED
MARKETS. We intend to continue to focus on the needs of the E&S
and specialty admitted markets by developing customized insurance
products, using sophisticated underwriting solutions and providing
predictable and helpful customer service.

- FOCUSING ON SPECIFIC NICHE MARKETS IN WHICH WE HAVE DEMONSTRATED
UNDERWRITING EXPERTISE. Our depth of experience across a diverse
set of niche markets provides a competitive advantage that we
believe enables us to generate superior profitability.

- OPPORTUNISTICALLY MANAGING A DIVERSE PRODUCT PORTFOLIO. In order
to enhance underwriting profitability, we are increasing our
retention in certain products with respect to which we believe we
have superior underwriting expertise and where we have identified
improving market conditions.

- BUILDING SHAREHOLDER VALUE. By growing underwriting profits
through our disciplined approach and conservatively managing our
investment portfolio, we intend to grow shareholders' equity over
the long term.

RECENT TRENDS IN OUR INDUSTRY

The property and casualty insurance industry has historically been a
cyclical industry. We believe that during the 1990s the property and casualty
insurance industry maintained excess underwriting capacity. As a result, the
industry suffered from lower pricing, less favorable policy terms and
conditions, less stringent underwriting standards and reduced profitability.
Significant catastrophic losses in 1999 and a subsequent contraction of
underwriting capacity led to price increases and policy terms and conditions
more favorable to insurers in 2000.

We believe that these trends continued and accelerated in 2001 when the
property and casualty insurance industry experienced a severe dislocation as a
result of an unprecedented impairment of capital, causing a substantial
contraction in industry underwriting capacity. These factors have resulted in a
general environment of rate increases and conservative risk selection. In this
environment, rates tend to increase, coverage terms become more restrictive and
a significant volume of premium moves from the standard property and casualty
insurance market into the specialty insurance market. Growth in direct premiums
written for the E&S market has increased from 9.8% in 2000 to 35.7% in 2001 and
61.7% in 2002, according to data from A.M. Best.

Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. Through September 30, 2003, our
rate increases on renewal business approximated 27%, which rates we will earn
over the period of time in which the policies are in force, generally the next
12 months. We cannot assure you, however, that these favorable trends will
continue or that these rate increases can be sustained.

RISKS RELATING TO AN INVESTMENT IN OUR CLASS A COMMON SHARES

Before investing in our Class A common shares, you should take into
account the following risks related to such an investment:

- If actual claims payments exceed our reserves for losses and loss
adjustment expenses, our financial condition and results of
operations could be adversely affected.

- Our U.S. Insurance Subsidiaries are rated "A" (Excellent) by A.M.
Best, the third highest rating, and a decline in this rating could
adversely affect our position in the insurance market, make it more
difficult to market our insurance products and cause premiums and
earnings to decrease.

- We cannot guarantee that our reinsurers will pay in a timely
fashion, if at all, and as a result, we could experience losses.

- Our investment performance may suffer as a result of adverse
capital market developments or other factors, which would in turn
adversely affect our financial condition and results of operations.

- Because we are dependent on key executives, the loss of any of
these executives or our inability to retain other key personnel
could adversely affect our business.

- Our holding company structure, as well as regulatory and other
constraints, limit our ability to pay dividends and make other
payments.

- Prior to this offering, there has been no public trading market for
our Class A common shares, and you cannot be certain that an active
trading market or a specific share price will be established.

- If the Internal Revenue Service were to challenge successfully the
expected U.S. federal tax consequences attendant to our operations
or to an investment in Class A common shares, or if expected U.S.
federal tax consequences were affected by a change in law, these
developments may have a material adverse effect on our operations
and your investment.

For more information on these or other risks that we face, including
risks related to our controlling shareholder, establishment of our Non-U.S.
Operations, performance by our general agencies, fluctuation in our results,
competitive pressures, terrorism and political unrest, regulation and our
potential need for additional capital, see "Risk Factors" beginning on page 8 of
this prospectus. You should carefully consider those risks, together with the
other information in this prospectus, before investing in our Class A common
shares.
---------------------

Our principal executive offices are located at Walker House, 87 Mary
Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands, and our
telephone number is (345) 949-0100.

THIS OFFERING

Class A common shares offered
by us......................... shares

Overallotment option offered
by us......................... shares

Common shares to be
outstanding after this
offering:

Class A common shares........ shares

Class B common shares........ ________ shares

Total......................... ________ shares
________

Use of proceeds............... We intend to use up to $150.0 million of the
net proceeds from this offering to redeem all
of our 15.0 million outstanding Series A
preferred shares, which are currently held by
Fox Paine & Company and the Ball family trusts.
The redemption price for each Series A
preferred share is currently $11.825, which
represents 110% of the sum of the current
liquidation preference per Series A preferred
share, which is $10.00, plus accrued but unpaid
dividends of $0.75 per Series A preferred
share. Of this redemption price, we will pay
$10.00 in cash, and we will pay the remainder
in Class A common shares, valued at the initial
public offering price. We intend to use any
remaining net proceeds for general corporate
purposes, including to capitalize our Non-U.S.
Operations. See "Use of Proceeds."

Voting rights................. On all matters submitted for a vote of
shareholders, each Class A common share is
entitled to one vote, and each Class B common
share is entitled to ten votes, subject, in
each case, to the adjustments described under
"Description of Share Capital -- Voting
Adjustments."

Other common share rights..... With the exception of voting and conversion
rights, Class A common shares and Class B
common shares have identical rights. See
"Description of Share Capital -- Common
Shares."

Dividend policy............... We do not anticipate paying any cash dividends
on any class of our common shares in the
foreseeable future. We currently intend to
retain any future earnings to fund the
development and growth of our business. See
"Dividend Policy."

Proposed Nasdaq National Market
symbol........................ We have applied to have our Class A common
shares approved for quotation on the Nasdaq
National Market under the symbol "UNGL."

Risk factors.................. See "Risk Factors" and other information
included in this prospectus for a discussion of
factors that you should carefully consider
before investing in our Class A common shares.

Unless we specifically state otherwise, all information in this
prospectus assumes that the underwriters do not exercise their overallotment
option. If the underwriters exercise their overallotment option in full, an
additional shares of Class A common stock will be outstanding following
completion of this offering.

The number of Class A common shares outstanding after this offering also
excludes 2.0 million Class A common shares issuable under our share incentive
plan, of which options to purchase 1,138,574 Class A common shares at a weighted
average exercise price of $9.21 per share had been issued as of September 30,
2003, and warrants to purchase 55,000 Class A common shares at an exercise price
of $10.00 per share.

SUMMARY HISTORICAL FINANCIAL DATA

The following table sets forth summary historical financial data for
United National Group and, for periods prior to September 5, 2003, Wind River
Investment Corporation, which is considered United National Group's predecessor
for accounting purposes. This summary financial data is derived from the
consolidated financial statements and accompanying notes of Wind River
Investment Corporation and United National Group included elsewhere in this
prospectus. You should read this summary historical financial data together with
the consolidated financial statements and accompanying notes of Wind River
Investment Corporation and United National Group and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.

<Table>
<Caption>
PREDECESSOR SUCCESSOR
---------------------------- -------------
FOR THE FOR THE
PREDECESSOR FOR THE PERIOD FROM PERIOD FROM
---------------------------------------------------- NINE MONTHS JANUARY 1, SEPTEMBER 6,
FOR THE YEARS ENDED DECEMBER 31, ENDED 2003 TO 2003 TO
---------------------------------------------------- SEPTEMBER 30, SEPTEMBER 5, SEPTEMBER 30,
1998 1999 2000 2001 2002 2002 2003 2003
-------- -------- -------- -------- -------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)

CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Gross premiums written...... $296,426 $357,605 $453,464 $670,520 $793,083 $680,817 $510,623 $33,190
======== ======== ======== ======== ======== ======== ======== =======
Net premiums written........ $ 94,547 $117,883 $127,572 $169,310 $172,689 $171,047 $139,116 $ 9,692
======== ======== ======== ======== ======== ======== ======== =======
Net premiums earned......... $ 95,740 $103,455 $136,931 $150,336 $162,763 $157,557 $128,254 $10,687
Investment income........... 22,628 24,637 28,578 24,491 24,595 18,131 15,733 1,347
Investment expenses......... (4,778) (4,969) (6,088) (5,138) (6,910) (5,163) (2,444) (555)
-------- -------- -------- -------- -------- -------- -------- -------
Investment income, net...... 17,850 19,668 22,490 19,353 17,685 12,968 13,289 792
-------- -------- -------
Net realized investment
gains (losses)............ 3,556 (5,210) 593 (12,719) (11,702) (15,039) 5,589 (718)
-------- -------- -------- -------- -------- -------- -------- -------
Total revenues............ 117,146 117,913 160,014 156,970 168,746 155,486 147,132 10,761
Net losses and loss
adjustment expenses(1).... 67,002 76,257 113,151 128,338 201,750 143,187 84,885 7,349
Acquisition costs and other
underwriting expenses..... 15,584 11,913 14,999 15,867 18,938 14,339 30,543 4,587
Provision for doubtful
reinsurance
receivables(3)(4)......... -- -- -- -- 44,000 -- 1,750 --
Other operating expenses.... 2,399 2,112 2,918 2,220 5,874 2,436 288 124
Interest expense............ 922 589 322 77 115 676 46 249
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before
income taxes............ 31,239 27,042 28,624 10,468 (101,931) (5,152) 29,620 (1,548)
Income tax expense
(benefit)................. 6,751 6,252 5,883 295 (40,520) (5,333) 6,850 (1,106)
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss) before
equity in net income
(loss) of
partnerships............ 24,488 20,790 22,741 10,173 (61,411) 181 22,770 (442)
Equity in net earnings of
partnerships.............. -- -- -- 664 (252) (995) 1,834 258
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss) before
extraordinary gain...... 24,488 20,970 22,741 10,837 (61,663) (814) 24,604 (184)
Extraordinary gain.......... -- -- -- -- -- -- -- 46,424
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss)......... $ 24,488 $ 20,790 $ 22,741 $ 10,837 $(61,663) $ (814) $ 24,604 $46,240
======== ======== ======== ======== ======== ======== ======== =======
INSURANCE OPERATING RATIOS:
Net losses and loss
adjustment expenses
ratio(1)(2)............... 70.0% 73.7% 82.6% 85.3% 124.0% 90.9% 66.2% 68.8%
Underwriting expense
ratio(3)(4)(5)............ 16.3 11.5 11.0 10.6 38.6 9.1 25.2 42.9
-------- -------- -------- -------- -------- -------- -------- -------
Combined ratio(4)(6)(7)..... 86.3% 85.2% 93.6% 95.9% 162.6% 100.0% 91.4% 111.7%
======== ======== ======== ======== ======== ======== ======== =======
Net/gross premiums
written................... 31.9% 33.0% 28.1% 25.3% 21.8% 25.1% 27.2% 29.2%
======== ======== ======== ======== ======== ======== ======== =======
</Table>

<Table>
<Caption>
AS OF AS OF SEPTEMBER 30, 2003
DECEMBER 31, ---------------------------
2002 ACTUAL AS ADJUSTED(8)
------------ ---------- --------------
(DOLLARS IN THOUSANDS) (UNAUDITED)

BALANCE SHEET DATA:
Total investments and cash and cash equivalents............. $ 611,129 $ 800,169 $
Reinsurance receivables, net of allowance................... 1,743,524 1,785,213
Total assets................................................ 2,685,620 2,834,919
Unpaid losses and loss adjustment expenses.................. 2,004,422 2,085,658
Total shareholders' equity.................................. $ 268,637 $ 356,914 $
</Table>

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

(1) In 2002, we increased our net loss reserves relative to accident years 2001
and prior by $47.8 million primarily due to higher than anticipated losses
in the multi-peril and other liability lines of business and by $23.6
million due to the conclusion of an arbitration proceeding. The net losses
and loss adjustment expenses ratio increased by 43.9 percentage points in
2002 due to this $71.4 million increase in net loss reserves.

(2) Our loss ratio for the period from September 6, 2003 to September 30, 2003
includes a 9.7 percentage point increase attributable to a $1.7 million
reduction in earned premium due to purchase accounting.

(3) We established an allowance for doubtful reinsurance receivables in 2002,
which resulted in a 27.0 percentage point increase in our 2002 underwriting
expense ratio.

(4) Our underwriting expense ratio and our combined ratio for the period January
1, 2003 to September 5, 2003 includes a 4.4 percentage point increase
attributable to a $3.8 million expense for stock appreciation rights and
retention payments made to certain key executives upon completion of the
acquisition and a $1.8 million allowance for doubtful reinsurance
receivables.

(5) Our underwriting expense ratio for the period September 6, 2003 to September
30, 2003 includes a 14.1 percentage point increase attributable to the
following: (a) a $1.7 million reduction in earned premium due to purchase
accounting; (b) $0.6 million of organizational costs; and (c) $0.4 million
of deferred compensation option expense.

(6) Our 2002 combined ratio includes a 43.9 percentage point increase
attributable to our $71.4 million reserve strengthening and a 27.0
percentage point increase attributable to establishment of a $44.0 million
allowance for doubtful reinsurance receivables.

(7) Our combined ratio for the period from September 6, 2003 to September 30,
2003 includes a 23.8 percentage point increase attributable to our $1.7
million reduction in earned premium, $0.6 million of organizational costs
and $0.4 million of deferred compensation option expense.

(8) The as adjusted financial data reflects the sale of Class A common
shares in this offering at an initial public offering price of $ per
Class A common share (the midpoint of the estimated range set forth on the
cover page of this prospectus) and the application of the net proceeds from
this offering as described under "Use of Proceeds," including the redemption
of the Series A preferred shares in accordance with their terms.

RISK FACTORS

You should carefully consider the risks described below and all other
information contained in this prospectus before investing in our Class A common
shares, including the consolidated financial statements and accompanying notes.
The risks and uncertainties described below are those we believe to be material,
but they are not the only ones we face. If any of the following risks, or other
risks and uncertainties that we have not yet identified or that we currently
consider not to be material, actually occur, our business, prospects, financial
condition, results of operations and cash flows could be materially and
adversely affected. In that event, the trading price of our Class A common
shares could decline, and you could lose part or all of your investment.

Some of the statements regarding risk factors below and elsewhere in this
prospectus may include forward-looking statements that reflect our current views
with respect to future events and financial performance. Such statements include
forward-looking statements both with respect to us specifically and the
insurance and reinsurance sectors in general, both as to underwriting and
investment matters. Statements that include words such as "expect," "intend,"
"plan," "believe," "project," "anticipate," "seek," "will" and similar
statements of a future or forward-looking nature identify forward-looking
statements for purposes of the federal securities laws or otherwise. All
forward-looking statements address matters that involve risks and uncertainties.
Accordingly, there are or will be important factors that could cause actual
results to differ materially from those indicated in such statements.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

IF ACTUAL CLAIMS PAYMENTS EXCEED OUR RESERVES FOR LOSSES AND LOSS ADJUSTMENT
EXPENSES, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE ADVERSELY
AFFECTED.

Our success depends upon our ability to accurately assess the risks
associated with the insurance policies that we write. We establish reserves to
cover our estimated liability for the payment of all losses and loss adjustment
expenses incurred with respect to premiums earned on the insurance policies that
we write. Reserves do not represent an exact calculation of liability. Rather,
reserves are estimates of what we expect to be the ultimate cost of resolution
and administration of claims under the insurance policies that we write. These
estimates are based upon actuarial and statistical projections, our assessment
of currently available data, as well as estimates and assumptions as to future
trends in claims severity and frequency, judicial theories of liability and
other factors. We continually refine our reserve estimates in an ongoing process
as experience develops and claims are reported and settled. Our insurance
subsidiaries obtain an annual statement of opinion from an independent actuarial
firm on these reserves.

Establishing an appropriate level of reserves is an inherently uncertain
process. The following factors may have a substantial impact on our future
actual losses and loss adjustment expenses experience:

- the amounts of claims payments;

- the expenses that we incur in resolving claims;

- legislative and judicial developments; and

- changes in economic conditions, including the effect of inflation.

For example, as industry practices and legal, judicial, social and other
conditions change, unexpected and unintended exposures related to claims and
coverage may emerge. Recent examples include claims relating to mold, asbestos
and construction defects, as well as larger settlements and jury awards against
professionals and corporate directors and officers. In addition, there is a
growing trend of plaintiffs targeting property and casualty insurers in
purported class action litigations relating to claims-handling, insurance sales
practices and other practices. These exposures may either extend coverage beyond
our underwriting intent or increase the number or size of claims. As a result,
such developments could cause our level of reserves to be inadequate.

Actual losses and loss adjustment expenses we incur under insurance
policies that we write may be different from the amount of reserves we
establish, and to the extent that actual losses and loss adjustment expenses
exceed our expectations and the reserves reflected on our financial statements,
we will be required to immediately reflect those changes by increasing our
reserves. In addition, government regulators could require that we increase our
reserves if they determine that our reserves were understated in the past. When
we increase reserves, our pre-tax income for the period in which we do so will
decrease by a corresponding amount. For example, during 2002, we increased our
net loss reserves relative to accident years 2001 and prior by $47.8 million
primarily due to higher than anticipated losses in the multi-peril and other
liability lines of business and by $23.6 million due to the conclusion of an
arbitration proceeding with a reinsurer regarding losses incurred in 1993 and
1994. In addition to having an effect on reserves and pre-tax income, increasing
or "strengthening" reserves causes a reduction in our insurance companies'
surplus and could cause a downgrading of the rating of our insurance company
subsidiaries. Such a downgrade could, in turn, adversely affect our ability to
sell insurance policies.

OUR U.S. INSURANCE SUBSIDIARIES ARE RATED "A" (EXCELLENT) BY A.M. BEST, THE
THIRD HIGHEST RATING, AND A DECLINE IN THIS RATING COULD ADVERSELY AFFECT OUR
POSITION IN THE INSURANCE MARKET, MAKE IT MORE DIFFICULT TO MARKET OUR INSURANCE
PRODUCTS AND CAUSE OUR PREMIUMS AND EARNINGS TO DECREASE.

Ratings have become an increasingly important factor in establishing the
competitive position for insurance companies. A.M. Best ratings currently range
from "A++" (Superior) to "F" (In Liquidation), with a total of 16 separate
ratings categories. A.M. Best currently assigns each of our U.S. insurance
subsidiaries a financial strength rating of "A" (Excellent), the third highest
of their 16 rating categories. The objective of A.M. Best's rating system is to
provide potential policyholders an opinion of an insurer's financial strength
and its ability to meet ongoing obligations, including paying claims. These
ratings reflect A.M. Best's analysis of our insurance subsidiaries' balance
sheet, financial position, capitalization and management. These ratings are not
an evaluation of, nor are they directed to, investors in our Class A common
shares and are not a recommendation to buy, sell or hold our Class A common
shares. Publications of A.M. Best indicate that companies are assigned "A"
(Excellent) ratings if, in A.M. Best's opinion, they have demonstrated excellent
overall performance when compared with the standards established by A.M. Best
and have demonstrated a strong ability to meet their obligations to
policyholders. These ratings are subject to periodic review by, and may be
revised downward or revoked at the sole discretion of, A.M. Best.

In June 2003, our U.S. Insurance Subsidiaries were downgraded from "A+"
(Superior) to "A" (Excellent) by A.M. Best primarily due to our increase in
reserves during 2002. If the rating of any of our U.S. insurance subsidiaries is
further reduced from its current level by A.M. Best, our competitive position in
the insurance industry would suffer, and it would be more difficult for us to
market our insurance products. A downgrade could result in a significant
reduction in the number of insurance contracts we write and in a substantial
loss of business, as such business could move to other competitors with higher
ratings, thus causing premiums and earnings to decrease.

WE CANNOT GUARANTEE THAT OUR REINSURERS WILL PAY IN A TIMELY FASHION IF AT ALL,
AND AS A RESULT, WE COULD EXPERIENCE LOSSES.

We cede significant amounts of gross premiums written to reinsurers under
reinsurance contracts. Although reinsurance makes the reinsurer liable to us to
the extent the risk is transferred, it does not relieve us of our liability to
our policyholders. Upon payment of claims, we will bill our reinsurers for their
share of such claims. Our reinsurers may not pay the reinsurance receivables
that they owe to us or they may not pay such receivables on a timely basis. If
our reinsurers fail to pay us or fail to pay us on a timely basis, our financial
results would be adversely affected. Lack of reinsurer liquidity, perceived
improper underwriting or claim handling by us, and other factors could cause a
reinsurer not to pay. Since January 1, 2000, we have experienced two losses
resulting from the failure of reinsurers to pay reinsurance receivables. In
October 2002, we concluded an arbitration with a reinsurer relating to
reinsurance contracts written in 1993 and 1994. The result of this arbitration
reduced 2002 pre-tax net income by $20.6 million.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Special Note Regarding 2002." In addition, in April 2001, in
recognition of the impaired financial condition of one reinsurer, we entered
into a commutation agreement with that reinsurer. That commutation resulted in a
$5.0 million reduction in 2001 pre-tax net income.

As of September 30, 2003, we had $1,785.2 million of reinsurance
receivables. As of September 30, 2003, $646.4 million of collateral was held in
trust to support our reinsurance receivables. Our reinsurance receivables, net
of collateral held, were $1,138.8 million as of September 30, 2003. We also had
$118.9 million of prepaid reinsurance premiums as of September 30, 2003. As of
September 30, 2003, our largest reinsurer represented approximately 37.4% of our
outstanding reinsurance receivables, or $678.8 million, and our second largest
reinsurer represented approximately 20.2% of our outstanding reinsurance
receivables, or $377.3 million. See "Business -- Reinsurance."

OUR INVESTMENT PERFORMANCE MAY SUFFER AS A RESULT OF ADVERSE CAPITAL MARKET
DEVELOPMENTS OR OTHER FACTORS, WHICH WOULD IN TURN ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We derive a significant portion of our income from our invested assets.
As a result, our operating results depend in part on the performance of our
investment portfolio. For the nine months ended September 30, 2003, our income
derived from invested assets, including net realized gains of $4.9 million, was
$19.0 million, or 67.5% of our pre-tax income. For 2002, our income derived from
invested assets was $6.0 million, including net realized losses of $11.7
million, and we had a pre-tax loss of $101.9 million. Our operating results are
subject to a variety of investment risks, including risks relating to general
economic conditions, market volatility, interest rate fluctuations, liquidity
risk and credit and default risk. The fair value of fixed income investments can
fluctuate depending on changes in interest rates. Generally, the fair market
value of these investments has an inverse relationship with changes in interest
rates, while net investment income earned by us from future investments in fixed
income securities will generally increase or decrease with interest rates.
Additionally, with respect to certain of our investments, we are subject to
pre-payment or reinvestment risk.

With respect to our longer-term liabilities, we strive to structure our
investments in a manner that recognizes our liquidity needs for our future
liabilities. In that regard, we attempt to correlate the maturity and duration
of our investment portfolio to our general and specific liability profile.
However, if our liquidity needs or general and specific liability profile
unexpectedly changes, we may not be successful in continuing to structure our
investment portfolio in that manner. To the extent that we are unsuccessful in
correlating our investment portfolio with our expected liabilities, we may be
forced to liquidate our investments at times and prices that are not optimal,
which could have a material adverse affect on the performance of our investment
portfolio. We refer to this risk as liquidity risk.

Interest rates are highly sensitive to many factors, including
governmental monetary policies, domestic and international economic and
political conditions and other factors beyond our control. Although we attempt
to take measures to manage the risks of investing in a changing interest rate
environment, we may not be able to mitigate interest rate sensitivity
effectively. Our mitigation efforts include maintaining a high quality portfolio
with a relatively short duration to reduce the effect of interest rate changes
on book value. A significant portion of the investment portfolio matures each
year, allowing for reinvestment at current market rates. The portfolio is
actively managed, and trades are made to balance our exposure to interest rates.
However, a significant increase in interest rates could have a material adverse
effect on the market value of our fixed income investments.

We also have an equity portfolio that represented approximately 4.3% of
our total investments and cash and cash equivalents portfolio, as of September
30, 2003. The performance of our equity portfolio is dependent upon a number of
factors, including many of the same factors that affect the performance of our
fixed income investments, although those factors sometimes have the opposite
effect on performance as to the equity portfolio. The equity markets as a whole
have performed negatively in recent years, and if such performance continues,
the value of our equity portfolio could decline.

BECAUSE WE ARE DEPENDENT ON KEY EXECUTIVES, THE LOSS OF ANY OF THESE EXECUTIVES
OR OUR INABILITY TO RETAIN OTHER KEY PERSONNEL COULD ADVERSELY AFFECT OUR
BUSINESS.

Our success substantially depends upon our ability to attract and retain
qualified employees and upon the ability of our senior management and other key
employees to implement our business strategy. We believe there are only a
limited number of available qualified executives in the business lines in which
we compete. Although we are not aware of any planned departures, we rely
substantially upon the services of Seth D. Freudberg, President and Chief
Executive Officer of our U.S. Operations, Richard S. March, Senior Vice
President and General Counsel of our U.S. Operations, Kevin L. Tate, our Chief
Financial Officer and Senior Vice President and Chief Financial Officer of our
U.S. Operations, Robert Cohen, Senior Vice President -- Marketing of our U.S.
Operations, William F. Schmidt, Senior Vice President and Chief Underwriting
Officer of our U.S. Operations and Jonathan P. Ritz, Senior Vice President --
Ceded Reinsurance of our U.S. Operations. Each of Messrs. Freudberg, March,
Tate, Cohen, Schmidt and Ritz has an employment agreement with us. The loss of
any of their services or the services of other members of our management team or
the inability to attract and retain other talented personnel could impede the
further implementation of our business strategy, which could have a material
adverse effect on our business. We do not currently maintain key man life
insurance policies with respect to any of our employees.

SINCE WE DEPEND ON PROFESSIONAL GENERAL AGENCIES FOR A SIGNIFICANT PORTION OF
OUR REVENUE, A LOSS OF ANY ONE OF THEM COULD ADVERSELY AFFECT US.

We distribute the insurance products of our U.S. Operations through our
wholly-owned subsidiary, J.H. Ferguson, and a group of 51 professional general
agencies that have limited quoting and binding authority. For the nine months
ended September 30, 2003, our top five agencies, including J.H. Ferguson, four
of which market more than one specific product, represent approximately 51% of
our net premiums written. Excluding the net premiums written attributable to
J.H. Ferguson, the remaining top four general agencies accounted for
approximately 41% of our net premiums written. No one general agency accounted
for more than 12% of our net premiums written. A loss of all or substantially
all the business produced by one or more of these general agencies could have an
adverse effect on our business and results of operations.

IF MARKET CONDITIONS CAUSE REINSURANCE TO BE MORE COSTLY OR UNAVAILABLE, WE MAY
BE REQUIRED TO BEAR INCREASED RISKS OR REDUCE THE LEVEL OF OUR UNDERWRITING
COMMITMENTS.

As part of our overall strategy of risk and capacity management, we
purchase reinsurance for a significant amount of risk underwritten by our
insurance subsidiaries. Market conditions beyond our control determine the
availability and cost of the reinsurance we purchase, which may affect the level
of our business and profitability. Our reinsurance facilities are generally
subject to annual renewal. We may be unable to maintain our current reinsurance
facilities or obtain other reinsurance facilities in adequate amounts and at
favorable rates. If we are unable to renew our expiring facilities or obtain new
reinsurance facilities, either our net exposure to risk would increase or, if we
are unwilling to bear an increase in net risk exposures, we would have to reduce
the amount of risk we underwrite.

WE HAVE ONLY RECENTLY FORMED OUR NON-U.S. OPERATIONS, AND WE MAY NOT BE
SUCCESSFUL IN EXECUTING OUR BUSINESS PLAN FOR THESE OPERATIONS.

U.N. Barbados was formed on August 18, 2003, and U.N. Bermuda was formed
on October 20, 2003. Neither U.N. Barbados nor U.N. Bermuda has any operating or
financial history, and we have yet to begin conducting operations through U.N.
Barbados or U.N. Bermuda. While we intend to begin offering insurance and
reinsurance products to third parties that are substantially similar to those
products offered by our U.S. Operations and providing reinsurance to our U.S.
Operations in the near term, we may be unsuccessful in executing our business
plan. In order to execute our business plan for our Non-U.S. Operations, we will
need to hire qualified insurance professionals for our Non-U.S. Operations and
obtain from U.S. state regulators approvals and eligibilities to write E&S
business. We will also need

to establish the market relationships, procedures and controls in order for our
Non-U.S. Operations to operate effectively and profitably. We may be unable to
do so, and if we fail to execute on our business plan for our Non-U.S.
Operations or if the business written by our Non-U.S. Operations generates
losses, it would prevent us from realizing the tax efficiencies that our
Non-U.S. Operations might otherwise provide.

Neither U.N. Barbados nor U.N. Bermuda is currently rated by A.M. Best.
While we intend to apply for a rating from A.M. Best for U.N. Barbados and U.N.
Bermuda, we may not receive a satisfactory rating. If we fail to receive a
satisfactory rating from A.M. Best, it would be difficult for U.N. Barbados and
U.N. Bermuda to effectively sell insurance policies to third parties.

OUR RESULTS MAY FLUCTUATE AS A RESULT OF MANY FACTORS, INCLUDING CYCLICAL
CHANGES IN THE INSURANCE INDUSTRY.

Historically, the results of companies in the property and casualty
insurance industry have been subject to significant fluctuations and
uncertainties. The industry's profitability can be affected significantly by:

- competition;

- capital capacity;

- rising levels of actual costs that are not foreseen by companies at
the time they price their products;

- volatile and unpredictable developments, including man-made,
weather-related and other natural catastrophes or terrorist
attacks;

- changes in loss reserves resulting from the general claims and
legal environments as different types of claims arise and judicial
interpretations relating to the scope of insurers' liability
develop; and

- fluctuations in interest rates, inflationary pressures and other
changes in the investment environment, which affect returns on
invested assets and may affect the ultimate payout of losses.

The demand for property and casualty insurance can also vary
significantly, rising as the overall level of economic activity increases and
falling as that activity decreases. The property and casualty insurance industry
historically is cyclical in nature. These fluctuations in demand and competition
could produce underwriting results that would have a negative impact on our
results of operations and financial condition.

WE FACE SIGNIFICANT COMPETITIVE PRESSURES IN OUR BUSINESS THAT COULD CAUSE
DEMAND FOR OUR PRODUCTS TO FALL AND ADVERSELY AFFECT OUR PROFITABILITY.

We compete with a large number of other companies in our selected lines
of business. We compete, and will continue to compete, with major U.S. and
non-U.S. insurers and other regional companies, as well as mutual companies,
specialty insurance companies, underwriting agencies and diversified financial
services companies. Our competitors include, among others: American
International Group, Berkshire Hathaway, Great American Insurance Group, HCC
Insurance Holdings, Inc., Markel Corporation, Nationwide Insurance, Penn-America
Group, Philadelphia Consolidated Group, RLI Corporation and W.R. Berkley
Corporation. Some of our competitors have greater financial and marketing
resources than we do. Our profitability could be adversely affected if we lose
business to competitors offering similar or better products at or below our
prices.

A number of recent, proposed or potential legislative or industry
developments could further increase competition in our industry. These
developments include:

- the enactment of the Gramm-Leach-Bliley Act of 1999, which permits
financial services companies such as banks and brokerage firms to
engage in the insurance business;

- an influx of new capital as a result of the formation of new
insurers in the marketplace and as existing companies attempt to
expand their business as a result of better pricing or terms; and

- legislative mandates for insurers to provide certain types of
coverage in areas where existing insurers do business, such as the
mandated terrorism coverage in the Terrorism Risk Insurance Act of
2002, could eliminate the opportunities to write those coverages.

These developments could make the property and casualty insurance
marketplace more competitive by increasing the supply of insurance capacity. In
that event, recent favorable industry trends that have reduced insurance and
reinsurance supply and increased demand could be reversed and may negatively
influence our ability to maintain or increase rates. Accordingly, these
developments could have an adverse effect on our earnings.

Further, insurance or risk-linked securities, derivatives and other
non-traditional risk transfer mechanisms and vehicles are being developed and
offered by other parties, including non-insurance company entities, which could
impact the demand for traditional insurance.

New competition from these developments could cause the demand for
insurance to fall or the expense of customer acquisition and retention to
increase, either of which could have a material adverse effect on our growth and
profitability.

OUR GENERAL AGENCIES TYPICALLY PAY THE INSURANCE PREMIUMS ON BUSINESS THEY HAVE
BOUND TO US ON A MONTHLY BASIS. THIS ACCUMULATION OF BALANCES DUE TO US EXPOSES
US TO A CREDIT RISK.

Insurance premiums generally flow from the insured to their retail
broker, then into a trust account controlled by our professional general
agencies. Our general agencies are typically required to forward funds, net of
commissions, to us following the end of each month. Consequently, we assume a
degree of credit risk on these balances that have been paid by the insured but
have yet to reach us.

AS A PROPERTY AND CASUALTY INSURER, WE COULD FACE LOSSES FROM TERRORISM AND
POLITICAL UNREST.

We may have exposure to losses resulting from acts of terrorism and
political instability. Even if reinsurers are able to exclude coverage for
terrorist acts or price that coverage at rates that we consider unattractive,
direct insurers, like our insurance company subsidiaries, might not be able to
likewise exclude terrorist acts because of regulatory constraints. If this does
occur, we, in our capacity as a primary insurer, would have a significant gap in
our reinsurance protection and would be exposed to potential losses as a result
of any terrorist acts. These risks are inherently unpredictable, although recent
events may lead to increased frequency and severity. It is difficult to predict
occurrence of such events with statistical certainty or to estimate the amount
of loss per occurrence they will generate.

BECAUSE WE PROVIDE OUR PROFESSIONAL GENERAL AGENCIES WITH LIMITED QUOTING AND
BINDING AUTHORITY, IF ANY OF THEM FAIL TO COMPLY WITH OUR PRE-ESTABLISHED
GUIDELINES, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.

We distribute the products of our U.S. Operations through our
wholly-owned subsidiary, J.H. Ferguson, as well as a group of 51 professional
general agencies that have limited quoting and binding authority; therefore,
these agencies can bind certain risks without our initial approval. If any of
these professional general agencies fail to comply with our underwriting
guidelines and the terms of their appointment, we could be bound on a particular
risk or number of risks that were not anticipated when we developed the product
offering. Such actions could adversely affect our results of operations.

For example, in 2000 we learned that one of our general agencies had
issued, outside of its authority, certain "facultative reinsurance policies." We
now face claims for losses allegedly covered by these "facultative reinsurance
policies." See "Business -- Legal Proceedings."

OUR HOLDING COMPANY STRUCTURE AND REGULATORY CONSTRAINTS LIMIT OUR ABILITY TO
RECEIVE DIVIDENDS FROM OUR SUBSIDIARIES IN ORDER TO MEET OUR CASH REQUIREMENTS.

United National Group is a holding company and, as such, has no
substantial operations of its own or assets other than its ownership of the
shares of its direct and indirect subsidiaries. Dividends and other permitted
distributions from insurance subsidiaries are expected to be United National
Group's sole source of funds to meet ongoing cash requirements, including debt
service payments and other expenses. The laws and regulations of Barbados,
including, but not limited to Barbados insurance regulation, restrict the
declaration and payment of dividends and the making of distributions by U.N.
Barbados unless certain regulatory requirements are met. Specifically, in order
for U.N. Barbados to pay dividends to United National Group, it will be required
to have sufficient assets to meet minimum solvency requirements following such
dividend. See "Regulation -- Barbados." Any dividends that United National Group
receives from its subsidiaries must pass through U.N. Barbados. The inability of
U.N. Barbados to pay dividends to United National Group in an amount sufficient
to enable United National Group to meet its cash requirements at the holding
company level could have a material adverse effect on its operations. In
addition, our other insurance subsidiaries are subject to significant regulatory
restrictions limiting their ability to declare and pay dividends. See
"Regulation."

Bermuda law does not permit payment of dividends or distributions of
contributed surplus by a company if there are reasonable grounds for believing
that the company, after the payment is made, would be unable to pay its
liabilities as they become due, or the realizable value of the company's assets
would be less, as a result of the payment, than the aggregate of its liabilities
and its issued share capital and share premium accounts. Furthermore, pursuant
to the Bermuda Insurance Act 1978, an insurance company is prohibited from
declaring or paying a dividend during the financial year if it is in breach of
its minimum solvency margin or minimum liquidity ratio or if the declaration or
payment of such dividends would cause it to fail to meet such margin or ratio.
See "Regulation -- Bermuda."

For 2003, the maximum amount of distributions that we might receive from
our subsidiaries under applicable law and regulations and without prior
regulatory approval is approximately $22.9 million.

BECAUSE WE ARE HEAVILY REGULATED BY THE U.S. STATES IN WHICH WE OPERATE, WE MAY
BE LIMITED IN THE WAY WE OPERATE.

We are subject to extensive supervision and regulation in the U.S. states
in which our insurance company subsidiaries operate. This is particularly true
in those states in which our insurance subsidiaries are licensed, as opposed to
those states where our insurance subsidiaries write business on a surplus lines
basis. The supervision and regulation relate to numerous aspects of our business
and financial condition. The primary purpose of the supervision and regulation
is the protection of our insurance policyholders and not our investors. The
extent of regulation varies, but generally is governed by state statutes. These
statutes delegate regulatory, supervisory and administrative authority to state
insurance departments. This system of regulation covers, among other things:

- standards of solvency, including risk-based capital measurements;

- restrictions on the nature, quality and concentration of
investments;

- restrictions on the types of terms that we can include in the
insurance policies we offer;

- restrictions on the way rates are developed and the premiums we may
charge;

- standards for the manner in which general agencies may be
appointed;

- certain required methods of accounting;

- reserves for unearned premiums, losses and other purposes; and

- potential assessments for the provision of funds necessary for the
settlement of covered claims under certain insurance policies
provided by impaired, insolvent or failed insurance companies. In
light of several recent significant property and casualty insurance
company insolvencies, it is likely that assessments we pay will
increase.

The statutes or the state insurance department regulations may affect the
cost or demand for our products and may impede us from obtaining rate increases
or taking other actions we might wish to take to increase our profitability.
Further, we may be unable to maintain all required licenses and approvals and
our business may not fully comply with the wide variety of applicable laws and
regulations or the relevant authority's interpretation of the laws and
regulations. Also, regulatory authorities have discretion to grant, renew or
revoke licenses and approvals subject to the applicable state statutes and
appeal process. If we do not have the requisite licenses and approvals
(including in some states the requisite secretary of state registration) or do
not comply with applicable regulatory requirements, the insurance regulatory
authorities could stop or temporarily suspend us from carrying on some or all of
our activities or monetarily penalize us.

In recent years, the U.S. insurance regulatory framework has come under
increased federal scrutiny, and in an effort to forestall federal intervention
some state legislators have considered or enacted laws that may alter or
increase state regulation of insurance and reinsurance companies and holding
companies. Moreover, the National Association of Insurance Commissioners, or
"NAIC," which is an association of the insurance commissioners of all 50 states
and the District of Columbia, and state insurance regulators regularly reexamine
existing laws and regulations. Changes in these laws and regulations or the
interpretation of these laws and regulations could have a material adverse
effect on our business.

As an example of increased federal involvement in insurance issues, in
response to the tightening of supply in certain insurance and reinsurance
markets resulting from, among other things, the September 11, 2001 terrorist
attacks, the Federal Terrorism Risk Insurance Act of 2002 was enacted to ensure
the availability of insurance coverage for defined terrorist acts in the United
States. This law establishes a federal assistance program through the end of
2005 to aid the commercial property and casualty insurance industry in covering
claims related to future terrorism related losses and regulates the terms of
insurance relating to terrorism coverage. This law could adversely affect our
business by increasing underwriting capacity for our competitors as well as by
requiring that we offer coverage for terrorist acts.

WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE THAT MAY NOT BE AVAILABLE OR
ONLY AVAILABLE ON UNFAVORABLE TERMS.

Our future capital requirements depend on many factors, including our
ability to write new business successfully and to establish premium rates and
reserves at levels sufficient to cover losses. To the extent that we need to
raise additional funds, any equity or debt financing for this purpose, if
available at all, may be on terms that are not favorable to us. In the case of
equity financings, dilution to our shareholders could result, and in any case
such securities may have rights, preferences and privileges that are senior to
those of the Class A common shares offered hereby. If we cannot obtain adequate
capital, our business, results of operations and financial condition could be
adversely affected.

RISKS RELATED TO THIS OFFERING AND
OWNERSHIP OF OUR CLASS A COMMON SHARES

REGULATORY AND OTHER CONSTRAINTS LIMIT OUR ABILITY TO PAY DIVIDENDS AND MAKE
OTHER PAYMENTS.

United National Group is subject to Cayman Islands regulatory constraints
that will affect its ability to pay dividends on its common shares and make
other payments. In addition, there are provisions

in the senior notes issued by one of our subsidiaries, which notes we have
guaranteed, that prevent us from paying dividends on or redeeming any of our
common shares prior to repayment of these senior notes.

Our four operating insurance subsidiaries domiciled in the United States
are each subject to state regulatory restraints that affect those subsidiaries'
ability to pay dividends and to make other payments. We are subject to the
insurance holding company laws of Indiana, Pennsylvania and Wisconsin.

Under Indiana law, Diamond State Insurance Company and United National
Casualty Insurance Company may not pay any dividend or make any distribution of
cash or other property in any 12-month period unless certain tests regarding
their policyholders surplus and net income are met. In addition, Indiana does
not permit a domestic insurer to declare or pay a dividend except out of earned
surplus unless otherwise approved by the Indiana commissioner of insurance
before the dividend is paid. See "Regulation -- State Dividend Limitations."

Under Pennsylvania law, United National Insurance Company may not pay any
dividend or make any distribution in any 12-month period unless certain tests
regarding its policyholders surplus and net income are met. In addition,
Pennsylvania does not permit a domestic insurer to declare or pay a dividend
except out of unassigned funds (surplus) unless otherwise approved by the
Pennsylvania commissioner of insurance before the dividend is paid. Furthermore,
no dividend or other distribution may be declared or paid by a Pennsylvania
insurance company that would reduce its total capital and surplus to an amount
that is less than the amount required by the Pennsylvania Insurance Department
for the kind or kinds of business that it is authorized to transact. See
"Regulation -- State Dividend Limitations."

Under Wisconsin law, United National Specialty Insurance Company may not
pay any dividend or make any distribution of cash or other property in any
12-month period unless certain tests regarding its policyholders surplus and net
income are met. Additionally, under Wisconsin law, all authorizations of
distributions to shareholders, other than stock dividends, must be reported to
the commissioner in writing and no payment may be made until at least 30 days
after such report. See "Regulation -- State Dividend Limitations."

The dividend limitations imposed by the state laws are based on the
statutory financial results of our respective U.S. Insurance Subsidiaries
determined by using statutory accounting practices that differ in certain
respects from accounting principles used in financial statements prepared in
conformity with U.S. GAAP. These differences include, among other items,
deferred acquisition costs, deferred income taxes, required investment reserves
and surplus notes.

YOUR INTERESTS AS A HOLDER OF CLASS A COMMON SHARES MAY CONFLICT WITH THE
INTERESTS OF OUR CONTROLLING SHAREHOLDER.

Fox Paine & Company beneficially owns shares having 88.3% of our total
voting power. After this offering, Fox Paine & Company will beneficially own
shares having % of our total voting power. The percentage of our total
voting power that Fox Paine & Company may exercise is greater than the
percentage of our total shares that Fox Paine & Company beneficially owns
because Fox Paine & Company beneficially owns a large number of Class B common
shares, which have ten votes per share as opposed to Class A common shares,
which have one vote per share. The Class A common shares and the Class B common
shares generally vote together as a single class on matters presented to our
shareholders. Based on the ownership structure of the affiliates of Fox Paine &
Company that own these shares, it is not expected that these affiliates will be
subject to the voting restriction contained in our articles of association
following completion of this offering. As a result, Fox Paine & Company has and
will continue to have control over the outcome of certain matters requiring
shareholder approval, including the power to, among other things:

- amend our memorandum or articles of association;

- prevent schemes of arrangement of our subsidiaries' assets; and

- approve redemption of the common shares as described under
"Description of Share Capital -- Common Shares -- Redemption."

Fox Paine & Company will also be able to prevent or cause a change of
control relating to us. Fox Paine & Company's control over us and our
subsidiaries, and its ability to prevent or cause a change of control relating
to us, may delay or prevent a change of control, or cause a change of control to
occur at a time when it is not favored by other shareholders. As a result, the
trading price of our Class A common shares could be adversely affected.

In addition, we have agreed to pay Fox Paine & Company and an affiliate
of the Ball family trusts annual management fees totaling $1.5 million, in
addition to an initial management fee of $12.0 million already paid only to Fox
Paine & Company. See "Our Relationship with Fox Paine & Company."

Fox Paine & Company may in the future make significant investments in
other insurance or reinsurance companies. Some of these companies may compete
with us or with our subsidiaries. Fox Paine & Company is not obligated to advise
us of any investment or business opportunities of which they are aware, and they
are not prohibited or restricted from competing with us or our subsidiaries.

OUR CONTROLLING SHAREHOLDER HAS THE CONTRACTUAL RIGHT TO NOMINATE A MAJORITY OF
THE MEMBERS OF OUR BOARD OF DIRECTORS.

Under the terms of a shareholders agreement among us, Fox Paine & Company
and the Ball family trusts, Fox Paine & Company has the contractual right to
nominate a majority of the members of our Board of Directors. See "Management"
and "Our Relationship with Fox Paine & Company -- Shareholders
Agreement -- Board Composition." Our Board of Directors, in turn, and subject to
its fiduciary duties under Cayman Islands law, appoints the members of our
senior management, who also have fiduciary duties to us. As a result, Fox Paine
& Company effectively has the ability to control the appointment of the members
of our senior management and to prevent any changes in senior management that
shareholders, or that other members of our Board of Directors, may deem
advisable. Currently, four directors serve on our Board of Directors who were
appointed by Fox Paine & Company: Messrs. Saul A. Fox, W. Dexter Paine, III,
Troy W. Thacker and Angelos J. Dassios. Following completion of this offering,
as part of the expansion of our Board of Directors, we will appoint one
additional member designated by Fox Paine & Company, Mr. Robert N. Lowe, Jr.

PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC TRADING MARKET FOR OUR CLASS A
COMMON SHARES, AND YOU CANNOT BE CERTAIN THAT AN ACTIVE TRADING MARKET OR A
SPECIFIC SHARE PRICE WILL BE ESTABLISHED.

Currently, and at all times prior to this offering, there is no public
trading market for our common shares and, as a result, we cannot predict whether
an active trading market will develop and continue upon completion of this
offering or if the market price of our Class A common shares will decline below
the initial public offering price. We intend to apply for our Class A common
shares to be quoted on the Nasdaq National Market under the symbol "UNGL." The
initial public offering price per Class A common share will be determined by
agreement among us and the representatives of the underwriters and may not be
indicative of the trading price of our Class A common shares after this
offering. The trading price of our Class A common shares may decline for many
reasons, some of which are beyond our control, including among others:

- quarterly variations in our results of operations;

- changes in expectations as to our future results of operations,
including financial estimates by securities analysts and investors;

- announcements by third parties of claims against us;

- changes in law and regulation;

- results of operations that vary from those expected by securities
analysts and investors; and

- future sales of Class A common shares.

In addition, the stock market in recent years has experienced extreme
price and volume fluctuations that often have been unrelated or disproportionate
to the operating performance of companies. As a result, the trading price of our
Class A common shares may be below the initial public offering price.

FUTURE SALES OF CLASS A COMMON SHARES MAY AFFECT THE TRADING PRICE OF OUR CLASS
A COMMON SHARES.

We cannot predict what effect, if any, future sales of our Class A common
shares, or the availability of Class A common shares for future sale, will have
on the trading price of our Class A common shares. Sales of substantial amounts
of our Class A common shares in the public market following this offering, or
the perception that such sales could occur, could adversely affect the trading
price of our Class A common shares and may make it more difficult for you to
sell your Class A common shares at a time and price that you deem appropriate.
See "Description of Share Capital" and "Shares Eligible for Future Sale" for
further information regarding circumstances under which additional Class A
common shares may be sold. Upon completion of this offering, we will have
Class A common shares outstanding, Class B common shares
outstanding and an additional Class A common shares will be issuable
upon the full exercise or conversion of outstanding vested options and warrants.
If the underwriters' overallotment option is exercised, an additional
Class A common shares will be outstanding. Of these shares, the Class
A common shares sold in this offering will be freely transferable, except for
any shares sold to our "affiliates," as that term is defined in Rule 144 under
the Securities Act. The remaining shares will be "restricted securities" subject
to the volume limitations and the other conditions of Rule 144.

We, our directors, officers, certain of our existing shareholders and
those persons who purchase Class A common shares through the reserved share
program discussed later in this prospectus have agreed for a period of 180 days
after the date of this prospectus, that with limited exceptions we and they will
not, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated on behalf of the underwriters (which consent with respect to the
reserved share program will not be granted for any sales during the first 90
days of such lock-up), directly or indirectly, offer to sell, sell or otherwise
dispose of any of our Class A common shares. Upon the consummation of this
offering, certain existing shareholders and their transferees will have the
right to require us to register under the Securities Act the sale into the
public markets of their Class A common shares, subject to the 180-day lock-up
agreements. Upon the effectiveness of any such registration statement, all
shares covered by that registration statement may be sold into the public
markets. In addition, following the consummation of this offering, we intend to
file one or more registration statements on Form S-8 under the Securities Act to
register Class A common shares issued or reserved for issuance under our stock
incentive plan. Subject to the exercise of issued and outstanding options,
shares registered under the registration statement on Form S-8 may be sold into
the public markets after the expiration of the 180-day lock-up agreements.

WE DO NOT EXPECT TO PAY CASH DIVIDENDS ON ANY OF OUR COMMON SHARES.

We have never declared or paid any cash dividends on our common shares.
We intend to retain our earnings, if any, to finance the development and
expansion of our business, and, therefore, we do not expect to pay any cash
dividends on any of our common shares in the foreseeable future. As a result,
capital appreciation, if any, on our common shares will be your sole source of
gain for the foreseeable future. In addition, there are regulatory and other
constraints that could prevent us from paying dividends in any event. See
"-- Regulatory and other constraints limit our ability to pay dividends and make
other payments."

PUBLIC INVESTORS MAY SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF
THIS OFFERING.

The initial public offering price per Class A common share may be higher
than our net book value per share. In connection with redemption of the Series A
preferred shares, we will also issue up to
18

an additional Class A common shares as payment of the accrued and
unpaid dividends on the Series A preferred shares and the applicable redemption
premium. See "Description of Share Capital -- Preferred Shares -- Series A
Preferred Shares -- Redemption." Accordingly, if you purchase Class A common
shares in this offering, you will suffer immediate and substantial dilution of
your investment. Based upon the issuance and sale of Class A common
shares, you will incur immediate dilution of approximately $ in the net
book value per Class A common share if you purchase Class A common shares in
this offering. In addition, if funds sufficient to repurchase all of our
outstanding Series A preferred shares are not raised in this offering, the
remaining outstanding Series A preferred shares not repurchased may be converted
into Class A common shares, thereby further diluting your investment.

THERE ARE PROVISIONS IN OUR ARTICLES OF ASSOCIATION THAT MAY REDUCE OR INCREASE
THE VOTING RIGHTS OF OUR CLASS A COMMON SHARES.

Our articles of association generally provide that shareholders have one
vote for each Class A common share and ten votes for each Class B common share
held by them and are entitled to vote, on a non-cumulative basis, at all
meetings of shareholders. However, pursuant to a mechanism specified in our
articles of association, the voting rights exercisable by a shareholder may be
limited so that certain persons or groups are not deemed to hold 9.5% or more of
the voting power conferred by our common shares. The votes that could be cast by
a shareholder but for these restrictions will be allocated to the other
shareholders. In addition, our Board of Directors may limit a shareholder's
exercise of voting rights where it deems necessary to do so to avoid adverse
tax, legal or regulatory consequences.

Under these provisions, certain shareholders may have the right to
exercise their voting rights limited to less than one vote per share, while
other shareholders may have the right to exercise their voting rights increased
to more than one vote per share. Moreover, these provisions could have the
effect of reducing the voting power of certain shareholders that would not
otherwise be subject to the limitation by virtue of their direct share
ownership. Our articles of association provide that shareholders will be
notified of the applicable voting power exercisable with respect to their common
shares prior to any vote to be taken by the shareholders. See "Description of
Share Capital -- Voting Rights."

As a result of any reallocation of votes, a shareholder's voting rights
might increase above 5% of the aggregate voting power of the outstanding common
shares, thereby possibly resulting in such shareholder becoming a reporting
person subject to Schedule 13D or 13G filing requirements under the Securities
Exchange Act of 1934.

We also have the authority under our articles of association to request
information from any shareholder for the purpose of determining whether a
shareholder's voting rights are to be reallocated pursuant to the articles of
association. If a shareholder fails to respond to our request for information or
submits incomplete or inaccurate information in response to a request by us, we
may, in our sole discretion, eliminate the shareholder's voting rights.

THERE ARE PROVISIONS IN OUR ARTICLES OF ASSOCIATION THAT MAY RESTRICT THE
ABILITY TO TRANSFER COMMON SHARES AND THAT MAY REQUIRE SHAREHOLDERS TO SELL
THEIR COMMON SHARES.

Our Board of Directors may decline to register a transfer of any common
shares (1) if it appears to our Board of Directors, in their sole and reasonable
discretion, that as a result of such transfer, after taking account of the
limitations on voting rights in our articles of association, that any non-de
minimis adverse tax, regulatory or legal consequences may occur to us, to any of
our subsidiaries or to any of our shareholders or (2) if, subject to any
applicable requirements of the Nasdaq National Market, a written opinion has not
been provided by counsel supporting the legality of the transaction under the
U.S. securities laws or if any required governmental approvals have not been
obtained.

Our articles of association also provide that if our Board of Directors
determines that share ownership by a person may result in non-de minimis adverse
tax, legal or regulatory consequences to us, to any of our subsidiaries or to
any of our shareholders, we have the option but not the obligation to require
19

such shareholders to sell for fair market value to us, or to a third party to
whom we have assigned that right to repurchase shares, the minimum number of
common shares that is necessary to eliminate the non-de minimis adverse tax,
legal or regulatory consequence. See "Description of Share Capital -- Articles
of Association -- Acquisition of Class A Common Shares by United National
Group."

YOU MAY BE REQUIRED TO INDEMNIFY US FOR ANY TAX LIABILITY THAT RESULTS FROM YOUR
ACTS.

Our articles of association provide certain protections against adverse
tax consequences to us resulting from laws that apply to our shareholders. If a
shareholder's death or non-payment of any tax or duty payable by the
shareholder, or any other act involving the shareholder, causes any adverse tax
consequences to us, (1) the shareholder (or his executor or administrator) is
required to indemnify us against any tax liability that we incur as a result,
(2) we will have a lien on any dividends or any other distributions payable to
the shareholder by us to the extent of the tax liability and (3) if any amounts
not covered by our lien on dividends and distributions are owed to us by the
shareholder as a result of our tax liability, we have the right to refuse to
register any transfer of the shareholder's shares.

THERE ARE REGULATORY LIMITATIONS ON THE OWNERSHIP AND TRANSFER OF OUR COMMON
SHARES.

State laws in the United States require prior notices or regulatory
agency approval of changes in control of an insurer or its holding company. The
insurance laws of the States of Pennsylvania, Indiana and Wisconsin, where our
U.S. insurance companies are domiciled, provide that no corporation or other
person except an authorized insurer may acquire control of a domestic insurance
or reinsurance company unless it has given notice to such company and obtained
prior written approval of the relevant insurance regulatory authorities. Any
purchaser of 10% or more of our aggregate outstanding voting power could become
subject to such regulations and could be required to file certain notices and
reports with the applicable regulatory authorities prior to such acquisition.

HOLDERS OF THE CLASS A COMMON SHARES MAY FACE DIFFICULTIES IN PROTECTING THEIR
INTERESTS BECAUSE WE ARE INCORPORATED UNDER CAYMAN ISLANDS LAW.

Following this offering, our corporate affairs will be governed by our
amended and restated memorandum and articles of association, by the Companies
Law (2003 Revision) and the common law of the Cayman Islands. The rights of our
shareholders and the fiduciary responsibilities of our directors under Cayman
Islands law are not as clearly established as under statutes or judicial
precedent in existence in jurisdictions in the United States. Therefore, you may
have more difficulty in protecting your interests in the face of actions by our
management, directors or controlling shareholder than would shareholders of a
corporation incorporated in a jurisdiction in the United States, due to the
comparatively less developed nature of Cayman Islands law in this area.

Unlike many jurisdictions in the United States, Cayman Islands law does
not specifically provide for shareholder appraisal rights. This may make it more
difficult for you to assess the value of any consideration you may receive in
connection with a business combination transaction or to require that the
offeror give you additional consideration if you believe the consideration
offered is insufficient.

Shareholders of Cayman Islands exempted companies such as ourselves have
no general rights under Cayman Islands law to inspect corporate records and
accounts or to obtain copies of lists of shareholders of the company. Our
directors have discretion under our articles of association to determine whether
or not, and under what conditions, our corporate records may be inspected by our
shareholders, but are not obliged to make them available to our shareholders.
This fact may make it more difficult for you to obtain the information needed to
establish any facts necessary for a shareholder motion or to solicit proxies
from other shareholders in connection with a proxy contest.

Subject to limited exceptions, under Cayman Islands law, a minority
shareholder may not bring a derivative action against the Board of Directors.

PROVISIONS OF OUR ARTICLES OF ASSOCIATION AND CAYMAN ISLANDS CORPORATE LAW MAY
IMPEDE A TAKEOVER, WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR CLASS A COMMON
SHARES.

Our articles of association permit our Board of Directors to issue
preferred shares from time to time, with such rights and preferences as they
consider appropriate. Our Board of Directors could authorize the issuance of
preferred shares with terms and conditions and under circumstances that could
have an effect of discouraging a takeover or other transaction.

Unlike many jurisdictions in the United States, Cayman Islands law does
not provide for mergers as that expression is understood under corporate law in
the United States. Although, Cayman Islands law does have statutory provisions
that provide for the reconstruction and amalgamation of companies, which are
commonly referred to in the Cayman Islands as "schemes of arrangement." The
procedural and legal requirements necessary to consummate these transactions are
more rigorous and take longer to complete than the procedures typically required
to consummate a merger in the United States. Under Cayman Islands law and
practice, a scheme of arrangement in relation to a solvent Cayman Islands
company must be approved at a shareholders' meeting by each class of
shareholders, in each case, by a majority of the number of holders of each class
of a company's shares that are present and voting (either in person or by proxy)
at such a meeting, which holders must also represent 75% in value of such class
issued that are present and voting (either in person or by proxy) at such
meeting (excluding the shares owned by the parties to the scheme of
arrangement).

The convening of these meetings and the terms of the amalgamation must
also be sanctioned by the Grand Court of the Cayman Islands. Although there is
no requirement to seek the consent of the creditors of the parties involved in
the scheme of arrangement, the Grand Court typically seeks to ensure that the
creditors have consented to the transfer of their liabilities to the surviving
entity or that the scheme of arrangement does not otherwise materially adversely
affect the creditors' interests. Furthermore, the Grand Court will only approve
a scheme of arrangement if it is satisfied that:

- the statutory provisions as to majority vote have been complied
with;

- the shareholders have been fairly represented at the meeting in
question;

- the scheme of arrangement is such as a businessman would reasonably
approve; and

- the scheme of arrangement is not one that would more properly be
sanctioned under some other provision of the Companies Law.

YOUR CLASS A COMMON SHARES MAY BE REDEEMED OR REPURCHASED IN CONNECTION WITH A
BUSINESS COMBINATION TRANSACTION.

Our articles of association provide that we may redeem or repurchase
Class A common shares upon the approval by our Board of Directors of, and
adoption by our shareholders of an ordinary resolution approving, an agreement
relating to a business combination transaction involving us. Relevant business
combinations would include those effected by stock purchase or any other means,
after which any person or entity (other than Fox Paine & Company and its
affiliates) would have a majority of the votes represented by our issued and
outstanding shares. We have included this provision in our articles of
association because Cayman Islands law does not provide for any statutory
merger.

Our articles of association do not specify the type or amount of
consideration that you would receive in such a redemption or repurchase, and you
will not have any appraisal or similar rights in such an event. The
consideration to be received by holders of Class A common shares from such a
redemption or repurchase due to a business combination transaction will be
dependent upon the terms of the agreement that was approved by our Board of
Directors and shareholders. These terms would be specified in the materials
furnished to holders of Class A common shares under the proxy rules in
connection with the shareholder approval necessary to effect such a business
combination. Our articles of association do not require that the consideration
to be received by holders of Class A common shares and Class B common

shares be identical, and as a result holders of Class B common shares may
receive different consideration than holders of Class A common shares.

Because Fox Paine & Company has the right to appoint a majority of our
Board of Directors and holds a majority of our total outstanding voting power,
Fox Paine & Company could cause your shares to be redeemed or repurchased
without any action from any other shareholder. As a result, you could be forced
to redeem or sell your Class A common shares at a time when you have not elected
to sell or for consideration that you consider to be inadequate.

AS A HOLDER OF THE CLASS A COMMON SHARES, YOU MAY HAVE DIFFICULTY OBTAINING OR
ENFORCING A JUDGMENT AGAINST US BECAUSE WE ARE INCORPORATED UNDER THE LAWS OF
THE CAYMAN ISLANDS.

Because we are a Cayman Islands company, there is uncertainty as to
whether the Grand Court of the Cayman Islands would recognize or enforce
judgments of United States courts obtained against us predicated upon the civil
liability provisions of the securities laws of the United States or any state
thereof, or be competent to hear original actions brought in the Cayman Islands
against us predicated upon the securities laws of the United States or any state
thereof.

We are incorporated as an exempted company with limited liability under
the laws of the Cayman Islands. A significant amount of our assets are located
outside of the United States. As a result, it may be difficult for persons
purchasing the Class A common shares to effect service of process within the
United States upon us or to enforce judgments against us or judgments obtained
in U.S. courts predicated upon the civil liability provisions of the federal
securities laws of the United States or any state of the United States.

We have been advised by our Cayman Islands counsel, Walkers, that
although there is no statutory enforcement in the Cayman Islands of judgments
obtained in the United States, the courts of the Cayman Islands will, based on
the principle that a judgment by a competent foreign court will impose upon the
judgment debtor an obligation to pay the sum for which judgment has been given,
recognize and enforce a foreign judgment of a court of competent jurisdiction if
such judgment is final, for a liquidated sum, not in respect of taxes or a fine
or penalty, is not inconsistent with a Cayman Islands judgment in respect of the
same matters, and was not obtained in a manner, and is not of a kind, the
enforcement of which is contrary to the public policy of the Cayman Islands.
There is doubt, however, as to whether the courts of the Cayman Islands will, in
an original action in the Cayman Islands, recognize or enforce judgments of U.S.
courts predicated upon the civil liability provisions of the securities laws of
the United States or any state of the United States on the grounds that such
provisions are penal in nature.

A Cayman Islands court may stay proceedings if concurrent proceedings are
being brought elsewhere.

RISKS RELATED TO TAXATION

WE MAY BECOME SUBJECT TO TAXES IN THE CAYMAN ISLANDS, BARBADOS OR BERMUDA IN THE
FUTURE, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
AND YOUR INVESTMENT.

United National Group has been incorporated under the laws of the Cayman
Islands as an exempted company and, as such, obtained an undertaking on
September 2, 2003 from the Governor in Council of the Cayman Islands
substantially that, for a period of 20 years from the date of such undertaking,
no law that is enacted in the Cayman Islands imposing any tax to be levied on
profit or income or gains or appreciation shall apply to us and no such tax and
no tax in the nature of estate duty or inheritance tax will be payable, either
directly or by way of withholding, on our common shares. This undertaking would
not, however, prevent the imposition of taxes on any person ordinarily resident
in the Cayman Islands or any company in respect of its ownership of real
property or leasehold interests in the Cayman Islands. See "Material Tax
Considerations -- Taxation of United National Group and

Subsidiaries -- Cayman Islands." Given the limited duration of the undertaking,
we cannot be certain that we will not be subject to Cayman Islands tax after the
expiration of the 20-year period.

U.N. Barbados was incorporated under the laws of Barbados on August 18,
2003. We have applied for a guarantee from the Barbados Minister of Finance to
the effect that, for a period of 15 years from the date of such guarantee, U.N.
Barbados will be entitled to benefits and exemptions from taxation as set forth
in current law. In addition, under such a guarantee, if at any time during such
15-year period, the laws are amended to provide tax rates or exemptions that are
more favorable than under current law, U.N. Barbados would be entitled to those
rates or exemptions for the remainder of such 15-year period. See "Material Tax
Considerations -- Taxation of United National Group and
Subsidiaries -- Barbados." Given the limited duration of any guarantee that we
may receive, we cannot be certain that we will not be subject to Barbados tax
after the expiration of the 15-year period.

U.N. Bermuda was formed on October 20, 2003. We have applied for an
assurance from the Bermuda Minister of Finance, under the Bermuda Exempted
Undertakings Tax Protection Act 1966, as amended, that if any legislation is
enacted in Bermuda that would impose tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of any such tax will not be
applicable to U.N. Bermuda or any of its operations, shares, debentures or other
obligations through March 28, 2016. See "Material Tax Considerations -- Taxation
of United National Group and its Subsidiaries -- Bermuda." Given the limited
duration of any assurance that we may receive, we cannot be certain that we will
not be subject to any Bermuda tax after March 28, 2016.

Following the expiration of the periods described above, we may become
subject to taxes in the Cayman Islands, Barbados or Bermuda, which may have a
material adverse effect on our results of operations and your investment.

UNITED NATIONAL GROUP, U.N. BARBADOS OR U.N. BERMUDA MAY BE SUBJECT TO U.S. TAX
THAT MAY HAVE A MATERIAL ADVERSE EFFECT ON UNITED NATIONAL GROUP'S, U.N.
BARBADOS' OR U.N. BERMUDA'S RESULTS OF OPERATIONS AND YOUR INVESTMENT.

United National Group is a Cayman Islands company, U.N. Barbados is a
Barbados company and U.N. Bermuda is a Bermuda company. Although we have not
commenced any business operations outside of the United States, we intend to
manage our business in a manner designed to reduce the risk that United National
Group, U.N. Barbados and U.N. Bermuda will be treated as engaged in a U.S. trade
or business for U.S. federal income tax purposes. However, because there is
considerable uncertainty as to the activities that constitute being engaged in a
trade or business within the United States, we cannot be certain that the U.S.
Internal Revenue Service will not contend successfully that United National
Group, U.N. Barbados or U.N. Bermuda is or will be engaged in a trade or
business in the United States. If United National Group, U.N. Barbados or U.N.
Bermuda were considered to be engaged in a business in the United States, we
could be subject to U.S. corporate income and branch profits taxes on the
portion of our earnings effectively connected to such U.S. business, in which
case our results of operations and your investment could be materially adversely
affected. See "Material Tax Considerations -- Taxation of United National Group
and its Subsidiaries -- United States."

United National Group or its non-U.S. subsidiaries might be subject to
U.S. tax or any of its U.S. subsidiaries might be subject to additional U.S. tax
on a portion of its income (which in the case of a non-U.S. subsidiary would
only include income from U.S. sources and foreign source income to the extent it
is effectively connected with a U.S. trade or business) if United National Group
or such subsidiary is considered a personal holding company, or "PHC," for U.S.
federal income tax purposes. This status will depend on whether more than 50% of
the value of our shares could be deemed to be owned (pursuant to certain
constructive ownership rules) by five or fewer individuals (including as
individuals for this purpose certain entities such as certain tax-exempt
organizations and pension funds) and whether 60% or more of United National
Group's income, or the income of any of its subsidiaries, as determined for U.S.
federal income tax purposes, consists of "personal holding company income." We
believe that five or fewer

individuals or tax-exempt organizations will be treated as owning more than 50%
of the value of our shares. Consequently, United National Group or one or more
of its subsidiaries could become PHCs, depending on whether we or any of our
subsidiaries satisfy the PHC gross income test. As a result, we intend to manage
our business to reduce the possibility that each of us will meet the 60% income
threshold. If we or any of our subsidiaries is or were to become a PHC in a
given taxable year, such company would be subject to PHC tax on its
"undistributed personal holding company income." There can be no assurance that
United National Group and each of its subsidiaries are not or will not become a
PHC immediately following this offering or in the future because of various
factors including factual uncertainties regarding the application of the PHC
rules, the makeup of our shareholder base and other circumstances that affect
the application of the PHC rules to us and our subsidiaries. Additionally, we
cannot be certain that the amount of U.S. tax that would be imposed if United
National Group or any of our subsidiaries were a PHC would be immaterial. See
"Material Tax Considerations -- Taxation of United National Group and
Subsidiaries -- United States -- Personal Holding Companies."

IF YOU ACQUIRE 10% OR MORE OF UNITED NATIONAL GROUP'S SHARES, YOU MAY BE SUBJECT
TO TAXATION UNDER THE "CONTROLLED FOREIGN CORPORATION," OR "CFC" RULES.

Each "10% U.S. Shareholder" of a foreign corporation that is a CFC for an
uninterrupted period of 30 days or more during a taxable year, and who owns
shares in the CFC directly or indirectly through foreign entities on the last
day of the CFC's taxable year, must include in its gross income for U.S. federal
income tax purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. A foreign corporation is considered a
CFC if 10% U.S. Shareholders own (directly, indirectly through foreign entities
or by attribution by application of the constructive ownership rules (i.e.,
"constructively") of section 958(b) of the U.S. Internal Revenue Code of 1986,
as amended, which we refer to as the "Code") more than 50% of the total combined
voting power of all classes of voting stock of such foreign corporation or more
than 50% of the total value of all stock of such corporation. A "10% U.S.
Shareholder" is a U.S. Person (as defined in "Material Tax
Considerations -- Taxation of Shareholders -- United States Taxation") who owns
(directly, indirectly through foreign entities or constructively) at least 10%
of the total combined voting power of all classes of stock entitled to vote of
the foreign corporation. For purposes of taking into account insurance income,
which is a category of subpart F income, the term CFC also includes a foreign
insurance company in which more than 25% of the total combined voting power of
all classes of voting stock (or more than 25% of the total value of all classes
of stock) is owned by 10% U.S. Shareholders, on any day during the taxable year
of such corporation, if the gross amount of premiums or other consideration for
the reinsurance or the issuing of insurance or annuity contracts exceeds 75% of
the gross amount of all premiums or other consideration in respect of all risks.

As a result of the attribution and constructive ownership rules described
above, we believe that United National Group, U.N. Barbados and U.N. Bermuda are
CFCs. That status as a CFC does not cause United National Group, U.N. Barbados
or U.N. Bermuda to be subject to U.S. federal income tax. Such status also has
no adverse U.S. federal income tax consequences for any U.S. Person that is not
a 10% U.S. Shareholder. We believe that because of the anticipated dispersion of
our share ownership, provisions in our organizational documents that limit
voting power (these provisions are described in "Description of Share Capital")
and other factors, no U.S. Person that acquires shares of United National Group
in this offering directly or indirectly through one or more foreign entities and
that did not own (directly, indirectly through foreign entities, or
constructively) shares of United National Group prior to this offering should be
treated as owning (directly, indirectly through foreign entities or
constructively) 10% or more of the total voting power of all classes of shares
of United National Group, U.N. Barbados or U.N. Bermuda. It is possible,
however, that the IRS could challenge the effectiveness of these provisions, and
that a court would sustain such a challenge, which would result in a 10% U.S.
Shareholder including in its gross income its pro rata share of the subpart F
income of United National Group, U.N. Barbados and U.N. Bermuda on a current
basis. See "Material Tax Considerations -- Taxation of Shareholders -- United
States Taxation -- Classification of United National Group, U.N. Barbados or
U.N. Bermuda as Controlled Foreign Corporations."

U.S. PERSONS THAT HOLD CLASS A COMMON SHARES MAY BE SUBJECT TO U.S. INCOME
TAXATION AT ORDINARY INCOME TAX RATES ON THEIR PROPORTIONATE SHARE OF OUR
"RELATED PARTY INSURANCE INCOME," OR "RPII."

If the RPII of U.N. Barbados or U.N. Bermuda were to equal or exceed 20%
of such company's gross insurance income in any taxable year and direct or
indirect insureds (and persons related to such insureds) own (or are treated as
owning directly or indirectly through entities) 20% or more of the voting power
or value of United National Group, then a U.S. Person that owns shares of United
National Group (directly or indirectly through foreign entities) on the last day
of the taxable year would be required to include in its income for U.S. federal
income tax purposes such person's pro rata share of U.N. Barbados' or U.N.
Bermuda's RPII for the entire taxable year, determined as if such RPII were
distributed proportionately only to U.S. Persons at that date regardless of
whether such income is distributed. The amount of RPII earned by U.N. Barbados
or U.N. Bermuda (generally, premium and related investment income from the
direct or indirect insurance or reinsurance of any direct or indirect U.S.
holder of shares of United National Group or any person related to such holder)
will depend on a number of factors, including the geographic distribution of the
business and the identity of persons directly or indirectly insured or reinsured
by U.N. Barbados or U.N. Bermuda. We do not expect the gross RPII of U.N.
Barbados or U.N. Bermuda in the foreseeable future to equal or exceed 20% of
such company's gross insurance income, but we cannot be certain that this will
be the case because some of the factors that determine the extent of RPII may be
beyond our control.

U.S. PERSONS THAT DISPOSE OF CLASS A COMMON SHARES MAY BE SUBJECT TO U.S. INCOME
TAXATION AT ORDINARY INCOME TAX RATES ON A PORTION OF THEIR GAIN, IF ANY.

The RPII rules provide that if a U.S. Person disposes of shares in a
foreign insurance corporation in which U.S. Persons own 25% or more of the
shares (even if the amount of RPII is less than 20% of the corporation's gross
insurance income and the ownership of its shares by direct or indirect insureds
and related persons is less than the 20% threshold), any gain from the
disposition will generally be treated as ordinary income to the extent of the
holder's share of the corporation's undistributed earnings and profits that were
accumulated during the period that the holder owned the shares (whether or not
such earnings and profits are attributable to RPII). In addition, such a holder
will be required to comply with certain reporting requirements, regardless of
the amount of shares owned by the holder. These RPII rules should not apply to
dispositions of Class A common shares in United National Group because United
National Group will not itself be directly engaged in the insurance business.
The RPII provisions, however, have never been interpreted by the courts or the
U.S. Treasury Department in final regulations, and regulations interpreting the
RPII provisions of the Code exist only in proposed form. It is not certain
whether these regulations will be adopted in their proposed form or what changes
or clarifications might ultimately be made thereto or whether any such changes,
as well as any interpretation or application of RPII by the IRS, the courts, or
otherwise, might have retroactive effect. The U.S. Treasury Department has
authority to impose, among other things, additional reporting requirements with
respect to RPII. Accordingly, the meaning of the RPII provisions and the
application thereof to us, U.N. Barbados and U.N. Bermuda is uncertain. See
"Material Tax Considerations -- Taxation of Shareholders -- United States
Taxation -- The RPII CFC Provisions."

U.S. PERSONS THAT HOLD CLASS A COMMON SHARES WILL BE SUBJECT TO ADVERSE TAX
CONSEQUENCES IF UNITED NATIONAL GROUP CONSIDERED TO BE A PASSIVE FOREIGN
INVESTMENT COMPANY, OR "PFIC," FOR U.S. FEDERAL INCOME TAX PURPOSES.

We believe that United National Group is not, has not been, and we
currently do not expect United National Group to become, a PFIC for U.S. federal
income tax purposes. We cannot assure you, however, that United National Group
will not be deemed a PFIC by the IRS. A foreign corporation will be considered a
PFIC for U.S. federal income tax purposes during a given year if (1) 75% or more
of its gross income constitutes "passive income" (i.e., interest, dividends and
other investment income) or (2) 50% or more of its assets produce passive
income. However, passive income generally does not include income derived in the
active conduct of an insurance business by a corporation that is predominantly

engaged in an insurance business, provided that the foreign corporation does not
maintain financial reserves in excess of the reasonable needs of its insurance
business, and look-through rules apply to treat a foreign corporation as earning
the income and owning the assets of any other corporation in which it owns at
least 25% of the value of the stock. If United National Group were considered a
PFIC, it could have material adverse tax consequences for an investor that is
subject to U.S. federal income taxation, including subjecting the investor to a
greater tax liability than might otherwise apply (in the event of the sale at a
gain of, or receipt of an "excess distribution" with respect to, its shares of
United National Group) and subjecting the investor to tax on amounts in advance
of when tax would otherwise be imposed (in the event of a "qualified electing
fund election" or "mark-to-market" election). There are currently no regulations
regarding the application of the PFIC provisions to an insurance company. New
regulations or pronouncements interpreting or clarifying these rules may be
forthcoming. We cannot predict what impact, if any, such guidance would have on
an investor that is subject to U.S. federal income taxation. See "Material Tax
Considerations -- Taxation of Shareholders -- United States Taxation -- Passive
Foreign Investment Companies."

U.S. PERSONS THAT HOLD CLASS A COMMON SHARES WILL BE SUBJECT TO ADVERSE TAX
CONSEQUENCES IF UNITED NATIONAL GROUP, U.N. BARBADOS OR U.N. BERMUDA IS
CONSIDERED TO BE A FOREIGN PERSONAL HOLDING COMPANY, OR "FPHC," FOR U.S. FEDERAL
INCOME TAX PURPOSES.

United National Group, U.N. Barbados or U.N. Bermuda could be considered
to be an FPHC for U.S. federal income tax purposes if more than 50% of our
shares could be deemed to be owned by five or fewer individuals who are citizens
or residents of the United States, and 60% or more of United National Group's
income, of U.N. Barbados' income or of U.N. Bermuda's income, consists of
"foreign personal holding company income," as determined for U.S. federal income
tax purposes. We believe that five or fewer individuals may be treated as owning
more than 50% of the voting power or the value of our shares. Consequently,
United National Group, U.N. Barbados or U.N. Bermuda could be or become an FPHC,
depending on whether any of those companies satisfies the FPHC gross income
test. As a result, we intend to monitor the income of United National Group,
U.N. Barbados and U.N. Bermuda to reduce the possibility that any of those
companies will meet the 60% income threshold. However, because of unknown
factors including factual uncertainties regarding the application of the FPHC
rules, the makeup of our shareholder base and other circumstances that affect
the application of the FPHC rules to us and our subsidiaries, we cannot be
certain that any of United National Group, U.N. Barbados or U.N. Bermuda will
not be considered an FPHC. If United National Group, U.N. Barbados or U.N.
Bermuda were considered an FPHC it could have material adverse tax consequences
for an investor that is subject to U.S. federal income taxation, including
imputing to such investor a portion of the "undistributed foreign personal
holding company income" (as defined for U.S. federal income tax purposes) of
such entity. Such income would be taxable as a dividend even if no distribution
were made and should not be eligible for a reduced rate of tax under recently
enacted legislation with respect to dividends paid before 2009. In addition, if
United National Group were considered an FPHC in the tax year next preceding the
date of death of any U.S. individual owning Class A common shares, such
individual's heirs or estate would not be entitled to a "step-up" in the basis
of the Class A common shares that might otherwise be available under U.S.
federal income tax laws. See "Material Tax Considerations -- Taxation of
Shareholders -- United States Taxation-Foreign Personal Holding Companies."

U.S. TAX-EXEMPT ORGANIZATIONS THAT OWN OUR CLASS A COMMON SHARES MAY RECOGNIZE
UNRELATED BUSINESS TAXABLE INCOME.

A U.S. tax-exempt organization may recognize unrelated business taxable
income if a portion of our insurance income is allocated to the organization. In
general, insurance income will be allocated to a U.S. tax-exempt organization if
either United National Group, U.N. Barbados or U.N. Bermuda is a CFC and the
tax-exempt shareholder is a 10% U.S. Shareholder or there is RPII and certain
exceptions do not apply. Although we do not believe that any U.S. Persons should
be allocated such insurance income, we cannot be certain that this will be the
case. See "Material Tax Considerations -- Taxation of Shareholders -- United
States Taxation -- Classification of United National Group, U.N. Barbados or

U.N. Bermuda as Controlled Foreign Corporations" and "Material Tax
Considerations -- Taxation of Shareholders -- United States Taxation -- The RPII
CFC Provisions." Potential U.S. tax-exempt investors are advised to consult
their own tax advisors.

CHANGES IN U.S. FEDERAL INCOME TAX LAW COULD MATERIALLY ADVERSELY AFFECT AN
INVESTMENT IN OUR CLASS A COMMON SHARES.

Legislation has been introduced in the U.S. Congress intended to
eliminate certain perceived tax advantages of companies (including insurance
companies) that have legal domiciles outside the United States but have certain
U.S. connections. In this regard, legislation has been introduced that includes
a provision that permits the IRS to reallocate or re-characterize items of
income, deduction or certain other items related to a reinsurance agreement
between related parties to reflect the proper source, character and amount for
each item (in contrast to current law, which only refers to source and
character). While there are no currently pending legislative proposals that, if
enacted, would have a material adverse effect on us or our shareholders, it is
possible that broader based legislative proposals could emerge in the future
that could have an adverse impact on us or our shareholders.

Additionally, the U.S. federal income tax laws and interpretations
regarding whether a company is engaged in a trade or business within the United
States, or is a PFIC or whether U.S. Persons would be required to include in
their gross income the subpart F income or the RPII of a CFC are subject to
change, possibly on a retroactive basis. There are currently no regulations
regarding the application of the PFIC rules to insurance companies and the
regulations regarding RPII are still in proposed form. New regulations or
pronouncements interpreting or clarifying such rules may be forthcoming. We
cannot be certain if, when or in what form such regulations or pronouncements
may be provided and whether such guidance will have a retroactive effect.

THE IMPACT OF THE CAYMAN ISLANDS' AND BERMUDA'S LETTERS OF COMMITMENT OR OTHER
CONCESSIONS TO THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT TO
ELIMINATE HARMFUL TAX PRACTICES IS UNCERTAIN AND COULD ADVERSELY AFFECT OUR TAX
STATUS IN THE CAYMAN ISLANDS OR BERMUDA.

The Organization for Economic Cooperation and Development, which is
commonly referred to as the OECD, has published reports and launched a global
dialogue among member and non-member countries on measures to limit harmful tax
competition. These measures are largely directed at counteracting the effects of
tax havens and preferential tax regimes in countries around the world. In the
OECD's report dated April 18, 2002, the Cayman Islands and Bermuda were not
listed as uncooperative tax haven jurisdictions because each had previously
committed itself to eliminate harmful tax practices and to embrace international
tax standards for transparency, exchange of information and the elimination of
any aspects of the regimes for financial and other services that attract
business with no substantial domestic activity. We are not able to predict what
changes will arise from the commitment or whether such changes will subject us
to additional taxes. Barbados was not included in the list because it has
longstanding information exchange arrangements with other countries, which have
been found by its treaty partners to operate in an effective manner.

THERE IS A RISK THAT DIVIDENDS AND INTEREST PAID TO U.N. BARBADOS BY OUR U.S.
SUBSIDIARIES MAY NOT BE ELIGIBLE FOR BENEFITS UNDER THE U.S.-BARBADOS INCOME TAX
TREATY.

UN Holdings II, Inc. is a Delaware corporation wholly owned by U.N.
Barbados. Under U.S. federal income tax law, dividends and interest paid by a
U.S. corporation to a non-U.S. shareholder are generally subject to a 30%
withholding tax, unless reduced by treaty. The income tax treaty between
Barbados and the United States, or the "Barbados Treaty," reduces the rate of
withholding tax on interest payments to 5% and on dividends to 15%, or 5% if the
shareholder owns 10% or more of the company's voting stock. Were the IRS to
successfully contend that U.N. Barbados is not eligible for benefits under the
Barbados Treaty, dividends and interest paid to U.N. Barbados from U.S.
companies would be subject to the 30% withholding tax. Such tax may be applied
retroactively to all previous tax years for which the statute of limitations has
not expired, with interest and penalties. Such a result may have a material
adverse effect on our financial condition and results of operations.

THE UNITED STATES COULD OVERRIDE OR RENEGOTIATE THE INCOME TAX TREATY BETWEEN
THE UNITED STATES AND BARBADOS.

Legislation has been introduced in the U.S. Congress that would override
the Barbados Treaty. We cannot predict whether this proposed legislation or
other similar legislation will be enacted. In addition, a recent press release
by the U.S. Treasury Department indicates that the United States and Barbados
are currently discussing revisions to the Barbados Treaty and that concluding
these revisions is a matter of priority for both governments. Accordingly, no
assurances can be given as to the availability of benefits under the Barbados
Treaty in future years.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Industry Background and Trends," "Business" and elsewhere in this prospectus
may include forward-looking statements that reflect our current views with
respect to future events and financial performance. Such statements include
forward-looking statements both with respect to us specifically and the
insurance and reinsurance sectors in general, both as to underwriting and
investment matters. Statements that include the words "expect," "intend,"
"plan," "believe," "project," "anticipate," "seek," "will" and similar
statements of a future or forward-looking nature identify forward-looking
statements for purposes of the federal securities laws or otherwise.

All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. We believe that these factors include, but are not limited to, the
following:

- ineffectiveness of our business strategy due to changes in current
or future market conditions;

- the effects of competitors' pricing policies, and of changes in
laws and regulations on competition, including industry
consolidation and development of competing financial products;

- greater frequency or severity of claims and loss activity than our
underwriting, reserving or investment practices have anticipated;

- decreased level of demand for our insurance products or increased
competition due to an increase in capacity of property and casualty
insurers;

- our ability to implement our business plan for our Non-U.S.
Operations;

- the inability to obtain or maintain financial strength or
claims-paying ratings by one or more of our U.S. Insurance
Subsidiaries;

- United National Group, U.N. Barbados or U.N. Bermuda becoming
subject to income taxes in the United States;

- judicial decisions;

- changes in regulations or tax laws applicable to us, our
subsidiaries, brokers or customers;

- acceptance of our products and services, including new products and
services;

- changes in the availability, cost or quality of reinsurance or a
deterioration of the claims-paying ability of reinsurers who have
payment obligations to us;

- the effect of acts of terrorism;

- the effects of terrorist-related insurance legislation and laws;

- loss of key personnel;

- political stability of the Cayman Islands;

- changes in accounting policies or practices; and

- changes in general economic conditions, including inflation and
other factors that could affect our investment portfolio.

The foregoing review of important factors should not be construed as exhaustive
and should be read in conjunction with the other cautionary statements that are
included in this prospectus. We undertake no obligation to publicly update or
review any forward-looking statement, whether as a result of new information,
future developments or otherwise.

USE OF PROCEEDS

We estimate the net proceeds from this offering will be approximately
$ million, based on an assumed initial public offering price of $ , the
midpoint of the estimated range set forth on the cover page of this prospectus,
and after deducting the underwriting discount and our estimated offering
expenses of $ million. If the underwriters exercise their overallotment option
in full, we estimate our net proceeds will be approximately $ million.

We intend to use up to $150.0 million of these net proceeds to redeem all
of our 15.0 million outstanding Series A preferred shares, which are currently
held by Fox Paine & Company and the Ball family trusts. The redemption price for
each Series A preferred share is currently $11.825, which represents 110% of the
sum of the current liquidation preference per Series A preferred share, which is
$10.00, plus accrued but unpaid dividends of $0.75 per Series A preferred share.
Of this redemption price, we will pay $10.00 in cash, and we will pay the
remainder in Class A common shares, valued at the initial public offering price.
We will use any remaining proceeds for general corporate purposes, including to
capitalize our Non-U.S. Operations.

DIVIDEND POLICY

We do not anticipate paying any cash dividends on any class of our common
shares in the foreseeable future. We currently intend to retain any future
earnings to fund the development and growth of our business. Any future
determination to pay dividends will be at the discretion of our Board of
Directors and will depend upon our results of operations, financial condition,
cash requirements, prospects and other factors our Board of Directors deems
relevant.

We are a holding company and have no direct operations. Our ability to
pay dividends depends, in part, on the ability of U.N. Barbados, U.N. Bermuda
and our U.S. Insurance Subsidiaries to pay dividends. U.N. Barbados, U.N.
Bermuda and our U.S. Insurance Subsidiaries are subject to significant
regulatory restrictions limiting their ability to declare and pay dividends. See
"Risk Factors -- Regulatory and other constraints limit our ability to pay
dividends and make other payments."

For 2003, the maximum amount of distributions that our subsidiaries could
pay to us under applicable laws and regulations without prior regulatory
approval is approximately $22.9 million.

CAPITALIZATION

The following table sets forth our capitalization as of September 30,
2003:

- on an actual basis; and

- on an as adjusted basis to reflect the sale of Class A common
shares in this offering at an initial public offering price of
$ per Class A common share, the midpoint of the estimated range
set forth on the cover page of this prospectus, and the application
of the net proceeds from this offering as described under "Use of
Proceeds."

You should read this table together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and accompanying notes included elsewhere in this
prospectus.

<Table>
<Caption>
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS) -------- -----------

Senior notes(1)............................................. $ 72,848 $72,848
Subordinated company-obligated mandatory redeemable
preferred security of subsidiary holding solely junior
subordinated securities................................... 10,000
Shareholders' equity:
Share capital (authorized 900,000,000 common shares, par
value $0.0001; issued and outstanding: 2,698,750 Class
A common shares and 12,687,500 Class B common shares
actual; Class A common shares and 12,687,500
Class B common shares as adjusted)(2).................. 1
Share capital (authorized 100,000,000 preferred shares,
par value $0.0001; issued and outstanding: 15,000,000
Series A preferred shares actual; and 0 as adjusted)... 2
Additional paid in capital................................ 315,107
Accumulated other comprehensive income.................... 8,689
Retained earnings......................................... 33,115
-------- -------
Total shareholders' equity.................................. $356,914
-------- -------
Total capitalization........................................ $439,762 $
======== =======
</Table>

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

(1) Senior notes in an aggregate principal amount of approximately $72.8 million
were issued to the Ball family trusts as described under "Our Relationship
with Fox Paine & Company." These senior notes bear interest at a rate of
5.0% per annum, payable in cash or in kind, and mature on September 5, 2015,
subject to mandatory prepayment under certain conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Resources."

(2) The number of shares shown to be outstanding excludes 1,138,574 Class A
common shares that may be issued pursuant to options that had been granted
as of the acquisition date at a weighted average exercise price of $9.21 per
share, and 861,426 additional Class A common shares available for future
issuance under our stock option incentive plan and warrants to purchase an
aggregate of 55,000 Class A common shares at an exercise price of $10.00 per
share.

DILUTION

As of September 30, 2003, our net tangible book value was $356.9 million,
or $11.75 per Class A common share, based on 30,386,250 Class A common shares
outstanding (assuming full conversion of the Class B common shares and Series A
preferred shares). As used below, "net tangible book value" per Class A common
share represents the excess of our total consolidated tangible assets over our
total consolidated liabilities, divided by the number of Class A common shares
outstanding (assuming full conversion of the Class B common shares and Series A
preferred shares) and without giving effect to this offering. After giving
effect to the sale and issuance of Class A common shares in this offering
at an initial public offering price of $ per share (the mid-point of the
estimated range set forth on the cover page of this prospectus), after deducting
the underwriting discount and our estimated offering expenses and the
application of the net proceeds of this offering as described under "Use of
Proceeds" and together with the issuance of Class A common shares in
connection with the redemption of the Series A preferred shares, our net
tangible book value as of September 30, 2003 would have been approximately
$ million or $ per Class A common share. This amount represents an
immediate increase of $ per Class A common share to the existing
shareholders and an immediate dilution of $ per Class A common share to
investors purchasing Class A common shares in this offering. The following table
illustrates this dilution:

<Table>

Assumed initial public offering price per Class A
common share.......................................... $
Net tangible book value per Class A common share as
of September 30, 2003...............................
Increase in net tangible book value per Class A
common share attributable to this offering..........
Net tangible book value per Class A common share after
this offering.........................................
Dilution per Class A common share to new investors..... $
</Table>

If the underwriters exercise their overallotment option in full, dilution
per Class A common share to new investors will be $ per Class A common
share.

The following table summarizes, as of September 30, 2003, the difference
between the number of our Class A common shares purchased prior to this offering
(assuming full conversion of our Class B common shares and our Series A
preferred shares), the total consideration paid and the average price per common
share paid by our existing shareholders and new investors, after giving effect
to the issuance of Class A common shares in this offering and after the
application of the net proceeds from this offering as described under "Use of
Proceeds":

<Table>
<Caption>
CLASS A COMMON
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT % PER SHARE
---------------------- ---------- ----- --------- ------- -------------

Existing shareholders................... 30,386,250 % 301,988 % $9.94
New investors...........................
---------- ----- ------- ----- -----
Total.............................. 100.0% 100.0% $
========== ===== ======= ===== =====
</Table>

PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information is based on
available information and on assumptions we believe are reasonable. The
following unaudited pro forma financial information is not indicative of our
consolidated results of operations had these transactions been completed on the
dates assumed, and does not in any way represent a projection or forecast of our
consolidated results of operations for or as of any future period or date.

You should read the following unaudited pro forma financial information in
conjunction with the consolidated financial statements and the accompanying
notes of United National Group ("Successor") and Wind River Investment
Corporation ("Predecessor") and the information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.

The unaudited pro forma information gives effect to:

- the capitalization of United National Group by Fox Paine & Company;

- the acquisition of Wind River Investment Corporation by United
National Group; and

- the issuance of 198,750 Class A common shares to certain executives of
United National Group;

in each case, as if such transactions were completed at the beginning of the
applicable period.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2002

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
PRO FORMA
POST- PRO FORMA
HISTORICAL ACQUISITION POST-OFFERING
YEAR ENDED PURCHASE YEAR ENDED YEAR ENDED
DECEMBER 31, ACCOUNTING DECEMBER 31, DECEMBER 31,
2002 ADJUSTMENTS 2002 2002
------------ ----------- ------------ -------------

REVENUES:
Gross premiums written...................... $ 793,083 $ -- $ 793,083 $ 793,083
========= ======== ========= =========
Net premiums written........................ $ 172,689 $ -- $ 172,689 $ 172,689
========= ======== ========= =========
Net premiums earned......................... 162,763 (11,583)(a) 151,180 151,180
Net investment income....................... 17,685 (1,391)(b) 16,294 16,294
Net realized investment (losses)............ (11,702) -- (11,702) (11,702)
--------- -------- --------- ---------
Total revenues............................ 168,746 (12,974) 155,772 155,772
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses..... 201,750 -- 201,750 201,750
Acquisition costs and other underwriting
expenses.................................. 18,938 (6,809)(c) 7,290 7,290
(4,839)(d)
Provision for doubtful reinsurance
receivables............................... 44,000 -- 44,000 44,000
Other operating expenses.................... 5,874 -- 5,874 5,874
Interest expense............................ 115 3,640(e) 3,755 3,755
--------- -------- --------- ---------
Income (loss) before income taxes........... (101,931) (4,966) (106,897) (106,897)
Income tax (benefit)........................ (40,520) (1,738)(f) (42,258) (42,258)
--------- -------- --------- ---------
Net loss before equity in net loss of
partnerships........................... (61,411) (3,228) (64,639) (64,639)
Equity in net earnings of partnerships...... (252) -- (252) (252)
--------- -------- --------- ---------
Net (loss) before extraordinary gain...... $ (61,663) $ (3,228) $ (64,891) $ (64,891)
========= ======== ========= =========
PER SHARE DATA:
Weighted-average common shares
outstanding............................... 100
Weighted-average share equivalents
outstanding............................... --
--------- ---------
Weighted average share and share equivalents
outstanding............................... 100
--------- ---------
Basic earnings per share before
extraordinary gain........................ (610,630) $
========= =========
Diluted earnings per share before
extraordinary gain........................ $(610,630) $
========= =========
</Table>

See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
34

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
PRO FORMA PRO FORMA
HISTORICAL PURCHASE POST-ACQUISITION POST-OFFERING
NINE MONTHS ENDED ACCOUNTING NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 ADJUSTMENTS SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
REVENUES: ------------------ ----------- ------------------ ------------------

Gross premiums written.......... $ 543,813 $ -- $ 543,813 $ 543,813
========= ======== ========= =========
Net premiums written............ $ 148,808 $ -- $ 148,808 $ 148,808
========= ======== ========= =========
Net premiums earned............. 138,941 (7,870)(a) 131,071 131,071
Net investment income........... 14,081 (945)(b) 13,136 13,136
Net realized investment gains... 4,871 -- 4,871 4,871
--------- -------- --------- ---------
Total revenues................ 157,893 (8,815) 149,078 149,078
LOSSES AND EXPENSES:
Net losses and loss adjustment
expenses...................... 92,234 -- 92,234 92,234
Acquisition costs and other
underwriting expenses......... 35,130 (4,626)(c) 27,216 27,216
(3,288)(d)
Provision for doubtful
reinsurance receivables....... 1,750 -- 1,750 1,750
Other operating expenses........ 412 -- 412 412
Interest expense................ 295 2,473(e) 2,768 2,768
--------- -------- --------- ---------
Income before income taxes...... 28,072 (3,374) 24,698 24,698
Income tax expense.............. 5,744 (1,181)(f) 4,563 4,563
--------- -------- --------- ---------
Net income before equity in
net income of
partnerships............... 22,328 (2,193) 20,135 20,135
Equity in net income of
partnerships.................. 2,092 -- 2,092 2,092
--------- -------- --------- ---------
Net income before
extraordinary gain......... $ 24,420 $ (2,193) $ 22,227 $ 22,227
========= ======== ========= =========
PER SHARE DATA:
Weighted-average common shares
outstanding................... 100
Weighted-average share
equivalents outstanding.......
--------- ---------
Weighted-average shares and
share equivalents
outstanding................... 100
--------- ---------
Basic earnings per share before
extraordinary gain............ $ 244,200 $
========= =========
Diluted earnings per share
before extraordinary gain..... $ 244,200 $
========= =========
</Table>

See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
35

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS

The unaudited pro forma condensed consolidated statements of operations
reflect amounts contained in the unaudited historical financial statements of
Wind River Investment Corporation, United National Group's predecessor, for the
year ended December 31, 2002 and the combined statements of operations of Wind
River Investment Corporation and United National Group for the nine months ended
September 30, 2003. United National Group acquired 100% of the issued and
outstanding voting stock of Wind River Investment Corporation. The following
adjustments have been reflected in the unaudited pro forma condensed
consolidated statements of operations as if the purchase occurred at the
beginning of each period:

(a) For the year ended December 31, 2002 and the nine months ended
September 30, 2003, Wind River Investment Corporation reduced gross
premiums earned by $79.9 million and $54.3 million and ceded
premiums earned by $68.3 million and $46.4 million, respectively, to
reflect the proportionate reduction of unearned premiums on the
unaudited condensed consolidated balance sheet. This resulted in a
decrease to net premiums earned of $11.6 million and $7.9 million
for the year ended December 31, 2002 and the nine months ended
September 30, 2003, respectively.

(b) Wind River Investment Corporation recalculated the net
amortization/accretion of the premium/discount on its fixed maturity
investments as if the cost basis of the securities had been adjusted
to the estimated fair values of the securities at the beginning of
each period. For the purpose of this calculation, the change in the
market yield was estimated based on the amount of net unrealized
gains on fixed maturity investments at the date of acquisition,
amortized over the estimated average life of the portfolio (5
years). This adjustment resulted in a decrease in net investment
income of $1.4 million and $0.9 million, for the year ended December
31, 2002 and the nine months ended September 30, 2003, respectively.

(c) Acquisition costs and other underwriting expenses were adjusted to
exclude amortization of deferred acquisition costs written off on
the unaudited pro forma condensed consolidated balance sheet as of
September 30, 2003. For the year ended December 31, 2002 and the
nine months ended September 30, 2003, acquisition costs and other
underwriting expenses were reduced by $6.8 million and $4.6 million,
respectively, as a result of this adjustment.

(d) Acquisition costs and other underwriting expenses were adjusted to
exclude depreciation and amortization of certain assets, such as
furniture and equipment and prepaid expenses, that were eliminated
on the unaudited pro forma condensed consolidated balance sheet as
of September 30, 2003. For the year ended December 31, 2002 and the
nine months ended September 30, 2003, acquisition costs and other
underwriting expenses were reduced by $4.8 million and $3.2 million,
respectively, as a result of this adjustment.

(e) The $72.8 million note issued by Wind River Investment Corporation
to the Ball family trusts in connection with the acquisition bears
interest at an annual rate of 5.0%. For the year ended December 31,
2002 and the nine months ended September 30, 2003, respectively, the
unaudited pro forma condensed consolidated statements of operations
have been adjusted to reflect additional interest expense of $3.6
million and $2.5 million, respectively.

(f) The $1.7 million increase to the income tax benefit for the year
ended December 31, 2002 and the $1.2 million reduction of income tax
expense for the nine months ended September 30, 2003 represents the
tax effect of the adjustments reflected in the unaudited pro forma
condensed consolidated statements of operations.

OTHER ITEMS

Prior to the acquisition, Wind River Investment Corporation had an
executive stock appreciation rights plan. Concurrent with the acquisition, the
stock appreciation rights plan was settled and terminated.

Until the date of acquisition, Wind River Investment Corporation
participated in a defined benefit pension plan. Subsequent to the acquisition,
Wind River Investment Corporation's participation in the plan was discontinued.
Concurrently, United National Group's 401(k) plan was enhanced to increase
employer contributions from 50% of the first 6% of wages contributed by the
participant to 75% of the first 6% of wages contributed by the participant.
Additionally, Wind River Investment Corporation will make a contribution of 1%
of wages for all employees even if the employee elects not to contribute to the
401(k) plan. United National Group also implemented a new health and welfare
plan for its employees in connection with the acquisition. These changes are not
expected to materially alter United National Group's expenses in future periods.

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial data for
United National Group and, for periods prior to September 5, 2003, Wind River
Investment Corporation, which is considered United National Group's predecessor
for accounting purposes. This selected financial data is derived from the
consolidated financial statements and accompanying notes of Wind River
Investment Corporation and United National Group included elsewhere in this
prospectus. You should read this selected historical financial data together
with the consolidated financial statements and accompanying notes of Wind River
Investment Corporation and United National Group and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.

<Table>
<Caption>
PREDECESSOR
-------------

PREDECESSOR FOR THE
-------------------------------------------------------------- NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED
-------------------------------------------------------------- SEPTEMBER 30,
1998 1999 2000 2001 2002 2002
---------- ---------- ---------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Gross premiums written......................... $ 296,426 $ 357,605 $ 453,464 $ 670,520 $ 793,083 $ 680,817
========== ========== ========== ========== ========== ==========
Net premiums written........................... $ 94,547 $ 117,883 $ 127,572 $ 169,310 $ 172,689 $ 171,047
========== ========== ========== ========== ========== ==========
Net premiums earned............................ $ 95,740 $ 103,455 $ 136,931 $ 150,336 $ 162,763 $ 157,557
Investment income.............................. 22,628 24,637 28,578 24,491 24,595 18,131
Investment expenses............................ (4,778) (4,969) (6,088) (5,138) (6,910) (5,163)
---------- ---------- ---------- ---------- ---------- ----------
Investment income, net......................... 17,850 19,668 22,490 19,353 17,685 12,968
----------
Net realized investment gains (losses)......... 3,556 (5,210) 593 (12,719) (11,702) (15,039)
---------- ---------- ---------- ---------- ---------- ----------
Total revenues.............................. 117,146 117,913 160,014 156,970 168,746 155,486
Net losses and loss adjustment expenses(1)..... 67,002 76,257 113,151 128,338 201,750 143,187
Acquisition costs and other underwriting
expenses...................................... 15,584 11,913 14,999 15,867 18,938 14,339
Provision for doubtful reinsurance
receivables(3)(4)............................. -- -- -- -- 44,000 --
Other operating expenses....................... 2,399 2,112 2,918 2,220 5,874 2,436
Interest expense............................... 922 589 322 77 115 676
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........... 31,239 27,042 28,624 10,468 (101,931) (5,152)
Income tax expense (benefit)................... 6,751 6,252 5,883 295 (40,520) (5,333)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships............. 24,488 20,790 22,741 10,173 (61,411) 181
Equity in net income (loss) of partnerships.... -- -- -- 664 (252) (995)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
gain...................................... 24,488 20,970 22,741 10,837 (61,663) (814)
Extraordinary gain............................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ 24,488 $ 20,790 $ 22,741 $ 10,837 $ (61,663) $ (814)
========== ========== ========== ========== ========== ==========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment expenses
ratio(1)(2)................................... 70.0% 73.7% 82.6% 85.3% 124.0% 90.9%
Underwriting expense ratio(3)(4)(5)............ 16.3 11.5 11.0 10.6 38.6 9.1
---------- ---------- ---------- ---------- ---------- ----------
Combined ratio(4)(6)(7)........................ 86.3% 85.2% 93.6% 95.9% 162.6% 100.0%
========== ========== ========== ========== ========== ==========
Net/gross premiums written..................... 31.9% 33.0% 28.1% 25.3% 21.8% 25.1%
========== ========== ========== ========== ========== ==========
FINANCIAL POSITION AS OF LAST DAY OF PERIOD:
Total investments and cash and cash
equivalents................................... $ 444,417 $ 423,397 $ 483,435 $ 516,408 $ 611,129 $ 588,759
Reinsurance receivables, net of allowance...... 598,086 648,189 694,766 799,066 1,743,524 847,031
Total assets................................... 1,234,549 1,365,754 1,376,528 1,575,754 2,685,620 1,753,908
Unpaid losses and loss adjustment expenses..... 802,692 805,717 800,630 907,357 2,004,422 994,368
Total shareholders' equity..................... $ 277,733 $ 285,064 $ 315,343 $ 324,844 $ 268,637 $ 332,432

<Caption>
PREDECESSOR SUCCESSOR
------------ -------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 6,
2003 TO 2003 TO
SEPTEMBER 5, SEPTEMBER 30,
2003 2003
------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Gross premiums written......................... $ 510,623 $ 33,190
========== ==========
Net premiums written........................... $ 139,116 $ 9,692
========== ==========
Net premiums earned............................ $ 128,254 $ 10,687
Investment income.............................. 15,733 1,347
Investment expenses............................ (2,444) (555)
---------- ----------
Investment income, net......................... 13,289 792
---------- ----------
Net realized investment gains (losses)......... 5,589 (718)
---------- ----------
Total revenues.............................. 147,132 10,761
Net losses and loss adjustment expenses(1)..... 84,885 7,349
Acquisition costs and other underwriting
expenses...................................... 30,543 4,587
Provision for doubtful reinsurance
receivables(3)(4)............................. 1,750 --
Other operating expenses....................... 288 124
Interest expense............................... 46 249
---------- ----------
Income (loss) before income taxes........... 29,620 (1,548)
Income tax expense (benefit)................... 6,850 (1,106)
---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships............. 22,770 (442)
Equity in net income (loss) of partnerships.... 1,834 258
---------- ----------
Net income (loss) before extraordinary
gain...................................... 24,604 (184)
Extraordinary gain............................. -- 46,424
---------- ----------
Net income (loss)........................... $ 24,604 $ 46,240
========== ==========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment expenses
ratio(1)(2)................................... 66.2% 68.8%
Underwriting expense ratio(3)(4)(5)............ 25.2 42.9
---------- ----------
Combined ratio(4)(6)(7)........................ 91.4% 111.7%
========== ==========
Net/gross premiums written..................... 27.2% 29.2%
========== ==========
FINANCIAL POSITION AS OF LAST DAY OF PERIOD:
Total investments and cash and cash
equivalents................................... $ 667,836 $ 800,169
Reinsurance receivables, net of allowance...... 1,843,667 1,785,213
Total assets................................... 2,837,545 2,834,919
Unpaid losses and loss adjustment expenses..... 2,120,594 2,085,658
Total shareholders' equity..................... $ 296,917 $ 356,914
</Table>

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

(1) In 2002, we increased our net loss reserves relative to accident years 2001
and prior by $47.8 million primarily due to higher than anticipated losses
in the multi-peril and other liability lines of business and by $23.6
million due to the conclusion of an arbitration proceeding. The net loss and
loss adjustment expense ratio increased by 43.9 percentage points in 2002
due to this $71.4 million increase in net loss reserves.

(2) Our loss ratio for the period September 6, 2003 to September 30, 2003
includes a 9.7 percentage point increase attributable to a $1.7 million
reduction in earned premium due to purchase accounting.

(3) We established an allowance for doubtful reinsurance receivables in 2002,
which resulted in a 27.0 percentage point increase in our 2002 underwriting
expense ratio.

(4) Our underwriting expense ratio for the period from January 1, 2003 to
September 5, 2003 includes a 4.4 percentage point increase attributable to a
$3.8 million expense for stock appreciation rights and retention payments
made to certain key executives upon completion of the acquisition and a $1.8
million allowance for doubtful reinsurance receivables.

(5) Our underwriting expense ratio for the period from September 6, 2003 to
September 30, 2003 includes a 14.1 percentage point increase attributable to
the following: (a) a $1.7 million reduction in earned premium due to
purchase accounting; (b) $0.6 million of organizational costs; and (c) $0.4
million of deferred compensation option expense.

(7) Our combined ratio for the period September 6, 2003 to September 30, 2003
includes a 23.8 percentage point increase in our ratio attributable to our
$1.7 million reduction in earned premium, $0.6 million of organizational
costs and $0.4 million of deferred compensation option expense.

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

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and accompanying notes of Wind River Investment Corporation
and United National Group included elsewhere in this prospectus. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this prospectus, including information with respect to our plans and strategy,
constitutes forward-looking statements that involve risks and uncertainties.
Please see "Cautionary Note Regarding Forward-Looking Statements" and "Risk
Factors" for more information. You should review "Risk Factors" for a discussion
of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained
herein.

OVERVIEW

Our results of operations are affected by the following business and
accounting factors and critical accounting policies:

REVENUES

We derive our revenues primarily from premiums paid on insurance policies
that we write and from income generated by our investment portfolio, net of fees
paid for investment management and investment accounting services. The amount of
insurance premiums that we receive is a function of the amount and type of
policies we write, as well as of prevailing market prices.

EXPENSES

Our expenses include losses and loss adjustment expenses, acquisition
costs and other underwriting expenses, other operating expenses and interest and
other investment expenses. Losses and loss adjustment expenses are estimated by
management and reflect our best estimate of ultimate losses and costs arising
during the reporting period and revisions of prior period estimates. We record
losses and loss adjustment expenses based on an actuarial analysis of the
estimated losses we expect to be reported on insurance policies written. The
ultimate losses and loss adjustment expenses will depend on the actual costs to
resolve claims. Acquisition expenses consist principally of commissions that are
typically a percentage of the premiums on insurance policies written, net of
ceding commissions earned from reinsurers. Other underwriting expenses consist
primarily of personnel expenses and general operating expenses. Other operating
expenses are comprised primarily of management fees paid to affiliates of our
shareholders. Interest expense consists of interest paid on funds held on behalf
of others.

CRITICAL ACCOUNTING POLICIES

INVESTMENTS

Fair values

The carrying amount for our investments approximates their estimated fair
value. We measure the fair value of investments in our fixed income and equity
portfolios based upon quoted market prices. We also hold investments in several
limited partnerships, which were valued at $44.7 million as of September 30,
2003. Several of these partnerships invest solely in securities that are
publicly traded and are valued at the net asset value as reported by the
investment manager. As of September 30, 2003, the limited partnership portfolio
included $18.4 million in securities for which there is no readily available
independent market price. The estimated fair value of such securities is
determined by the general partner of each limited partnership based on
comparisons to transactions involving similar investments. Material assumptions
and factors utilized in pricing these securities include future cash flows,
constant default rates, recovery rates and any market clearing activity that may
have occurred since the prior month-end pricing period.

Classification of Investments

Prior to the September 5, 2003 acquisition of our U.S. Operations, our
equity portfolio and our convertible bond portfolio were treated as trading
securities, and as such, any change in market value was recorded on our income
statement. Subsequent to the date of acquisition, all securities will be
designated as available for sale, and any change in market value will be
included in other comprehensive income in shareholders' equity and, accordingly,
have no effect on net income except for investment market declines deemed to be
other than temporary.

Other Than Temporary Impairment

We regularly perform various analytical procedures with respect to our
investments, including identifying any security the fair value of which is below
its cost. Upon identification of such securities, we perform a detailed review
for all securities meeting predetermined thresholds, to determine whether such
decline is other than temporary. If we determine a decline in value to be other
than temporary based upon this detailed review, or if a decline in value for an
investment has persisted for 12 continuous months, or if the value of the
investment has been 20% or more below cost for six continuous months or more, or
significant declines in value for shorter periods of time, we evaluate the
security to determine whether the cost basis of the security should be written
down to its fair value. The factors we consider in reaching the conclusion that
a decline below cost is other than temporary include among others, whether the
issuer is in financial distress; the investment is secured; a significant credit
rating action occurred; scheduled interest payments were delayed or missed and
changes in laws or regulations have impacted an issuer or industry. We include
the amount of any write-down in earnings as a realized loss in the period in
which the impairment arose.

LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for unpaid losses and loss adjustment expenses ($2,004.4
million and $2,085.7 million, gross of reinsurance; $260.8 million and $286.7
million, net of reinsurance, as of December 31, 2002 and September 30, 2003,
respectively) reflects our best estimate for future amounts needed to pay losses
and related adjustment expenses and the impact of our reinsurance coverages with
respect to insured events. The process of establishing the liability for
property and casualty unpaid losses and loss adjustment expenses is a complex
process, requiring the use of informed estimates and judgments. This liability
includes an amount determined on the basis of claim adjusters' evaluations with
respect to insured events that occurred and an amount for losses incurred that
have not been reported to us. In some cases, significant periods of time, up to
several years or more, may elapse between the occurrence of an insured loss and
the reporting of the loss to us.

The total liability for net unpaid loss and loss adjustment expense
includes both reported and incurred but not reported, or "IBNR," reserves. IBNR
reserves are calculated using standard actuarial methods. The reviews and
documentation are completed in accordance with professional actuarial standards.
A point estimate is developed around which an actuarial range is built. As of
September 30, 2003, the upper limit of the range is 9.9% above the recorded net
liability for unpaid losses and loss adjustment expenses and the lower limit is
7.7% below the recorded amount.

The method for determining our liability for unpaid losses and loss
adjustment expenses includes, among other things, reviewing past loss experience
and considering other factors such as legal, social and economic developments.
We regularly review and update the methods of making such estimates and
establishing the resulting liabilities and we make any resulting adjustment in
the accounting period in which the adjustment arose.

The significant uncertainties relating to environmental and asbestos
claims on insurance policies written are discussed under "Business -- Reserves
For Unpaid Losses and Loss Adjustment Expenses."

We had 263 asbestos claims outstanding as of September 30, 2003. For the
year ended December 31, 2002, we had 220 claims outstanding compared with 379
asbestos claims outstanding at December 31, 2001 and 617 asbestos claims
outstanding as of December 31, 2000. For the nine months ended September 30,
2003, 194 claims were opened and 151 claims were closed. In 2002, 179 claims
were opened and 338 claims were closed. In 2001, 149 claims were opened and 387
claims were closed. In 2000, 239 claims were opened and 241 claims were closed.
Indemnity payments per claim have varied over time due primarily to variations
in insureds, policy terms and types of claims. Payments for asbestos claims were
$0.3 million for the nine months ended September 30, 2003. Payments for asbestos
claims were $0.5 million, $0.3 million and $0.7 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Management cannot predict
whether indemnity payments per claim will increase, decrease or remain the same.

Significant uncertainty remains as to our ultimate liability relating to
asbestos-related claims due to such factors as the long latency period between
asbestos exposure and disease manifestation and the resulting potential for
involvement of multiple policy periods for individual claims as well as the
increase in the volume of claims by plaintiffs who claim exposure but who have
no symptoms of asbestos-related disease and an increase in claims filed under
the non-aggregate premises or operations section of general liability policies.
There is also the possibility of federal legislation that would address the
asbestos problem.

During 2002 we increased the liability for unpaid losses and loss
adjustment expenses by $71.4 million. The following sets forth the distribution
of the $71.4 million charge among segments as well as the liability for unpaid
losses and loss adjustment expenses as of December 31, 2001, December 31, 2002
and September 30, 2003.

<Table>
<Caption>
SPECIALTY
E&S ADMITTED REINSURANCE(1) TOTAL
(DOLLARS IN THOUSANDS) -------- --------- -------------- --------

Composition of 2002 charge...................... $ 60,854 $10,569 -- $ 71,423
Liability for unpaid loss and loss adjustment
expense as of:
December 31, 2001............................. 123,440 33,347 -- 156,787
December 31, 2002............................. 203,856 56,961 260,817
September 30, 2003............................ $217,283 $69,451 -- $286,734
</Table>

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

(1) There was no liability for unpaid losses and loss adjustment expenses for
the reinsurance segment as of December 31, 2001, 2002 or September 30, 2003
because our reinsurance business was commuted prior to December 31, 2001 and
we thereafter de-emphasized this business.

The $71.4 million charge for accident years 2001 and prior by accident
year and segment are as follows:

<Table>
<Caption>
SPECIALTY
ACCIDENT YEAR E&S ADMITTED REINSURANCE(1) TOTAL
------------- ------- --------- -------------- -------
(DOLLARS IN THOUSANDS

2001.............................................. $10,971 $ 5,303 $ -- $16,274
2000.............................................. 13,559 4,238 -- 17,797
1999.............................................. 6,813 1,579 -- 8,392
1998.............................................. 7,239 422 -- 7,661
1997 and prior(1)................................. 22,272 (973) -- 21,299
------- ------- ----- -------
Total............................................. $60,854 $10,569 $ -- $71,423
======= ======= ===== =======
</Table>

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

(1) Includes $23.6 million for accident year 1994 related to a 2002 rescission
with one of our reinsurers.

As is discussed in greater detail in "-- Special Note Regarding 2002,"
faster than expected loss development in the second through fourth quarters of
2002 resulted in our retaining an independent actuarial firm to perform an
extensive study of our reserves.

The key changes in the assumptions underlying the 2002 actuarial study as
compared with assumptions used in prior years included:

- The majority of all casualty business was previously segregated
into two distinct groups for purposes of performing actuarial
analyses. However, there are products within these two groupings
that have distinctly different expected loss development patterns.
Therefore, we decided to further segregate the business into
smaller groups that would be reviewed separately.

- Losses and loss adjustment expenses were estimated on a combined
basis as compared to the prior practice of segregating each for
purposes of review.

- Loss development on a gross of reinsurance basis was measured
independent of loss development on a net of reinsurance basis, as
compared to the prior practice of measuring loss development net of
reinsurance as a basis for calculating loss development gross of
reinsurance.

- Environmental and asbestos exposure claims were analyzed separately
from claims from other lines of business having long periods of
loss development because of the inherent difficulties in estimating
reserves for these claims, as compared to the prior practice of
analyzing claims from environmental and asbestos exposure in
aggregate with other such long-tail lines of business.

RECOVERABILITY OF REINSURANCE RECEIVABLES

We regularly review the collectibility of our reinsurance receivables,
and we include adjustments resulting from this review in earnings in the period
in which the adjustment arises. As of December 31, 2002, we had $1,743.5 million
of reinsurance receivables, net of an allowance of $47.4 million for doubtful
reinsurance receivables, and $196.2 million of prepaid reinsurance premiums.

As of September 30, 2003, we had total reinsurance receivables of
$1,883.7 million, which were carried at $1,785.2 million. The carrying value of
these reinsurance receivables is net of a $98.5 million reduction recorded upon
our acquisition of Wind River Investment Corporation. This reduction represented
the effect of:

- discounting the reinsurance receivables balance;

- applying a risk margin to the reinsurance receivables balance; and

- reducing gross reinsurance receivables by $49.1 million, the amount
equal to Wind River Investment Corporation's estimate of
potentially uncollectible reinsurance receivables as of September
5, 2003, the acquisition date.

As of September 30, 2003, we also had $118.9 million of prepaid reinsurance
premiums.

DEFERRED ACQUISITION COSTS AND FUTURE SERVICING COSTS

Our cost of acquiring new and renewal insurance and reinsurance contracts
is capitalized as deferred acquisition costs and amortized over the period in
which the related premiums are earned. The ceding commissions earned from
reinsurers are deferred as future servicing costs and amortized over the period
in which the related premiums are earned. Deferred acquisition costs and future
servicing costs are netted in the accompanying consolidated financial
statements. The costs of acquiring new and renewal insurance and reinsurance
contracts include commissions, premium taxes and certain other costs, which are
directly related to and vary with the production of business. The method
followed in computing such amounts limits them to their estimated realizable
value, which gives effect to the premium to be earned, related investment
income, losses and loss adjustment expenses and certain other costs expected to
be incurred as the premium is earned.

REALIZABILITY OF DEFERRED TAX ASSETS

A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. We believe that it
is more likely than not that the results of future operations will generate
sufficient income to realize our deferred tax assets.

SPECIAL NOTE REGARDING 2002

In 2002 several matters had a significant effect on our results of
operations. The following is a description of these matters:

- We perform annual underwriting reviews on all our products. During
2002, as part of this annual review process, and as a result of
reviews of our net loss reserves described in the next bullet
point, we terminated a number of products as a result of factors
such as unsatisfactory underwriting results and the absence of
reinsurance capacity at pricing levels acceptable to us. During the
first six months of 2002, we terminated nine products within our
four product classes, of which eight were excess and surplus, or
"E&S," lines and one was specialty admitted. During the six months
ended December 31, 2002, we terminated an additional five products,
of which four were E&S lines and one was specialty admitted. While
the following had no impact on 2002 net income, 13 additional
products were terminated during the first six months of 2003, of
which nine were E&S lines and four were specialty admitted. Gross
premiums written relative to those terminated products were $320.4
million in 2002 and $107.5 million for the nine months ended
September 30, 2003 and net premiums written relative to those
terminated products were $37.1 million in 2002 and $13.1 million
for the nine months ended September 30, 2003.

- We perform quarterly reviews of our net loss reserves. As a result
of our review of net loss reserves during the second and third
quarters of 2002, we noted what appeared to be faster than expected
development of known incurred losses relative to several recent
accident years. This resulted in our strengthening our net loss
reserves by a total of $3.3 and $4.6 million, in the second and
third quarters of 2002, respectively. Furthermore, a review of our
net loss reserves performed in the fourth quarter of 2002 indicated
the possible need for additional reserve strengthening. To more
fully evaluate the adequacy of our loss reserves, we subsequently
retained an independent actuarial firm to perform an extensive
study of our loss reserves. As a result of the independent
actuarial study, we increased our loss reserves for accident years
2001 and prior, inclusive of the $7.9 million strengthening noted
above, by $47.8 million with the increase relating primarily to
accident years 1997 through 2001. We

subsequently retained this independent actuarial firm to be our
opining actuary, replacing the independent actuarial firm that had
previously been used.

- As a result of our loss experience and our expectations concerning
future losses on policies written during and after 1997, we
identified specific sources of business written during those
periods that we expected to be unprofitable. We have taken what we
believe to be appropriate steps to discontinue writing additional
business from these sources.

- Our subsidiary, United National Insurance Company, was involved in
an arbitration proceeding with Riunione Adriatica Di Sicurta, or
"RAS," which had acted as our reinsurer relative to certain of our
products written in 1993 and 1994. RAS was seeking to rescind the
reinsurance agreement, prohibit us from drawing down on available
lines of credit and demanding repayment of funds previously paid.
On October 1, 2002, the arbitration panel issued an order holding
RAS liable for a majority of the total amount in dispute. RAS was
also ordered to pay interest at a rate of 4.0% compounded annually
with respect to balances due. The panel further ordered a portion
of the reinsurance agreement with RAS to be rescinded. RAS was
released from all future liabilities or responsibilities to us with
respect to the rescinded portion of the reinsurance agreement. This
rescission, in total, had a $20.6 million detrimental effect on
pre-tax net income. We increased losses and loss adjustment
expenses by $23.6 million as a result of the rescission.

- In the fourth quarter of 2002, we recorded a $44.0 million pre-tax
charge for an allowance for doubtful reinsurance receivables. This
allowance relates to a group of reinsurers, the ratings of many of
which were downgraded by A.M. Best in 2002. In addition, the
reinsurance receivables from these reinsurers increased during
2002, primarily as a result of the reserve strengthening recorded
in 2002 and its effect on our reinsurance receivables.

- We experienced net realized investment losses of $11.7 million.

OUR BUSINESS SEGMENTS

We have three reporting business segments: E&S, specialty admitted and
reinsurance.

- Our E&S segment focuses on writing insurance for hard-to-place
risks and risks that standard admitted insurers specifically choose
not to write.

- Our specialty admitted segment focuses on writing insurance for
risks that are unique and hard to place in the standard market, but
that for marketing and regulatory reasons, must remain with an
admitted insurance company.

- Our reinsurance segment includes assumed business written in
support of a select group of direct writing reinsurers. The
underwriting exposure under this segment has been commuted. We did
not write any of this business in 2002 or in the nine-month period
ended September 30, 2003.

We evaluate segment performance based on gross and net premiums written,
net premiums earned and net losses and loss adjustment expenses. The following
table sets forth an analysis of financial data for our segments during the
periods indicated:

<Table>
<Caption>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- -------------------
2000 2001 2002 2002 2003
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)

Gross premiums written:
E&S................................... $260,730 $398,308 $543,998 $446,071 $380,624
Specialty admitted.................... 130,734 210,212 249,085 200,746 163,189
Reinsurance(1)........................ 62,000 62,000 -- 34,000 --
-------- -------- -------- -------- --------
Gross premiums written............. $453,464 $670,520 $793,083 $680,817 $543,813
======== ======== ======== ======== ========
Net premiums written:
E&S................................... $ 40,663 $ 68,226 $112,110 $ 92,270 $ 88,832
Specialty admitted.................... 24,909 39,084 60,579 44,777 59,976
Reinsurance........................... 62,000 62,000 -- 34,000 --
-------- -------- -------- -------- --------
Net premiums written............... $127,572 $169,310 $172,689 $171,047 $148,808
======== ======== ======== ======== ========
Net premiums earned:
E&S................................... $ 40,504 $ 59,004 $101,474 $ 77,274 $ 84,437
Specialty admitted.................... 25,677 36,582 53,039 38,033 54,504
Reinsurance........................... 70,750 54,750 8,250 42,250 --
-------- -------- -------- -------- --------
Net premiums earned................ $136,931 $150,336 $162,763 $157,557 $138,941
======== ======== ======== ======== ========
Net losses and loss adjustment expenses:
E&S................................... $ 24,613 $ 43,880 $140,943 $ 73,799 $ 55,405
Specialty admitted.................... 18,408 29,075 52,556 27,138 36,829
Reinsurance........................... 70,130 55,383 8,251 42,250 --
-------- -------- -------- -------- --------
Net losses and loss adjustment
expenses......................... $113,151 $128,338 $201,750 $143,187 $ 92,234
======== ======== ======== ======== ========
Total net losses and loss adjustment
expense ratios:
E&S................................... 60.8% 74.4% 138.9% 95.5% 65.6%
Specialty admitted.................... 71.7 79.5 99.1 71.4 67.6
Reinsurance........................... 99.1 101.2 100.0 100.0 --
-------- -------- -------- -------- --------
Net losses and loss adjustment
expense ratio.................... 82.6% 85.3% 124.0% 90.9% 66.4%
======== ======== ======== ======== ========
</Table>

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

(1) For the nine months ended September 30, 2002, we recorded $34.0 million of
reinsurance gross premiums written. Our treaty subsequently was amended to
reduce the amount of premiums written in 2002 to zero.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2002

Premiums

Gross premiums written, which represent the amount received or to be
received for insurance policies written without reduction for acquisition costs,
reinsurance costs or other deductions, were

$543.8 million for the nine months ended September 30, 2003, compared with
$680.8 million for the nine months ended September 30, 2002, a decrease of
$137.0 million or 20.1%. A further breakdown of gross premiums written is as
follows:

- E&S gross premiums written were $380.6 million for the nine months
ended September 30, 2003, compared with $446.1 million for the nine
months ended September 30, 2002, a decrease of $65.5 million or
14.7%. This decrease primarily resulted from the termination of 12
products within our four product classes during 2002 and nine
products during the nine months ended September 30, 2003, offset by
rate increases on other products. E&S gross premiums written
relative to the terminated products were $60.9 million for the nine
months ended September 30, 2003.

- Specialty admitted gross premiums written were $163.2 million for
the nine months ended September 30, 2003, compared with $200.7
million for the nine months ended September 30, 2002, a decrease of
$37.5 million or 18.7%. The decrease in specialty admitted gross
premiums written was primarily the result of the termination of two
products during 2002 and four products during the first nine months
ended September 30, 2003, offset by rate increases on other
products. Specialty admitted gross premiums written relative to the
terminated products were $46.6 million for the nine months ended
September 30, 2003.

- There were no reinsurance gross premiums written for the nine
months ended September 30, 2003, compared with $34.0 million for
the nine months ended September 30, 2002. The decrease in
reinsurance gross premiums written was the result of the
non-renewal of our reinsurance treaty in 2002.

Net premiums written, which equal gross premiums written less ceded
premiums written, were $148.8 million for the nine months ended September 30,
2003, compared with $171.0 million for the nine months ended September 30, 2002,
a decrease of $22.2 million or 13.0%. The ratio of net premiums written to gross
premiums written increased to 27.4% for the nine months ended September 30,
2003, from 25.1% for the nine months ended September 30, 2002. A further
breakdown of net premiums written is as follows:

- E&S net premiums written were $88.8 million for the nine months
ended September 30, 2003, compared with $92.3 million for the nine
months ended September 30, 2002, a decrease of $3.5 million or
3.8%. The ratio of net premiums written to gross premiums written
was 23.3% for the nine months ended September 30, 2003, compared
with 20.7% for the nine months ended September 30, 2002. The
decrease in net premiums written was primarily due to net premiums
written associated with the terminated products previously
mentioned largely offset by rate increases relative to products
where our retention is high. E&S net premiums written relative to
products terminated in 2002 and subsequently were $6.1 million for
the nine months ended September 30, 2003.

- Specialty admitted net premiums written were $60.0 million for the
nine months ended September 30, 2003, compared with $44.8 million
for the nine months ended September 30, 2002, an increase of $15.2
million or 33.9%. The ratio of net premiums written to gross
premiums written was 36.8% for the nine months ended September 30,
2003, compared with 22.3% for the nine months ended September 30,
2002. The increase in net premiums written relates to growth in
products within our specific specialty, property and general
liability product classes and rate increases in other products,
slightly offset by the terminated products previously mentioned.
Specialty admitted net premiums written relative to products
terminated in 2002 and subsequently were $7.0 million for the nine
months ended September 30, 2003.

- There were no reinsurance net premiums written for the nine months
ended September 30, 2003, compared with $34.0 million for the nine
months ended September 30, 2002. The

decrease in reinsurance net premiums earned is consistent with the
decrease in gross premiums written.

Net premiums earned were $138.9 million for the nine months ended
September 30, 2003, compared with $157.6 million for the nine months ended
September 30, 2002, a decrease of $18.7 million or 11.9%. A further breakdown of
net premiums earned is as follows:

- E&S net premiums earned were $84.4 million for the nine months
ended September 30, 2003, compared with $77.3 million for the nine
months ended September 30, 2002, an increase of $7.1 million or
9.2%. The increase in net premiums earned was due to the previously
mentioned rate increases, which were greater than the increase in
net premiums written due to the impact of the product terminations
previously mentioned.

- Specialty admitted net premiums earned were $54.5 million for the
nine months ended September 30, 2003, compared with $38.0 million
for the nine months ended September 30, 2002, an increase of $16.5
million or 43.4%. This increase is primarily due to the previously
mentioned growth in products within our specific specialty,
property and general liability product classes and rate increases
on other products, offset slightly by terminated products.

- There were no reinsurance net premiums earned for the nine months
ended September 30, 2003, compared with $42.3 million for the nine
months ended September 30, 2002. The decrease in net premiums
earned for reinsurance was consistent with the decrease in net
premiums written.

Net Investment Income

Gross investment income, excluding realized gains and losses, was $17.1
million for the nine months ended September 30, 2003, compared with $18.1
million for the nine months ended September 30, 2002, a decrease of $1.0 million
or 5.5%. The decrease was primarily due to a decrease in the average yield on
fixed income investments and lower interest rates on overnight cash balances,
partially offset by growth in cash and invested assets. Cash and invested assets
grew to $800.2 million as of September 30, 2003, from $588.8 million as of
September 30, 2002, an increase of $211.4 million or 35.9%. The growth in the
investment portfolio was due to net cash flows provided from operating
activities. The average duration of our fixed income investments approximated
4.4 years as of September 30, 2003, compared with 5.0 years as of September 30,
2002. Our book yield on our fixed income investments was 4.11% at September 30,
2003, compared with 5.25% at September 30, 2002.

Investment expenses were $3.0 million for the nine months ended September
30, 2003, compared with $5.2 million for the nine months ended September 30,
2002, a decrease of $2.2 million or 42.3%. The decrease was due to a reduction
in investment management fees paid.

Net Realized Investment Gain (Loss)

Net realized investment gains were $4.9 million for the nine months ended
September 30, 2003, compared with a $15.0 million net realized investment loss
for the nine months ended September 30, 2002. The net investment gain for the
current period consists of net gains of $6.3 million relative to our equity
portfolio, a net loss on fixed income investments of $0.5 million and $0.9
million of net losses relative to other invested assets. The nine months ended
September 30, 2002 included a $16.4 million loss on our equity portfolio and a
$1.4 million gain on our fixed income investments.

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses were $92.2 million for the nine
months ended September 30, 2003, compared with $143.2 million for the nine
months ended September 30, 2002, a decrease of $51.0 million or 35.6%. The loss
ratio for the nine months ended September 30, 2003, was 66.4% compared with
90.9% for the nine months ended September 30, 2002. The loss ratio is calculated
by dividing net losses and loss adjustment expenses by net premiums earned. This
improvement was

attributable to continuing rate increases and the termination of several
unprofitable products in 2002 and 2003. A further breakdown of losses incurred
is as follows:

- E&S net losses and loss adjustment expenses were $55.4 million for
the nine months ended September 30, 2003, compared with $73.8
million for the nine months ended September 30, 2002. The loss
ratio was 65.6% for the nine months ended in September 30, 2003,
compared with 95.5% for the nine months ended September 30, 2002.
The improvement in the loss ratio is a result of the previously
mentioned rate increases. The 2002 loss ratio included the reserve
strengthening recognized in the second and third quarters of 2002.

- Specialty admitted net losses and loss adjustment expenses were
$36.8 million for the nine months ended September 30, 2003,
compared with $27.1 million for the nine months ended September 30,
2002. The loss ratio for the nine months ended September 30, 2003,
was 67.6% compared with 71.4% for the nine months ended September
30, 2002. The improvement in the loss ratio was a result of the
previously mentioned rate increases, and the 2002 loss ratio
included the reserve strengthening recognized in the second and
third quarters of 2002.

- There was no reinsurance net losses and loss adjustment expenses
for the nine months ended September 30, 2003, due to the
non-renewal of this business, compared with $42.3 million for the
nine months ended September 30, 2002.

Acquisition Costs and Other Underwriting Expenses

Acquisition costs and other underwriting expenses were $35.1 million for
the nine months ended September 30, 2003, compared with $14.3 million for the
nine months ended September 30, 2002, an increase of $20.8 million. This
increase primarily can be attributed to a $15.4 million increase in acquisition
costs and $5.4 million increase in other underwriting expenses. A further
analysis of acquisition costs and other underwriting expenses is as follows:

- The $15.4 million increase in acquisition costs was primarily the
result of a reduction in ceding commission of $38.0 million
partially offset by a decrease in direct commission of $29.0
million. Contingent commission expense increased $7.2 million due
to favorable loss experience. The reduction in ceding commission
income was a result of both a decrease in gross premiums written
combined with an increase in our level of retention. The reduction
in direct commission was consistent with the reduction in gross
premiums written. While increased retentions have the impact of
increasing acquisition costs, our underwriting profit nonetheless
increased based upon our loss experience.

- The $5.4 million increase in other underwriting expenses was
primarily due to payments made to our executive officers in
settlement of certain stock appreciation rights and for retention
payments relating to services in connection with the closing of the
acquisition. See "Management -- Executive Compensation."

We recorded a charge for an allowance for doubtful reinsurance
receivables of $1.8 million for the nine months ended September 30, 2003.

Expense and Combined Ratios

Our expense ratio, which is calculated by dividing the sum of acquisition
costs and other underwriting expenses by premiums earned, was 26.5% for the nine
months ended September 30, 2003, compared with 9.1% for the nine months ended
September 30, 2002, as a result of the above mentioned changes to commissions
and other underwriting expenses. However, as discussed above, our underwriting
profit increased due to the improved loss experience. Part of our strategy is to
continue to retain a high percentage of our premiums. To the extent that we are
able to accomplish this, we expect the net commission component of our expense
ratio to increase.

Our combined ratio was 92.9% for the nine months ended September 30,
2003, compared with 100.0% for the nine months ended September 30, 2002. This
improvement was primarily a result of an increase in our level of premium
retention combined with an improvement in the loss experience.

Other Operating Expenses

Other operating expenses were $0.4 million for the nine months ended
September 30, 2003, compared with $2.4 million for the nine months ended
September 30, 2002, a decrease of $2.0 million or 83.3%. The decrease can be
attributed to the reduction of management fees paid to The AMC Group L.P. during
2003.

Income Tax Expense

Income tax expense was $5.7 million for the nine months ended September
30, 2003, compared with $5.3 million of tax benefit for the nine months ended
September 30, 2002, an increase of $11.0 million. Our effective tax rates for
the nine months ended September 30, 2003 and 2002 were 20.5% and 103.5%,
respectively. The effective rates differed from the 35.0% U.S. statutory rate
principally due to investments in tax-exempt securities. We earned $13.3 million
and $11.8 million in tax-exempt interest for the nine months ended September 30,
2003 and 2002, respectively. In addition, we achieved a higher level of taxable
income in 2003 due to an underwriting income increase to $9.8 million for the
nine months ended September 2003, from $0.0 million during the nine months ended
September 30, 2002.

The factors described above resulted in net income before equity in net
earnings of partnerships of $68.8 million for the nine months ended September
30, 2003, compared with $0.2 million for the nine months ended September 30,
2002, an increase of $68.6 million.

Equity in Net Earnings of Partnerships

Equity in net earnings of partnerships was $2.1 million for the nine
months ended September 30, 2003, compared with a loss of $1.0 million for the
nine months ended September 30, 2002. The gain is largely attributable to the
performance of our investment in a limited partnership.

Extraordinary Gain

The extraordinary gain of $46.4 million for the nine months ended
September 30, 2003 resulted from the acquisition of Wind River Investment
Corporation.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

Premiums

Gross premiums written were $793.1 million for 2002 compared with $670.5
million for 2001, an increase of $122.6 million or 18.3%. A further breakdown of
gross premiums written is as follows:

- E&S gross premiums written were $544.0 million for 2002, compared
with $398.3 million for 2001, an increase of $145.7 million or
36.6%. The increase in E&S gross premiums written was the result of
rate increases and of new business reflected in our 2002 writings
offset slightly by the 14 products within our four product classes
terminated in 2002. Gross premiums written relative to products
terminated in 2002 and subsequently were $212.1 million for 2002.

- Specialty admitted gross premiums written were $249.1 million for
2002, compared with $210.2 million for 2001, an increase of $38.9
million or 18.5%. The increase in specialty admitted gross premiums
written resulted from a combination of rate increases offset by the
two products terminated in 2002. Gross premiums written relative to
the products terminated in 2002 and subsequently were $108.3
million for 2002.

- There were no reinsurance gross premiums written in 2002, compared
with $62.0 million in 2001. The decrease in reinsurance gross
premiums written was the result of the non-renewal of our
reinsurance treaty in 2002.

Net premiums written were $172.7 million for 2002 compared with $169.3
million for 2001, an increase of $3.4 million or 2.0%. The ratio of net premiums
written to gross premiums written was 21.8% for 2002 as compared with 25.2% for
2001. A further breakdown of net premiums written is as follows:

- E&S net premiums written were $112.1 million for 2002, compared
with $68.2 million for 2001, an increase of $43.9 million or 64.4%.
The ratio of net premiums written to gross premiums written was
20.6% for 2002, compared with 17.1% for 2001. The increase in net
premiums written was due to the increase in gross premiums written
and our increasing our retention relative to individual products,
slightly offset by the products terminated in 2002. Net premiums
written relative to E&S products terminated in 2002 and
subsequently were $25.9 million in 2002.

- Specialty admitted net premiums written were $60.6 million for
2002, compared with $39.1 million for 2001, an increase of $21.5
million or 55.0%. The ratio of net premiums written to gross
premiums written was 24.3% for 2002, compared with 18.6% for 2001.
The increase in net premiums written was primarily due to an $11.0
million increase in retention relative to a specific product
combined with our increasing retentions relative to additional
products and rate increases, slightly offset by terminated
products. Net premiums written relative to specialty admitted
products terminated in 2002 and subsequently were $11.2 million in
2002.

- There were no reinsurance net premiums written for 2002, compared
with $62.0 million for 2001. The decrease in reinsurance net
premiums written was consistent with the decrease in gross premiums
written.

Net premiums earned were $162.8 million for 2002, compared with $150.3
million for 2001, an increase of $12.5 million or 8.3%. A further breakdown of
net premiums earned is as follows:

- E&S net premiums earned were $101.5 million for 2002, compared with
$59.0 million for 2001, an increase of $42.5 million or 72.0%. This
increase is primarily due to the previously mentioned increased
retentions relative to individual products and rate increases,
which increased gross and net written premiums.

- Specialty admitted net premiums earned were $53.0 million for 2002,
compared with $36.6 million for 2001, an increase of $16.4 million
or 44.8%. This increase is due to the previously mentioned increase
in the retentions relative to specific products and rate increases,
slightly offset by terminated products.

- Reinsurance net premiums earned were $8.3 million for 2002,
compared with $54.8 million for 2001. This decrease was
attributable to our not writing any reinsurance in 2002. The net
premiums earned in 2002 related to business written in 2001. The
decrease in net premiums earned for reinsurance was consistent with
the decrease in net premiums written.

Net Investment Income

Gross investment income was $24.6 million for 2002, compared with $24.5
million for 2001, an increase of $0.1 million. The $0.1 million difference was
primarily due to a decrease in the average yield on fixed-income investments and
lower interest rates on overnight cash balances, offset by an increase in cash
and invested assets. Cash and invested assets were $611.1 million as of December
31, 2002, compared with $516.4 million as of December 31, 2001. The growth in
the investment portfolio was due to net cash flows provided from operating
activities. The average duration was 5.3 years as of December 31, 2002, compared
with 5.9 years as of December 31, 2001. Our book yield on fixed income
investments was 5.12% in 2002 compared with 5.97% in 2001.

Investment expenses were $6.9 million for 2002, compared with $5.1
million for 2001, an increase of $1.8 million or 35.3%. The increase was
primarily due to an increase in our invested asset base as well as an increase
in investment management fees.

Net Realized Investment Gain (Loss)

Net realized investment loss was $11.7 million for 2002, compared with a
$12.7 million net realized investment loss for 2001. The net investment loss for
2002 consisted of realized losses within our equity portfolio of $12.1 million
consistent with the performance of the broader equity markets in 2002 and 2001,
losses of $1.3 million on our investments in limited partnerships for other than
temporary declines, and $1.7 million of gains relative to fixed income
investments. The net realized investment loss for 2001 included an $7.8 million
loss relative to our equity portfolio, $1.0 million of realized gains from our
fixed income investments offset by $2.9 million for other than temporary
impairments for fixed income securities and $2.9 million for other than
temporary impairments for limited partnerships.

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses were $201.8 million for 2002,
compared with $128.3 million for 2001, an increase of $73.5 million or 57.3%.
The loss ratio for 2002 was 124.0% compared with 85.3% for 2001. See "-- Special
Note Regarding 2002." A further breakdown of losses incurred is as follows:

- E&S net losses and loss adjustment expenses were $140.9 million for
2002, compared with $43.9 million for 2001. The loss ratio was
138.9% for 2002 compared with 74.4% for 2001. The deterioration was
the result of the adverse loss development discussed above.

- Specialty admitted net losses and loss adjustment expenses were
$52.6 million for 2002, compared with $29.1 million for 2001. The
loss ratio for 2002 was 99.1% compared with 79.5% for 2001. The
deterioration was the result of the adverse development discussed
above.

- Reinsurance net losses and loss adjustment expenses were $8.3
million for 2002, compared with $55.4 million for 2001. The loss
ratio for 2002 was 100.0% compared with 101.2% for 2001.

Acquisition Costs and Other Underwriting Expenses

Acquisition costs and other underwriting expenses were $18.9 million for
2002, compared with $15.9 million for 2001, an increase of $3.0 million or
18.9%. This increase can be attributed to a $4.1 million increase in other
underwriting expense and a $1.1 million decrease in acquisition costs.

Acquisition costs decreased by $1.1 million in 2002 primarily as a result
of a $6.1 million decrease in contingent commission offset by a $3.9 million
decrease in ceding commission.

Other underwriting expenses increased $4.1 million in 2002, compared with
2001. Premium tax expense increased $1.9 million due to the increased amount of
admitted premiums written. Legal expense increased $2.0 million as a result of
the RAS arbitration. Salary expense decreased by $1.8 million principally due to
a decline in incentive compensation. Other employee benefits increased by
approximately $0.8 million.

We recorded a charge for an allowance for doubtful reinsurance
receivables of $44.0 million in 2002.

Expense and Combined Ratios

The expense ratio increased to 38.6% for 2002 from 10.6% for 2001. The
expense ratio contains the $44.0 million reserve for uncollectible reinsurance,
which caused the expense ratio to increase by 27.0 percentage points.
52

The overall combined ratio increased to 162.6% for 2002 from 95.9% for
2001.

Other Operating Expenses

Other operating expenses were $5.9 million for 2002, compared with $2.2
million for 2001, an increase of $3.7 million. The increase was primarily the
result of a $2.5 million charge for potentially uncollectible producer balances.

Income Tax Expense

Income tax benefit was $40.5 million for 2002, compared with an income
tax expense of $0.3 million for 2001. The effective tax rate benefit in 2002 was
39.8% compared with an effective tax rate expense of 2.8% in 2001. The effective
tax differs from the United States statutory rate of 35.0% primarily due to
tax-exempt investment income. We carried back our 2002 tax losses for five
years. As a result of the carryback, alternative minimum tax of $7.3 million was
incurred in those earlier years. The alternative minimum tax carryover is
available for future years and does not expire.

The factors described above resulted in a net loss for 2002 of $61.7
million compared with net income of $10.8 million for 2001.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Premiums

Gross premiums written were $670.5 million for 2001, compared with $453.5
million for 2000, an increase of $217.0 million or 47.9%. A further breakdown of
gross premiums written is as follows:

- E&S gross premiums written were $398.3 million for 2001, compared
with $260.7 million for 2000, an increase of $137.6 million or
52.8%. The growth in E&S gross premiums written was the result of
growth of existing products due to increased rates and increased
exposures combined with new business.

- Specialty admitted gross premiums written were $210.2 million for
2001, compared with $130.7 million for 2000, an increase of $79.5
million or 60.8%. The growth in specialty admitted gross premiums
written was caused primarily by rate increases combined with
several large new products written for the first time in 2001.

- Reinsurance gross premiums written were $62.0 million for both 2000
and 2001.

Net premiums written were $169.3 million for 2001, compared with $127.6
million for 2000, an increase of $41.7 million or 32.7%. The ratio of net
premiums written to gross premiums written was 25.2% for 2001 compared with
28.1% for 2000. A further breakdown of net premiums written is as follows:

- E&S net premiums written were $68.2 million for 2001, compared with
$40.7 million for 2000, an increase of $27.5 million or 67.6%. The
ratio of net premiums written to gross premiums written was 17.1%
for 2001, compared with 15.6% for 2000. The increase in net
premiums written was due to the increase in direct premiums written
combined with an increased retention relative to a product within
our non-medical professional liability product class.

- Specialty admitted net premiums written were $39.1 million for
2001, compared with $24.9 million for 2000, an increase of $14.2
million or 57.0%. The ratio of net premiums written to gross
premiums written was 18.6% for 2001 as compared with 19.1% for
2000. The increase in net premiums written was consistent with the
increase in gross premiums written.

- Reinsurance net premiums written were $62.0 million for both 2000
and 2001.

Net premiums earned were $150.3 million for 2001, compared with $136.9
million for 2000, an increase of $13.4 million or 9.8%. A further breakdown of
net premiums earned is as follows:

- E&S net premiums earned were $59.0 million for 2001, compared with
$40.5 million for 2000, an increase of $18.5 million or 45.7%.

- Specialty admitted net premiums earned were $36.6 million for 2001,
compared with $25.7 million for 2000, an increase of $10.9 million
or 42.4%.

- Reinsurance net premiums earned were $54.8 million for 2001,
compared with $70.8 million for 2000, a decrease of $16.0 million
or 22.6%.

Net Investment Income

Income from investments excluding realized capital gains and losses was
$24.5 million for 2001, compared with $28.6 million for 2000. This decrease
resulted principally from a decrease in the investment yield of the fixed-income
investments and a decline in interest rates on overnight cash balances. During
2001, the average rate on overnight investments was 4.0% compared with 6.3%
during 2000. We held $77.1 million of cash and cash equivalents as of December
31, 2001, compared with $124.8 million as of December 31, 2000. Cash and
invested assets grew to $516.4 million as of December 31, 2001, compared with
$483.4 million as of December 31, 2000. The growth in the investment portfolio
was due to net cash flows provided from operating activities; the average
duration of our fixed income investments approximated 5.9 years as of December
31, 2001, compared with 5.4 years as of December 31, 2000. Book yield on our
fixed income investments was 5.97% as of December 31, 2001, compared with 6.42%
as of December 31, 2000.

Investment expenses were $5.1 million for 2001, compared with $6.1
million for 2000, a decrease of $1.0 million or 16.4%.

Net Realized Investment Gain (Loss)

Net realized investment loss was $12.7 million for 2001, compared with a
$0.6 million realized investment gain for 2000. The net realized investment loss
for 2001 consisted of an $7.8 million loss relative to our equity portfolio,
$1.0 million realized gains from our fixed income investments offset by $2.9
million for other than temporary impairments for fixed income securities and
$2.9 million for other than temporary impairments for limited partnerships. In
2000, we recorded a realized investment gain of $1.0 million on our fixed income
investments, a $1.9 million gain from the sale of a limited liability venture
capital fund, and a $2.3 million loss on our equity portfolio.

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses were $128.3 million for 2001,
compared with $113.2 million for 2000. The loss ratio increased to 85.3% for
2001 from 82.6% for 2000. The 2001 operating results included favorable loss
development of $17.3 million offset by strengthening of prior year loss reserves
of $6.1 million as well as a $5.0 million charge resulting from a commutation
with a reinsurer. The prior year reserve increase related principally to the
commercial automobile liability and animal mortality lines of business. These
factors added 7.5 percentage points to the 2001 loss ratio. The September 11,
2001 terrorist attacks in New York, Washington D.C. and Pennsylvania resulted in
no significant property or casualty losses to us. A further breakdown of losses
incurred is as follows:

- E&S net losses and loss adjustment expenses were $43.9 million for
2001, compared with $24.6 million for 2000. The loss ratio was
74.4% for 2001, compared with 60.8% for 2000. The increase in the
loss ratio for 2001 was primarily due to the above mentioned
commutation with one of our reinsurers.

- Specialty admitted net losses and loss adjustment expenses were
$29.1 million for 2001, compared with $18.4 million for 2000. The
loss ratio was 79.5% for 2001 compared with

71.7% for 2000. The increase in the loss ratio for 2001 was
primarily due to the loss experience of our animal mortality
business.

- Reinsurance net losses and loss adjustment expenses were $55.4
million for 2001, compared with $70.1 million for 2000. The loss
ratio for 2001 was 101.2% compared with 99.1% for 2000.

Acquisition Costs and Other Underwriting Expenses

Acquisition costs and other underwriting expenses were $15.9 million for
2001, compared with $15.0 million for 2000, an increase of $0.9 million or 6.0%.
This increase can be attributed to a $6.5 million increase in other underwriting
expenses and a $5.6 million decrease in acquisition costs. A further analysis of
acquisition costs and other underwriting expenses is as follows:

- $2.7 million of the decrease in acquisition costs was due to a
reduction in contingent commission expense. The remainder of the
acquisition cost reduction was attributable to increased levels of
ceding commission recognized in 2001.

- The $6.5 million increase in other underwriting expense in 2001,
compared with 2000 is due primarily to increased legal expense of
$2.5 million related to RAS, and increases in premium taxes
attributable to increased admitted writings in 2001.

Expense and Combined Ratios

The expense ratio improved to 10.6% for 2001, compared with 11.0% for
2000.

The combined ratio increased slightly to 95.9% for 2001, compared with
93.6% for 2000.

Income Tax Expense

Income tax expense was $0.3 million for 2001, compared with $5.9 million
for 2000. The effective tax rate was 2.8% in 2001, compared with a rate of 20.6%
in 2000. The difference from the United States statutory rate of 35.0% was
mainly attributable to tax-exempt interest income. Total pre-tax income was
$18.1 million less in 2001 compared with 2000.

The factors described above resulted in net income for 2001 of $10.8
million, compared with net income of $22.7 million for 2000.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF FUNDS

United National Group is a holding company. Its principal asset is its
ownership of the shares of its direct and indirect subsidiaries, including
United National Insurance Company, Diamond State Insurance Company, United
National Specialty Insurance Company, United National Casualty Insurance
Company, U.N. Barbados and U.N. Bermuda.

United National Group's principal source of cash to meet short-term and
long-term liquidity needs, including the payment of dividends to stockholders
and corporate expenses, includes dividends and other permitted disbursements
from U.N. Barbados, which in turn is largely dependent on dividends and other
payments from U.N. Bermuda and our U.S. Insurance Subsidiaries. United National
Group has no planned capital expenditures that could have a material impact on
its long-term liquidity needs.

The principal sources of funds at U.N. Barbados, U.N. Bermuda and our
U.S. Insurance Subsidiaries include underwriting operations, investment income
and proceeds from sales and redemptions of investments. Funds are used by U.N.
Barbados, U.N. Bermuda and our U.S. Insurance Subsidiaries principally to pay
claims and operating expenses, to purchase investments and to make dividend
payments. United National Group's future liquidity is dependent on the ability
of U.N. Barbados, U.N. Bermuda and our U.S. Insurance Subsidiaries to pay
dividends.

United National Group's insurance subsidiaries are restricted by statute
as to the amount of dividends that they may pay without the prior approval of
regulatory authorities. United National Insurance Company may pay dividends
without advance regulatory approval only out of unassigned surplus. The maximum
dividend payout that may be made without prior approval in 2003 is $22.9
million.

SURPLUS LEVELS

United National Insurance Company, Diamond State Insurance Company,
United National Specialty Insurance Company and United National Casualty
Insurance Company are required by law to maintain a certain minimum level of
policyholders' surplus on a statutory basis. Policyholders' surplus is
calculated by subtracting total liabilities from total assets. The NAIC adopted
risk-based capital standards designed to identify property and casualty insurers
that may be inadequately capitalized based on inherent risks of each insurer's
assets and liabilities and mix of net premiums written. Insurers falling below a
calculated threshold may be subject to varying degrees of regulatory action.
Based on the standards currently adopted, our U.S. Insurance Subsidiaries'
capital and surplus are in excess of the prescribed risk-based capital
requirements.

CASH FLOWS

Sources of operating funds consist primarily of net premiums written and
investment income. Funds are used primarily to pay claims and operating expenses
and to purchase investments.

Net cash provided by operating activities was $31.9 million for the nine
months ended September 30, 2003, compared with net cash provided by operating
activities of $83.0 million for the nine months ended September 30, 2002. This
decrease in net cash provided by operations resulted primarily from a decrease
in premiums written. Net premiums collected for the nine month period ended
September 30, 2003 were $119.1 million, a reduction of $56.9 million compared
with the nine month period ended September 30, 2002.

Net cash used for investing activities was $23.1 million for the nine
months ended September 30, 2003, compared with $88.4 million for the nine months
ended September 30, 2002. The decrease in the cash used for investing was
primarily due to a reduction in operational cash flow due to declines in
premiums written and an increase in cash awaiting investment, as well as $10.8
million of cash used to purchase Wind River Investment Corporation, net of
$105.0 million of cash acquired.

Net cash produced by financing activities was $17.6 million for the nine
months ended September 30, 2003. The source of the financing funds included the
offering by American Insurance Service, Inc. or, "AIS," of $10.0 million trust
preferred securities, $2.0 million of common shares issued under stock purchase
plans, and a $5.6 million capital contribution received from the previous parent
prior to the acquisition.

We produced net cash flows from operating activities of $105.0 million in
2002, compared with $18.0 million for 2001. The increase in net cash provided by
operations resulted primarily from an increase in premiums written in 2002. Net
premiums collected in 2002 were $165.2 million, a $39.9 million increase
compared to 2001. Net losses paid in 2002 were $97.7 million, a $5.0 million
reduction, compared with 2001. Cash flow produced by trading activities was $5.7
million in 2002, compared with a use of operating cash flow of $28.6 million in
2001.

Net cash used for investing activities was $109.1 million for 2002,
compared with $65.8 million for 2001, as we used our strong cash flows from
operations to purchase bonds and preferred stocks.

Net cash used for investing activities was $65.8 million for 2001,
compared with $26.3 million for 2000. This increase was attributable primarily
to the investment of excess cash held as of December 31, 2000.

LIQUIDITY

Our U.S. Insurance Subsidiaries maintain sufficient liquidity to pay
claims.

Our U.S. Insurance Subsidiaries participate in an intercompany pooling
arrangement whereby premiums, losses, and expenses are shared pro rata among the
members of the group. United National Insurance Company is not an authorized
reinsurer in all states. As a result, any losses and unearned premium that are
ceded to United National Insurance Company by the other companies in the group
must be collateralized. United National Insurance Company has trusts in place to
assist the other members of the group in meeting their regulatory requirements.

There are two intercompany pooling agreements in place. The first pooling
agreement governs policies that were written prior to July 1, 2002. The second
pooling agreement governs policies that are written on or after July 1, 2002.
The method by which intercompany reinsurance is ceded is different for each
pool. In the first pool, we cede all business to United National Insurance
Company. United National Insurance Company cedes in turn to external reinsurers.
The remaining net premiums retained is allocated to the companies in the group
according to their respective pool participation percentages. In the second
pool, each company in the group first cedes to external reinsurers. The
remaining net is ceded to United National Insurance Company where the net
premiums written of the group are pooled and reallocated to the group based on
their respective participation percentages. The second pool requires less trust
funding by United National Insurance Company as a result of it ceding less
business to the other group members. United National Insurance Company only has
to fund the portion that is ceded to it after cessions have occurred with
external reinsurers. United National Insurance Company retains 80.0% of the risk
associated with each pool. To cover the required minimum exposure as of December
31, 2002, the trusts were funded to approximately $290.0 million as of February
2003. It is anticipated that the required funding amount will decline in future
periods, which would improve the overall liquidity of the domestic insurance
group.

CAPITAL RESOURCES

We do not anticipate paying any cash dividends on any of our common
shares in the foreseeable future. We currently intend to retain any future
earnings to fund the development and growth of our business.

As a result of the acquisition of our U.S. Operations, senior notes in an
aggregate principal amount of $72.8 million, subject to adjustment, were issued
to the Ball family trusts, as part of the purchase price, by our subsidiary,
Wind River Investment Corporation. These senior notes have an interest rate of
5.0%, which may be paid either in cash or in kind. These senior notes mature on
September 5, 2015; however, in certain circumstances we are required to make
mandatory prepayments on these senior notes on October 1 of each year. We are
only required to make such mandatory prepayments if we have generated "excess
cash flow" for the preceding fiscal year. "Excess cash flow" generally means an
amount equal to our consolidated net income, less such amounts as our Board of
Directors may determine are necessary to: (1) maintain an A.M. Best rating of at
least "A" (Excellent) for each of our U.S. Insurance Subsidiaries; (2) make
permitted dividend payments; (3) maintain the statutory surplus of our U.S.
Insurance Subsidiaries at acceptable levels and (4) provide our U.S. Operations
with adequate levels of working capital.

For 2003, United National Insurance Company can pay a dividend of $22.9
million without regulatory approval.

U.N. Barbados holds a note in the amount of $175.0 million from U.N.
Holdings II, Inc. The note has an interest rate of 6.64% and matures in 2018. It
is anticipated that interest will be paid yearly. U.N. Holdings II, Inc. has no
operations. Its ability to generate cash to repay the note is dependent on
dividends that it receives from its subsidiaries.

On September 30, 2003, AIS, a wholly-owned indirect subsidiary of United
National Group, sold $10.0 million (aggregate liquidation preference) of
Floating Rate Preferred Securities to Dekania CDO I, Ltd., an exempted company
incorporated with limited liability under the law of the Cayman Islands, in a

private placement through AIS's wholly owned Delaware subsidiary United National
Group Capital Trust I.

AIS, through United National Group Capital Trust, together with other
insurance companies and insurance holding companies, issued trust preferred
securities to the collateralized debt obligation pool organized by Dekania
Capital Management LLC, which in turn, issued its securities to institutional
and accredited investors. United National Group Capital Trust issued 10,000
trust preferred securities, having a stated liquidation amount of $1,000 per
security, that mature on September 30, 2033 and bear a floating interest rate,
reset quarterly, equal to London Interbank Offered Rate plus 4.05%. AIS, through
United National Group Capital Trust, has the right to call the trust preferred
securities at par after September 30, 2008, five years from the date of
issuance. The trust preferred securities have not been and will not be
registered under the Securities Act, and satisfy the eligibility requirements of
Rule 144(d)(3) under the Act.

The entire proceeds from the sale of the trust preferred securities were
used for the purchase of $10.0 million (in principal amount) of unsecured junior
subordinated deferrable interest notes issued by AIS under a junior subordinated
indenture, dated as of September 30, 2003, between AIS and JPMorgan Chase Bank,
as indenture trustee.

On September 5, 2004, we will begin paying an annual management fees of
$1.5 million in the aggregate to Fox Paine & Company and The AMC Group, L.P.

INFLATION

Property and casualty insurance premiums are established before we know
the amount of losses and loss adjustment expenses or the extent to which
inflation may affect such amounts. We attempt to anticipate the potential impact
of inflation in establishing our reserves.

Substantial future increases in inflation could result in future
increases in interest rates, which in turn are likely to result in a decline in
the market value of the investment portfolio and resulting unrealized losses or
reductions in shareholders' equity.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

We believe that we are principally exposed to two types of market risk:
interest rate risk and credit risk.

INTEREST RATE RISK

Our primary market risk exposure is to changes in interest rates. Our
fixed income investments are exposed to interest rate risk. Fluctuations in
interest rates have a direct impact on the market valuation of these securities.
As interest rates rise, the market value of our fixed income investments fall,
and the converse is also true. We expect to manage interest rate risk through an
active portfolio management strategy that involves the selection, by our
managers, of investments with appropriate characteristics, such as duration,
yield, currency and liquidity, that are tailored to the anticipated cash outflow
characteristics of our liabilities. Our strategy for managing interest rate risk
also includes maintaining a high quality portfolio with a relatively short
duration to reduce the effect of interest rate changes on book value. A
significant portion of our investment portfolio matures each year, allowing for
reinvestment at current market rates. Our investment portfolio is actively
managed and trades are made to balance our exposure to interest rates. As of
September 30, 2003, assuming identical shifts in interest rates for securities
of all maturities, an immediate 100 basis point increase in market interest
rates would have resulted in an estimated decrease in market value of 4.1%, or
approximately $19.9 million on our fixed income securities of $486.5 million,
and an immediate 100 basis point decrease in market interest rates would have
resulted in an estimated increase in market value of 4.3% or approximately $20.8
million.

CREDIT RISK

We have exposure to credit risk primarily as a holder of fixed income
investments. Our investment policy requires that we invest in debt instruments
of high credit quality issuers and limits the amount of credit exposure to any
one issuer based upon the rating of the security.

In addition, we have credit risk exposure to our general agencies and
reinsurers. We seek to mitigate and control our risks to producers by typically
requiring our general agencies to render payments within no more than 45 days
after the month in which a policy is effective and including provisions within
our general agency contracts that allow us to terminate a general agencies'
authority in the event of non-payment.

With respect to our credit exposure to reinsurers, we seek to mitigate
and control our risk by ceding business to only those reinsurers having adequate
financial strength and sufficient capital to fund their obligation. In addition,
we seek to mitigate credit risk to reinsurers through the use of trusts for
collateral. As of September 30, 2003, $646.2 million of collateral was held in
trust to support the reinsurance receivables.

COMMITMENTS

We have commitments in the form of operating leases, commitments to fund
limited partnerships and a revolving line of credit. As of September 30, 2003,
contractual obligations related to these commitments were as follows:

<Table>
<Caption>
LESS THAN MORE THAN
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
(DOLLARS IN THOUSANDS) ------- --------- --------- --------- ---------

Operating leases(1).......................... $10,870 $2,084 $3,876 $4,910 $ --
Commitments to fund limited
partnerships(2)............................ 5,447 5,447 -- -- --
Discretionary demand line of credit(3)....... 155 31 62 62 --
Senior notes payable to related party........ 72,848 -- -- -- 72,848
Company obligated mandatorily redeemable
preferred securities of trust holding
solely junior subordinated securities(5)... 10,000 -- -- -- 10,000
------- ------ ------ ------ -------
Total...................................... $99,320 $7,562 $3,938 $4,972 $82,848
======= ====== ====== ====== =======
</Table>

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

(1) We lease office space and equipment as part of our normal operations. The
amounts shown above represent future commitments under such operating
leases.

(2) We are required to commit additional capital to certain limited partnership
investments during future periods. Because the timing of the payments is not
specified by the limited partnership agreements, all such commitments are
treated as current obligations for the purpose of this table.

(3) There were no outstanding borrowings against the discretionary demand line
of credit as of September 30, 2003. The amounts shown above represent fees
due on the amount available for borrowing.

(4) As a result of the acquisition of Wind River Investment Corporation, senior
notes in an aggregate principal amount of approximately $72.8 million,
subject to adjustment, were issued to the Ball family trusts, as part of the
purchase price. These senior notes have an interest rate of 5.0%, which may
be paid either in cash or in kind. These senior notes mature on September 5,
2015; however, in certain circumstances we are required to make mandatory
prepayments on these senior notes. We are required to make such mandatory
prepayments if "excess cash flow," as defined, was generated in the
preceding fiscal year. "Excess cash flow" is defined as an amount equal to
consolidated net income, less such amounts as our Board of Directors may
determine are necessary to: (1) maintain an A.M. Best rating of at least "A"
(Excellent) for each of our U.S. Insurance Subsidiaries; (2) make

permitted dividend payments; (3) maintain the statutory surplus of our U.S.
Insurance Subsidiaries at acceptable levels; and (4) provide us with
adequate levels of working capital.

(5) On September 30, 2003, AIS participated in a pooled trust preferred
transaction led by Dekania Capital Management LLC. In connection with this
transaction, AIS issued $10.0 million in principal amount of unsecured
junior subordinated deferrable interest notes of AIS to United National
Group Capital Trust I, a Delaware statutory trust, United National Group
Capital Trust I issued $10.0 million aggregate liquidation preference of
floating rate preferred securities to Dekania CDO I, Ltd., a special purpose
funding vehicle created by Dekania Capital Management LLC. AIS has
guaranteed the payment of amounts payable in respect of the floating rate
preferred securities. The stated maturity date of the notes and the
preferred securities is September 30, 2033. Interest is payable quarterly,
in arrears, at 4.05% over the London interbank offered interest rate.

INDUSTRY BACKGROUND AND TRENDS

INDUSTRY CONDITION AND TRENDS

The property and casualty insurance industry has historically been a
cyclical industry. During periods of reduced underwriting capacity, as defined
by availability of capital, lower competition generally results in more
favorable policy terms and conditions for insurers. During periods of excess
underwriting capacity, pricing and policy terms and conditions are generally
less favorable to insurers due to competition. In the past, several factors
affected underwriting capacity, including industry losses, catastrophes, changes
in legal and regulatory guidelines, investment results and the ratings and
financial strength of competitors.

We believe that during the 1990s the insurance industry maintained excess
underwriting capacity. As a result, the industry suffered from lower pricing,
less favorable policy terms and conditions, less stringent underwriting
standards and reduced profitability. Significant catastrophic losses in 1999 and
a subsequent contraction of underwriting capacity led to price increases and
policy terms and conditions more favorable to insurers in 2000.

- losses caused by the terrorist attacks of September 11, 2001, which
resulted in the largest insured loss in history, estimated at $30
to $40 billion by A.M. Best;

- the existence of substantial reserve deficiencies, resulting from
asbestos, environmental and directors and officers liability
related claims and from poor underwriting in the late 1990s;

- substantial investment losses as a result of a decline in the
global equity markets and significant credit losses, with the
Insurance Services Office estimating that the U.S. property and
casualty industry as a whole had realized and unrealized losses
from the end of 2000 through the end of 2002 of $33 billion;

- the exit or insolvency of several insurance market participants,
such as Reliance Group, Frontier Insurance Group, GAINSCO and
American Equity, each of which either exited particular lines of
business or significantly reduced their activities;

- the ratings downgrade of a significant number of insurers and
reinsurers; and

- increased financial scrutiny of insurers and financial services
companies by federal and state regulatory authorities as a result
of high-profile corporate scandals and of the resulting changes in
corporate governance.

These factors have resulted in a general environment of rate increases
and conservative risk selection, more restrictive coverage terms and a
significant movement of premium from the standard market to the specialty
insurance market. During 2002, demand for insurance products to manage risk
accelerated while underwriting capacity decreased. We believe that this
environment will continue through at least 2004. Increased reinsurance costs, to
some extent offset the benefits of these trends to us and to primary insurance
companies in general.

Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. Through September 30, 2003, our
rate increases this year on renewal business approximated 27%, which rates we
will earn over the period of time for which the policies are in force, generally
the next 12 months. We cannot assure you, however, that these favorable trends
will continue or that these rate increases can be sustained.

SPECIALTY INSURANCE MARKET

The specialty insurance market differs significantly from the standard
property and casualty insurance market. In the standard property and casualty
insurance market, insurance rates and forms are highly regulated, products and
coverages are largely uniform and have relatively predictable exposures. In the
standard market, policies must be written by insurance companies that are
admitted to transact business in the state in which the policy is issued. As a
result, in the standard property and casualty insurance market insurance
companies tend to compete for customers primarily on the basis of price and
financial strength.

In contrast, the specialty insurance market, which we consider to be
composed of the E&S market and the specialty admitted market, provides coverage
for hard-to-place risks that do not fit the underwriting criteria of insurance
companies operating in the standard market. In the E&S market, insurance rates
and forms are not regulated and can be tailored to meet specific risks. However,
U.S. insurance regulations generally require a risk to be declined by three
admitted carriers before an E&S lines insurance company may write the risk. The
specialty admitted market includes policies written to cover hard-to-place
risks, including risks associated with insureds engaged in similar, but
highly-specialized types of activities. These insureds are generally forced to
rely on specialty admitted insurance companies for one of two reasons: such
insureds require a total insurance product not otherwise available from standard
market insurers, or such insureds require insurance products that are overlooked
by large admitted carriers. For regulatory or marketing reasons, these insureds
require products that are written by an admitted insurance company.

Competition in the specialty insurance market tends to focus less on
price and more on availability, service and other considerations. While
specialty insurance market exposures may have higher perceived insurance risk
than their standard market counterparts, specialty insurance market underwriters
historically have been able to generate underwriting profitability superior to
standard market underwriters. According to A.M. Best, over the past ten years,
the average combined ratio for insurers operating in the E&S market was 10.7
percentage points lower than that of insurers operating in the property and
casualty industry as a whole.

According to A.M. Best, over the 20-year period from 1983 through 2002,
the surplus lines market grew from an estimated $2.1 billion in direct premiums
written to $25.6 billion, representing a 13.3% compound annual growth rate and
aggregate growth of 1,119.1%. In contrast, the U.S. property and casualty
industry grew more moderately from $95.5 billion in direct premiums written to
$406.7 billion, representing a 7.5% compound annual growth rate and aggregate
growth of 325.9%. During this period, the surplus lines market as a percent of
the total property and casualty industry grew from approximately 2.4% to 4.2%.
Additionally, the growth in terms of commercial lines market share, which
comprises the majority of surplus lines premiums, increased from 3.6% to 8.8%
over this period.

The specialty insurance market is significantly affected by the
conditions of the insurance market in general. Hard market conditions (i.e.,
those favorable to insurers), like those being experienced at present, tend to
generate a proportion of business moving from the admitted market back to the
surplus lines market, and vice versa when soft market conditions are prevalent.
During hard markets, standard market underwriters generally rely on traditional
underwriting methods and make adjustments in policy terms, conditions and
limits. The firming of the current property and casualty market, which we
believe commenced in 2000, caused standard market carriers to refocus on their
core books of business.

Initially, the market shift into the E&S market occurred at a gradual
pace. According to A.M. Best data, direct premiums written by the domestic E&S
market increased by 8.5% in 2000. Once admitted carriers began to stress
underwriting criteria and risk selection techniques in an effort to bolster
their operating profits by eliminating non-core lines of business, rather than
re-pricing them, the movement of premiums to surplus lines accelerated. As a
result, direct premiums written in the domestic E&S market grew 36.6% in 2001
and 81.7% in 2002. Growth of direct premiums written in the total E&S market,
which includes domestic professional E&S underwriters, Lloyds of London, other
regulated non-domestic insurers and domestic specialty underwriters was 9.8% in
2000, 35.7% in 2001 and 61.7% in 2002.

BUSINESS

OVERVIEW

United National Group is a holding company formed on August 27, 2003
under the laws of the Cayman Islands to acquire our U.S. Operations.

Through our U.S. Operations we are a leading specialty property and
casualty insurer with a 43-year operating history in the specialty insurance
markets. In 2002, United National Insurance Company was the sixth largest E&S
insurance company according to Business Insurance, and we were the 11th largest
E&S insurance group according to A.M. Best, in each case on the basis of direct
premiums written. Our Non-U.S. Operations, which consist of recently formed
Barbados-based and Bermuda-based insurance companies, are expected to begin
offering insurance and reinsurance products to third parties and reinsurance to
our U.S. Operations in the near future.

We write specialty insurance products that are designed to meet the
specific needs of targeted niche insurance markets. These niche markets are
typically well-defined, homogeneous groups of insureds to which, due to some
particular risk exposure, standard market insurers do not offer insurance
coverage. Examples of products that we write for these markets include property
and casualty insurance for social service agencies, insurance for equine
mortality risks and insurance for vacant property risks. We believe that our
specialty insurance product focus and niche market strategy has enabled us to
outperform the property and casualty industry as a whole. For example, our
combined ratio, based on our statutory financial statements and calculated as an
unweighted average, was 13.8 percentage points better than the property and
casualty industry as a whole over the past 20 years, based on data from A.M.
Best.

We compete in the specialty insurance market through our two primary
business segments, our E&S segment and our specialty admitted segment. We offer
four general classes of insurance products across both of these primary business
segments: specific specialty insurance products, umbrella and excess insurance
products, property and general liability insurance products and non-medical
professional liability insurance products. We distribute the insurance products
of our U.S. Operations through our wholly-owned subsidiary, J.H. Ferguson, as
well as through a group of 51 professional general agencies that have limited
quoting and binding authority, and with which on average, we have an eight-year
working relationship.

Our financial goal is to produce superior returns to our shareholders by
achieving underwriting profits and by steadily increasing our shareholders'
equity over the long term. We have produced a 95.4% combined ratio, based on our
statutory financial statements and calculated as an unweighted average, over the
last 20 years, and we have reported an underwriting profit, based on our
statutory financial statements, in 19 of the past 20 years.

Our U.S. Insurance Subsidiaries are rated "A" (Excellent) by A.M. Best,
which assigns ratings to each insurance company transacting business in the
United States. "A" (Excellent) is the third highest rating of sixteen rating
categories. These ratings are based upon factors of concern to policyholders and
are not directed to the protection of investors. In June 2003, each of our U.S.
Insurance Subsidiaries was downgraded from "A+" (Superior) to "A" (Excellent) by
A.M. Best. This downgrade followed a significant decrease in our surplus during
2002, primarily due to reserve strengthening we recorded in 2002 relating to
accident years 2001 and prior and due to the results of an arbitration
proceeding with one of our reinsurers.

ACQUISITION OF OUR U.S. OPERATIONS

trusts. We then purchased the remainder of the common stock of Wind River
Investment Corporation that was also held by the Ball family trusts, paying
consideration consisting of 2.5 million Class A common shares, 3.5 million
Series A preferred shares and senior notes issued by Wind River Investment
Corporation having an aggregate principal amount of approximately $72.8 million.

Of the remaining $140.0 million contributed to us, we then contributed
$80.0 million to our U.S. Operations, used $43.5 million to capitalize our
Non-U.S. Operations and used $16.5 million to fund fees and expenses incurred in
connection with the acquisition. Total expenses incurred in connection with the
acquisition are anticipated to be approximately $17.6 million. The remaining
unpaid acquisition expenses are expected to be funded through our U.S.
Operations. See "Our Relationship with Fox Paine & Company."

OUR COMPETITIVE STRENGTHS

We believe that we have certain characteristics that distinguish us from
our competitors, including:

- ESTABLISHED REPUTATION IN THE SPECIALTY INSURANCE INDUSTRY. We
were founded in 1960 and have a 43-year operating history in the
E&S and specialty admitted insurance markets, and we operate in all
50 states.

- EXPERIENCED MANAGEMENT TEAM. Our experienced management team has
an average of over 22 years of experience in the insurance industry
and has been with us for an average of 15 years. Each member of our
senior management team participates in our stock incentive plan,
which is intended to align management compensation with the
achievement of the goals of our shareholders.

- EXTENSIVE SPECIALIZED NICHE UNDERWRITING CAPABILITIES. We believe
that we have a conservative, focused underwriting organization and
are recognized for our ability to develop innovative and creative
insurance products in the E&S and specialty admitted insurance
markets. Our underwriting team of 63 people includes 34 experienced
underwriters with an average of 24 years of industry experience. We
produced a 95.4% combined ratio, based on our statutory financial
statements and calculated as an unweighted average, over the past
20 years and an underwriting profit, based on our statutory
financial statements, in 19 of the last 20 years.

- WELL-ESTABLISHED PROCESSES AND PROCEDURES. We have developed
critical, customized processes and procedures including our
underwriting processes, our systematic legal contracting procedures
and our quality control systems. We believe they represent industry
best practices. We believe that the combination of these processes
and procedures enable us to develop, underwrite and quickly analyze
the results of our business. This ability further enables us to
capitalize on business opportunities by modifying, improving or
exiting a product efficiently.

- STRONG MARKET RELATIONSHIPS. We believe that the underwriting
expertise and extensive industry relationships developed by our
senior management team and underwriters have allowed us to maintain
a leading presence in the E&S and specialty admitted insurance
markets. We have strong, longstanding relationships with a group of
51 professional general agencies that extend over eight years on
average. We have equally strong relationships with our reinsurers;
our relationship with our ten largest reinsurers, representing 86%
of our outstanding reinsurance receivables, extends over 17 years
on average.

- BALANCE SHEET STRENGTH. We believe our conservative underwriting
and investment policies have enabled us to maintain at least an "A"
(Excellent) rating or better from A.M. Best for 17 consecutive
years. Our rating enables us to compete with the highest rated
insurers in the industry.

OUR STRATEGY

Our financial goal is to produce a superior return to our shareholders by
achieving underwriting profits and by steadily increasing our shareholders'
equity over the long term. We intend to reach our goal by:

- MAINTAINING A LEADERSHIP ROLE IN THE E&S AND SPECIALTY ADMITTED
MARKETS. We intend to continue to focus on the needs of the E&S
and specialty admitted markets by developing customized insurance
products for our insureds, using sophisticated underwriting
solutions and providing predictable and helpful customer service.

- FOCUSING ON SPECIFIC NICHE MARKETS IN WHICH WE HAVE DEMONSTRATED
UNDERWRITING EXPERTISE. We believe our depth of experience across
a diverse set of niche markets provides us a competitive advantage
that enables us to identify opportunities and generate superior
profitability. We intend to utilize our disciplined, systematic
underwriting and quality control processes to obtain the
appropriate rates and selection of insureds. Our approach has
generated an underwriting profit, based on our statutory financial
statements, in 19 of the last 20 years.

- OPPORTUNISTICALLY MANAGING A DIVERSE PRODUCT PORTFOLIO. We
continue opportunistically to manage our product portfolio to grow
premiums written in those areas experiencing strong price increases
and improving underwriting terms and conditions. In order to
achieve this growth, we are increasing our retention of our most
profitable products. Across our top ten products, as ranked by net
premiums written, we increased retention from 31.6% for the nine
months ended September 30, 2002 to 44.6% for the nine months ended
September 30, 2003.

- MAINTAINING A CONSERVATIVE BALANCE SHEET AND A STRONG A.M. BEST
RATING. We intend to remain conservative in our underwriting,
reinsurance buying and investment practices and to use extensive
modeling techniques to protect our current position with the rating
agencies, particularly A.M. Best. Our investment philosophy will
remain consistent with our current conservative investment
portfolio, of which 90.1% is invested in fixed income securities
and cash and cash equivalents as of September 30, 2003 with the
fixed income securities having a 4.6-year duration and an average
quality rating of AA.

- BUILDING SHAREHOLDER VALUE. By growing underwriting profits
through our disciplined approach and conservatively managing a
large investment portfolio, we intend to grow shareholders' equity
over the long term.

BUSINESS SEGMENTS

We operate our business through three business segments: E&S, specialty
admitted, and reinsurance. The following table sets forth an analysis of gross
premiums written by segment during the periods indicated:

<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------ NINE MONTHS ENDED
2000 2001 2002 SEPTEMBER 30, 2003
------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(DOLLARS IN THOUSANDS) -------- ------- -------- ------- -------- ------- -------- -------

E&S....................... $260,730 57.5% $398,308 59.4% $543,998 68.6% $380,624 70.0%
Specialty admitted........ 130,734 28.8 210,212 31.4 249,085 31.4 163,189 30.0
Reinsurance............... 62,000 13.7 62,000 9.2 -- -- -- --
-------- ----- -------- ----- -------- ----- -------- -----
Total gross premiums
written............. $453,464 100.0% $670,520 100.0% $793,083 100.0% $543,813 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</Table>

E&S

Our E&S segment focuses on writing insurance for hard-to-place risks and
risks that standard admitted insurers specifically choose not to write. Our
eligibility as an E&S lines insurer allows us to underwrite unique risks with
more flexible policy forms and unregulated premium rates. This flexibility
typically results in coverages that are more restrictive and more expensive than
those offered in the standard admitted market. In 2002, the United States E&S
market as a whole represented approximately $25.6 billion in direct premiums
written according to A.M. Best, or approximately 6.3% of the $406.7 billion
United States property and casualty industry direct premiums written. According
to A.M. Best, the E&S market as a whole grew 61.7% from 2001 to 2002 on the
basis of direct premiums written. In 2002, we had $544.0 million of gross
premiums written in the E&S market.

SPECIALTY ADMITTED

Our specialty admitted segment focuses on writing insurance for risks
that are unique and hard to place in the standard market for insureds that are
required, for marketing and regulatory reasons, to purchase insurance from an
admitted insurance company. We estimate that the specialty admitted market as a
whole is comparable in size to the E&S market. The specialty admitted market is
subject to more state regulation than the E&S market, particularly with regard
to rate and form filing requirements, restrictions on the ability to exit lines
of business, premium tax payments and membership in various state associations,
such as state guaranty funds and assigned risk plans. In 2002, we had $249.1
million of gross premiums written in the specialty admitted market.

REINSURANCE

Our reinsurance segment includes assumed business written in support of a
select group of direct writing reinsurers. Any underwriting exposure under this
segment has been commuted at no loss to us. This segment was de-emphasized in
2002, but we may write this type of business in the future through our Non-U.S.
Operations.

PRODUCTS AND PRODUCT DEVELOPMENT

We offer four general classes of insurance products across both our E&S
and specialty admitted business segments. These four classes of products are
specific specialty insurance products, umbrella and excess insurance products,
property and general liability insurance products and non-medical professional
liability insurance products. The following table sets forth an analysis of
gross premiums written by product class during the periods indicated:

Specific specialty................ $277,167 70.8% $375,962 61.8% $439,364 55.4% $245,144 45.1%
Umbrella and excess............... 58,095 14.8 138,425 22.8 209,369 26.4 134,847 24.8
Property and general liability.... 32,360 8.3 50,725 8.3 75,376 9.5 96,939 17.8
Non-medical professional
liability....................... 23,842 6.1 43,408 7.1 68,974 8.7 66,883 12.3
-------- ----- -------- ----- -------- ----- -------- -----
Total......................... $391,464 100.0% $608,520 100.0% $793,083 100.0% $543,813 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</Table>

Our insurance products target very specific, defined, homogenous groups
of insureds with customized coverages to meet their needs. Our products include
customized guidelines, rates and forms tailored to our risk and underwriting
philosophy.

The following chart provides representative examples of certain products
we offer by product class for specific types of customers:

<Table>
<Caption>
PRODUCT CLASS PRODUCT CUSTOMER HYPOTHETICAL CLAIM
- ------------------------ ------------------------ ------------------------ ------------------------

Specific Specialty Equine mortality Owner of pleasure or Horse dies
show horse
Dealer open lot physical Auto dealer distribution Car on open lot damaged
damage center due to hail storm

Umbrella and Excess Umbrella liability Small to medium size Employee car accident,
coverage over multiple businesses, such as trip and fall or
$1 million liability warehouses, retail products claim
coverages stores, commercial
contractors and
apartment buildings
Excess liability Small to medium size Trip and fall or
coverage over $1 million businesses seeking to products claim
primary general purchase more than $1
liability policy million general
liability limit policies

Property and General Commercial packages Small businesses, such Trip and fall or
Liability as warehouses, retail premises claim
stores and restaurants
Bicycle manufacturing Retail bicycle store and Trip and fall or product
bicycle warehouse malfunction claim
Vacant dwellings Home of an individual Fire damage
that recently entered a
nursing home

Non-Medical Professional Social service agency Rehabilitation centers Case worker does not
Liability and counseling centers properly supervise
charge
Educators legal School boards Teacher sues for
liability discrimination if
released prior to tenure
</Table>

We utilize a product development process that incorporates disciplined
underwriting and due diligence followed by comprehensive home office controls
that are intended to maximize underwriting profitability. For example, in 2002,
we evaluated approximately 300 products or appointments, of which approximately
50 met our criteria for consideration and ultimately six led to new products or
appointments. We believe that direct contacts between our field and home office
personnel and our customers have enabled us to identify high quality and
profitable products to underwrite. We conduct extensive product due diligence
and have strict underwriting guidelines that include in-house actuarial loss
analysis and profit calculations based on activity-based costing models. We
purchase tailored reinsurance structures for each product and have a formal
reinsurance placement process governed by our reinsurance security committee,
which consists of six senior executives. Our documentation and underwriting
controls include general agency contracts and reinsurance treaties that are
specifically tailored for each relationship, daily monitoring, monthly reviews
of all products by our senior management and regular on-site general agency
audits.

GEOGRAPHIC CONCENTRATION

The following table sets forth the geographic distribution of our direct
premiums written for the periods indicated:

<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------ NINE MONTHS ENDED
2000 2001 2002 SEPTEMBER 30, 2003
------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(DOLLARS IN THOUSANDS) -------- ------- -------- ------- -------- ------- -------- -------

New York........................ $ 37,678 9.7% $ 60,964 10.1% $ 66,858 8.4% $ 58,887 10.8%
California...................... 56,215 14.4 71,744 11.9 81,573 10.3 57,174 10.5
Florida......................... 35,532 9.1 57,600 9.4 88,990 11.2 46,293 8.5
New Jersey...................... 14,572 3.7 22,077 3.6 34,704 4.4 34,425 6.3
Texas........................... 43,091 11.1 71,276 11.8 76,498 9.7 32,621 6.0
Pennsylvania.................... 21,600 5.5 31,783 5.3 51,220 6.5 25,865 4.8
Louisiana....................... 8,912 2.3 16,718 2.8 27,449 3.5 24,018 4.4
Illinois........................ 18,496 4.8 21,503 3.6 27,872 3.5 22,562 4.2
Ohio............................ 16,669 4.3 22,590 3.7 31,711 4.0 21,598 4.0
Alabama......................... 15,362 3.9 22,698 3.8 30,999 3.9 21,269 3.9
-------- ----- -------- ----- -------- ----- -------- -----
Subtotal.................... $268,127 68.9% $398,953 66.0% $517,874 65.4% $344,712 63.4%
All Others...................... 121,221 31.1 205,785 34.0 273,990 34.6 199,052 36.6
-------- ----- -------- ----- -------- ----- -------- -----
Total....................... $389,348 100.0% $604,738 100.0% $791,864 100.0% $543,764 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</Table>

UNDERWRITING

We utilize a three-step underwriting process that is intended to ensure
appropriate selection of risk.

First, we carefully and thoroughly review the expected exposure, policy
terms, premium rates, conditions and exclusions to determine whether a risk
appropriately fits our overall strategic objectives. Risks that meet this
criteria are outlined within pre-approved comprehensive underwriting manuals. We
also develop specific administrative and policy issuance processes and
procedures that are provided to our underwriting personnel and our professional
general agencies.

Second, our professional general agencies, including our wholly-owned
subsidiary, J.H. Ferguson, and our direct underwriting personnel further
underwrite and assist in the selection of the specific insureds. Our
professional general agencies utilize the underwriting manuals and processes and
procedures that we provide to generate an insurance quote for the particular
insured. In certain cases, a professional general agency may have a potential
insured that requires insurance for a risk that lies outside of the scope of our
pre-approved underwriting guidelines. For these risks, we also provide a process
to enable the delivery of an insurance quote directly from us, after specific
review by our underwriters. We regularly update our underwriting manuals to
ensure that they clearly outline risk eligibility, pricing, second-step
underwriting guidelines and processes, approved policy forms and policy issuance
and administrative procedures.

Third, we monitor the quality of our underwriting on an ongoing basis.
Our underwriting staff closely monitors the underwriting quality of our business
through a very disciplined control system developed for all products and
appointments. Our control system consists of five independent steps that we
believe ensure the integrity of our underwriting guidelines and processes,
including:

- daily updates of all insureds underwritten;

- individual policy reviews;

- monthly general agency and product profile reviews;

- on-site general agency audits for profitability, processes and
controls that provide for removal of general agencies not producing
satisfactory underwriting results or complying with established
guidelines; and

- internal annual actuarial and profitability reviews.

We provide strong incentives to our professional general agencies to
produce profitable business through contingent profit commission structures that
are tied directly to the achievement of loss ratio and profitability targets.

MARKETING AND DISTRIBUTION

We primarily market the insurance products of our U.S. Operations through
our wholly-owned subsidiary J.H. Ferguson, and through a group of 51
professional general agencies that have limited quoting and binding authority
that in turn sell our insurance products to insureds through retail insurance
brokers. Some of our professional general agencies have limited quoting and
binding authority with respect to a single insurance product and others have
limited quoting and binding authority with respect to multiple products. Our
distribution strategy is to maintain strong relationships with a limited number
of high-quality professional general agencies. Professional general agencies
typically work exclusively with us on our products. We carefully select our
professional general agencies based on their experience and reputation.

Of our professional general agencies, the top five, including J.H.
Ferguson, accounted for approximately 51% of our direct premiums written for the
nine months ended September 30, 2003, with no one general agency accounting for
more than 12%. J.H. Ferguson accounted for approximately 10% of direct premiums
written during that period.

We believe that our distribution strategy enables us effectively to
access numerous small markets at a relatively low fixed-cost through the
marketing, underwriting and administrative support of our professional general
agencies. These professional general agencies and their retail insurance brokers
have local market knowledge and expertise that enables us to access these
markets more effectively.

PRICING

We generally use the actuarial loss costs promulgated by the Insurance
Services Office as a benchmark in the development of pricing for our products.
We further develop our pricing through the use of our pricing actuary to
ultimately establish pricing tailored to each specific product we underwrite,
taking into account historical loss experience and individual risk and coverage
characteristics.

Recently, we have been successful in increasing our rates. For example,
during 2001 and 2002, our rate increases on renewal business, across all
segments, approximated 23% and 30%, respectively. Through September 30, 2003,
our rate increases on renewal business approximated 27%, which rates we will
earn over the period of time for which the policies are in force, generally the
next 12 months. We cannot assure you, however, that these favorable trends will
continue or that these rate increases can be sustained.

REINSURANCE

We purchase reinsurance to reduce our net liability on individual risks
and to protect against catastrophe losses. Reinsurance allows us to control
exposure to losses, stabilize earnings and protect capital resources. We
purchase reinsurance on both a proportional and excess of loss basis. The type,
cost and limits of reinsurance we purchase can vary from year to year based upon
our desired retention levels and the availability of quality reinsurance at an
acceptable price. Although reinsurance does not legally discharge an insurer
from its primary liability for the full amount of the policies it has written,
it does make the assuming reinsurer liable to the insurer to the extent of the
insurance ceded. Our reinsurance contracts renew throughout the year, and all of
our reinsurance is purchased following review by our reinsurance security
committee.

We purchase specific types and structures of reinsurance depending upon
the specific characteristics of the lines of business we underwrite. We will
typically seek to place proportional reinsurance in many of our specific
specialty products, umbrella and excess products or in the development stages of
a new product. We believe that this approach allows us more cost effectively to
control our net exposure in these product areas. In our proportional reinsurance
contracts, we generally receive a ceding commission on the premium ceded to
reinsurers. This commission compensates us for the direct costs associated with
the production and underwriting of the business. In addition, many of our
proportional reinsurance contracts allow us to share in any excess profits
generated under such contracts.

We purchase reinsurance on an excess of loss basis to cover individual
risk severity. These structures are utilized to protect our primary positions on
property and general liability products and non-medical professional liability
products. These structures allow us to maximize our underwriting profits by
retaining a greater portion of the risk in these well defined and seasoned
products, while protecting against the possibility of unforeseen volatility.
Additionally, we purchase facultative risk protection on single risks when we
deem necessary.

Our property writings are generally not catastrophe exposed, and our
casualty focus does not typically generate a clash exposure. To protect us from
the certain exposures that do exist, we purchase $5.0 million property
catastrophe and $1.0 million casualty clash coverages, both of which are on a
per occurrence basis.

We purchase reinsurance from a number of financially strong reinsurers
with which we have long-standing relationships. In addition, in certain
circumstances, we hold collateral, including escrow funds and letters of credit,
under reinsurance agreements. The following table sets forth our ten largest
reinsurers, with which we have an average relationship of 17 years, in terms of
amounts receivable, net of reinsurance payables to these reinsurers as of
September 30, 2003. Also shown are the amounts of premiums written ceded by us
to these reinsurers during the nine months ended September 30, 2003.

<Table>
<Caption>
A.M. GROSS PREPAID TOTAL CEDED
BEST REINSURANCE REINSURANCE REINSURANCE PERCENT OF PREMIUMS PERCENT OF
RATING RECEIVABLES PREMIUM ASSETS TOTAL WRITTEN TOTAL
(DOLLARS IN MILLIONS) ------ ----------- ----------- ----------- ---------- -------- ----------

American Re-Insurance Co. ...... A+ $ 678.8 $ 91.9 $ 770.7 37.4% $ 173.9 44.0%
Employers Reinsurance Corp. .... A 377.3 39.6 416.9 20.2 89.5 22.7
Hartford Fire Insurance Co. .... A+ 116.7 5.8 122.5 5.9 25.3 6.4
Converium Re (North America).... A 105.7 2.3 108.0 5.2 13.7 3.5
GE Reinsurance Corporation ..... A 90.7 3.7 94.4 4.6 16.6 4.2
General Reinsurance Corp. ...... A++ 80.5 5.5 86.0 4.2 14.3 3.6
Generali -- Assicurazioni....... A+ 57.1 0.0 57.1 2.8 0.1 0.0
Swiss Reinsurance America
Corp.......................... A+ 41.3 1.3 42.6 2.1 3.3 0.8
SCOR Reinsurance Company........ B++ 38.5 0.1 38.6 1.9 5.2 1.3
Odyssey Reinsurance Corp. ...... A 31.6 0.0 31.6 1.5 (0.2) 0.0
-------- ------ -------- ----- ------- -----
Subtotal.................... $1,618.2 $150.2 $1,768.4 85.8% $ 341.7 86.5%
All other reinsurers............ 265.5 26.5 292.0 14.2 53.3 13.5
-------- ------ -------- ----- ------- -----
Total reinsurance
receivables before
purchase accounting
adjustments............... $1,883.7 $176.7 $2,060.4 100.0% $ 395.0 100.0%
-------- ------ -------- ===== ======= =====
Purchase accounting
adjustments............... (98.5) (57.8) (156.3)
Total receivables......... $1,785.2 $118.9 $1,904.1
-------- ====== --------
Collateral held in trust from
reinsurers.................... (646.4) (646.4)
-------- --------
Net receivables............. $1,138.8 $1,257.7
======== ========
</Table>

As of September 30, 2003, we had total reinsurance receivables of
$1,883.7 million, which were carried at $1,785.2 million. The carrying value of
the receivables is net of a $98.5 million reduction recorded upon our
acquisition of Wind River Investment Corporation. This adjustment represented
the net effect of (1) discounting the reinsurance receivables balance, (2)
applying a risk margin to the reinsurance receivables balance and (3) reducing
gross reinsurance receivables by an amount equal to Wind River Investment
Corporation's estimate of potentially uncollectible reinsurance receivables as
of the acquisition date, which was $49.1 million. As of September 30, 2003, we
also had $118.9 million of prepaid reinsurance premiums.

Historically, there have been insolvencies following a period of
competitive pricing in the industry. While we believe our reinsurance
receivables are realizable based on currently available information, conditions
may change or additional information might be obtained that may require us to
record an allowance. We periodically review our financial exposure to the
reinsurance market and the level of our allowance and continue to take actions
in an attempt to mitigate our exposure to possible loss. For further information
on our reserves, including the establishment of our allowance for doubtful
reinsurance receivables in predecessor periods and our relationship with our
reinsurers, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Special Note Regarding 2002."

CLAIMS MANAGEMENT AND ADMINISTRATION

Our approach to claims management is designed to investigate reported
incidents at the earliest juncture, to select, manage and supervise all legal
and adjustment aspects of claims, including settlement, for the mutual benefit
of us, our general agencies, reinsurers and insureds. Our general agencies
generally have no authority to settle claims or otherwise exercise control over
the claims process. Our claims management staff supervises or processes all
claims. We have a formal claims review process, and all claims greater than
$100,000 are reviewed by our senior claims management and certain of our senior
executives.

To handle claims, we utilize our own in-house claims department as well
as third party claims administrators, or "TPAs," and assuming reinsurers, to
whom we delegate limited claims handling authority. Our experienced in-house
staff of approximately 50 claims management professionals are assigned to one of
five dedicated claim units: casualty claims, latent exposure claims, property
claims, TPA oversight and a wholly-owned subsidiary that administers claims
mostly on the west coast of the United States. Each of these units receives
supervisory direction and updates on industry, legislative and product
developments from the unit director. Our claims management personnel have an
average of approximately 19 years of experience in the industry. The dedicated
claims units meet regularly to communicate changes that may occur within their
assigned specialty.

As of September 30, 2003, we had approximately $646.1 million of
outstanding reserves on known claims. Claims relating to approximately 42.0% of
those reserves are handled by our in-house claims management professionals,
while approximately 37.0% of those reserves are handled by our TPAs, which send
us detailed financial and claims information on a monthly basis. We also
individually supervise in-house any significant or complicated TPA handled
claims, and conduct two to five day on-site audits of our TPAs at least twice a
year. Approximately 21.0% of our reserves are handled by our assuming
reinsurers. We diligently review and supervise the claims handled by our
reinsurers to protect our reputation and minimize exposure.

OUR NON-U.S. OPERATIONS

Our Non-U.S. Operations consist of U.N. Barbados and U.N. Bermuda, each
of which was recently formed. To date, our Non-U.S. Operations have not
commenced operations. In the near future, after obtaining the necessary
regulatory approvals and eligibilities, we intend to begin writing third-party
insurance policies through our Non-U.S. Operations that are substantially
identical to those that we have historically offered through our U.S.
Operations, potentially including reinsurance, and that are subject to

similar underwriting review. We intend to distribute these insurance products
through wholesale insurance brokers in the United States, rather than through a
network of professional general agencies.

We also intend to use our Non-U.S. Operations to provide reinsurance to
our U.S. Operations, largely on a proportional basis.

RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Applicable insurance laws require us to maintain reserves to cover our
estimated ultimate losses under insurance policies that we write and for loss
adjustment expenses relating to the investigation and settlement of policy
claims.

We establish losses and loss adjustment expenses reserves for individual
claims by evaluating reported claims on the basis of:

- our knowledge of the circumstances surrounding the claim;

- the severity of injury or damage;

- jurisdiction of the occurrence;

- the potential for ultimate exposure;

- the type of loss; and

- our experience with the insured and the line of business and policy
provisions relating to the particular type of claim.

In most cases, we estimate such losses and claims costs through an
evaluation of individual claims. However, for some types of claims, we initially
use an average reserving method until more information becomes available to
permit an evaluation of individual claims. We also establish loss reserves IBNR,
losses based in part on statistical information and in part on industry
experience with respect to the probable number and nature of claims arising from
occurrences that have not been reported. We also establish our reserves based on
our estimates of future trends in claims severity and other subjective factors.
Insurance companies are not permitted to reserve for a catastrophe until it has
occurred. Reserves are recorded on an undiscounted basis. The reserves of each
of our U.S. Insurance Subsidiaries are established in conjunction with and
reviewed by our in-house actuarial staff and are certified annually by our
independent actuaries.

With respect to some classes of risks, the period of time between the
occurrence of an insured event and the final resolution of a claim may be many
years, and during this period it often becomes necessary to adjust the claim
estimates either upward or downward. Certain classes of umbrella and excess
liability that we underwrite have historically had longer intervals between the
occurrence of an insured event, reporting of the claim and final resolution. In
such cases, we are forced to estimate reserves over long periods of time with
the possibility of several adjustments to reserves. Other classes of insurance
that we underwrite, such as most property insurance, historically have shorter
intervals between the occurrence of an insured event, reporting of the claim and
final resolution. Reserves with respect to these classes are therefore less
likely to be adjusted.

The reserving process is intended to reflect the impact of inflation and
other factors affecting loss payments by taking into account changes in
historical payment patterns and perceived trends. However, there is no precise
method for the subsequent evaluation of the adequacy of the consideration given
to inflation, or to any other specific factor, or to the way one factor may
affect another.

The loss development triangles below show changes in our reserves in
subsequent years from the prior loss estimates based on experience as of the end
of each succeeding year on the basis of U.S. GAAP. The estimate is increased or
decreased as more information becomes known about the frequency and severity of
losses for individual years. A redundancy means the original estimate was higher
than the current estimate; a deficiency means that the current estimate is
higher than the original estimate.

The first line of the loss development triangle shows, for the years
indicated, our net reserve liability including the reserve for incurred but not
reported losses. The first section of the table shows, by year, the cumulative
amounts of losses and loss adjustment expenses paid as of the end of each
succeeding year. The second section sets forth the re-estimates in later years
of incurred losses, including payments, for the years indicated. The "cumulative
redundancy (deficiency)" represents, as of the date indicated, the difference
between the latest re-estimated liability and the reserves as originally
estimated.

This loss development triangle shows development in loss reserves on a
net basis:
<Table>
<Caption>
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
(DOLLARS IN THOUSANDS) -------- -------- -------- -------- -------- -------- -------- -------- -------- --------

Balance sheet
reserves:.......... $117,444 $140,993 $152,457 $155,030 $168,599 $180,651 $210,483 $167,868 $131,128 $156,784
Cumulative paid as of:
One year later..... $ 14,177 $ 22,355 $ 29,966 $ 15,886 $ 13,190 $ 8,360 $ 85,004 $ 64,139 $ 26,163 $ 63,667
Two years later.... 24,023 39,305 38,623 25,120 13,543 64,079 110,073 82,119 72,579
Three years later... 32,182 49,267 45,974 21,867 56,603 77,775 123,129 118,318
Four years later... 39,603 55,573 39,537 47,023 66,083 85,923 152,915
Five years later... 42,837 52,191 52,829 54,490 72,451 111,044
Six years later.... 44,316 56,090 58,647 58,064 93,652
Seven years later... 45,668 59,312 61,160 77,962
Eight years later... 46,874 60,112 79,835
Nine years later... 46,390 65,748
Ten years later.... 48,205
Re-estimated liability
as of:
End of year........ $117,444 $140,993 $152,457 $155,030 $168,599 $180,651 $210,483 $167,868 $131,128 $156,784
One year later..... 121,582 139,523 146,119 146,678 148,895 164,080 195,525 157,602 124,896 228,207
Two years later.... 120,984 131,504 138,304 127,939 137,056 146,959 185,421 155,324 180,044
Three years later... 110,402 126,872 119,561 116,751 121,906 137,711 182,584 192,675
Four years later... 105,113 109,751 114,905 105,368 118,144 136,307 211,544
Five years later... 87,942 103,968 105,963 101,712 116,890 157,605
Six years later.... 79,266 95,141 101,982 98,847 132,663
Seven years later... 72,295 92,563 98,445 111,484
Eight years later... 70,964 88,877 111,444
Nine years later... 67,457 80,558
Ten years later.... 58,257
Cumulative redundancy
(deficiency)....... $ 59,187 $ 60,435 $ 41,013 $ 43,546 $ 35,936 $ 23,046 $ (1,061) $(24,807) $(48,916) $(71,423)

<Caption>
2002
(DOLLARS IN THOUSANDS) --------

Balance sheet
reserves:.......... $260,823
Cumulative paid as of:
One year later.....
Two years later....
Three years later...
Four years later...
Five years later...
Six years later....
Seven years later...
Eight years later...
Nine years later...
Ten years later....
Re-estimated liability
as of:
End of year........ $260,823
One year later.....
Two years later....
Three years later...
Four years later...
Five years later...
Six years later....
Seven years later...
Eight years later...
Nine years later...
Ten years later....
Cumulative redundancy
(deficiency)....... $ 0
</Table>

The net deficiency for 1998 through 2001 primarily resulted from the
factors described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Special Note Regarding 2002."

The following table provides a reconciliation of the liability for losses
and loss adjustment expenses, net of reinsurance ceded:

<Table>
<Caption>
2000 2001 2002
(DOLLARS IN THOUSANDS) -------- -------- ----------

Reserves for unpaid losses and loss adjustment expenses at
beginning of year......................................... $805,717 $800,630 $ 907,357
Less: Gross reinsurance receivables on unpaid losses and
loss adjustment expenses.................................. 637,850 669,504 750,573
-------- -------- ----------
Net reserves for losses and loss adjustment expenses at
beginning of year.................................... 167,867 131,126 156,784
Incurred losses and loss adjustment expenses:
Provision for losses and loss adjustment expenses for
claims occurring in the current year................... 123,476 134,558 130,327
(Decrease) increase in estimated losses and loss
adjustment expenses for claims occurring in prior
years(1)............................................... (10,325) (6,220) 71,423
-------- -------- ----------
Incurred losses and loss adjustment expenses........... 113,151 128,338 201,750
Losses and loss adjustment expenses payments for claims
occurring during:
Current year.............................................. 85,811 76,508 34,045
Prior years............................................... 64,081 26,172 63,669
-------- -------- ----------
Losses and loss adjustment expenses payments........... 149,892 102,680 97,714
Net reserves for losses and loss adjustment expenses at end
of year................................................... 131,126 156,784 260,820
Plus: Gross reinsurance receivables on unpaid losses and
loss adjustment expenses.................................. 669,504 750,573 1,743,602
-------- -------- ----------
Reserves for unpaid losses and loss adjustment expenses
at end of year....................................... $800,630 $907,357 $2,004,422
======== ======== ==========
</Table>

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

(1) In 2002, we increased our net loss reserves relative to accident years 2001
and prior by $47.8 million primarily due to higher than anticipated losses
in the multi-peril and other liability lines of business and by $23.6
million due to the conclusion of an arbitration proceeding. Net losses and
loss adjustment expense ratio increased by 43.9 percentage points in 2002
due to this $71.4 million increase in net loss reserves.

ENVIRONMENTAL AND ASBESTOS EXPOSURE

Although we believe our exposure to be limited, we have exposure to
environmental and asbestos claims. Our environmental exposure arises from the
sale of general liability and commercial multi-peril insurance. Currently, our
policies continue to exclude classic environmental contamination claims. In some
states we are required, however, depending on the circumstances, to provide
coverage for such bodily injury claims as an individual's exposure to a release
of chemicals. We have also issued policies that were intended to provide limited
pollution and exposure coverage. These policies were specific to certain types
of products underwritten by us. We receive a number of asbestos-related claims.
The majority are declined based on well-established exclusions. As of September
30, 2003, we had $5.7 million of net loss reserves for asbestos-related claims
and $2.4 million for pollution. We attempt to estimate the full impact of the
environmental and asbestos exposure by establishing full case reserves on all
known losses. In 2001 and prior years, environmental and asbestos claims were
aggregated and reviewed with other lines of business

that have long periods of loss development. In 2002, we identified that portion
of our IBNR reserves related to environmental and asbestos. The following table
shows asbestos and environmental losses:

<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------
2000 2001 2002
(DOLLARS IN THOUSANDS) ------- ------- -------

Net reserve for A&E losses and loss adjustment expenses
reserves -- beginning of period........................... $ 3,291 $ 2,449 $ 2,104
Plus: Incurred losses and loss adjustment expenses -- case
reserves.................................................. (177) (8) 170
Plus: Incurred losses and loss adjustment
expenses -- IBNR.......................................... -- -- 6,370
Less: Payments.............................................. 665 337 500
------- ------- -------
Net reserve for A&E losses and loss adjustment
expenses -- end of period............................ $ 2,449 $ 2,104 $ 8,144
======= ======= =======
</Table>

INVESTMENTS

Insurance company investments must comply with applicable regulations
that prescribe the type, quality and concentration of investments. These
regulations permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
and preferred and common equity securities. As of September 30, 2003, we had
$800.2 million of investment and cash and cash equivalents assets. The majority
of our invested assets are held by our U.S. Insurance Subsidiaries.

Our investment policy is determined by our Board of Directors and is
reviewed on a regular basis. We will engage third-party investment advisors to
oversee our investments and to make recommendations to our Board of Directors.
Our investment policy allows us to invest in taxable and tax-exempt fixed income
investments as well as publicly traded and private equity investments. With
respect to fixed income securities, the maximum exposure per issuer varies as a
function of the credit quality of the security. The allocation between taxable
and tax-exempt fixed income securities is determined based on market conditions
and tax considerations, including the applicability of the alternative minimum
tax. The maximum allowable investment in equity securities under our investment
policy is based on a percentage of our capital and surplus.

Although we generally intend to hold fixed income securities to maturity,
we regularly reevaluate our position based upon market conditions. As of
September 30, 2003, our fixed income securities had a weighted average maturity
of 7.4 years and a weighted average duration of 4.6 years. Our financial
statements reflect an unrealized gain on fixed income securities available for
sale as of September 30, 2003, of $11.4 million on a pre-tax basis.

The following table shows a profile of our fixed income investments. The
table shows the average amount of investments, income earned and the book yield
thereon for the periods indicated:

<Table>
<Caption>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
2000 2001 2002 2002 2003
(DOLLARS IN THOUSANDS) -------- -------- -------- -------- --------

Average investments, at cost............ $280,039 $324,412 $407,194 $397,838 $473,772
Gross investment income(1).............. 17,991 19,307 20,868 15,662 14,544
Book yield.............................. 6.42% 5.97% 5.12% 5.25% 4.09%
</Table>

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

(1) Represents investment income, gross of investment expenses and excluding
realized gains and losses.

The following table summarizes by type the estimated market value of our
investments and cash and cash equivalents as of December 31, 2002 and September
30, 2003:

<Table>
<Caption>
DECEMBER 31, 2002 SEPTEMBER 30, 2003
--------------------------- ---------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
(DOLLARS IN THOUSANDS) -------- ---------------- -------- ----------------

Cash and cash equivalents.................. $ 72,942 11.9% $234,356 29.3%

U.S. Treasury securities................... $ 30,667 5.0% $ 37,940 4.7%
Obligations of states, municipalities and
political subdivisions................... 99,580 16.3 103,663 13.0
Special revenue fixed income securities.... 303,500 49.7 321,416 40.2
Corporate fixed income securities.......... 14,939 2.4 18,703 2.3
Asset-backed and mortgage-backed
securities............................... 8,150 1.3 4,086 0.5
Other bonds................................ 4,189 0.7 711 0.1
-------- ----- -------- -----
Total fixed income securities............ $461,025 75.4% $486,519 60.8%

Marketable equity securities............... $ 34,710 5.7% $ 34,591 4.3%
Other investments(1)....................... 42,452 7.0 44,703 5.6
-------- ----- -------- -----
Total investments and cash and cash
equivalents......................... $611,129 100.0% $800,169 100.0%
======== ===== ======== =====
</Table>

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

(1) Includes, as of December 31, 2002, $5.4 million of investments that were
sold for $6.0 million on August 25, 2003 to an affiliate of the Ball family
trusts.

The following table summarizes, by Standard & Poor's rating
classifications, the market value of our investments in fixed income securities,
as of December 31, 2002 and September 30, 2003:

AAA........................................ $353,286 76.6% $383,701 78.9%
AA......................................... 70,759 15.3 74,974 15.4
A.......................................... 22,968 5.0 11,024 2.3
BBB........................................ 9,613 2.1 15,539 3.2
BB......................................... 1,616 0.4 1,281 0.2
B.......................................... 522 0.1 -- --
CC......................................... 2,261 0.5 -- --
-------- ----- -------- -----
Total fixed income securities......... $461,025 100.0% $486,519 100.0%
======== ===== ======== =====
</Table>

The following table sets forth the expected maturity distribution of the
fixed income securities at their estimated market value as of December 31, 2002
and September 30, 2003:

One year or less........................... $ 29,596 6.4% $ 14,246 2.9%
More than one year to five years........... 184,951 40.1 234,897 48.3
More than five years to ten years.......... 177,882 38.6 157,464 32.4
More than ten years to fifteen years....... 23,738 5.1 15,142 3.1
More than fifteen years.................... 36,708 8.0 59,884 12.3
-------- ----- -------- -----
Securities with fixed maturities......... 452,875 98.2 481,633 99.0
Asset-backed and mortgage-backed
securities............................... 8,150 1.8 4,886 1.0
-------- ----- -------- -----
Total fixed income securities......... $461,025 100.0% $486,519 100.0%
======== ===== ======== =====
</Table>

The weighted average life of our asset-backed and mortgage-backed
securities is 6.9 years. The value of our portfolio of fixed income securities
is inversely correlated to changes in market interest rates. In addition, some
of our fixed income securities have call or prepayment options. This could
subject us to reinvestment risk should interest rates fall or issuers call their
securities and we are forced to invest the proceeds at lower interest rates. We
mitigate this risk by investing in securities with varied maturity dates, so
that only a portion of the portfolio will mature at any point in time.

Our equity portfolio consists primarily of mutual funds and equity
securities traded on national stock exchanges.

COMPETITION

We compete with numerous domestic and international insurance companies
and reinsurers, Lloyd's syndicates, risk retention groups, insurance buying
groups, risk securitization products and alternative self-insurance mechanisms.
In particular, in the specialty insurance market we compete against, among
others:

- American International Group;

- Berkshire Hathaway;

- Great American Insurance Group;

- HCC Insurance Holdings, Inc.;

- Markel Corporation;

- Nationwide Insurance;

- Penn-America Group;

- Philadelphia Consolidated Group;

- RLI Corporation; and

- W.R. Berkley Corporation.

Competition may take the form of lower prices, broader coverages, greater
product flexibility, higher quality services, reputation and financial strength
or higher ratings by independent rating agencies. In all of our markets, we
compete by developing specialty products to satisfy well-defined market needs
and by maintaining relationships with brokers and insureds who rely on our
expertise. This expertise, and our reputation for offering and underwriting
products that are not readily available, is our principal means of
differentiating us from our competition. Each of our products has its own
distinct competitive

environment. We seek to compete through innovative ideas, appropriate pricing,
expense control and quality service to policyholders, general agencies and
brokers.

RATINGS

A.M. Best ratings for the industry range from "A++" (Superior) to "F" (In
Liquidation) with some companies not being rated. Each of our U.S. insurance
subsidiaries is currently rated "A" (Excellent) by A.M. Best, and has been rated
"A" (Excellent) or higher for 17 consecutive years. Publications of A.M. Best
indicate that "A" (Excellent) ratings are assigned to those companies that, in
their opinion, have achieved excellent overall performance when compared with
the standards established by these firms and have a strong ability to meet their
obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews its
profitability, leverage and liquidity, as well as its spread of risk, the
quality and appropriateness of its reinsurance, the quality and diversification
of its assets, the adequacy of its policy and loss reserves, the adequacy of its
surplus, its capital structure and the experience and objectives of its
management. These ratings are based on factors relevant to policyholders,
general agencies, insurance brokers and intermediaries and are not directed to
the protection of investors.

In June 2003, each of our U.S. Insurance Subsidiaries was downgraded from
"A+" (Superior) to "A" (Excellent) by A.M. Best. This downgrade followed a
decrease in our policyholders surplus during 2002, due primarily to reserve
strengthening that we recorded in 2002 relating to accident years 2001 and
prior, and to the results of an arbitration proceeding. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Special Note Regarding 2002."

We intend to apply for an A.M. Best rating for U.N. Barbados and U.N.
Bermuda in the near future.

CORPORATE STRUCTURE

The following chart shows the structure of our organization, following
the acquisition of our U.S. Operations and the formation of our Non-U.S.
Operations:

(COMPANY ORGANIZATION STRUCTURE)

EMPLOYEES

As of September 30, 2003, we had approximately 250 employees, six of whom
were executive officers. In addition, we have contracts with international
insurance service providers based in Barbados and in Bermuda to provide services
to our Non-U.S. Operations. We expect to hire individuals in the near future who
will operate out of our Barbados and Bermuda offices, subject to approval of any
required work permits for non-resident employees. None of our employees are
covered by collective bargaining agreements, and our management believes that
our relationship with our employees is excellent.

FACILITIES

We lease approximately 61,525 square feet of office space in Bala Cynwyd,
Pennsylvania, which serves as the headquarters location for our U.S. Operations,
pursuant to a lease that expires on December 31, 2008. In addition, we lease
office space in the following locations: Evanston, Illinois; Grand Rapids,
Michigan; and Glendale, California. We also have office space available in
Bridge Town, Barbados and Hamilton, Bermuda. We believe this office space is
sufficient for us to conduct our business.

LEGAL PROCEEDINGS

Other than as described below, we are not currently involved in any
material litigation or arbitration proceeding. We anticipate that, similar to
the rest of the insurance and reinsurance industry, we may be subject to
litigation and arbitration proceedings in the ordinary course of business.

On January 26, 2001, our subsidiary Diamond State Insurance Company was
named a defendant in a lawsuit filed in the United States District Court for the
Southern District of New York by Bank of America N.A. and Platinum Indemnity
Limited for breach of contract, negligent selection and supervision of a general
agency and related claims for relief. Bank of America and Platinum seek
indemnification of approximately $29.0 million, plus interest in excess of $10.0
million and fees and costs, under alleged "facultative reinsurance policies"
issued by Worldwide Weather Insurance Agency, Inc. purportedly on behalf of
Diamond State. The complaint alleges the "facultative reinsurance policies"
reinsure Platinum for losses paid under Weather Risk Mitigation Insurance
Policies issued by Platinum to Palladium Insurance Limited covering specific
weather derivative trades entered into by Palladium. Bank of America is the
issuing bank for a letter of credit in favor of Palladium, and is allegedly the
assignee of Platinum's rights against Diamond State. Diamond State denies the
allegations in the complaint, and takes the position, among other things, that
even if the "facultative reinsurance policies" were issued in its name, they are
unenforceable because Worldwide Weather Insurance Agency and its principal,
Harold Mollin, exceeded any authority, either actual or apparent, to issue such
"facultative reinsurance policies." The parties are currently engaged in
discovery, and a trial date has not been set.

In related proceedings, Diamond State has preserved its potential avenues
of recovery in the event it is found liable to Bank of America and Platinum.
Diamond State is in arbitration against Partner Reinsurance Company Ltd. and
Partner Reinsurance Company of the U.S. seeking recovery under a reinsurance
agreement covering business produced by Worldwide Weather Insurance Agency on a
100% basis with regard to the type of risk involved. In addition, if Diamond
State were held liable to Bank of America on the ground that Diamond State was
negligent in appointing Mr. Mollin and Worldwide Weather Insurance Agency,
Diamond State is seeking indemnification and contribution from Partner
Reinsurance Company of the U.S. because of its role in the appointment of Mr.
Mollin and the Worldwide Weather Insurance Agency. The arbitration is not likely
to proceed to a hearing until the Bank of America litigation is resolved.

On July 11, 2003, our subsidiary United National Insurance Company was
named a defendant in a lawsuit filed in the Superior Court of Fulton County,
Georgia, by Gulf Underwriters Insurance Company seeking rescission of a
facultative reinsurance certificate issued to United National Insurance Company
with regard to an individual insurance policy. The facultative reinsurance
certificate provided 100% reinsurance to United National Insurance Company for
loss and loss adjustment expenses paid under the insurance policy. The lawsuit
followed United National Insurance Company's billing to Gulf for

reimbursement of a loss in the amount of $3.1 million that was paid under that
insurance policy. The rescission claim is based on allegations of breach of
contract; misrepresentation; non-disclosure and breach of duty of good faith;
and fraud. The complaint also seeks attorney's fees and costs.

United National Insurance Company denies the allegations in the complaint
and has filed a counterclaim seeking payment of the amount of losses and loss
adjustment expenses paid under the insurance policy plus statutory damages of
$1.6 million as a result of late payment. This litigation has just begun, and a
trial date has not been set.

We cannot assure you that lawsuits, arbitrations or other litigation will
not have a material adverse effect on our business, financial condition or
results of operations.

REGULATION

GENERAL

The business of insurance is regulated in most countries, although the
degree and type of regulation varies significantly from one jurisdiction to
another. In the Cayman Islands, Barbados and Bermuda, we operate under a
relatively less intensive regulatory regime than exists in the United States. We
are subject to extensive regulation in the United States.

CAYMAN ISLANDS

As a holding company, United National Group is not subject to any
insurance regulation by any authority in the Cayman Islands.

UNITED STATES

United National Group has four operating insurance subsidiaries domiciled
in the United States; United National Insurance Company, which is domiciled in
Pennsylvania; Diamond State Insurance Company and United National Casualty
Insurance Company, each of which is domiciled in Indiana; and United National
Specialty Insurance Company, which is domiciled in Wisconsin. We refer to these
companies collectively as our U.S. Insurance Subsidiaries.

U.S. INSURANCE HOLDING COMPANY REGULATION OF UNITED NATIONAL GROUP

United National Group, as the indirect parent of our U.S. Insurance
Subsidiaries, is subject to the insurance holding company laws of Indiana,
Pennsylvania and Wisconsin. These laws generally require each of our U.S.
Insurance Subsidiaries to register with its respective domestic state insurance
department and to furnish annually financial and other information about the
operations of the companies within the United National Group insurance holding
company system. Generally, all material transactions among affiliated companies
in the holding company system to which any of our U.S. Insurance Subsidiaries is
a party, including sales, loans, reinsurance agreements and service agreements
with the non-insurance companies within the United National Group of insurance
companies or any other U.S. Insurance Subsidiary must be fair and, if material
or of a specified category, require prior notice and approval or absence of
disapproval by the insurance department where the subsidiary is domiciled.

CHANGES OF CONTROL

Before a person can acquire control of a U.S. insurance company, prior
written approval must be obtained from the insurance commissioner of the state
where the domestic insurer is domiciled. Prior to granting approval of an
application to acquire control of a domestic insurer, the state insurance
commissioner will consider factors such as the financial strength of the
applicant, the integrity and management of the applicant's board of directors
and executive officers, the acquiror's plans for the management of the
applicant's board of directors and executive officers, the acquiror's plans for
the future operations of the domestic insurer and any anti-competitive results
that may arise from the consummation of the acquisition of control. Generally,
state statutes provide that control over a domestic insurer is presumed to exist
if any person, directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing, 10% or more of the voting securities of the
domestic insurer. Because a person acquiring 10% or more of our common shares
would indirectly control the same percentage of the stock of our U.S. Insurance
Subsidiaries, the insurance change of control laws of Indiana, Pennsylvania and
Wisconsin would likely apply to such a transaction. While our articles of
association limit the voting power of any shareholder to less than 9.5%, there
can be no assurance that the applicable state insurance regulator would agree
that such shareholder did not control the applicable U.S. Insurance Subsidiary.

These laws may discourage potential acquisition proposals and may delay,
deter or prevent a change of control of United National Group, including through
transactions, and in particular unsolicited transactions, that some or all of
the shareholders of United National Group might consider to be desirable.
82

LEGISLATIVE CHANGES

On November 26, 2002, the Federal Terrorism Risk Insurance Act was
enacted to ensure the availability of insurance coverage for defined terrorist
acts in the United States. This law requires insurers writing certain lines of
property and casualty insurance, including us, to offer coverage against certain
acts of terrorism causing damage within the United States or to U.S. flagged
vessels or aircraft. In return, the law requires the federal government, should
an insurer comply with the procedures of the law, to indemnify the insurer for
90% of covered losses, exceeding a premium-based deductible, up to an industry
limit of $100 billion resulting from covered acts of terrorism. Any policy
exclusion existing at the time the law was enacted for such coverage was
immediately nullified, although such exclusions were subject to reinstatement if
either the insured consented to reinstatement or failed to pay any applicable
increase in premium resulting from the additional coverage within 30 days of
being notified of the increase. With respect to policies issued after the law
became effective, insurers are required to offer such coverage at a stated
premium. If the insured does not wish to purchase the coverage, the policy may
exclude such coverage. It should be noted that "act of terrorism" as defined by
the law excludes purely domestic terrorism. For an act of terrorism to have
occurred, the U.S. Treasury Secretary must make several findings, including that
the act was committed on behalf of a foreign person or foreign interest. The law
expires automatically at the end of 2005.

STATE INSURANCE REGULATION

State insurance authorities have broad regulatory powers with respect to
various aspects of the business of U.S. insurance companies, including but not
limited to licensing to transact admitted business or determining eligibility to
write surplus lines business, accreditation of reinsurers, admittance of assets
to statutory surplus, regulating unfair trade and claims practices, establishing
reserve requirements and solvency standards, regulating investments and
dividends, approving policy forms and related materials in certain instances and
approving premium rates in certain instances. State insurance laws and
regulations may require our U.S. Insurance Subsidiaries to file financial
statements with insurance departments everywhere they will be licensed or
eligible or accredited to conduct insurance business, and their operations are
subject to review by those departments at any time. Our U.S. Insurance
Subsidiaries prepare statutory financial statements in accordance with statutory
accounting principles, or "SAP," and procedures prescribed or permitted by these
departments. State insurance departments also conduct periodic examinations of
the books and records, financial reporting, policy filings and market conduct of
insurance companies domiciled in their states, generally once every three to
five years, although market conduct examinations may take place at any time.
These examinations are generally carried out in cooperation with the insurance
departments of other states under guidelines promulgated by the NAIC. In
addition, admitted insurers are subject to targeted market conduct examinations
involving specific insurers by state insurance regulators in the state in which
the insurer is admitted.

STATE DIVIDEND LIMITATIONS

Indiana

Under Indiana law, Diamond State Insurance Company and United National
Casualty Insurance Company may not pay any dividend or make any distribution of
cash or other property the fair market value of which, together with that of any
other dividends or distributions made within the 12 consecutive months ending on
the date on which the proposed dividend or distribution is scheduled to be made,
exceeds the greater of (1) 10% of its surplus as of the 31st day of December of
the last preceding year, or (2) its net income for the 12-month period ending on
the 31st day of December of the last preceding year, unless the commissioner
approves the proposed payment or fails to disapprove such payment within 30 days
after receiving notice of such payment. An additional limitation is that Indiana
does not permit a domestic insurer to declare or pay a dividend except out of
earned surplus unless otherwise approved by the commissioner before the dividend
is paid.

Pennsylvania

Under Pennsylvania law, United National Insurance Company may not pay any
dividend or make any distribution that, together with other dividends or
distributions made within the preceding 12 consecutive months, exceeds the
greater of (1) 10% of its surplus as shown on its last annual statement on file
with the commissioner or (2) its net income for the period covered by such
statement, not including pro rata distributions of any class of its own
securities, unless the commissioner has received notice from the insurer of the
declaration of the dividend and the commissioner approves the proposed payment
or fails to disapprove such payment within 30 days after receiving notice of
such payment. An additional limitation is that Pennsylvania does not permit a
domestic insurer to declare or pay a dividend except out of unassigned funds
(surplus) unless otherwise approved by the commissioner before the dividend is
paid. Furthermore, no dividend or other distribution may be declared or paid by
a Pennsylvania insurance company that would reduce its total capital and surplus
to an amount that is less than the amount required by the Insurance Department
for the kind or kinds of business that it is authorized to transact.

Wisconsin

Under Wisconsin law, United National Specialty Insurance Company may not
pay any dividend or make any distribution of cash or other property, other than
a proportional distribution of the insurer's stock, the fair market value of
which, together with that of other dividends paid or credited and distributions
made within the preceding 12 months, exceeds the lesser of (1) 10% of its
surplus as of the preceding 31st day of December, or (2) the greater of (a) its
net income of the insurer for the calendar year preceding the date of the
dividend or distribution, minus realized capital gains for that calendar year or
(b) the aggregate of its net income for the three calendar years preceding the
date of the dividend or distribution, minus realized capital gains for those
calendar years and minus dividends paid or credited and distributions made
within the first two of the preceding three calendar years, unless it reports
the extraordinary dividend to the commissioner at least 30 days before payment
and the commissioner does not disapprove the extraordinary dividend within that
period. Additionally, under Wisconsin law, all authorizations of distributions
to shareholders, other than stock dividends, shall be reported to the
commissioner in writing and no payment may be made until at least 30 days after
such report.

The dividend limitations imposed by the state laws are based on the
statutory financial results of the respective U.S. Insurance Subsidiaries that
are determined by using statutory accounting practices that differ in various
respects from accounting principles used in financial statements prepared in
conformity with U.S. GAAP. See "-- Statutory Accounting Principles." Key
differences relate to among other items, deferred acquisition costs, limitations
on deferred income taxes, required investment reserves and reserve calculation
assumptions and surplus notes.

For 2003, the maximum amount of distributions that our U.S. Insurance
Subsidiaries could pay in dividends under applicable laws and regulations
without regulatory approval is approximately $22.9 million.

INSURANCE REGULATORY INFORMATION SYSTEM RATIOS

The NAIC Insurance Regulatory Information System, or "IRIS," was
developed by a committee of the state insurance regulators and is intended
primarily to assist state insurance departments in executing their statutory
mandates to oversee the financial condition of insurance companies operating in
their respective states. IRIS identifies 12 industry ratios and specifies "usual
values" for each ratio. Departure from the usual values of the ratios can lead
to inquiries from individual state insurance commissioners as to certain aspects
of an insurer's business. Insurers that report four or more ratios that fall
outside the range of usual values are generally targeted for regulatory review.

For 2002, United National Insurance Company had four ratios that fell
outside the range of usual values: the Two-Year Overall Operating Ratio, the
Change in Policyholders' Surplus Ratio, the Investment Yield Ratio and the
Surplus Aid to Policyholders' Surplus Ratio. The first two of these ratios fell
outside of the usual ranges as a result of our increase in loss reserves and the
recording of an allowance for doubtful reinsurance receivables in 2002. The
Investment Yield Ratio fell outside of the usual ranges as a

result of our investment in tax exempt fixed income securities, which generally
have a lower yield than that of taxable fixed income securities. The final ratio
fell outside of usual values as a result of the amount of quota share
reinsurance purchased in 2002 and the related ceding commission income paid to
us.

For 2002, United National Specialty Insurance Company likewise had four
ratios that fell outside of the range of usual values, including the first three
ratios listed above and the Two-Year Reserve Development to Policyholders'
Surplus Ratio. The first three of these ratios fell outside of the usual range
of values for substantially the same reasons as described above, while the last
ratio fell outside the usual range of values as a result of the increase in loss
reserves in 2002.

We have received inquiries from state insurance departments and we have
prepared an analysis for such state insurance departments of the factors
responsible for such values. As a result of our improved business performance
thus far in 2003 and of the new capital received by our U.S. Insurance
Subsidiaries in connection with our acquisition of them, we do not expect that
these ratios will fall outside of the usual ranges for 2003.

RISK-BASED CAPITAL REGULATIONS

Indiana, Pennsylvania and Wisconsin require that each domestic insurer
report its risk-based capital based on a formula calculated by applying factors
to various asset, premium and reserve items. The formula takes into account the
risk characteristics of the insurer, including asset risk, insurance risk,
interest rate risk and business risk. The respective state insurance regulators
use the formula as an early warning regulatory tool to identify possibly
inadequately capitalized insurers for purposes of initiating regulatory action,
and not as a means to rank insurers generally. State insurance laws impose broad
confidentiality requirements on those engaged in the insurance business
(including insurers, general agencies, brokers and others) and on state
insurance departments as to the use and publication of risk-based capital data.
The respective state insurance regulators have explicit regulatory authority to
require various actions by, or to take various actions against, insurers the
total adjusted capital of which does not exceed certain risk-based capital
levels. Each of United National Insurance Company, Diamond State Insurance
Company, United National Casualty Insurance Company and United National
Specialty Insurance Company have risk-based capital in excess of the required
levels prior to the September 5, 2003 acquisition of Wind River Investment
Corporation and the contribution of $80.0 million to our U.S. Operations.

STATUTORY ACCOUNTING PRINCIPLES

SAP is a basis of accounting developed to assist insurance regulators in
monitoring and regulating the solvency of insurance companies. SAP is primarily
concerned with measuring an insurer's surplus. Accordingly, statutory accounting
focuses on valuing assets and liabilities of insurers at financial reporting
dates in accordance with appropriate insurance law and regulatory provisions
applicable in each insurer's domiciliary state.

U.S. GAAP is concerned with a company's solvency, but it is also
concerned with other financial measurements, such as income and cash flows.
Accordingly, U.S. GAAP gives more consideration to appropriate matching of
revenue and expenses. As a direct result, different assets and liabilities and
different amounts of assets and liabilities are reflected in financial
statements prepared in accordance with U.S. GAAP than financial statements
prepared in accordance with SAP.

Statutory accounting practices established by the NAIC and adopted in
part by the Indiana, Pennsylvania and Wisconsin regulators determine, among
other things, the amount of statutory surplus and statutory net income of our
U.S. Insurance Subsidiaries and thus determine, in part, the amount of funds
these subsidiaries have available to pay dividends.

GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS

Most of the jurisdictions in which our U.S. Insurance Subsidiaries are
admitted to transact business require property and casualty insurers doing
business within that jurisdiction to participate in guaranty associations. These
organizations are organized to pay contractual benefits owed pursuant to
insurance policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all member insurers
in a particular state on the basis of the proportionate share of the premiums
written by member insurers in the lines of business in which the impaired,
insolvent or failed insurer is engaged. Some states permit member insurers to
recover assessments paid through full or partial premium tax offset or in
limited circumstances by surcharging policyholders.

OPERATIONS OF U.N. BARBADOS AND U.N. BERMUDA

The insurance laws of each of the United States and of many other
countries regulate or prohibit the sale of insurance and reinsurance within
their jurisdictions by non-U.S. insurers and reinsurers that are not admitted to
do business within such jurisdictions. U.N. Barbados and U.N. Bermuda are not
admitted to do business in the United States. We do not intend that U.N.
Barbados and U.N. Bermuda will maintain offices or solicit, advertise, settle
claims or conduct other insurance activities in any jurisdiction in the United
States where the conduct of such activities would require these companies to be
admitted or authorized. U.N. Bermuda does intend to seek surplus lines approvals
and eligibilities in certain U.S. jurisdictions as further described below.

As a reinsurer that is not licensed, accredited or approved in any state
in the United States, each of U.N. Barbados and U.N. Bermuda will be required to
post collateral security with respect to reinsurance liabilities it assumes from
the ceding U.S. Insurance Subsidiaries as well as other U.S. ceding companies.
The posting of collateral security is generally required in order for U.S.
ceding companies to obtain credit on their U.S. statutory financial statements
with respect to reinsurance liabilities ceded to unlicensed or unaccredited
reinsurers. Under applicable United States "credit for reinsurance" statutory
provisions, the security arrangements generally may be in the form of letters of
credit, reinsurance trusts maintained by third-party trustees or funds-withheld
arrangements whereby the ceded premium is held by the ceding company. If "credit
for reinsurance" laws or regulations are made more stringent in Indiana,
Pennsylvania, Wisconsin or other applicable state or any of the U.S. Insurance
Subsidiaries redomesticates to one of the few states that does not allow credit
for reinsurance ceded to non-licensed reinsurers, we may be unable to realize
some of the benefits we expect from our business plan. Accordingly, our, U.N.
Barbados' and U.N. Bermuda's business operations could be adversely affected.

U.N. Bermuda is currently preparing to seek surplus lines approvals and
eligibilities in certain U.S. jurisdictions. In order to obtain such approvals
and eligibilities, U.N. Bermuda must first be included on the Quarterly Listing
of Alien Insurers ("Quarterly Listing") that is maintained by the International
Insurers Department ("IID") of the NAIC.

U.N. Bermuda will be required to establish a U.S. surplus lines trust
fund with a U.S. bank to secure U.S. surplus lines policyholders. The initial
minimum trust fund amount is $5.4 million. In subsequent years, U.N. Bermuda
must add an amount equal to 30% of its U.S. surplus lines liabilities, as at
year end and certified by an actuary, subject to the current maximum of $60
million. The NAIC's IID Plan of Operation Working Group is currently in the
early stages of considering proposals to increase both the trust fund maximum
amount and the variable percentage amount.

Applications for state surplus lines approvals and eligibilities may be
required in certain jurisdictions. As with the IID, certain jurisdictions
require annual requalification filings. Such filings customarily include
financial and related information, updated national and state-specific business
plans, descriptions of reinsurance programs, updated officers and directors
biographical affidavits and similar information.

Apart from the financial and related filings required to maintain U.N.
Bermuda's place on the Quarterly Listing and its jurisdiction-specific approvals
and eligibilities, U.N. Bermuda generally will not

be subject to regulation by U.S. jurisdictions. Specifically, rate and form
regulations otherwise applicable to authorized insurers will generally not apply
to U.N. Bermuda's surplus lines transactions. Similarly, U.S. solvency
regulation requirements, including risk-based capital standards, investment
limitations, credit for reinsurance and holding company filing requirements,
which would otherwise be applicable to authorized insurers, do not generally
apply to alien surplus lines insurers such as U.N. Bermuda.

BARBADOS

U.N. Barbados will be subject to regulation under the Barbados Exempt
Insurance Act, 1996. In addition, under the Barbados Companies Act, U.N.
Barbados may only pay a dividend out of the realized profits of the company and
may not pay a dividend unless (1) after payment of the dividend it is able to
pay its liabilities as they become due, (2) the realizable value of its assets
is greater than the aggregate value of its liabilities and (3) the stated
capital accounts are maintained in respect of all classes of shares.

U.N. Barbados will also be required to maintain assets in an amount that
permits it to meet the prescribed minimum solvency margin for the net premium
income level of its business. In respect of its general insurance business, U.N.
Barbados will be required to maintain the following margin of solvency:

- to the extent that premium income of the preceding financial year
did not exceed approximately $750,000, assets must exceed
liabilities by approximately $125,000;

- to the extent that premium income of the preceding financial year
exceeds approximately $750,000 but is equal to or less than
approximately $5.0 million, the assets must exceed liabilities by
20% of the premium income of the preceding financial year; and

- to the extent that premium income of the preceding financial year
exceeds approximately $5.0 million, the assets must exceed
liabilities by the aggregate of approximately $1.0 million and 10%
of the premium income of the preceding financial year.

U.N. Barbados is not required currently to maintain any additional
statutory deposits or reserves relative to its business.

U.N. Barbados is expressly authorized as a licensed exempt insurance
company by the Barbados Act to make payments of dividends to non-residents of
Barbados and to other licensees free of Barbados withholding tax and without the
need for exchange control permission.

BERMUDA

BERMUDA INSURANCE REGULATION

The Insurance Act 1978 of Bermuda and related regulations, as amended, or
the "Insurance Act," regulates the insurance business of U.N. Bermuda and
provides that no person may carry on any insurance business in or from within
Bermuda unless registered as an insurer by the Bermuda Monetary Authority, or
"BMA," under the Insurance Act. U.N. Bermuda has been registered as a Class 3
insurer by the BMA. The continued registration of an applicant as an insurer is
subject to it complying with the terms of its registration and such other
conditions as the BMA may impose from time to time.

The Insurance Act also imposes on Bermuda insurance companies solvency
and liquidity standards and auditing and reporting requirements. Certain
significant aspects of the Bermuda insurance regulatory framework are set forth
below.

CLASSIFICATION OF INSURERS

There are four classifications of insurers carrying on general business,
with Class 4 insurers subject to the strictest regulation. U.N. Bermuda, which
is incorporated to carry on general insurance and reinsurance business, is
registered as a Class 3 insurer in Bermuda.

CANCELLATION OF INSURER'S REGISTRATION

An insurer's registration may be canceled by the Supervisor of Insurance
of the BMA on certain grounds specified in the Insurance Act, including failure
of the insurer to comply with its obligations under the Insurance Act.

PRINCIPAL REPRESENTATIVE

An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For the purpose of
the Insurance Act, U.N. Bermuda's principal office is its executive offices in
Hamilton, Bermuda, and U.N. Bermuda's principal representative is Marsh
Management Services (Bermuda) Ltd.

INDEPENDENT APPROVED AUDITOR

Every registered insurer must appoint an independent auditor who will
audit and report annually on the statutory financial statements and the
statutory financial return of the insurer, both of which, in the case of U.N.
Bermuda, are required to be filed annually with the BMA.

LOSS RESERVE SPECIALIST

As a registered Class 3 insurer, U.N. Bermuda is required to submit an
opinion of its approved loss reserve specialist with its statutory financial
return in respect of its losses and loss expenses provisions.

STATUTORY FINANCIAL STATEMENTS

U.N. Bermuda must prepare annual statutory financial statements. The
Insurance Act prescribes rules for the preparation and substance of these
statutory financial statements (which include, in statutory form, a balance
sheet, an income statement, a statement of capital and surplus and notes
thereto). U.N. Bermuda is required to give detailed information and analyses
regarding premiums, claims, reinsurance and investments. The statutory financial
statements are not prepared in accordance with United States GAAP and are
distinct from the financial statements prepared for presentation to U.N.
Bermuda's shareholders and under the Companies Act, which financial statements,
in the case of U.N. Bermuda, will be prepared in accordance with U.S. GAAP.

ANNUAL STATUTORY FINANCIAL RETURN

U.N. Bermuda is required to file with the BMA a statutory financial
return no later than four months after its financial year end (unless
specifically extended upon application to the BMA). The statutory financial
return for a Class 3 insurer includes, among other matters, a report of the
approved independent auditor on the statutory financial statements of the
insurer, solvency certificates, the statutory financial statements, a
declaration of statutory ratios and the opinion of the loss reserve specialist.

MINIMUM SOLVENCY MARGIN AND RESTRICTIONS ON DIVIDENDS AND DISTRIBUTIONS

Under the Insurance Act, the value of the general business assets of a
Class 3 insurer, such as U.N. Bermuda, must exceed the amount of its general
business liabilities by an amount greater than the prescribed minimum solvency
margin.

Additionally, under the Companies Act, U.N. Bermuda may only declare or
pay a dividend if U.N. Bermuda has no reasonable grounds for believing that it
is, or would after the payment be, unable to pay its liabilities as they become
due, or if the realizable value of its assets would not be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.

MINIMUM LIQUIDITY RATIO

The Insurance Act provides a minimum liquidity ratio for general business
insurers, such as U.N. Bermuda. An insurer engaged in general business is
required to maintain the value of its relevant assets at not less than 75% of
the amount of its relevant liabilities, as such terms are defined in the
Insurance Act and its related regulations.

SUPERVISION, INVESTIGATION AND INTERVENTION

The BMA has wide powers of investigation and document production in
relation to Bermuda insurers under the Insurance Act. For example, the BMA may
appoint an inspector with extensive powers to investigate the affairs of U.N.
Bermuda if the BMA believes that such an investigation is in the best interests
of its policyholders or persons who may become policyholders.

CERTAIN OTHER BERMUDA LAW CONSIDERATIONS

U.N. Bermuda must comply with the provisions of the Companies Act
regulating the payment of dividends and making of distributions from contributed
surplus.

Although U.N. Bermuda is incorporated in Bermuda, it is classified as a
non-resident of Bermuda for exchange control purposes by the BMA. Pursuant to
the non-resident status, U.N. Bermuda may engage in transactions in currencies
other than Bermuda dollars, and there are no restrictions on its ability to
transfer funds (other than funds denominated in Bermuda dollars) in and out of
Bermuda or to pay dividends to United States residents that are holders of its
common shares.

Under Bermuda law, exempted companies are companies formed for the
purpose of conducting business outside Bermuda from a principal place of
business in Bermuda. As an "exempted" company, U.N. Bermuda may not, without the
express authorization of the Bermuda legislature or under a license or consent
granted by the Minister of Finance, participate in certain business
transactions, including transactions involving Bermuda landholding rights and
the carrying on of business of any kind for which it is not licensed in Bermuda.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information as to persons who will serve
as our directors and executive officers immediately upon completion of this
offering, as well as those individuals who serve as the executive officers of
our U.S. Operations. All directors hold office until the next general annual
meeting of shareholders or until their successors are duly elected and qualified
in accordance with our articles of association. Officers serve at the request of
our Board of Directors.

<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------

Saul A. Fox.................... 50 Chairman, Chief Executive Officer and Director, United
National Group
Troy W. Thacker................ 31 President and Director, United National Group
Kevin L. Tate.................. 47 Chief Financial Officer, United National Group; Senior Vice
President and Chief Financial Officer of U.S. Operations
Seth D. Freudberg.............. 44 President and Chief Executive Officer of U.S. Operations
Richard S. March............... 62 Senior Vice President and General Counsel of U.S. Operations
Robert Cohen................... 54 Senior Vice President -- Marketing of U.S. Operations
William F. Schmidt............. 42 Senior Vice President and Chief Underwriting Officer of U.S.
Operations
Jonathan P. Ritz............... 35 Senior Vice President -- Ceded Reinsurance of U.S.
Operations
W. Dexter Paine, III........... 42 Director, United National Group
Robert N. Lowe, Jr............. 45 Director, United National Group
Angelos J. Dassios............. 29 Director, United National Group
Russell C. Ball, III........... 37 Director, United National Group
John J. Hendrickson............ 43 Director, United National Group
Edward J. Noonan............... 45 Director, United National Group
</Table>

Saul A. Fox, 50, has served as our Chairman and Chief Executive Officer
since September 5, 2003 and has served as Chief Executive of Fox Paine & Company
since he co-founded Fox Paine & Company in 1997. Prior to founding Fox Paine &
Company, Mr. Fox was general partner with Kohlberg, Kravis & Roberts & Co.
During his thirteen years with Kohlberg, Kravis & Roberts & Co., Mr. Fox led a
focused investment effort in the global insurance and reinsurance sectors. This
effort included the 1992 acquisition of American Reinsurance Corp. and the 1995
acquisition of Canadian General Insurance Company. Mr. Fox was Chairman of the
Executive Committee of the Board of Directors for both companies. Prior to
joining Kohlberg, Kravis & Roberts & Co., Mr. Fox was an attorney specializing
in tax, business law and mergers and acquisitions and participated significantly
in law firm management at Latham & Watkins LLP, an international law firm
headquartered in Los Angeles, California. Mr. Fox received a B.S. in
Communications from Temple University in 1975 (summa cum laude) and a J.D. from
the University of Pennsylvania School of Law in 1978 (cum laude). Mr. Fox is a
director of Alaska Communications Systems Holdings, Inc. and a Member of the
Board of Overseers, University of Pennsylvania Law School. Mr. Fox was nominated
for election as a director by Fox Paine & Company pursuant to its rights under
our shareholders agreement. See "Our Relationship with Fox Paine &
Company -- Shareholders Agreement -- Board Composition."

Troy W. Thacker, 31, has served as our President since September 5, 2003
and a Director at Fox Paine & Company since 2001. Prior to joining Fox Paine &
Company, Mr. Thacker was an investment professional at Gryphon Investors, Inc.,
a San Francisco, California based private equity firm, which he joined after
receiving his M.B.A. from Harvard Business School in 2000. From 1997 through
1998,

Mr. Thacker was employed by SCF Partners, a private equity firm, and from 1995
through 1997, Mr. Thacker was an analyst at Morgan Stanley & Co. Mr. Thacker
received a B.S. in Chemical Engineering from Rice University in 1995. Mr.
Thacker was nominated for election as a director by Fox Paine & Company pursuant
to its rights under our shareholders agreement. See "Our Relationship with Fox
Paine & Company -- Shareholders Agreement -- Board Composition."

Kevin L. Tate, 47, has been our Chief Financial Officer since September
5, 2003 and has served as Senior Vice President and Chief Financial Officer of
our U.S. Operations since 1990. Mr. Tate joined our U.S. Operations in 1984 as
Vice President and Controller. Prior to joining our U.S. Operations, Mr. Tate
served as a senior auditor at Deloitte Haskins & Sells from 1978 to 1982. In
1982, he joined the then parent company of our U.S. Operations, American
Manufacturing Corporation as Manager of Financial Accounting. Mr. Tate is a
member of the American and Pennsylvania Institutes of Certified Public
Accountants. Mr. Tate received a B.S. in Accounting and Finance from Lehigh
University in 1978.

Seth D. Freudberg, 44, has served as President and Chief Executive
Officer of our U.S. Operations since 1988. Mr. Freudberg joined our U.S.
Operations in 1983. He was promoted to various executive positions until the
Board of Directors elected him to his current post in 1988. Mr. Freudberg has
served both as Chairman of the NAII Surplus Lines Committee and as a Board
Member of the Insurance Society of Pennsylvania. He holds the Chartered Property
and Casualty Underwriter designation. Mr. Freudberg received a B.S. in Economics
from The Wharton School at the University of Pennsylvania in 1981.

Richard S. March, 62, has served as General Counsel and Senior Vice
President of our U.S. Operations since 1996. Previously, Mr. March represented
our U.S. Operations in various capacities at the Philadelphia law firm of
Galfand, Berger, Lurie, Brigham & March during his 31 years in private practice
with that firm. Although not an employee of our U.S. Operations during that
time, Mr. March served as an officer and General Counsel throughout most of
those years. Mr. March received a B.S. in Economics from The Wharton School at
the University of Pennsylvania in 1962 and an L.L.B. from the University of
Pennsylvania School of Law in 1965.

Robert Cohen, 54, has served as Senior Vice President -- Marketing of our
U.S. Operations since 1996. Mr. Cohen joined our U.S. Operations in 1992 as Vice
President of Underwriting. From 1994 to 1996, Mr. Cohen served as Vice President
of Marketing. Prior to joining our U.S. Operations, from 1971 to 1992, Mr. Cohen
served as Senior Vice President for Delaware Valley Underwriting Agency, one of
the nation's largest independently owned wholesale broker/general agency. Mr.
Cohen received a B.B.A. in Marketing from Temple University in 1970.

William F. Schmidt, 42, has served as Senior Vice President and Chief
Underwriting Officer of our U.S. Operations since 1997. Prior to joining us, Mr.
Schmidt served as Senior Vice President Branch Manager and Chief Underwriting
Officer at Calvert Insurance Company, and prior to that as the Chief Financial
Officer of Stewart Smith Insurance Brokers. Mr. Schmidt began his career as a
CPA with Ernst & Whinney, becoming a Certified Public Accountant in May 1985.
Mr. Schmidt received a B.S. in Accounting from SUNY Oswego in 1983.

Jonathan P. Ritz, 35, has served as Senior Vice President -- Ceded
Reinsurance of our U.S. Operations since 2002. From 1997 to 2002, Mr. Ritz
served as Vice President of Marketing. Prior to joining our U.S. Operations, Mr.
Ritz served as a reinsurance broker for E. W. Blanch Company from 1990 to 1994.
In 1994, Mr. Ritz joined the reinsurance brokering operations of Johnson &
Higgins (Willcox) as an Assistant Vice President before being promoted to Vice
President in 1996 at Guy Carpenter after the acquisition of Johnson & Higgins by
Marsh & McLennan Companies, Inc. Mr. Ritz received a B.B.A. in Marketing from
Loyola College in 1990.

W. Dexter Paine, III, 42, has served as President of Fox Paine & Company
since he co-founded Fox Paine & Company in 1997. From 1994 through 1997, Mr.
Paine served as a senior partner of Kohlberg & Company. Prior to joining
Kohlberg & Company, Mr. Paine served as a general partner at Robertson Stephens
& Company. Mr. Paine received a B.A. in Economics from Williams College in 1983.

Mr. Paine is Chairman of the Board of Directors of WJ Communications, Inc. and a
director of Alaska Communications Systems Holdings, Inc. and of Maxxim Medical
Inc. Mr. Paine was nominated for election as a director by Fox Paine & Company
pursuant to its rights under our shareholders agreement. See "Our Relationship
with Fox Paine & Company -- Shareholders Agreement -- Board Composition."

Robert N. Lowe, Jr., 45, has served as Chief Operating Officer of Fox
Paine & Company since 2002. Prior to joining Fox Paine & Company, Mr. Lowe was
with Arthur Andersen LLP for 21 years, most recently as the firm's Managing
Partner, Expansions and Alliances. Mr. Lowe received a B.S. in Accounting and
Masters of Accounting (Tax) from the University of Florida in 1980 and 1981,
respectively (both with High Honors). Mr. Lowe is a director of WJ
Communications, Inc. and of Maxxim Medical Inc. Mr. Lowe will be nominated for
election as a director by Fox Paine & Company pursuant to its rights under our
shareholders agreement. See "Our Relationship with Fox Paine &
Company -- Shareholders Agreement -- Board Composition."

Angelos J. Dassios, 29, has served as a Vice President at Fox Paine &
Company since 2002. Prior to joining Fox Paine & Company, Mr. Dassios was an
associate in the Principal Investment Area from 1998 through 2002, and an
analyst in both the Principal Investment Area and the Investment Banking
Division from 1996 through 1998, of Goldman, Sachs & Co. Mr. Dassios received an
A.B. in Applied Mathematics from Dartmouth College in 1996 (summa cum laude, Phi
Beta Kappa). Mr. Dassios was nominated for election as a director by Fox Paine &
Company pursuant to its rights under our shareholders agreement. See "Our
Relationship with Fox Paine & Company -- Shareholders Agreement -- Board
Composition."

Russell C. Ball, III, 37, has served as the Chief Executive Officer of
The AMC Group, L.P. since 1993. The AMC Group is a privately-owned limited
partnership that provides services under a management agreement to interests of
the Ball family trusts in manufacturing, franchising, insurance and real estate
enterprises. Mr. Ball received a B.A. in History from Harvard University in 1988
and an M.B.A. from Pennsylvania State University in 1992. Mr. Ball was nominated
for election as a director by the Ball family trusts pursuant to their rights
under our shareholders agreement. See "Our Relationship with Fox Paine &
Company -- Shareholders Agreement -- Board Composition."

John J. Hendrickson, 43, has served as a Managing Director with Fox-Pitt,
Kelton Inc., a subsidiary of Swiss Reinsurance Company that provides research,
brokerage and investment banking services specializing in the insurance and
financial services sector, since March 2003. From July 1998 to March 2003, Mr.
Hendrickson was a member of the Executive Board of Swiss Re and head of Swiss
Re's merchant banking division. Prior to joining Swiss Re, Mr. Hendrickson was a
founding partner of Securitas Capital, a private equity fund focused on
investments in the insurance industry. Prior to joining Securitas, Mr.
Hendrickson held various positions with Smith Barney during his ten-year tenure
there, including Managing Director and Head of the Insurance Group within the
corporate finance department. Mr. Hendrickson is a director of Atradius,
formerly Gerling NCM, a trade credit insurance company headquartered in
Amsterdam. He is also a director of Allied World Assurance Holdings, Ltd, a
Bermuda-based property and casualty insurance and reinsurance company. Mr.
Hendrickson received a B.A. in History and an M.S. in Industrial Engineering
from Stanford University in 1983.

Edward J. Noonan, 45, retired from American Re-Insurance Corporation in
2002. Mr. Noonan worked with American Re-Insurance from 1983 until March of
2002. He served as President and Chief Executive Officer of that company from
March of 1997 through March of 2002. Mr. Noonan also served as Chairman of
Inter-Ocean Reinsurance Holdings of Hamilton, Bermuda from 1997 to 2002. Prior
to joining American Re-Insurance, Mr. Noonan worked at Swiss Reinsurance from
1979 to 1983. Mr. Noonan received a B.S. in Finance from St. John's University
in 1979 (cum laude). Mr. Noonan is also a director of the St. Mary Medical
Center Foundation.

BOARD OF DIRECTORS

The Board of Directors is responsible for the management of the overall
affairs of United National Group. To assist it in carrying out its duties, the
Board of Directors may delegate certain of its powers to its executive officers.

The Companies Law (2003 Revision) of the Cayman Islands does not set out
the duties of directors. However, a Cayman Islands court has held that the
fiduciary obligations of a senior manager with major responsibilities was the
same as that of a director or trustee. These duties were listed as "the
observance of general standards of loyalty, honesty, good faith, and the
avoidance of a conflict of duty and self-interest."

A Cayman Islands court would also view as highly persuasive the United
Kingdom common law principles relating to directors' duties. By application of
the common law principles, the duties of the directors of United National Group
can be summarized as follows:

- a duty to act in what the directors bona fide consider to be the
best interests of the company (and in this regard it should be
noted that what is in the best interests of the group of companies
to which United National Group belongs is not necessarily in the
best interests of United National Group);

- a duty to exercise their powers for the purposes for which they are
conferred;

- a duty of trusteeship of United National Group's assets;

- a duty to avoid conflicts of interest and of duty;

- a duty to disclose personal interest in contracts involving United
National Group;

- a duty not to make secret profits from the directors' office; and

- a duty to act with skill and care.

Our Board of Directors is currently comprised of five directors, namely
Messrs. Fox, Paine, Thacker, Dassios and Ball. Prior to completion of this
offering, we will expand our Board of Directors to consist of eleven individuals
and will appoint Messrs. Lowe, Hendrickson and Noonan, one other director who is
considered "independent" for purposes of the rules of the Nasdaq National Market
and one other director. Following completion of this offering, our Board of
Directors intends to appoint one additional independent director, for a total of
three independent directors.

Under the terms of our shareholders agreement, Fox Paine & Company is
entitled to nominate and have elected a majority of the members of our Board of
Directors and, for so long as the Ball family trusts own securities representing
at least 5% of our total voting power, the Ball family trusts have the right to
appoint one director. See "Our Relationship with Fox Paine &
Company -- Shareholders Agreement -- Board Composition."

BOARD COMMITTEES

Upon completion of this offering, we intend to establish the following
committees of our Board of Directors: executive committee; audit committee;
compensation committee; nominating and governance committee; and operating
committee.

EXECUTIVE COMMITTEE

The executive committee is expected to consist of Messrs. Fox and
Thacker. The executive committee will have the authority to exercise the powers
of the Board of Directors, other than those reserved to the audit committee, the
compensation committee, the nominating and governance committee and the
operating committee or our full Board of Directors, between meetings of our full
Board of Directors.

AUDIT COMMITTEE

The audit committee is initially expected to consist of Messrs. Noonan
and Lowe and one independent director. The audit committee will:

- review the audit plans and findings of our independent auditors,
the audit plans and findings of our internal audit and the results
of regulatory examinations and will track results of management's
corrective action plans as necessary;

- review our accounting policies and controls, compliance programs
and significant tax and legal matters;

- recommend to our Board of Directors the annual appointment of our
independent auditors; and

- review our risk management processes.

COMPENSATION COMMITTEE

The composition of the compensation committee has not been determined;
however, it will be comprised in such a manner so as to comply with the rules of
the Nasdaq National Market. The compensation committee will oversee our
compensation and benefit policies and plans.

NOMINATING AND GOVERNANCE COMMITTEE

The composition of the nominating and governance committee has not been
determined; however, it will be comprised in such a manner so as to comply with
the rules of the Nasdaq National Market. The nominating and governance committee
will nominate candidates for election to our Board of Directors and establish
and maintain our corporate governance policies.

OPERATING COMMITTEE

The operating committee is expected to consist of Messrs. Fox, Thacker
and Dassios. The operating committee will oversee a number of policies relating
to our day-to-day operations, including our underwriting policies (including
approving exceptions therefrom), our reinsurance and risk management processes
and our investment guidelines.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As noted above, prior to completion of this offering, our Board of
Directors did not have a compensation committee, but we intend to form a
compensation committee upon completion of this offering. Prior to this offering,
our senior management was directly involved in setting compensation for our
executives.

ELECTION OF EXECUTIVE OFFICERS

Our officers are elected by the Board of Directors and serve at the
discretion of the Board of Directors.

DIRECTOR COMPENSATION

Directors who currently are not receiving compensation as officers or
employees of United National Group or any of its affiliates, who we refer to as
"Non-Employee Directors," are paid an annual retainer of $30,000, $11,250 of
which is payable in cash and the remainder of which is payable in restricted
Class A common shares valued at the time of the grant. Class A common shares
granted to Non-Employee Directors vest monthly from the date of grant over a
three-year period and will be forfeited if the Non-Employee Director's services
are terminated prior to vesting for any reason. Non-Employee Directors are also
paid $2,500 for each Board of Directors meeting attended in person and $1,000
for each

Board meeting attended by telephonic means. With respect to additional committee
service, Non-Employee Directors are paid $2,500 for each additional committee
meeting attended in person and $1,000 for each such meeting attended by
telephonic means. All members of our Board of Directors are reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors and its committees. These provisions are subject to change by our
Board of Directors.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or awarded in 2002
to the President and Chief Executive Officer of our U.S. Operations and to our
other named executive officers of our U.S. Operations who were the most highly
compensated in 2002.

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL ANNUAL OPTIONS/
POSITION YEAR SALARY BONUS COMPENSATION SARS
- ------------------ ---- -------- -------- ------------ ------------

Seth D. Freudberg,............................. 2002 $385,786 $111,850 $1,000 --
President and Chief Executive Officer
Richard S. March,.............................. 2002 293,838 56,813 -- --
Senior Vice President and General
Counsel
Kevin L. Tate,................................. 2002 219,873 42,406 1,000 --
Senior Vice President and Chief
Financial Officer
Robert Cohen,.................................. 2002 235,890 45,957 -- --
Senior Vice President -- Marketing
William F. Schmidt,............................ 2002 223,873 43,218 -- --
Senior Vice President and Chief
Underwriting Officer
Jonathan P. Ritz,.............................. 2002 179,798 67,400 -- 583*
Senior Vice President -- Ceded
Reinsurance
</Table>

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

* Reflects stock appreciation rights granted to Mr. Ritz on shares of AIS common
stock. This stock appreciation rights plan was terminated on September 5,
2003.

OPINION/SAR GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE GRANT
UNDERLYING GRANTED TO OR BASE DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME AND PRINCIPAL POSITION GRANTED($) FISCAL YEAR ($/SH) DATE VALUE$
- --------------------------- ------------ ------------ --------- ---------- -------

Seth D. Freudberg..................... -- -- -- -- --
President and Chief Executive
Officer
Richard S. March,..................... -- -- -- -- --
Senior Vice President and General
Counsel
Kevin L. Tate......................... -- -- -- -- --
Senior Vice President and Chief
Financial Officer
Robert Cohen,......................... -- -- -- -- --
Senior Vice President -- Marketing
William F. Schmidt,................... -- -- -- -- --
Senior Vice President and Chief
Underwriting Officer
Jonathan P. Ritz...................... 583 0.3% $1,670.98 N/A(1) N/A(1)
Senior Vice President -- Ceded
Reinsurance
</Table>

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

(1) Stock appreciation rights plan was terminated on September 5, 2003.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR-END OPTION/SAR VALUES

<Table>
<Caption>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT YEAR END
AT YEAR END ($)(1)
SHARES ------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME AND PRINCIPAL POSITION EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
--------------------------- ------------ ------------ ------------- ---------------

Seth D. Freudberg, ...................... -- -- 1,961/2,942 $1,878,755
President and Chief Executive Officer
Richard S. March, ....................... -- -- 566/566 $ 442,052
Senior Vice President and General
Counsel
Kevin L. Tate, .......................... -- -- 566/566 $ 442,052
Senior Vice President and Chief
Financial Officer
Robert Cohen, ........................... -- -- 566/566 $ 442,052
Senior Vice President -- Marketing
William F. Schmidt, ..................... -- -- 113/453 $ 68,564
Senior Vice President and Chief
Underwriting Officer
Jonathan P. Ritz, ....................... -- -- --/583 0
Senior Vice President -- Ceded
Reinsurance
</Table>

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

(1) The stock appreciation rights plan was terminated on September 5, 2003 and
the named executives received payments as described under
"-- Acquisition -- Related Payments."

EMPLOYMENT AGREEMENTS

Each of Messrs. Freudberg, March, Cohen, Schmidt, Tate and Ritz has a
current executive employment agreement with United National Insurance Company,
or "UNIC," an indirect wholly owned subsidiary of the United National Group. The
agreements are similar in structure and provide for five-year initial employment
terms, commencing on the date of acquisition, September 5, 2003, with additional
one-year renewal terms unless either party gives 90 days prior written notice of
non-renewal to the other. If UNIC elects not to renew the agreement at the end
of the initial five-year term, and the executive has otherwise performed
satisfactorily, the executive will receive, conditioned upon execution of a
general release and compliance with post-termination obligations, monthly
payments of base salary until the earlier of six months following the date of
termination or the commencement of full-time employment with another employer.

Under the agreements, UNIC may also terminate the executive for "cause"
or if the executive becomes "disabled" (as such terms are defined in the
agreement) or upon the death of the executive, in which case (1) the executive
would not be entitled to any separation payments in the case of a termination
for cause or death, and (2) in the case of disability, the executive would be
entitled to six months of base salary payable monthly (subject to reduction for
disability payments otherwise received by the executive), and conditioned upon
the execution by the executive of a general release and compliance with
post-termination obligations.

If UNIC terminates the executive without "cause" or the executive resigns
as a result of the relocation of the principal executive offices of UNIC or the
business relocation of the executive (in each case without UNIC offering the
executive a reasonable relocation package), UNIC has agreed to severance pay of
twenty-four months in the case of Mr. Freudberg and eighteen months in the case
of the other executives, payable monthly, and subject to the execution of a
general release and further adjustment for the equity compensation package
granted to such executive. During this severance period, UNIC is also obligated
to maintain any medical, health and accident plan or arrangement in which the
executive participates until the earlier of the end of the severance period or
the executive becoming eligible for coverage by another employer and subject to
the executive continuing to bear his share of coverage costs.

All of the executive agreements also impose non-compete, non-solicitation
and confidentiality obligations on the executives upon their termination for any
reason. The non-compete provisions provide that for a period of 18 months
following the termination of employment for any reason the executives shall not
directly or indirectly engage in any "competitive business," which includes any
business engaging in the specialty property and casualty insurance business or
any business engaging in the insurance agency or brokerage business (or any
other material business of UNIC or its affiliates) or which has business
dealings with any general agency or producer of UNIC. The non-solicitation
provisions prohibit the executives, for a period of eighteen months following
termination of employment, from doing business with any employee, officer,
director, agent, consultant or independent contractor employed by or performing
services for UNIC, or engaging in insurance-related business with any party who
is or was a customer of UNIC during the executives' employment (or during such
eighteen-month period), or a business prospect of UNIC during the executive's
employment. The employment agreements also provide that the executives may elect
to forego separation payments and certain equity awards (discussed below) and in
return no longer be subject to certain provisions of the non-competition
restrictions (such as those prohibiting engaging in the specialty and casualty
insurance business or any business engaging in the insurance agency or brokerage
business), but still remain subject to other non-compete provisions,
confidentiality provisions and non-solicitation provisions of the agreements. If
the executives violate their restrictive covenants or confidentiality
obligations, the employment agreements also have provisions that permit UNIC to
recover gain realized by the executives upon the exercise of options or sale of
stock during a designated period, to purchase their shares at the lesser of cost
or fair market value and for the forfeiture of any unexercised options.

With respect to the executives' annual cash compensation, the agreements
provide as follows: (1) Mr. Freudberg is entitled to an annual salary of
$415,000; (2) Mr. March is entitled to an annual

salary of $320,000; (3) Mr. Cohen is entitled to an annual salary of $255,000;
(4) Mr. Schmidt is entitled to an annual salary of $245,000; (5) Mr. Tate is
entitled to an annual salary of $237,500; and (6) Mr. Ritz is entitled to a
salary of $225,000. Each executive is also eligible for an annual bonus
conditioned on the achievement of performance targets included in the bonus plan
adopted by our Board of Directors.

In connection with the execution of their employment agreements, the
named executives also purchased our Class A common shares at a purchase price of
$10.00 per share. Class A common shares purchased by the named executives are
subject to the terms of a restricted share purchase agreement and a Management
Shareholders Agreement. The number of Class A common shares acquired by the
named executives is as follows: Mr. Freudberg - 50,000 shares; Mr.
March - 26,250 shares; Mr. Cohen - 26,250 shares; Mr. Schmidt - 26,250 shares;
Mr. Tate - 26,250 shares; and Mr. Ritz - 26,250 shares.

The executives have been granted various options to purchase our Class A
common shares. Options denoted as the "Option-A Tranche" granted on September 5,
2003 have an exercise price of $6.50 per share and are fully vested at the time
of the grant; Messrs. Freudberg and March were granted 200,000 and 56,074
options, respectively, from the Option-A Tranche. The second set of options
granted to all named executive officers on September 5, 2003 have an exercise
price of $10 per share and vests over time in 20% increments over a five-year
period, with any unvested options forfeitable upon termination of the
executive's employment for any reason (including cause); Mr. Freudberg was
granted 75,000 of these options and the other named executive officers were each
granted 39,375 of these options. The final set of options are
performance-vesting options granted on September 5, 2003, having an exercise
price of $10 per share with vesting in 25% increments and conditioned upon our
achieving various operating targets or Fox Paine & Company achieving an agreed
upon rate of return on its investment in us; Mr. Freudberg was granted 125,000
of these options and the other named executive officers were each granted 65,625
of these options.

MANAGEMENT SHAREHOLDERS AGREEMENT

All named executives are parties to a Management Shareholders Agreement,
or "MSA", that applies to all shares acquired by such executives, whether by
direct purchase or upon option exercise. Generally, all shares governed by the
MSA are subject to transfer restrictions, some of which no longer apply upon our
filing of a registration statement covering the shares or the reduction in Fox
Paine & Company's ownership interest to below 10%. The management shareholders
are also subject to a "drag along" obligation on their shares and may be
required to join in the sale by Fox Paine & Company of at least 50% of its
shareholdings in us, on the same terms and conditions as Fox Paine & Company. In
any case, we may elect to purchase the shares owned by an executive upon the
termination of the executive's employment for cause or his resignation for any
reason (other than for retirement or failure to renew the executive's employment
agreement), generally, at the lesser of cost or fair market value (provided that
for purposes of this repurchase provision, the cost of shares realized by
Messrs. Freudberg and March upon the exercise of their Option-A Tranche Shares
shall be $10.00). If the executive's employment is terminated due to death,
disability, retirement or by us without cause, we may elect to repurchase the
executive's stock at fair market value as determined by the Board of Directors.
The repurchase rights of the Company extend for seven years from the execution
of the MSA. If during the first five years from the execution of the MSA, the
employment of Messrs. Freudberg and March is terminated by us or our
subsidiaries for any reason, they have the right within 90 days of such
termination to have us purchase all of the Option-A Tranche Shares realized upon
exercise at the lesser of $10.00 or fair market value. The Board of Directors
has also agreed to consider providing Messrs. Freudberg and March with the right
to have any unexercised portion of the Option-A Tranche purchased by the us for
a per share amount equal to the difference (if any) between the exercise price
($6.50) and the lesser of $10.00 or fair market value, provided that such a
repurchase will not result in any material adverse accounting consequences to
us, and if the Board of Directors determines not to provide such a right, the
Board of Directors has agreed to cooperate with Messrs. Freudberg and March to
implement a mutually satisfactory alternative. Our payment obligations with
respect to any such repurchase obligations are subject to a formula providing
for

an initial partial payment, followed by a subsequent payment three years later
upon confirmation of fair market value, and all payment obligations are
conditioned on compliance with applicable covenants governing cash expenditures.

The MSA also provides that if, after the public offering, we subsequently
propose to include common shares and shares held by Fox Paine & Company on any
registration statement, and if the management shares covered under the MSA are
not at such time or otherwise subject to registration or sale under Rule 144,
then the management shareholders may exercise certain "piggyback" registration
rights, subject to cutbacks at the discretion of the managing underwriters.

SHARE INCENTIVE PLAN

PURPOSE

Our Board of Directors and shareholders approved our Share Incentive
Plan, or "Plan." The purpose of the Plan is to enable us to offer key employees
and our Non-Employee Directors stock options, restricted stock and other
stock-based awards. We believe this will help us attract, retain and reward our
key employees and directors, and strengthen the mutuality of interests between
such individuals and our shareholders. The Plan also provides additional
advantages if the Board of Directors determines to acquire other business
operations, by permitting us to offer the employees and Non-Employee Directors
of such businesses share-based awards. Under certain circumstances our
consultants and affiliates may also be eligible for grants under the Plan.

ADMINISTRATION

The Plan will be administered by a committee of the Board of Directors.
That committee will consist of two or more Non-Employee Directors, each of whom
is intended to be, to the extent required by Rule 16b-3 under the Exchange Act
and Section 162(m) of the Code, a Non-Employee Director under Rule 16b-3 and an
outside director under Section 162(m) of the Code. With respect to the
application of the Plan to Non-Employee Directors, the committee is the Board of
Directors. If no committee exists, the functions of the committee will be
exercised by the Board of Directors.

The committee has the full authority to administer and interpret the
Plan, to grant discretionary awards under the Plan, to determine the persons to
whom awards will be granted, to determine the number of shares of common stock
to be covered by each award (subject to the individual participant limitations
provided in the Plan), to prescribe the form of instruments evidencing awards
and to make all other determinations and to take all such steps in connection
with the Plan and the awards thereunder as the committee, in its sole
discretion, deems necessary or desirable.

The terms and conditions of individual awards will be set forth in
written agreements consistent with the Plan. Awards under the Plan may not be
made on or after September 5, 2013, but awards granted prior to such date may
extend beyond that date.

ELIGIBILITY AND TYPES OF AWARDS

Our Non-Employee Directors, senior officers, senior management and key
employees, and those of certain of our subsidiaries and affiliates, and in some
circumstances our consultants, are eligible to be granted stock options,
restricted shares and other share-based awards under the Plan. Eligibility for
awards under the Plan is determined by the committee, in its sole discretion. As
of the date of this prospectus, awards have been granted under the Plan as set
forth in "Option Grants to Executive Officers."

AVAILABLE SHARES

A maximum of 2,000,000 Class A common shares may be issued or used for
reference purposes under the Plan. The maximum number of common shares with
respect to which an award may be granted under the Plan during any fiscal year
to any individual will be 800,000 shares in the case of options or, in the case
of other share-based awards, a maximum value at grant based on 400,000 Class A
common shares, except that these maximum numbers for an individual with respect
to options shall be increased for

subsequent fiscal years to the extent that awards with respect to fewer than
800,000 shares are made for such individual during any fiscal year.

The committee may, in accordance with the term of the Plan, make
appropriate adjustments to the number of common shares available for the grant
of awards and the terms of outstanding options and other awards to reflect any
stock dividend or distribution, stock split, reverse stock split,
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares (and certain other events affecting our capital structure
or business).

AMENDMENT AND TERMINATION

Notwithstanding any other provision of the Plan, the Board of Directors
or the committee may at any time, amend, suspend or terminate the Plan entirely,
retroactively or otherwise; provided, however, that, unless otherwise required
by law, the rights of a participant with respect to awards granted prior to such
amendment, suspension or termination, may not be impaired without the consent of
such participant and, provided further, without the approval of our
shareholders, to the extent required under applicable securities or tax law, no
amendment may be made that would (1) increase the aggregate number of our common
shares that may be issued under the Plan; (2) increase the maximum individual
participant share limitations for a fiscal year; (3) change the classification
of individuals eligible to receive awards under the Plan; (4) decrease the
minimum exercise price of any stock option; (5) extend the maximum option term;
(6) materially alter the performance goals for the award of other stock based
awards; or (7) require shareholder approval in order for the Plan to continue to
comply with applicable securities law.

ACQUISITION-RELATED PAYMENTS

In connection with the acquisition, the named executive officers received
payments from the U.S. Operations for the settlement of stock appreciation
rights previously granted in connection with the U.S. Operations and for
retention payments relating to their services through the closing of the
acquisition. The named executive officers participated in a stock appreciation
rights plan maintained by AIS during periods prior to September 5, 2003. This
stock appreciation rights plan was terminated upon the completion of our
acquisition of our U.S. Operations on September 5, 2003. The named executive
officers received the following cash payments in satisfaction of stock
appreciation rights outstanding and retention payments, respectively: Mr.
Freudberg -- $922,087 and $117,913; Mr. March -- $196,260 and $1,047,480; Mr.
Tate -- $196,260 and $1,243,740; Mr. Cohen -- $196,260 and $1,243,740; Mr.
Schmidt -- $0 and $1,249,460; and Mr. Ritz -- $0 and $1,249,460. Such payments
were approved by the then shareholders of the U.S. Operations in accordance with
Section 280G of the Code and the regulations promulgated thereunder.

In addition, Mr. Schmidt and Mr. Ritz received cash bonuses of $190,540
each in connection with the acquisition.

LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS

Generally, the directors and officers of United National Group are not
personally liable for its debts, liabilities or obligations except for those
debts, liabilities or obligations that arise out of the negligence, fraud or
breach of fiduciary duty on the part of an individual director or officer, or
out of an action not within the authority of the individual director or officer
and not ratified by United National Group.

Our articles of association make indemnification of directors and
officers and advancement of expenses to defend claims against directors and
officers mandatory on the part of United National Group to the fullest extent
allowed by law.

100

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our articles of association provide for the indemnification of our
directors and officers against liabilities that they may incur while discharging
the duties of their offices. See "Description of Share
Capital -- Indemnification."

In addition, we have entered into indemnification agreements with our
directors and officers, under which we agreed to indemnify our directors and
officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that the director or officer is or was our director, officer, employee or
agent, provided that the director or officer acted in good faith and in a manner
that the director or officer reasonably believed to be in, or not opposed to,
our best interest.

101

PRINCIPAL SHAREHOLDERS

The table on the following page sets forth certain information concerning
the beneficial ownership of our common and preferred shares as of September 30,
2003, including the percentage of our total voting power such shares represent
on an actual basis and as adjusted to give effect to this offering (assuming the
underwriters do not exercise their overallotment option), by:

- each of our executive officers;

- each of our directors;

- each holder known to us to hold beneficially more than 5% of any
class of our shares; and

- all of our executive officers and directors as a group.

As of September 30, 2003, the following share capital of United National
Group was issued and outstanding:

- 2,698,750 Class A common shares;

- 12,687,500 Class B common shares, each of which is convertible at
any time at the option of the holder into one Class A common share;
and

- 15,000,000 Series A preferred shares, each of which is convertible
at any time at the option of the holder into one Class B common
share, each of which, in turn, is convertible as described in the
preceding bullet point.

Based on the foregoing, and assuming each Series A preferred share is converted
into one Class B common share, and each Class B common share (including those
into which the Series A preferred shares have been converted as described in the
first clause of this sentence) is converted into one Class A common share, as of
September 30, 2003, there would have been 30,386,250 Class A common shares
issued and outstanding.

Except as otherwise set forth in the footnotes to the table, each
beneficial owner has the sole power to vote and dispose all shares held by that
beneficial owner.

102

PRINCIPAL SHAREHOLDERS

<Table>
<Caption>
BENEFICIAL OWNERSHIP
BEFORE THIS OFFERING(1)(2)
---------------------------------------------------------
CLASS A CLASS B SERIES A
COMMON SHARES COMMON SHARES PREFERRED SHARES % TOTAL %
----------------- ----------------- ----------------- VOTING AS-CONVERTED
NAME AND ADDRESS SHARES % SHARES % SHARES % POWER(4) OWNERSHIP(5)
- ---------------- ---------- ---- ---------- ---- ---------- ---- -------- ------------

Fox Paine &
Company(6)............. 24,997,382 91.4% 24,659,932 89.1% 11,972,432 79.8% 88.3% 82.3%
Ball family trusts(7)... 5,190,118 90.6 3,027,568 19.3 3,027,568 20.2 11.6 17.0
Saul A. Fox(8).......... -- -- -- -- -- -- -- --
Troy W. Thacker(8)...... -- -- -- -- -- -- -- --
Kevin L. Tate........... 26,250 1.0 -- -- -- -- * *
Seth D. Freudberg....... 250,000 8.6 -- -- -- -- * *
Richard S. March........ 82,324 3.0 -- -- -- -- * *
Robert Cohen............ 26,250 1.0 -- -- -- -- * *
William F. Schmidt...... 26,250 1.0 -- -- -- -- * *
Jonathan P. Ritz........ 26,250 1.0 -- -- -- -- * *
W. Dexter Paine,
III(8)................. -- -- -- -- -- -- -- --
Robert N. Lowe,
Jr.(8)................. -- -- -- -- -- -- -- --
Angelos J. Dassios(8)... -- -- -- -- -- -- -- --
Russell C. Ball,
III(9)................. 5,190,118 90.6 3,027,568 23.2 11.7 17.0
John J. Hendrickson..... -- -- -- -- -- -- -- --
Edward J. Noonan........ -- -- -- -- -- -- -- --
All directors and
executive officers as a
group (14 persons)..... 5,627,442 94.1% 3,027,568 23.2% 3,027,568 20.2% 11.8% 18.5%

<Caption>
BENEFICIAL OWNERSHIP
AFTER THIS OFFERING(1)(2)(3)
---------------------------------------------------------
CLASS A CLASS B SERIES A
COMMON SHARES COMMON SHARES PREFERRED SHARES % TOTAL %
----------------- ----------------- ----------------- VOTING AS-CONVERTED
NAME AND ADDRESS SHARES % SHARES % SHARES % POWER(4) OWNERSHIP(5)
- ---------------- ---------- ---- ---------- ---- ---------- ---- -------- ------------

Fox Paine &
Company(6).............
Ball family trusts(7)...
Saul A. Fox(8)..........
Troy W. Thacker(8)......
Kevin L. Tate...........
Seth D. Freudberg.......
Richard S. March........
Robert Cohen............
William F. Schmidt......
Jonathan P. Ritz........
W. Dexter Paine,
III(8).................
Robert N. Lowe,
Jr.(8).................
Angelos J. Dassios(8)...
Russell C. Ball,
III(9).................
John J. Hendrickson.....
Edward J. Noonan........
All directors and
executive officers as a
group (14 persons).....
</Table>

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

* Less than 1.0%

** Unless otherwise set forth above, the address for each beneficial owner is
c/o United National Group, Ltd., Walker House, Mary Street, P.O. Box 908GT,
George Town, Grand Cayman, Cayman Islands.

103

(1) The numbers of shares set forth in these columns are calculated in
accordance with the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934. As a result, these figures assume the exercise or conversion by
each beneficial owner of all securities that are exercisable or convertible
within 60 days of the date of this prospectus. In particular, the figures
relating to beneficial ownership of Class A common shares for a particular
beneficial owner assume:

- conversion of each Series A preferred share held by that beneficial
owner into one Class B common share; and

- conversion of each Class B common share (including those into which
the Series A preferred shares are converted as described in the
preceding bullet point) into one Class A common share.

The figures relating to beneficial ownership of Class B common shares for a
particular beneficial owner assume conversion of each Series A preferred
share held by that beneficial owner into one Class B common share.

(2) The percentages set forth in these columns are calculated in accordance with
the provisions of Rule 13d-3 under the Securities Act of 1934. In
particular:

- Class A common shares that may be acquired by a particular
beneficial owner upon the conversion of Class B common shares
(including Class B common shares that may be acquired upon the
conversion of Series A preferred shares) are deemed to be
outstanding for the purpose of computing the percentage of the
Class A common shares owned by such beneficial owner but are not be
deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other beneficial owner; and

- Class B common shares that may be acquired by a particular
beneficial owner upon the conversion of Series A preferred shares
are be deemed to be outstanding for the purpose of computing the
percentage of the Class B common shares owned by such beneficial
owner but are not be deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other beneficial
owner.

As a result, the percentages in these columns do not sum to 100%.

(3) Assumes redemption of the Series A preferred shares as described under "Use
of Proceeds," including the issuance of Class A common shares in
such redemption.

(4) The percentages in this column represent the percentage of the total
outstanding voting power of United National Group that the particular
beneficial owner holds. The numerator used in this calculation is the total
votes to which each beneficial owner is entitled, taking into account that
each Class B common share and each Series A preferred share has ten votes,
and the denominator is the total number of votes to which all outstanding
shares of United National Group are entitled, again taking into account that
each Class B common share and each Series A preferred share has ten votes.

(5) The percentages in this column represent the percentage of the total
outstanding share capital of United National Group that a particular
beneficial owner holds on an as-converted basis, assuming that each Series A
preferred share is converted into one Class B common share and each Class B
common share (including those into which the Series A preferred shares have
been converted) is converted into one Class A common share. As of September
30, 2003, there would have been 30,386,250 Class A common shares issued and
outstanding on this basis. The numerator used in this calculation is the
total number of Class A common shares each beneficial owner holds on an as-
converted basis and the denominator is the total number of Class A common
shares on an as-converted basis.

(6) The security holders are: U.N. Holdings (Cayman), Ltd.; U.N. Co-Investment
Fund I (Cayman), L.P.; U.N. Co-Investment Fund II (Cayman), L.P.; U.N.
Co-Investment Fund III (Cayman), L.P.; U.N. Co-Investment Fund IV (Cayman),
L.P.; U.N. Co-Investment Fund V (Cayman), L.P.; U.N. Co-Investment Fund VI
(Cayman), L.P.; U.N. Co-Investment Fund VIII (Cayman), L.P.; and

104

U.N. Co-Investment Fund IX (Cayman), L.P. A majority of the outstanding
share capital of U.N. Holdings (Cayman), Ltd. is held by Fox Paine Capital
Fund II International, L.P. The general partner of Fox Paine Capital Fund II
International, L.P. is Fox Paine Capital International Fund GP, L.P. The
sole general partner of Fox Paine Capital International Fund GP, L.P. is Fox
Paine International GP, Ltd. As a result, each of Fox Paine Capital Fund II
International, L.P., Fox Paine Capital International Fund GP, L.P. and Fox
Paine International GP, Ltd. may be deemed to control U.N. Holdings
(Cayman), Ltd. The sole general partner of each of U.N. Co-Investment Fund I
(Cayman), L.P., U.N. Co-Investment Fund II (Cayman), L.P., U.N.
Co-Investment Fund III (Cayman), L.P., U.N. Co-Investment Fund IV (Cayman),
L.P., U.N. Co-Investment Fund V (Cayman), L.P., U.N. Co-Investment Fund VI
(Cayman), L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N.
Co-Investment Fund IX (Cayman), L.P. is Fox Paine Capital International Fund
GP, L.P., which may be deemed to control such funds.

(7) The security holders are the following trusts: Russell C. Ball, III, Andrew
L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as appointed
by Russell C. Ball, Jr., f/b/o Russell C. Ball, III; Russell C. Ball, III,
Andrew L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as
appointed by Russell C. Ball, Jr., f/b/o Andrew L. Ball; Russell C. Ball,
III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of Ethel M. Ball, dated
2/9/67, as appointed by Russell C. Ball, Jr., f/b/o Russell C. Ball, III;
Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of
Ethel M. Ball, dated 2/9/67, as appointed by Russell C. Ball, Jr., f/b/o
Andrew L. Ball; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A.,
trustees u/a/t of Russell C. Ball, Jr., dated 11/9/67; Russell C. Ball, III,
Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated
6/9/69; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t
Russell C. Ball, Jr., dated 1/29/70; Russell C. Ball, III, Andrew L. Ball,
PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated 1/24/73; Russell
C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C.
Ball, Jr., dated 12/22/76 f/b/o Russell C. Ball, III; and Russell C. Ball,
III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr.,
dated 12/22/76 f/b/o Andrew L. Ball. Russell C. Ball, III, Andrew L. Ball
and PNC Bank, N.A. are the sole co-trustees of each trust and, therefore,
share voting and dispositive power over all of the Class A common shares and
Series A preferred shares held by the Ball family trusts. The address for
each of the Ball family trusts is 555 Croton Road, Suite 300, King of
Prussia, Pennsylvania 19406.

(8) Each of Messrs. Fox, Paine, Lowe, Thacker and Dassios is a shareholder of
Fox Paine International GP, Ltd., which acts through its board of directors,
which currently consists of Messrs. Fox and Paine. Each of Messrs. Fox,
Paine, Lowe, Thacker and Dassios disclaims beneficial ownership of all
shares held by U.N. Holdings (Cayman), Ltd., U.N. Co-Investment Fund I
(Cayman), L.P., U.N. Co-Investment Fund II (Cayman), L.P., U.N.
Co-Investment Fund III (Cayman), L.P., U.N. Co-Investment Fund IV (Cayman),
L.P., U.N. Co-Investment Fund V (Cayman), L.P., U.N. Co-Investment Fund VI
(Cayman), L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N.
Co-Investment Fund IX (Cayman), L.P., except to the extent of his indirect
pecuniary interest in such shares through ownership of such entities.

(9) Mr. Ball is a co-trustee of each of the Ball family trusts described in
footnote 7, and, therefore, shares voting and dispositive power over all of
the Class A common shares and Series A preferred shares held by the Ball
family trusts.

105

OUR RELATIONSHIP WITH FOX PAINE & COMPANY

The following summary of the material terms of the Amended and Restated
Investment Agreement, the Shareholders Agreement and the Management Agreement is
qualified in its entirety by reference to the Investment Agreement, the
Shareholders Agreement and the Management Agreement, each of which is filed as
an exhibit to the registration statement of which this prospectus forms a part.

INVESTMENT AGREEMENT

On September 5, 2003, Fox Paine & Company made an aggregate capital
contribution of $240.0 million to us, in exchange for an aggregate of 10.0
million Class B common shares and 14.0 million Series A preferred shares, and we
acquired Wind River Investment Corporation, the holding company for our U.S.
Operations, from a group of family trusts affiliated with the Ball family of
Philadelphia, Pennsylvania. Prior to September 5, 2003, Wind River Investment
Corporation was owned by the Ball family trusts and had no relationship with Fox
Paine & Company, other than as described in this section and under "-- Our
Investment with Fox Paine & Company."

To effect the acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We then purchased the
remainder of the outstanding common stock of Wind River Investment Corporation
that was also held by the Ball family trusts, paying consideration consisting of
2.5 million Class A common shares, 3.5 million Series A preferred shares and
senior notes issued by Wind River Investment Corporation having an aggregate
principal amount of approximately $72.8 million.

The principal amount of the senior notes are subject to adjustment as a
result of the Ball family trusts' agreement to indemnify us for certain breaches
of representations, warranties and covenants in the Investment Agreement and as
result of the amount of recoveries by us from certain of our obligors. Any
indemnification payment due from the Ball family trusts to us is to be first
offset against the interest outstanding on the senior notes held by the Ball
family trusts and then against any principal outstanding on such senior notes.
If no principal is then outstanding, the Ball family trusts must instead make
the indemnification payment directly to us. In addition, if proceeds from
settlement arrangements that we enter into with certain of our obligors are
greater than a specified amount, the principal amount of the senior notes will
be increased by one-half of the excess, up to $7.5 million. Further, if we
receive proceeds from settlement arrangements when the senior notes are no
longer outstanding, the amount that would have increased the principal amount of
the senior notes will instead be paid in cash to the Ball family trusts.

Wind River Investment Corporation wholly-owned two subsidiaries prior to
August 18, 2003. The subsidiaries included AIS and a real estate company. On
August 18, 2003, the real estate subsidiary was spun off to the Ball family
trusts. The historical financial data for United National Group has been
adjusted to exclude the activity related to the former real estate subsidiary
because Wind River Investment Corporation (through AIS and its subsidiaries) and
the real estate subsidiary participated in dissimilar businesses; they were
operated and financed autonomously; and they had only incidental common costs.
Additionally, Wind River Investment Corporation and the former subsidiary will
be operated and financed autonomously following the spin-off and there are no
material financial commitments, guarantees or contingent liabilities between the
companies.

SHAREHOLDERS AGREEMENT

In connection with the acquisition, on September 5, 2003, United National
Group, Fox Paine & Company and the Ball family trusts entered into a
shareholders agreement. The material terms of the shareholders agreement are
described below.

106

BOARD COMPOSITION

The shareholders agreement provides that our Board of Directors consist
of five directors. Of these five directors, four are to be nominated by Fox
Paine & Company and, for so long as the Ball family trusts beneficially own at
least 5% of our outstanding shares, one is to be nominated by the Ball family
trusts. As of the completion of this offering, the shareholders agreement will
be amended to provide that our Board of Directors be comprised of 11 directors.
Of these 11 directors, six directors are to be nominated by Fox Paine & Company
and, for so long as the Ball family trusts beneficially own at least 5% of our
outstanding shares, one director is to be nominated by the Ball family trusts.
The agreement requires Fox Paine & Company and the Ball family trusts to vote in
favor of the election of the nominees. The remaining directors will include
three individuals who are considered "independent" for purposes of the rules of
the Nasdaq National Market.

TRANSFERABILITY RIGHTS

The shareholders agreement provides that the Ball family trusts cannot
generally transfer any Class A common shares or Series A preferred shares,
whether currently owned or subsequently acquired, without the approval of our
Board of Directors, except to another Ball family trust or their affiliates or
to a principal beneficiary of any Ball family trust.

Fox Paine & Company agreed that, if it proposed to transfer any Class B
common shares or Series A preferred shares to an unaffiliated third party, it
would provide the Ball family trusts with customary "tag-along" rights. Namely,
in any such sale, the Ball family trusts would be permitted to participate in
such transfer by selling a number of shares that bears the same proportion to
the aggregate number of shares that they hold, as the number of shares proposed
to be sold by Fox Paine & Company bears to the aggregate number of shares held
by Fox Paine & Company. Similarly, the Ball family trusts have agreed that, if
Fox Paine & Company proposes to transfer Class B common shares or Series A
preferred shares in such amounts that following such transfer, Fox Paine &
Company will no longer have a majority of the outstanding shares, Fox Paine &
Company will have "drag-along" rights against the Ball family trusts.
Specifically, Fox Paine & Company will have the right to require the Ball family
trusts to transfer a number of shares that bears the same proportion to the
aggregate number of shares that they hold, as the number of shares proposed to
be sold by Fox Paine & Company bears to the aggregate number of shares held by
Fox Paine & Company.

Each of United National Group and Fox Paine & Company further agreed to
provide the Ball family trusts with "piggyback" registration rights under the
Securities Act in connection with any registered offering of common shares by
United National Group in which Fox Paine & Company participates.

Finally, United National Group agreed to provide the Ball family trusts
with rights of first refusal if United National Group or any of its subsidiaries
propose to issue additional equity interests or debt securities. However, these
rights of first refusal will not be applicable following completion of this
offering.

TERMINATION

Certain material terms of the shareholders agreement will terminate when
Fox Paine & Company ceases to hold at least 25.0% of our fully diluted
outstanding common shares. All terms of the agreement, except terms with respect
to tag-along and piggyback registration rights and indemnification, will
terminate upon any completion of any transaction that results in Fox Paine &
Company and the Ball family trusts owning in the aggregate less than a majority
of the voting power of the entity surviving such transaction. The Ball family
trusts' piggyback registration rights survive until the earlier of September 5,
2023 or the date that they no longer hold any securities outstanding that are
registrable under the Securities Act.

107

MANAGEMENT AGREEMENT

On September 5, 2003, as part of the acquisition, we entered into a
management agreement with Fox Paine & Company and The AMC Group, L.P., an
affiliate of the Ball family trusts. In the management agreement, we agreed to
pay to Fox Paine & Company an initial management fee of $13.2 million for the
year beginning on September 5, 2003, which was paid on September 5, 2003, and
thereafter an annual management fee of $1.2 million subject to certain
adjustments. We likewise agreed to pay to The AMC Group an annual management fee
of $0.3 million subject to certain adjustments. We believe these fees represent
fair value for the services rendered to us by Fox Paine & Company and The AMC
Group. In exchange for their management fees, Fox Paine & Company and The AMC
Group assist us and our affiliates with strategic planning, budgets and
financial projections and assist us and our affiliates in identifying possible
strategic acquisitions and in recruiting qualified management personnel. In
addition, The AMC Group has agreed to provide us with transitional services
relating to the use of certain tax and accounting software for a limited period
of time. Fox Paine & Company and The AMC Group also consult with us and our
affiliates on various matters including tax planning, public relations
strategies, economic and industry trends and executive compensation.

Fox Paine & Company and The AMC Group will continue to provide management
services under this agreement until either Fox Paine & Company or The AMC Group
no longer holds any equity investment in our company or we agree with Fox Paine
& Company and The AMC Group to terminate this management relationship. In
connection with this agreement, we agreed to indemnify Fox Paine & Company and
The AMC Group against various liabilities that may arise as a result of the
management services they will provide us. We also agreed to reimburse Fox Paine
& Company and The AMC Group for expenses incurred in providing management
services.

OUR INVESTMENT WITH FOX PAINE & COMPANY

We are a limited partner in Fox Paine Capital Fund II, L.P. and Fox Paine
Capital Fund II International, L.P., investment funds managed by Fox Paine &
Company. Our interest in these partnerships is valued, as of September 30, 2003,
at $5.3 million, and we have a remaining capital commitment to these
partnerships of approximately $3.9 million.

108

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2003, 2002, 2001 and 2000, we paid management and investment
advisory fees of approximately $0, $9.9 million, $7.1 million and $7.1 million,
respectively to The AMC Group, L.P., an affiliate of the Ball family trusts,
which at the time were our shareholders.

As of December 31, 2002, 2001 and 2000, we had payable balances due to
affiliates of the Ball family trusts, which at the time were our shareholders,
totaling approximately $0.2 million, $0.1 million and $0.4 million,
respectively.

As of January 1, 2000, Wind River Investment Corporation owed $3.5
million to Wind River Investment, LLC, an affiliate of the Ball family trusts,
which included a note receivable of $3.5 million and interest receivable of
$28,455 under a promissory note. The annual rate of interest on this note was
6.0%. During 2001, United National Insurance Company purchased this promissory
note from Wind River Investments, LLC for $3.9 million, which included a note
receivable of $3.5 million and interest receivable of $0.4 million. During 2002,
United National Insurance Company sold this promissory note to American
Manufacturing Corporation (Delaware), an affiliate of the Ball family trusts,
for $4.2 million, which included a note receivable of $3.9 million and interest
receivable of $0.4 million. No gain or loss was recognized on the sale to
American Manufacturing Corporation (Delaware). On August 18, 2003, in
anticipation of the sale of Wind River Investment Corporation, the Ball family
trusts assumed this debt owed to American Manufacturing Corporation (Delaware).
A total of $4.3 million was assumed, which included a note receivable of $3.9
million and interest receivable of $0.5 million.

During 2001, we purchased a promissory note from Wind River Investments,
LLC for $1.4 million. The promissory note was a loan to The AMC Group, L.P. The
annual rate of interest on this note was 6.0%. Between 2001 and 2003 we received
principal payments of $0.7 million and interest payments of $0.1 million. In
April 2003, we sold this promissory note to American Manufacturing Corporation
(Delaware) for $0.6 million (the amortized value as of April 30, 2003). No gain
or loss was recognized on the sale to American Manufacturing Corporation
(Delaware).

During 2001, we purchased a promissory note from Philadelphia Gear
Corporation, an affiliate of the Ball family trusts, for $2.4 million. The
promissory note was a loan to 181 Properties, LP, an affiliate of the Ball
family trusts. The annual rate of interest on this note was 6.3%. During 2001,
we received interest payments of $74,784. In April 2003, we sold this promissory
note to American Manufacturing Corporation (Delaware) for $2.6 million, which
included a note receivable of $2.4 million and interest receivable of $0.2
million. No gain or loss was recognized on the sale to American Manufacturing
Corporation (Delaware).

During 2001, we purchased a mortgage from Wind River Investment, LLC for
$1.3 million. The annual rate of interest on this mortgage was 7.8%. During
2003, this mortgage loan was repaid in full.

During 2000, we issued insurance policies to affiliates with premiums
totaling approximately $94,000. During 2003, 2002 and 2001, no such insurance
policies were issued to affiliates.

During 2000, we assigned our interests in various limited liability
partnership funds and other venture capital funds to Wind River Investment, LLC.
In connection with this transaction, a gain of $2.0 million was included in
income. Also during 2000, we purchased interests in two limited liability
partnership funds from Wind River Investment, LLC for their then fair market
value of $3.4 million.

During 2000, Little Round Top Inc., a real estate company that at the
time was a wholly-owned subsidiary of Wind River Investment Corporation, but
which was distributed to the Ball family trusts prior to the sale of Wind River
Investment Corporation, established a demand promissory note with American
Manufacturing Corporation (Pennsylvania). Little Round Top participates in real
estate related ventures and was not included in the sale of Wind River
Investment Corporation. The interest rate on this promissory note was variable
and was equal to the applicable federal rate at the end of each month. Between
2000 and 2003, we borrowed $0.6 million, made principal payments of $32,801 and
made interest payments of $81.

109

During 2000, Robert Strouse, president of The AMC Group, L.P., issued a
promissory note to Little Round Top. The annual interest rate on this promissory
note was 6.39%. During 2000, we loaned Mr. Strouse $0.3 million under the
promissory note. During 2002 and 2003 we received interest payments of $32,642
and $20,577, respectively.

During 2000, we made a demand promissory note with Wind River Investment,
LLC. The annual rate of interest on this note was 6%. Between 2000 and 2003 we
borrowed $0.1 million, made principal payments of $20,000 and made interest
payments of $7,173. On August 28, 2003, we paid $96,113 to Wind River
Investment, LLC to satisfy this loan in full, which included principal of
$92,436 and interest of $3,677.

During 2001, Little Round Top issued a promissory note to American
Manufacturing Corporation (Delaware). The annual rate of interest on this note
was 10%. Between 2001 and 2003, we borrowed $1.6 million under this promissory
note.

On August 18, 2003, Wind River Investment Corporation distributed its
investment in Little Round Top to the Ball family trusts in anticipation of our
acquisition of Wind River Investment Corporation.

On August 25, 2003, Wind River Investment Corporation sold a series of
limited partnership interests to Wind River Investments, LLC. Proceeds from the
sale of these investments totaled $6.0 million.

During the time that Wind River Investment Corporation was owned by the
Ball family trusts, our employees were eligible for participation in the health
and welfare and retirement benefits packages offered by American Manufacturing
Corporation (Pennsylvania). In conjunction therewith, American Manufacturing
Corporation (Pennsylvania) provided services such as selection of vendors,
maintenance of plan documents, legal compliance, record keeping, coordination of
actuarial studies and plan audits and preparation of all required regulatory
filings.

On September 5, 2003, we paid Fox Paine & Company a fee of $13.2 million,
of which $12.0 million were management expenses related to the acquisition of
Wind River Investment Corporation and $1.2 million were a management fee for
services that will be rendered for the one-year period starting September 6,
2003.

On September 5, 2003, we paid $0.3 million to the American Manufacturing
Corp., an affiliate of the Ball family trusts, a management fee for services
that will be rendered for the one-year period starting September 6, 2003.

On September 5, 2003, we paid Fox Paine & Company $0.5 million as
reimbursement for expenses related to the acquisition of Wind River Investment
Corporation.

110

DESCRIPTION OF SHARE CAPITAL

Our authorized share capital consists of $100,000, which is divided into
900,000,000 common shares and 100,000,000 preferred shares, each with a nominal
or par value of $0.0001 per share. As of the date of this prospectus, our common
shares are divided into two classes, Class A common shares and Class B common
shares. As of the date of this prospectus, we have issued one series of
preferred shares, which series has been designated as Series A preferred shares.

We are a Cayman Islands company and our affairs are governed by our
memorandum and articles of association, the Companies Law (2003 Revision) and
the common law of the Cayman Islands. The following is a summary of material
provisions of our memorandum and articles of association as they will be amended
and restated immediately prior to completion of this offering and the Companies
Law, insofar as they relate to the material terms of our share capital. The
following summary is qualified in its entirety by reference to our memorandum
and articles of association, copies of which are filed as exhibits to the
registration statement of which this prospectus forms a part.

For information concerning agreements relating to our share capital, see
"Our Relationship with Fox Paine & Company -- Shareholders Agreement" and
"Management -- Management Shareholders Agreement."

GENERAL

All shares, whether common or preferred, will be issued fully paid as to
nominal or par value and any premium determined by the Board of Directors at the
time of issue and are non-assessable. All shares are to be issued in registered,
and not bearer, form, and are issued when registered in the register of
shareholders of United National Group. Each registered holder of shares is
entitled, without payment, to a certificate representing such holder's shares.
All unissued shares are under control of the Board of Directors and may be
redesignated, allotted or disposed of in such manner as the Board of Directors
may determine.

COMMON SHARES

GENERAL

As noted above, our common shares are divided into Class A common shares
and Class B common shares. Except as set forth under " -- Voting Rights" and
" -- Conversion," all Class A common shares and Class B common shares rank equal
in all respects and have identical rights. The common shares are not entitled to
any sinking fund or pre-emptive rights.

VOTING RIGHTS AND GENERAL MEETINGS

Subject to adjustment as described under " -- Voting Adjustments,"
holders of common shares are entitled to attend general meetings of United
National Group and each Class A common share is entitled to one vote and each
Class B common share is entitled to ten votes on all matters upon which the
common shares are entitled to vote at any general meeting, including the
election of directors. Voting at any general meeting of shareholders is by a
poll. Our articles of association provide that actions by written consent of
shareholders may only be taken if such action is executed by all holders of
shares entitled to receive notice of and vote at a general meeting.

We will hold an annual general meeting of shareholders at such time and
place as the Board of Directors may determine. In addition, the Board of
Directors may convene a general meeting of shareholders at any time upon ten
days' notice. Further, general meetings may also be convened upon written
requisition of shareholders holding not less than fifty percent of the votes
entitled to be voted at any general meeting, which requisition must state the
objects for the general meeting.

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The required quorum for a general meeting of our shareholders consists of
shareholders present in person or by proxy and entitled to vote that hold in the
aggregate at least a majority of the votes entitled to be cast at such general
meeting.

Subject to the quorum requirements referred to in the previous paragraph,
any ordinary resolution requires the affirmative vote of a simple majority of
the votes cast in a general meeting of United National Group for shareholder
approval while a special resolution requires the affirmative vote of two-thirds
of the votes cast attaching to the common shares. A special resolution is
required for matters such as a change of name, amending our memorandum and
articles of association and placing us into voluntary liquidation. Holders of
shares entitled to vote at a general meeting have the power, among other things,
to elect directors, ratify appointment of auditors and make changes in the
amount of our authorized share capital.

Generally, all shareholders vote together as a single class, except when
considering a scheme of arrangement or considering a variation of the rights
attached to a particular class of shares.

DIVIDENDS

The holders of our common shares are entitled to receive such dividends,
which may consist of cash or other property, as may be declared by our Board of
Directors. Any such dividends will be paid equally on Class A common shares and
Class B common shares. Any such dividends to be paid in cash may be paid only
out of profits, which include net earnings and retained earnings undistributed
in prior years, and out of share premium, a concept analogous to paid-in surplus
in the United States, subject to a statutory solvency test.

LIQUIDATION

In the event of any liquidation, dissolution or winding up, holders of
common shares shall be entitled to receive distributions in proportion to the
number of common shares held by such holder, without regard to class. The
liquidator in any such liquidation may, upon approval of an ordinary resolution
of shareholders and subject to any preferences and priorities of issued share
capital, divide among the shareholders in cash or in kind the whole or any part
of our assets, determine how such division shall be carried out as between the
shareholders or different classes of shareholders and may vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the
shareholders as the liquidator, upon the approval of an ordinary resolution of
the shareholders, sees fit, provided that a shareholder shall not be compelled
to accept any shares or other assets that would subject the shareholder to
liability.

CONVERSION

Each Class B common share is convertible at any time at the option of the
holder thereof into one Class A common share. In addition, each Class B common
share shall be automatically converted into one Class A common share upon any
transfer by the registered holder of that share, whether or not for value,
except for transfers to a nominee or affiliate of such holder in a transfer that
will not result in a change of beneficial ownership as determined under Rule
13d-3 under the Exchange Act or to a person that already holds Class B common
shares.

REDEMPTION

Each common share may be redeemed upon the approval by both the Board of
Directors and an ordinary resolution of shareholders of any agreement entered
into by United National Group relating to a business combination transaction
involving United National Group.

Relevant business combinations would include those effected by stock
purchases or other means, after which any person or entity (other than Fox Paine
& Company and its affiliates) would have a majority of the votes represented by
our issued and outstanding shares. The terms of such redemption, including the
consideration to be received by the holders of common shares in such redemption,
which consideration may consist of cash or other property, shall be set forth in
the agreement pursuant to which

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such redemption is to be made and that is approved as provided in the preceding
sentence. The consideration to be received by the holders of Class A common
shares and Class B common shares is not required to be identical and may differ.
Holders of common shares will not have appraisal or similar rights in any such
redemption.

TRANSFER RESTRICTIONS

Our Board of Directors may decline to register a transfer of any common
shares under certain circumstances, including if the Board of Directors has
reason to believe that as a result of such transfer, any non-de minimis adverse
tax, regulatory or legal consequences may occur to us, to any of our
subsidiaries or to any of our shareholders.

ACQUISITION OF COMMON SHARES BY UNITED NATIONAL GROUP

Under our articles of association and subject to Cayman Islands law, if
our Board of Directors determines that any shareholder's ownership of common
shares may result in non-de minimis adverse tax, legal or regulatory
consequences to us, to any of our subsidiaries or to any of our shareholders, we
have the option but not the obligation to require such shareholders to sell to
us, or to a third party to which we have assigned that right to repurchase
shares, at fair market value, as determined in the good faith discretion of the
minimum number of common shares that is necessary to avoid or cure any such
adverse consequences.

MISCELLANEOUS

Share certificates registered in the names of two or more persons are
deliverable to any one of them named in the share register, and if two or more
such persons tender a vote, the vote of the person whose name first appears in
the share register will be accepted to the exclusion of any other.

PREFERRED SHARES

Under our articles of association, preferred shares may be issued from
time to time in one or more series as the Board of Directors may determine. The
Board of Directors has the power, without any vote or action on behalf of
shareholders, to fix by resolution the rights and preferences of each series of
preferred shares so issued, including:

- the distinctive designation of such series and the number of
preferred shares that will be so designated;

- the dividend rate and preferences of such series, if any, the
dividend payment dates, the periods in which dividends are payable,
whether such dividends are to be cumulative and whether such
dividends are to be payable in cash or in kind;

- whether such preferred shares are to be convertible into or
exchangeable for common or other shares of United National Group
and the conversion price or rate, including any adjustments
thereto, at which such conversion or exchange will be effected;

- the preferences, and the amounts thereof, if any, such preferred
shares are entitled to upon winding up, liquidation or dissolution
of United National Group;

- the voting power, if any, of the preferred shares;

- the redemption terms, transfer restrictions and preemptive rights,
if any, of the preferred shares; and

- such other terms, conditions, special rights and provisions as the
Board of Directors may determine.

Any or all of the rights and preferences of such preferred shares may be
greater than the rights of our common shares, and our Board of Directors,
without shareholder approval, may issue preferred shares
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with voting, conversion or other rights that could adversely affect the voting
power and other rights of holders of our common shares. Subject to the general
duty of the Board of Directors to act in the best interest of United National
Group, preferred shares can be issued quickly with terms calculated to delay or
prevent a change in control of us or make removal of management more difficult.
Additionally, the issuance of preferred shares may have the effect of decreasing
the market price of the common shares, and may adversely affect the voting and
other rights of the holders of common shares. We have no current plan to issue
additional preferred shares.

SERIES A PREFERRED SHARES

On September 5, 2003, the Board of Directors designated a series of our
preferred shares as "Series A preferred shares." The rights and preferences of
the Series A preferred shares are described below:

Ranking

With respect to dividends rights and rights upon winding up, dissolution
and liquidation, the Series A preferred shares rank prior to our common shares
and equal to any shares that, pursuant to our articles of association or the
resolution designating such shares, are entitled to share ratably with the
Series A preferred shares in such regard.

Dividends

The holder of each Series A preferred share is entitled to receive
dividends at an annual rate of 15% of the liquidation preference of each Series
A preferred share plus all accrued but unpaid dividends beginning on the date of
issuance of the Series A preferred shares. Dividends on the Series A preferred
shares are payable semi-annually, beginning on March 1, 2004. Dividends with
respect to each entire semi-annual period accrue on the first day of such period
and are payable regardless of whether the Series A preferred shares remain
outstanding at the end of such semi-annual period. Dividends on the Series A
preferred shares are payable in cash, additional Series A preferred shares or
any combination thereof, at the discretion of the Board of Directors.

Liquidation Preference

Upon winding up, dissolution or liquidation, each Series A preferred
share is entitled to a liquidation preference of $10.00 plus all accrued but
unpaid dividends, before any distribution is made with respect to common shares
or other shares ranking junior to the Series A preferred shares. If upon a
winding up, dissolution or liquidation the liquidation preference on the Series
A preferred shares is not paid in full, the holders of Series A preferred shares
and other shares ranking equal to the Series A preferred shares, shall be
entitled to share equally and ratably in any distribution to shareholders in
proportion to the full liquidation preference and all accrued but unpaid
dividends to which such holders are otherwise entitled.

Voting Rights

Subject to adjustments as described under "-- Voting Adjustments,"
holders of Series A preferred shares are entitled to notice of and to vote at
general meetings of shareholders on all matters upon which the holders of common
shares are entitled to vote. The Series A preferred shares and common shares
shall vote together as a single class. Each Series A preferred share will have
the same number of votes as could be cast by the holder of the number of Class B
common shares into which each Series A preferred share could be converted as
described under "-- Conversion" on the record date for such general meeting.

In addition, the affirmative vote of 90% of the outstanding Series A
preferred shares is required to amend in any manner that would adversely affect,
alter or change the powers, preferences or special rights of the Series A
preferred shares.

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Conversion

Each Series A preferred share is convertible at any time at the option of
the holder thereof into one Class B common share, subject to adjustment in
certain circumstances, including in the event of share splits and combinations,
dividends of shares and other property, transactions in which the Class B common
shares are exchanged and issuances of common shares at values below market
value. In addition, on September 5, 2005, each Series A preferred share shall
automatically convert into one Class B common share, subject to similar
adjustments.

Redemption

Upon completion of an initial public offering of common shares resulting
in net proceeds of $50.0 million or more to United National Group, a number of
Series A preferred shares determined so that 110% of the aggregate liquidation
preference plus accrued but unpaid dividends is equal to the net proceeds to
United National Group from such initial public offering shall be redeemed. The
redemption price will be paid as follows:

- an amount equal to 100% of the liquidation preference shall be paid
in cash; and

- the remainder of the redemption price shall be through delivery of
Class A common shares having a value (based on the initial offering
price to the public, gross of any underwriting discounts or
commissions, in such initial public offering) equal to 10.0% of the
liquidation preference plus all accrued but unpaid dividends.

VOTING ADJUSTMENTS

In general, and except as provided below, shareholders have one vote for
each Class A common share and ten votes for each Class B common share or Series
A preferred share held by them and are entitled to vote, on a non-cumulative
basis, at all meetings of shareholders. However, pursuant to a mechanism
specified in our articles of association, the voting rights exercisable by a
shareholder may be limited. In any situation in which the "controlled shares"
(as defined below) of a U.S. Person would constitute 9.5% or more of the votes
conferred by the issued shares, the voting rights exercisable by a shareholder
with respect to such shares will be limited so that no U.S. Person is deemed to
hold 9.5% or more of the voting power conferred by our shares. The votes that
could be cast by a shareholder but for these restrictions will be allocated to
the other shareholders pro rata based on the voting power held by such
shareholders, provided that no allocation of any such voting rights may cause a
U.S. Person to exceed the 9.5% limitation as a result of such allocation. In
addition, our Board of Directors may limit a shareholder's voting rights where
it deems necessary to do so to avoid adverse tax, legal or regulatory
consequences. Our articles of association provide that shareholders will be
notified of the applicable voting power exercisable with respect to their shares
prior to any vote to be taken by the shareholders. "Controlled shares" include,
among other things, shares that a U.S. Person owns directly, indirectly or
constructively (within the meaning of Section 958 of the Code).

We also have the authority under our articles of association to request
information from any shareholder for the purpose of determining whether a
shareholder's voting rights are to be limited or reallocated pursuant to the
articles of association. If a shareholder fails to respond to our request for
information or submits incomplete or inaccurate information in response to a
request by us, we may, in our sole discretion, eliminate the shareholder's
voting rights.

OUR BOARD OF DIRECTORS

Our articles of association provide that the size of the Board of
Directors shall be determined from time to time by our Board of Directors, but
unless such number is so fixed, our Board of Directors will consist of eleven
directors. Any directors may be removed prior to the expiration of such
director's term by ordinary resolution of the shareholders. The appointment or
removal of a director requires the

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simple majority of votes cast, in person or by proxy, at the general meeting at
which the proposal is put forth.

Generally, the affirmative vote of a majority of the directors present at
any meeting at which a quorum is present shall be required to authorize
corporate action. In the case of equality of votes, the Chairman of our Board of
Directors shall have the deciding vote. Corporate action may also be taken by a
unanimous written resolution of the Board of Directors without a meeting. Unless
otherwise fixed at a different number, a majority of the directors in office
shall constitute a quorum.

TAX LIABILITY RESULTING FROM ACTS OF SHAREHOLDERS

Our articles of association provide certain protections against adverse
tax consequences to us resulting from laws that apply to our shareholders. If a
shareholder's death or non-payment of any tax or duty payable by the
shareholder, or any other act or thing involving the shareholder, causes any
adverse tax consequences to us, (1) the shareholder or its executor or
administrator is required to indemnify us against any tax liability that we
incur as a result, (2) we will have a lien on any dividends or any other
distributions payable to the shareholder by us to the extent of the tax
liability and (3) if any amounts not covered by our lien on dividends and
distributions are owed to us by the shareholder as a result of our tax
liability, we have the right to refuse to register any transfer of the
shareholder's shares.

VOTING OF SUBSIDIARY SHARES

Our articles of association provide that if we are required or entitled
to vote at a general meeting of our direct non-U.S. subsidiaries, our directors
shall refer the subject matter of the vote to our shareholders and seek
direction from our shareholders as to how we should vote on the resolution
proposed by such direct non-U.S. subsidiary, other than resolutions regarding
any subject matter relating to a U.S. indirect subsidiary. Substantially similar
provisions are or will be contained in the by-laws of U.N. Barbados with respect
to U.N. Holdings II, Inc. and any non-U.S. subsidiaries, including U.N. Bermuda,
it may have and in the bye-laws of U.N. Bermuda with respect to any non-U.S.
subsidiaries it may have.

INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

Many insurance regulatory laws intended primarily for the protection of
policyholders contain provisions that require advance approval by insurance
authorities of any proposed acquisition of an insurance company that is
domiciled or, in some cases, having such substantial business that it is deemed
to be commercially domiciled in that jurisdiction. See "Regulation -- United
States -- Changes of Control."

DIFFERENCES IN CORPORATE LAW

The Companies Law is modeled after that of England but does not follow
recent United Kingdom statutory enactments and differs from laws applicable to
U.S. corporations and their shareholders. Set forth below is a summary of the
significant differences between the provisions of the Companies Law applicable
to us and the laws applicable to companies incorporated in the United States and
their shareholders.

MERGERS AND SIMILAR ARRANGEMENTS

Cayman Islands law does not provide for mergers as that expression is
understood under U.S. corporate law. While Cayman Islands law does have
statutory provisions that provide for the reconstruction and amalgamation of
companies commonly referred to in the Cayman Islands as a "scheme of
arrangement," the procedural and legal requirements necessary to consummate
these transactions are more rigorous and take longer to complete than the
procedures typically required to consummate a merger in the United States. Under
Cayman Islands law, a scheme of arrangement in relation to a solvent Cayman
Islands company must be approved at a shareholders meeting by each class of
shareholders, in each case, by a majority of the number of holders of each class
of a company's shares who are present and voting (either in person or by proxy)
at such a meeting, which holders must also represent 75% in value of such
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class issued and outstanding. The convening of this meeting and the terms of the
amalgamation must also be sanctioned by the Grand Court of the Cayman Islands.
Although there is no requirement to seek the consent of the creditors of the
parties involved in the scheme of arrangement, the Grand Court typically seeks
to ensure that the creditors have consented to the transfer of their liabilities
to the surviving entity or that the scheme of arrangement does not otherwise
materially adversely affect the creditors' interests. Furthermore, the Grand
Court will only approve a scheme of arrangement if it is satisfied that:

- the statutory provisions as to majority vote have been complied
with;

- the shareholders have been fairly represented at the meeting in
question;

- the scheme of arrangement is such as a businessman would reasonably
approve; and

- the scheme of arrangement is not one that would more properly be
sanctioned under some other provision of the Companies Law.

If the scheme of arrangement and reconstruction is approved, the
dissenting shareholder would have no rights comparable to appraisal rights,
which would otherwise ordinarily be available to dissenting shareholders of U.S.
corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.

In addition, if a third party purchases at least 90.0% of our outstanding
shares within a four-month period, the purchaser may, during the following two
months, require the holders of the remaining shares to transfer their shares on
the same terms on which the purchaser acquired the first 90.0% of our
outstanding shares. An objection can be made to the Grand Court of the Cayman
Islands, but this is unlikely to succeed unless there is evidence of fraud, bad
faith, collusion or inequitable treatment of the shareholders.

SHAREHOLDER SUITS

While our Cayman Islands counsel, Walkers, is aware of only a small
number of derivative actions having been brought in the Cayman Islands, such
actions are subject to procedural requirements and can only be brought in the
following limited circumstances in which:

- a company is acting or proposing to act illegally or outside the
scope of its corporate authority;

- the act complained of, although not outside the scope of the
company's corporate authority, could be effected only if authorized
by more than a simple majority vote of shareholders;

- the individual rights of the plaintiff shareholder have been
infringed or are about to be infringed; or

- those who control the company are perpetrating a "fraud on the
minority."

Class actions that have been brought as representative actions in the
Cayman Islands and are subject to the same procedural constraints.

INDEMNIFICATION

Cayman Islands law does not limit the extent to which a company may
indemnify its directors, officers, employees and agents, except to the extent
that any such provision maybe held by the Cayman Islands courts to be contrary
to public policy. For instance, a provision purporting to provide
indemnification against civil fraud or the consequences of committing a crime
may be deemed contrary to public policy. In addition, an officer or director may
not be indemnified for his own fraud or willful default. Our articles of
association make indemnification of directors and officers and advancement of
expenses to defend claims against directors and officers mandatory on the part
of United National Group to the fullest extent allowed by law.

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INSPECTION OF BOOKS AND RECORDS

Holders of our shares will have no general right under Cayman Islands law
to inspect or obtain copies of our list of shareholders or our corporate
records. However, we will provide our shareholders with annual audited financial
statements.

PROHIBITED SALE OF SECURITIES UNDER CAYMAN ISLANDS LAW

An exempted company such as us that is not listed on the Cayman Islands
Stock Exchange is prohibited from making any invitations to the public in the
Cayman Islands to subscribe for any of its securities.

LISTING

We have applied to have our Class A common shares approved for quotation
on the Nasdaq National Market under the symbol "UNGL."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common shares will be
.

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SHARES ELIGIBLE FOR FUTURE SALE

We can make no prediction as to the effect, if any, that market sales of
our Class A common shares or the availability of Class A common shares for sale
will have on the market price prevailing from time to time. The sale of
substantial amounts of our Class A common shares in the public market could
adversely affect the prevailing market price of our Class A common shares and
our ability to raise equity capital in the future. For information concerning
agreements between us and our existing shareholders, including restrictions on
transfer, registration rights and other matters, see "Our Relationship With Fox
Paine & Company" and "Management -- Management Shareholders Agreement."

SALE OF RESTRICTED SHARES

As of September 5, 2003, we had an aggregate of 30,198,750 outstanding
Class A common shares (assuming full conversion of our Class B common shares and
Series A preferred shares into Class A common shares in accordance with their
terms), options to purchase an additional 1,138,574 Class A common shares and
warrants to purchase an additional 55,000 Class A common shares. We expect to
issue an additional Class A common shares in this offering. Up to % of
the Class A common shares for sale in this offering are reserved for purchase by
our directors, officers and employees through a reserved share program. All of
the Class A common shares to be sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any Class A common shares purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below. As defined in Rule
144, an affiliate of an issuer is a person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the issuer.

LOCK-UP AGREEMENTS

United National Group, our directors and executive officers, all of our
current shareholders and those persons who purchase common shares through the
reserved share program have agreed with the underwriters not to, directly or
indirectly, dispose of or hedge any of their common shares or securities
convertible into or exchangeable for common shares, whether owned currently or
acquired later, for a period of 180 days from the date of this prospectus,
without the prior written consent of United National Group and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain exceptions (which
consent with respect to the reserved share program will not be granted for any
sales during the first 90 days of such lock-up). Immediately following this
offering, shareholders subject to lock-up agreements will own Class A
common shares (assuming full conversion of Class B common shares and Series A
preferred shares in accordance with their terms), representing approximately
% of the then outstanding Class A common shares, or approximately % if
the underwriters' overallotment option is exercised in full.

United National Group may, however, grant options to purchase Class A
common shares under its share incentive plan and may issue Class A common shares
upon the exercise of outstanding options under the share incentive plan as long
as the holder of such common shares agrees in writing to be bound by the
obligations and restrictions of the lock-up agreement.

RULE 144

In general, under Rule 144 as currently in effect, a person that has
beneficially owned common shares for at least one year, including a person that
is an affiliate, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

- 1% of the number of common shares then outstanding; or

- the average weekly trading volume of the common shares on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to a sale, subject to
restrictions specified in Rule 144.

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Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.

RULE 144(k)

Under Rule 144(k), a person that has not been one of our affiliates at
any time during the three months preceding a sale, and that has beneficially
owned the common shares proposed to be sold for at least two years, is entitled
to sell those common shares without regard to the volume, manner-of-sale or
other limitations contained in Rule 144.

STOCK OPTIONS

We had granted options to purchase a total of 1,138,574 Class A common
shares as of September 5, 2003, of which 256,074 were fully vested.

Following the consummation of this offering, we intend to file one or
more registration statements on Form S-8 under the Securities Act to register
the Class A common shares issued or reserved for issuance under our Stock
Incentive Plan. Any such Form S-8 registration statement will automatically
become effective upon filing. Accordingly, Class A common shares registered
under such registration statement will be available for sale in the open market,
unless such common shares are subject to vesting restrictions with us or the
lock-up restrictions described above, or unless such shares are held by persons
who are considered our "affiliates," as such term is defined under the
Securities Act.

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MATERIAL TAX CONSIDERATIONS

The following summary of our taxation, and the taxation of our
shareholders is based upon current law and does not purport to be a
comprehensive discussion of all the tax considerations that may be relevant to a
decision to purchase Class A common shares. Legislative, judicial or
administrative changes may be forthcoming that could affect this summary.

The following legal discussion (including and subject to the matters and
qualifications set forth in such summary) of the material tax considerations
under (1) "Taxation of United National Group and Subsidiaries -- Cayman" and
"Taxation of Shareholders -- Cayman Taxation" is based upon the advice of
Walkers, special Cayman legal counsel, (2) "Taxation of United National Group
and Subsidiaries -- Barbados" is based upon the advice of David King & Co., (3)
"Taxation of United National Group and Subsidiaries -- Bermuda" and "Taxation of
Shareholders -- Bermuda Taxation" is based upon the advice of Appleby, Spurling
and Kempe and (4) "Taxation of United National Group and Subsidiaries -- United
States" and "Taxation of Shareholders -- United States Taxation" is based upon
the advice of LeBoeuf, Lamb, Greene & MacRae, L.L.P., as special U.S. tax
counsel. Each of these firms has reviewed the relevant portion of this
discussion (as set forth above) and believes that such portion of the discussion
constitutes, in all material respects, a fair and accurate summary of the
relevant income tax considerations relating to United National Group and its
subsidiaries and the ownership of United National Group's Class A common shares
by investors that are U.S. Persons (as defined below) who acquire such shares in
this offering. The advice of such firms does not include any factual or
accounting matters, determinations or conclusions such as insurance accounting
determinations or RPII, amounts and computations and amounts or components
thereof (for example, amounts or computations of income or expense items or
reserves entering into RPII computations) or facts relating to the business,
income, reserves or activities of United National Group and its subsidiaries.
The advice of these firms relies upon and is premised on the accuracy of factual
statements and representations made by United National Group and its
subsidiaries concerning the business and properties, ownership, organization,
source of income and manner of operation of United National Group and its
subsidiaries. The discussion is based upon current law. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could be
retroactive and could affect the tax consequence to holders of Class A common
shares. The tax treatment of a holder of Class A common shares, or of a person
treated as a holder of Class A common shares for U.S. federal income, state,
local or foreign tax purposes, may vary depending on the holder's particular tax
situation. Statements contained herein as to the beliefs, expectations and
conditions of United National Group and its subsidiaries as to the application
of such tax laws or facts represent the view of management as to the application
of such laws and do not represent the opinions of counsel. PROSPECTIVE INVESTORS
(INCLUDING ALL NON-U.S. PERSONS AS DEFINED BELOW) SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF OWNING CLASS A COMMON SHARES UNDER THE LAWS OF THEIR COUNTRIES OF
CITIZENSHIP, RESIDENCE, ORDINARY RESIDENCE OR DOMICILE.

TAXATION OF UNITED NATIONAL GROUP AND SUBSIDIARIES

CAYMAN ISLANDS

United National Group has been incorporated under the laws of the Cayman
Islands as an exempted company and, as such, obtained an undertaking on
September 2, 2003 from the Governor in Council of the Cayman Islands
substantially that, for a period of 20 years from the date of such undertaking,
no law that is enacted in the Cayman Islands imposing any tax to be levied on
profit or income or gains or appreciation shall apply to us and no such tax and
no tax in the nature of estate duty or inheritance tax will be payable, either
directly or by way of withholding, on our common shares. Given the limited
duration of the undertaking, we cannot be certain that we will not be subject to
Cayman Islands tax after the expiration of the 20-year period.

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BARBADOS

Under the Barbados Act, no income tax, capital gains tax or other direct
tax or impost is levied in Barbados on U.N. Barbados in respect of (1) its
profits or gains, (2) the transfer of its securities to any person who is not a
resident of Barbados, (3) its shareholders or transferees in respect of the
transfer of all or any part of its securities or other assets to another
licensee under the Barbados Act or to any person who is not a resident of
Barbados or (4) any portion of any dividend, interest, or other return payable
to any person in respect of his or her holding any shares or other of its
securities. U.N. Barbados has applied for a guarantee from the Minister of
Finance of Barbados that such benefits and exemptions effectively will be
available for 30 years. U.N. Barbados will be required to pay an annual
licensing fee that is currently approximately $2,500, and will be subject to tax
at a rate of 2% on its first $125,000 of taxable income after the first 15
financial years and thereafter the amount of such tax will not exceed
approximately $2,500 per annum. Given the limited duration of any guarantee that
we may receive, we cannot be certain that we will not be subject to Barbados tax
after the expiration of the guarantee.

BERMUDA

Currently, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by U.N. Bermuda or its shareholders, other than
shareholders ordinarily resident in Bermuda, if any. Currently, there is no
Bermuda withholding or other tax on principal, interest or dividends paid to
holders of the common shares of U.N. Bermuda, other than holders ordinarily
resident in Bermuda, if any. There can be no assurance that U.N. Bermuda or its
shareholders will not be subject to any such tax in the future.

U.N. Bermuda has applied for a written assurance from the Bermuda
Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 of
Bermuda, that if any legislation is enacted in Bermuda that would impose tax
computed on profits or income, or computed on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, then
the imposition of that tax would not be applicable to U.N. Bermuda or to any of
its operations, shares, debentures or obligations through March 28, 2016;
provided that any such assurance will be subject to the condition that it will
not be construed to prevent the application of such tax to people ordinarily
resident in Bermuda, or to prevent the application of any taxes payable by U.N.
Bermuda in respect of real property or leasehold interests in Bermuda held by
them. Given the limited duration of any assurance that we may receive, we cannot
be certain that we will not be subject to any Bermuda tax after March 28, 2016.

UNITED STATES

The following discussion is a summary of all material U.S. federal income
tax considerations relating to our operations. Although we have not commenced
business operations outside the United States, we intend to manage our business
in a manner designed to reduce the risk that United National Group, U.N.
Barbados and U.N. Bermuda will be treated as engaged in a U.S. trade or business
for U.S. federal income tax purposes. However, whether business is being
conducted in the United States is an inherently factual determination. Because
the Code, regulations and court decisions fail to identify definitively
activities that constitute being engaged in a trade or business in the United
States, we cannot be certain that the IRS will not contend successfully that
United National Group, U.N. Barbados or U.N. Bermuda are or will be engaged in a
trade or business in the United States. A non-U.S. corporation deemed to be so
engaged would be subject to U.S. income tax at regular corporate rates, as well
as the branch profits tax, on its income that is treated as effectively
connected with the conduct of that trade or business unless the corporation is
entitled to relief under the permanent establishment provision of an applicable
tax treaty, as discussed below. Such income tax, if imposed, would be based on
effectively connected income computed in a manner generally analogous to that
applied to the income of a U.S. corporation, except that a non-U.S. corporation
is generally entitled to deductions and credits only if it timely files a U.S.
federal income tax return. U.N. Barbados and U.N. Bermuda intend to file
protective U.S. federal income tax returns on a timely basis in order to
preserve the right to claim income tax deductions and credits if it is ever
determined that they are subject to U.S. federal income tax. The

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highest marginal federal income tax rates currently are 35% for a corporation's
effectively connected income and 30% for the "branch profits" tax.

If U.N. Barbados is entitled to the benefits under the Barbados Treaty,
U.N. Barbados would not be subject to U.S. income tax on any income found to be
effectively connected with a U.S. trade or business unless that trade or
business was conducted through a permanent establishment in the United States.
For purposes of the Barbados Treaty, a permanent establishment in the United
States is defined to include a branch, office or place of management through
which the business of the enterprise is carried on, or an agent (other than an
independent agent acting in the ordinary course of its business) that has, and
habitually exercises in the United States, authority to conclude contracts in
the name of the corporation. No regulations interpreting the Barbados Treaty
have been issued. U.N. Barbados currently intends to conduct its activities to
reduce the risk that it will have a permanent establishment in the United
States, although we cannot be certain that we will achieve this result.

An enterprise resident in Barbados generally will be entitled to the
benefits of the Barbados Treaty if (1) more than 50% of its shares are owned
beneficially, directly or indirectly, by individual residents of the United
States or Barbados or U.S. citizens and its income is not used in substantial
part, directly or indirectly, to make disproportionate distributions to, or to
meet certain liabilities to, persons who are neither residents of either the
United States or Barbados nor U.S. citizens, or (2) the company is a resident of
Barbados engaged in a trade or business in Barbados and the income derived by
such company from the United States is connected to such company's Barbados
trade or business. We cannot be certain that U.N. Barbados will be eligible for
Barbados Treaty benefits immediately following this offering or in the future
because of factual and legal uncertainties regarding the residency and
citizenship of United National Group's shareholders and further because of the
factual and legal uncertainty regarding whether the income, if any, that U.N.
Barbados may earn in the future will be sufficiently connected to the trade or
business that U.N. Barbados will conduct in Barbados.

If U.N. Bermuda is entitled to the benefits under the income tax treaty
between Bermuda and the United States (the "Bermuda Treaty"), U.N. Bermuda would
not be subject to U.S. income tax on any business profits of its insurance
enterprise found to be effectively connected with a U.S. trade or business,
unless that trade or business is conducted through a permanent establishment in
the United States. No regulations interpreting the Bermuda Treaty have been
issued. U.N. Bermuda currently intends to conduct its activities to reduce the
risk that it will have a permanent establishment in the United States, although
we cannot be certain that we will achieve this result.

An insurance enterprise resident in Bermuda generally will be entitled to
the benefits of the Bermuda Treaty if (1) more than 50% of its shares are owned
beneficially, directly or indirectly, by individual residents of the United
States or Bermuda or U.S. citizens and (2) its income is not used in substantial
part, directly or indirectly, to make disproportionate distributions to, or to
meet certain liabilities to, persons who are neither residents of either the
United States or Bermuda nor U.S. citizens. We cannot be certain that U.N.
Bermuda will be eligible for Bermuda Treaty benefits immediately following the
offering or in the future because of factual and legal uncertainties regarding
the residency and citizenship of our shareholders.

Foreign insurance companies carrying on an insurance business within the
United States have a certain minimum amount of effectively connected net
investment income, determined in accordance with a formula that depends, in
part, on the amount of U.S. risk insured or reinsured by such companies. If
either U.N. Barbados or U.N. Bermuda is considered to be engaged in the conduct
of an insurance business in the United States and it is not entitled to the
benefits of the Barbados Treaty or Bermuda Treaty, respectively, in general
(because it fails to satisfy one of the limitations on treaty benefits discussed
above), the Code could subject a significant portion of U.N. Barbados' and U.N.
Bermuda's investment income to U.S. income tax. In addition, while the Bermuda
Treaty clearly applies to premium income, it is uncertain whether the Bermuda
Treaty applies to other income such as investment income. If U.N. Bermuda is
considered engaged in the conduct of an insurance business in the United States
and is entitled to the benefits of the Bermuda Treaty in general, but the
Bermuda Treaty is interpreted to not

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apply to investment income, a significant portion of U.N. Bermuda's investment
income could be subject to U.S. income tax.

Foreign corporations not engaged in a trade or business in the United
States are subject to 30% U.S. income tax imposed by withholding on the gross
amount of certain "fixed or determinable annual or periodic gains, profits and
income" derived from sources within the United States (such as dividends and
certain interest on investments), subject to exemption under the Code or
reduction by applicable treaties. The Bermuda Treaty does not reduce the rate of
tax in such circumstances. The Barbados Treaty reduces the rate of withholding
tax on interest payments to 5% and on dividend payments to 15%, or 5% if the
shareholder owns 10% or more of the company's voting stock. The United States
also imposes an excise tax on insurance and reinsurance premiums paid to foreign
insurers or reinsurers with respect to risks located in the United States. The
rates of tax applicable to premiums paid to U.N. Barbados or U.N. Bermuda on
such business are 4% for direct casualty insurance premiums and 1% for
reinsurance premiums.

U.N. Holdings II, Inc., U.N. Holdings Inc., AIS, United National
Insurance Company, American Insurance Adjustment Agency, Inc., International
Underwriters, Inc., Unity Risk Partners Insurance Service, Inc., Emerald
Insurance Company, Diamond State Insurance Company, United National Specialty
Insurance Company and United National Casualty Insurance Company are each
subject to taxation in the United States at regular corporate rates.
Additionally, dividends and other types of passive income paid by U.N. Holdings
II, Inc. to U.N. Barbados would be subject to reduction under the Barbados
Treaty as described above.

Legislation has been introduced in the U.S. Congress that would override
or renegotiate the Barbados Treaty. We cannot predict whether this proposed
legislation or other similar legislation will be enacted. In addition, a recent
press release by the U.S. Treasury Department indicates that the United States
and Barbados are currently discussing revisions to the Barbados Treaty and that
concluding these revisions is a matter of priority for both governments.
Accordingly, no assurances can be given as to the availability of benefits under
the Barbados Treaty in future years.

Personal Holding Companies

United National Group or any of its foreign subsidiaries could be subject
to U.S. tax or any of its U.S. subsidiaries could be subject to additional U.S.
tax on a portion of its income if any of them is considered to be a personal
holding company, or "PHC," for U.S. federal income tax purposes. A corporation
generally will be classified as a PHC for U.S. federal income tax purposes in a
given taxable year if (1) at any time during the last half of such taxable year,
five or fewer individuals (without regard to their citizenship or residency and
including as individuals for this purpose certain entities such as certain
tax-exempt organizations and pension funds) own or are deemed to own (pursuant
to certain constructive ownership rules) more than 50% of the stock of the
corporation by value and (2) at least 60% of the corporation's gross income, as
determined for U.S. federal income tax purposes, for such taxable year consists
of "PHC income." PHC income includes, among other things, dividends, interest,
royalties, annuities and, under certain circumstances, rents. In the case of a
non-U.S. corporation, PHC income does not include foreign source income, except
to the extent such income is effectively connected with a U.S. trade or
business. Under the constructive ownership rules, among other things, a partner
will be treated as owning a proportionate amount of the stock owned by a
partnership and a partner who is an individual will be treated as owning the
stock owned by his or her partners. Also, stock treated as owned by such partner
proportionally through such partnership will be treated as owned by the partner
for purposes of reapplying the constructive ownership rules. The PHC rules
contain an exception for foreign corporations that are classified as Foreign
Personal Holding Companies (as discussed below).

If United National Group or any subsidiary were a PHC in a given taxable
year, such corporation would be subject to a 15% PHC tax on its "undistributed
PHC income" (which, in the case of United National Group, U.N. Barbados and U.N.
Bermuda, would exclude PHC income that is from foreign sources, except to the
extent that such income is effectively connected with a trade or business in the

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U.S.). Thus, the PHC income of United National Group, U.N. Barbados and U.N.
Bermuda would not include underwriting income or investment income derived from
foreign sources and should not include dividends received by United National
Group from U.N. Barbados (as long as U.N. Barbados is not engaged in a trade or
business in the U.S.). For taxable years beginning after December 31, 2008, the
PHC tax rate on "undistributed PHC income" will be equal to the highest marginal
rate on ordinary income applicable to individuals.

We believe that five or fewer individuals or tax-exempt organizations
will be treated as owning more than 50% of the value of our shares.
Consequently, we or one or more of our subsidiaries could be or become PHCs,
depending on whether we or any of our subsidiaries satisfy the PHC gross income
test. We intend to manage our business to reduce the possibility that we will
meet the 60% income threshold.

We cannot be certain, however, that United National Group and its
subsidiaries will not become PHCs following this offering or in the future
because of various factors including legal and factual uncertainties regarding
the application of the constructive ownership rules, the makeup of United
National Group's shareholder base, the gross income of United National Group or
any of its subsidiaries and other circumstances that could change the
application of the PHC rules to United National Group and its subsidiaries. If
United National Group or any of its subsidiaries is or were to become a PHC in a
given taxable year, such company would be subject to PHC tax on its
"undistributed PHC income." In addition, if United National Group or any of its
subsidiaries were to become PHCs we cannot be certain that the amount of PHC
income will be immaterial.

TAXATION OF SHAREHOLDERS

CAYMAN ISLANDS TAXATION

The following summary sets forth the material Cayman Islands income tax
considerations related to the purchase, ownership and disposition of our Class A
common shares. The discussion is a general summary of present law, which is
subject to prospective and retroactive change. It is not intended as tax advice,
does not consider any investor's particular circumstances, and does not consider
tax consequences other than those arising under Cayman Islands law.

You will not be subject to Cayman Islands taxation on payments of
dividends or upon the repurchase by us of your common shares. In addition, you
will not be subject to withholding tax on payments of dividends or
distributions, including upon a return of capital, nor will gains derived from
the disposal of common shares be subject to Cayman Islands income or corporation
tax. The Cayman Islands currently have no income, corporation or capital gains
tax and no estate duty, inheritance tax or gift tax.

No Cayman Islands stamp duty will be payable by you in respect of the
issue or transfer of common shares. However, an instrument transferring title to
a common share, if brought to or executed in the Cayman Islands, would be
subject to Cayman Islands stamp duty.

Prospective investors should consult their professional advisers on the
possible tax consequences of buying, holding or selling our common shares under
the laws of their country of citizenship, residence or domicile.

UNITED STATES TAXATION

The following summary sets forth the material United States federal
income tax considerations related to the purchase, ownership and disposition of
our Class A common shares. Unless otherwise stated, this summary deals only with
shareholders that are U.S. Persons (as defined below) who purchase their Class A
common shares in this offering, who did not own (directly or indirectly through
foreign entities or constructively) shares of United National Group prior to
this offering and who hold their Class A common shares as capital assets within
the meaning of section 1221 of the Code. The following discussion is only a
discussion of the material U.S. federal income tax matters as described herein
and does not purport to address all of the U.S. federal income tax consequences
that may be relevant to a particular shareholder in light of such shareholder's
specific circumstances. For example, if a partnership holds our Class A
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common shares, the tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If you are a
partner of a partnership holding the Class A common shares, you should consult
your tax advisor. In addition, the following summary does not address the U.S.
federal income tax consequences that may be relevant to special classes of
shareholders, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, financial asset
securitization investment trusts, dealers or traders in securities, tax-exempt
organizations, expatriates, persons who are considered with respect to United
National Group or any of its non-U.S. subsidiaries as "United States
shareholders" for purposes of the "controlled foreign corporation," or "CFC,"
rules of the Code (generally, a U.S. Person, as defined below, who owns or is
deemed to own 10% or more of the total combined voting power of all classes of
shares of United National Group, U.N. Barbados or U.N. Bermuda entitled to vote
(i.e., 10% U.S. Shareholders)), or persons who hold the Class A common shares as
part of a hedging or conversion transaction or as part of a short-sale or
straddle, who may be subject to special rules or treatment under the Code. This
discussion is based upon the Code, treasury regulations under the Code and any
relevant administrative rulings or pronouncements or judicial decisions, all as
in effect on the date hereof and as currently interpreted, and does not take
into account possible changes in such tax laws or interpretations thereof, which
may apply retroactively. This discussion does not include any description of the
tax laws of any state or local governments within the United States.

For purposes of this discussion, the term "U.S. Person" means (1) a
citizen or resident of the United States, (2) a partnership or corporation, or
entity treated as a partnership or corporation, created or organized in or under
the laws of the United States, or any political subdivision thereof, (3) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, (4) a trust if either (a) a court within the United States is
able to exercise primary supervision over the administration of such trust and
one or more U.S. Persons have the authority to control all substantial decisions
of such trust or (b) the trust has a valid election in effect to be treated as a
U.S. Person for U.S. federal income tax purposes or (5) any other person or
entity that is treated for U.S. federal income tax purposes as if it were one of
the foregoing.

Taxation of Dividends

Subject to the discussions below relating to the potential application of
the CFC, related person insurance income, or "RPII," foreign personal holding
company, or "FPHC," and passive foreign investment company, or "PFIC," rules,
cash distributions, if any, made with respect to the Class A common shares will
constitute dividends for U.S. federal income tax purposes to the extent paid out
of current or accumulated earnings and profits of United National Group (as
computed using U.S. tax principles). Under recently enacted legislation, we
believe certain dividends paid before 2009 to individual shareholders should be
eligible for reduced rates of tax, provided that certain holding period
requirements are satisfied, because we believe our Class A common shares should
be treated as readily tradeable on an established securities market in the
United States. Dividends paid by us will not be eligible for the dividends
received deduction. To the extent such distributions exceed United National
Group's earnings and profits, they will be treated first as a return of the
shareholder's basis in the Class A common shares to the extent thereof, and then
as gain from the sale of a capital asset.

Classification of United National Group, U.N. Barbados or U.N. Bermuda as
Controlled Foreign Corporations

Each 10% U.S. Shareholder (as defined below) of a foreign corporation
that is a CFC for an uninterrupted period of 30 days or more during a taxable
year, and who owns shares in the CFC, directly or indirectly through foreign
entities, on the last day of the CFC's taxable year, must include in its gross
income for U.S. federal income tax purposes its pro rata share of the CFC's
"subpart F income," even if the subpart F income is not distributed. A foreign
corporation is considered a CFC if 10% U.S. Shareholders own (directly,
indirectly through foreign entities or by attribution by application of the
constructive ownership rules of section 958(b) of the Code (i.e.,
"constructively")) more than 50% of the total combined voting power of all
classes of voting stock of such foreign corporation, or more than 50% of

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the total value of all stock of such corporation. For purposes of taking into
account insurance income, which is a category of subpart F income, the term CFC
also includes a foreign insurance company in which more than 25% of the total
combined voting power of all classes of stock (or more than 25% of the total
value of the stock) is owned by 10% U.S. Shareholders, on any day during the
taxable year of such corporation, if the gross amount of premiums or other
consideration for the reinsurance or the issuing of insurance or annuity
contracts exceeds 75% of the gross amount of all premiums or other consideration
in respect of all risks. A "10% U.S. Shareholder" is a U.S. Person that owns
(directly, indirectly through foreign entities or constructively) at least 10%
of the total combined voting power of all classes of stock entitled to vote of
the foreign corporation. As a result of the attribution and constructive
ownership rules described above, we believe that United National Group, U.N.
Barbados and U.N. Bermuda are CFCs. That status as a CFC does not cause us or
any of our subsidiaries to be subject to U.S. federal income tax. Such status
also has no adverse U.S. federal income tax consequences for any U.S. Person
that is not a 10% U.S. Shareholder.

We believe that because of the anticipated dispersion of our share
ownership, provisions in our organizational documents that limit voting power
(these provisions are described in "Description of Share Capital") and other
factors, no U.S. Person who acquires shares of United National Group in this
offering directly or indirectly through foreign entities and that did not own
(directly or indirectly through foreign entities or constructively) shares of
United National Group prior to this offering should be treated as owning
(directly, indirectly through foreign entities, or constructively) 10% or more
of the total voting power of all classes of shares of United National Group,
U.N. Barbados or U.N. Bermuda. It is possible, however, that the IRS could
challenge the effectiveness of these provisions and that a court could sustain
such a challenge.

The RPII CFC Provisions

The following discussion generally is applicable only if the RPII of U.N.
Barbados or U.N. Bermuda determined on a gross basis, is 20% or more of U.N.
Barbados' or U.N. Bermuda's insurance income for the taxable year and the 20%
Ownership Exception (as defined below) is not met. The following discussion
generally would not apply for any fiscal year in which U.N. Barbados' and U.N.
Bermuda's RPII falls below the 20% threshold. Although we cannot be certain,
United National Group believes that the gross RPII of each of U.N. Barbados and
U.N. Bermuda as a percentage of its gross insurance income will be for the
foreseeable future below the 20% threshold for each tax year. Additionally, as
United National Group is not licensed as an insurance company, we do not
anticipate that United National Group will have insurance income, including
RPII. RPII is any "insurance income" (as defined below) attributable to policies
of insurance or reinsurance with respect to which the person (directly or
indirectly) insured is a "RPII shareholder" (as defined below) or a "related
person" (as defined below) to such RPII shareholder. In general, and subject to
certain limitations, "insurance income" is income (including premium and
investment income) attributable to the issuing of any insurance or reinsurance
contract that would be taxed under the portions of the Code relating to
insurance companies if the income were the income of a domestic insurance
company. For purposes of inclusion of the RPII of U.N. Bermuda or U.N. Barbados
in the income of any shareholder of United National Group, unless an exception
applies, the term "RPII shareholder" means any U.S. Person who owns (directly or
indirectly through foreign entities) any amount of United National Group's
shares. Generally, the term "related person" for this purpose means someone who
controls or is controlled by the RPII shareholder or someone who is controlled
by the same person or persons that control the RPII shareholder. Control is
measured by either more than 50% in value or more than 50% in voting power of
stock applying certain constructive ownership principles. A corporation's
pension plan is ordinarily not a "related person" with respect to the
corporation unless the pension plan owns, directly or indirectly through the
application of certain constructive ownership rules, more than 50% measured by
vote or value, of the stock of the corporation. U.N. Barbados and U.N. Bermuda
will be treated as CFCs under the RPII provisions if RPII shareholders are
treated as owning (directly, indirectly through foreign entities or
constructively) 25% or more of the shares of United National Group by vote or
value.

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RPII Exceptions

The special RPII rules do not apply if (1) direct and indirect insureds
and persons related to such insureds, whether or not U.S. Persons, are treated
as owning (directly or indirectly through foreign entities) less than 20% of the
voting power and less than 20% of the value of the stock of United National
Group, which we refer to as the "20% Ownership Exception," (2) RPII, determined
on a gross basis, is less than 20% of each of U.N. Barbados' and U.N. Bermuda's
gross insurance income for the taxable year, which we refer to as the "20% Gross
Income Exception," (3) each of U.N. Barbados and U.N. Bermuda elects to be taxed
on its RPII as if the RPII were effectively connected with the conduct of a U.S.
trade or business, and waives all treaty benefits with respect to RPII and meets
certain other requirements or (4) each of U.N. Barbados and U.N. Bermuda elects
to be treated as a U.S. corporation and waives all treaty benefits and meets
certain other requirements. Where none of these exceptions applies, each U.S.
Person owning or treated as owning any shares in United National Group (and
therefore, indirectly, in U.N. Barbados or U.N. Bermuda) on the last day of
United National Group's taxable year will be required to include in its gross
income for U.S. federal income tax purposes its share of the RPII for the
portion of the taxable year during which U.N. Barbados or U.N. Bermuda were CFCs
under the RPII provisions, determined as if all such RPII were distributed
proportionately only to such U.S. Persons at that date, but limited by each such
U.S. Person's share of U.N. Barbados' or U.N. Bermuda's current year earnings
and profits as reduced by the U.S. Person's share, if any, of certain prior year
deficits in earnings and profits. U.N. Barbados and U.N. Bermuda intend to
operate in a manner that is intended to ensure that each qualifies for the 20%
Gross Income Exception. Although we do not expect that the RPII of U.N. Barbados
or U.N. Bermuda will equal or exceed 20% of its gross insurance income, it is
possible that we will not be successful in qualifying under this exception.

Computation of RPII

In order to determine how much RPII U.N. Barbados or U.N. Bermuda has
earned in each taxable year, U.N. Barbados and U.N. Bermuda may obtain and rely
upon information from its insureds and reinsureds to determine whether any of
the insureds, reinsureds or persons related thereto owning (directly or
indirectly through non-U.S. entities) shares of United National Group are U.S.
Persons. United National Group may not be able to determine whether any of the
underlying direct or indirect insureds to which U.N. Barbados or U.N. Bermuda
provides insurance or reinsurance are shareholders or related persons to such
shareholders. Consequently, United National Group may not be able to determine
accurately the gross amount of RPII earned by U.N. Barbados or U.N. Bermuda in a
given taxable year. For any year in which either of U.N. Barbados or U.N.
Bermuda does not meet the 20% Gross Income Exception and the 20% Ownership
Exception, United National Group may also seek information from its shareholders
as to whether beneficial owners of shares at the end of the year are U.S.
Persons so that the RPII may be determined and apportioned among such persons;
to the extent United National Group is unable to determine whether a beneficial
owner of shares is a U.S. Person, United National Group may assume that such
owner is not a U.S. Person, thereby increasing the per share RPII amount for all
known RPII shareholders.

If, as expected, RPII is less than 20% of gross insurance income, RPII
shareholders will not be required to include RPII in their taxable income. The
amount of RPII includable in the income of a RPII shareholder is based upon the
net RPII income for the year after deducting related expenses such as losses,
loss reserves and operating expenses.

Apportionment of RPII to U.S. Holders

Every RPII shareholder who owns shares on the last day of any fiscal year
of United National Group in which U.N. Barbados or U.N. Bermuda does not meet
the 20% Gross Income Exception and the 20% Ownership Exception should expect
that for such year it will be required to include in gross income its share of
U.N. Barbados' or U.N. Bermuda's RPII for the portion of the taxable year during
which U.N. Barbados or U.N. Bermuda was a CFC under the RPII provisions, whether
or not distributed, even though it may not have owned the shares throughout such
period. An RPII shareholder who owns shares

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during such taxable year but not on the last day of the taxable year is not
required to include in gross income any part of U.N. Barbados' or U.N. Bermuda's
RPII.

Basis Adjustments

An RPII shareholder's tax basis in its shares will be increased by the
amount of any RPII that the shareholder includes in income. The RPII shareholder
may exclude from income the amount of any distributions by United National Group
out of previously taxed RPII income. The RPII shareholder's tax basis in its
shares will be reduced by the amount of such distributions that are excluded
from income.

Uncertainty as to Application of RPII

The RPII provisions have never been interpreted by the courts or the
Treasury Department in final regulations, and regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made in the proposed regulation or whether
any such changes, as well as any interpretation or application of RPII by the
IRS, the courts or otherwise, might have retroactive effect. These provisions
include the grant of authority to the Treasury Department to prescribe "such
regulations as may be necessary to carry out the purpose of this subsection
including . . . regulations preventing the avoidance of this subsection through
cross insurance arrangements or otherwise." Accordingly, the meaning of the RPII
provisions and their application to U.N. Barbados and U.N. Bermuda is uncertain.
In addition, we cannot be certain that the amount of RPII or the amounts of the
RPII inclusions for any particular RPII shareholder, if any, will not be subject
to adjustment based upon subsequent IRS examination. Any prospective investor
considering an investment in Class A common shares should consult his tax
advisor as to the effects of these uncertainties.

Tax-Exempt Shareholders

Tax-exempt entities will be required to treat certain subpart F insurance
income, including RPII, that is includible in income by the tax-exempt entity as
unrelated business taxable income. Prospective investors that are tax-exempt
entities are urged to consult their tax advisors as to the potential impact of
the unrelated business taxable income provisions of the Code. A tax-exempt
organization that is treated as a 10% U.S. Shareholder or a RPII Shareholder
also must file IRS Form 5471 in the circumstances described below in
"Information Reporting and Backup Withholding."

Dispositions of Class A Common Shares

Subject to the discussions below relating to the potential application of
the Code section 1248, PFIC and FPHC rules, holders of Class A common shares
generally should recognize capital gain or loss for U.S. federal income tax
purposes on the sale, exchange or other disposition of Class A common shares in
the same manner as on the sale, exchange or other disposition of any other
shares held as capital assets. If the holding period for these Class A common
shares exceeds one year, any gain will be subject to tax at a current maximum
marginal tax rate of 15% for individuals and 35% for corporations. Moreover,
gain, if any, generally will be U.S. source gain and generally will constitute
"passive income" for foreign tax credit limitation purposes.

Code section 1248 provides that if a U.S. Person sells or exchanges stock
in a foreign corporation and such person owned, directly, indirectly through
certain foreign entities or constructively, 10% or more of the voting power of
the corporation at any time during the five-year period ending on the date of
disposition when the corporation was a CFC, any gain from the sale or exchange
of the shares will be treated as a dividend to the extent of the CFC's earnings
and profits (determined under U.S. federal income tax principles) during the
period that the shareholder held the shares and while the corporation was a CFC
(with certain adjustments). We believe, because of the anticipated dispersion of
our share ownership, provisions in our organizational documents that limit
voting power and other factors, that no U.S. shareholder of United National
Group that acquires shares in this offering and did not own (directly,

129

indirectly through foreign entities or constructively) shares of United National
Group prior to this offering) should be treated as owning (directly, indirectly
through foreign entities or constructively) 10% of more of the total voting
power of United National Group; to the extent this is the case, the application
of Code section 1248 under the regular CFC rules should not apply to
dispositions of our Class A common shares. It is possible, however, that the IRS
could challenge the effectiveness of these provisions and that a court could
sustain such a challenge. A 10% U.S. Shareholder may in certain circumstances be
required to report a disposition of shares of a CFC by attaching IRS Form 5471
to the U.S. federal income tax or information return that it would normally file
for the taxable year in which the disposition occurs. In the event this is
determined necessary, United National Group will provide a completed IRS Form
5471 or the relevant information necessary to complete the Form.

Code section 1248 also applies to the sale or exchange of shares in a
foreign corporation if the foreign corporation would be treated as a CFC for
RPII purposes regardless of whether the shareholder is a 10% U.S. Shareholder or
whether the 20% Gross Income Exception or the 20% Ownership Exception applies.
Existing proposed regulations do not address whether Code section 1248 would
apply if a foreign corporation is not a CFC but the foreign corporation has a
subsidiary that is a CFC and that would be taxed as an insurance company if it
were a domestic corporation. We believe, however, that this application of Code
section 1248 under the RPII rules should not apply to dispositions of Class A
common shares because United National Group will not be directly engaged in the
insurance business. We cannot be certain, however, that the IRS will not
interpret the proposed regulations in a contrary manner or that the Treasury
Department will not amend the proposed regulations to provide that these rules
will apply to dispositions of Class A common shares. Prospective investors
should consult their tax advisors regarding the effects of these rules on a
disposition of Class A common shares.

Passive Foreign Investment Companies

In general, a foreign corporation will be a PFIC during a given year if
(1) 75% or more of its gross income constitutes "passive income" or (2) 50% or
more of its assets produce passive income.

If United National Group were characterized as a PFIC during a given
year, U.S. Persons holding Class A common shares would be subject to a penalty
tax at the time of the sale at a gain of, or receipt of an "excess distribution"
with respect to, their shares, unless such persons made a "qualified electing
fund election" or "mark-to-market" election. It is uncertain that United
National Group would be able to provide its shareholders with the information
necessary for a U.S. Person to make a "qualified electing fund election." In
general, a shareholder receives an "excess distribution" if the amount of the
distribution is more than 125% of the average distribution with respect to the
shares during the three preceding taxable years (or shorter period during which
the taxpayer held the shares). In general, the penalty tax is equivalent to an
interest charge on taxes that are deemed due during the period the shareholder
owned the shares, computed by assuming that the excess distribution or gain (in
the case of a sale) with respect to the shares was taken in equal portion at the
highest applicable tax rate on ordinary income throughout the shareholder's
period of ownership. The interest charge is equal to the applicable rate imposed
on underpayments of U.S. federal income tax for such period. In addition, a
distribution paid by United National Group to U.S. shareholders that is
characterized as a dividend and is not characterized as an excess distribution
would not be eligible for a reduced rate of tax under recently enacted
legislation with respect to dividends paid before 2009. If United National Group
were considered a PFIC, upon the death of any U.S. individual owning Class A
common shares, such individual's heirs or estate may not be entitled to a
"step-up" in the tax basis of the Class A common shares that might otherwise be
available under U.S. federal income tax laws.

For the above purposes, passive income generally includes interest,
dividends, annuities and other investment income. The PFIC rules provide that
income "derived in the active conduct of an insurance business by a corporation
that is predominantly engaged in an insurance business . . . is not treated as
passive income." The PFIC provisions also contain a look-through rule under
which a foreign corporation shall be treated as if it "received directly its
proportionate share of the income" and as if it "held its

130

proportionate share of the assets" of any other corporation in which it owns at
least 25% of the value of the stock.

The insurance income exception is intended to ensure that income derived
by a bona fide insurance company is not treated as passive income, except to the
extent such income is attributable to financial reserves in excess of the
reasonable needs of the insurance business. We expect for purposes of the PFIC
rules that U.N. Bermuda will be predominantly engaged in an insurance business
and is unlikely to have financial reserves in excess of the reasonable needs of
U.N. Bermuda's insurance business in each year of operations. Accordingly, none
of the income or assets of U.N. Bermuda should be treated as passive.
Additionally, we expect that the passive income and assets (other than the stock
of any indirect United National Group subsidiary) of any other U.N. Barbados
subsidiary will be de minimis in each year of operations with respect to the
overall income and assets of United National Group. Under the look-through rule
each of United National Group and U.N. Barbados should be deemed to own its
proportionate share of the assets and to have received its proportionate share
of the income of its direct and indirect subsidiaries for purposes of the 75%
test and the 50% test. As a result, we believe that United National Group and
U.N. Barbados should not be treated as PFICs. However, as there are currently no
regulations regarding the application of the PFIC provisions to an insurance
company and new regulations or pronouncements interpreting or clarifying these
rules may be forthcoming, we can not be certain that the IRS will not challenge
this position and that a court will not sustain such challenge. Prospective
investors should consult their tax advisor as to the effects of the PFIC rules.

Foreign Personal Holding Companies

A foreign corporation will be classified as an FPHC for U.S. federal
income tax purposes if (1) at any time during the taxable year at issue, five or
fewer individuals who are U.S. citizens or residents own or are deemed to own
(pursuant to certain constructive ownership rules) more than 50% of all classes
of the corporation's stock measured by voting power or value and (2) at least
60% (or 50% in taxable years subsequent to the characterization of the foreign
company as an FPHC) of its gross income for the year is "FPHC income." Under
these constructive ownership rules, among other things, a partner will be
treated as owning a proportionate amount of the stock owned by the partnership
and a partner who is an individual will be treated as owning the stock owned by
his partners. Also, stock treated as owned by such partner proportionally
through such partnership will be treated as owned by the partner for purposes of
reapplying the constructive ownership rules. If United National Group, U.N.
Barbados or U.N. Bermuda were or were to become FPHCs, a portion of the
"undistributed foreign personal holding company income" (as defined for U.S.
federal income tax purposes) of each such FPHC would be imputed to all of United
National Group's shareholders who are U.S. Persons. Such income would be taxable
as a dividend even if no distributions were made, and should not be eligible for
a reduced rate of tax under recently enacted legislation, with respect to
dividends paid before 2009. In such event, subsequent cash distributions will
first be treated as a tax-free return of any previously taxed and undistributed
amounts. In addition, a distribution paid by United National Group to a U.S.
shareholder that is not treated as a tax-free return of any previously taxed and
undistributed amount and is characterized as a dividend would not be eligible
for a reduced rate of tax under recently enacted legislation with respect to
dividends paid before 2009. If United National Group were to become an FPHC in
the year next preceding the date of the death of any U.S. individual owning
Class A common shares, such individual's heirs or estate would not be entitled
to a "step-up" in the basis of the Class A common shares that might otherwise be
available under U.S. federal income tax laws. Moreover, each shareholder who
owns, directly or indirectly, 10% or more of the value of an FPHC is required to
file IRS Form 5471. We believe that five or fewer U.S. individuals may be
treated as owning more than 50% of the voting power or value of our shares.
Consequently, United National Group, U.N. Barbados or U.N. Bermuda could be or
become an FPHC, depending on whether any company satisfies the FPHC gross income
test. We intend to monitor the income of United National Group, U.N. Barbados
and U.N. Bermuda to reduce the possibility that each company will meet the 60%
income threshold. We cannot be certain, however, that United National Group,
U.N. Barbados or U.N. Bermuda will not be considered an FPHC, because of factors
including legal and factual uncertainties regarding the application of the
constructive ownership rules, the makeup of United National

131

Group's shareholder base, the gross income of United National Group, U.N.
Barbados or U.N. Bermuda and other circumstances that could change the
application of the FPHC rules to United National Group, U.N. Barbados and U.N.
Bermuda. If United National Group, U.N. Barbados or U.N. Bermuda is or becomes
an FPHC, there can be no assurance that the amount of FPHC income would be
immaterial.

Foreign Tax Credit

Because it is anticipated that U.S. Persons will own a majority of our
shares, only a portion of the current income inclusions, if any, under the CFC,
RPII, FPHC and PFIC rules and of dividends paid by us (including any gain from
the sale of Class A common shares that is treated as a dividend under section
1248 of the Code) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitations. We will consider
providing shareholders with information regarding the portion of such amounts
constituting foreign source income to the extent such information is reasonably
available. It is also likely that substantially all of the "subpart F income,"
RPII and dividends that are foreign source income will constitute either
"passive" or "financial services" income for foreign tax credit limitation
purposes. Thus, it may not be possible for most shareholders to utilize excess
foreign tax credits to reduce U.S. tax on such income.

Information Reporting and Backup Withholding

Under certain circumstances, U.S. Persons owning stock in a foreign
corporation are required to file IRS Form 5471 with their U.S. federal income
tax returns. Generally, information reporting on IRS Form 5471 is required by
(1) a person who is treated as a RPII shareholder, (2) a 10% U.S. Shareholder of
a foreign corporation that is a CFC for an uninterrupted period of 30 days or
more during any tax year of the foreign corporation, and who owned the stock on
the last day of that year and (3) under certain circumstances, a U.S. Person who
acquires stock in a foreign corporation and as a result thereof owns 10% or more
of the voting power or value of such foreign corporation, whether or not such
foreign corporation is a CFC. For any taxable year in which United National
Group determines that gross RPII constitutes 20% or more of U.N. Barbados' or
U.N. Bermuda's gross insurance income and the 20% Ownership Exception does not
apply, United National Group will provide to all U.S. Persons registered as
shareholders of its Class A common shares a completed IRS Form 5471 or the
relevant information necessary to complete the form. Failure to file IRS Form
5471 may result in penalties.

Information returns may be filed with the IRS in connection with
distributions on the Class A common shares and the proceeds from a sale or other
disposition of the Class A common shares unless the holder of the Class A common
shares establishes an exemption from the information reporting rules. A holder
of Class A common shares that does not establish such an exemption may be
subject to U.S. backup withholding tax on these payments if the holder is not a
corporation or non-U.S. Person or fails to provide its taxpayer identification
number or otherwise comply with the backup withholding rules. The amount of any
backup withholding from a payment to a U.S. Person will be allowed as a credit
against the U.S. Person's U.S. federal income tax liability and may entitle the
U.S. Person to a refund, provided that the required information is furnished to
the IRS.

Proposed U.S. Tax Legislation

Legislation has been introduced in the U.S. Congress intended to
eliminate certain perceived tax advantages of companies (including insurance
companies) that have legal domiciles outside the United States but have certain
U.S. connections. In this regard, legislation has been introduced that includes
a provision that permits the IRS to reallocate or recharacterize items of
income, deduction or certain other items related to a reinsurance agreement
between related parties to reflect the proper source, character and amount for
each item (in contrast to current law, which only refers to source and
character). While there are no currently pending legislative proposals that, if
enacted, would have a material adverse effect on us or our shareholders, it is
possible that broader based legislative proposals could emerge in the future
that could have an adverse impact on us or our shareholders.

132

Additionally, the U.S. federal income tax laws and interpretations
regarding whether a company is engaged in a trade or business within the United
States or is a PFIC, or whether U.S. Persons would be required to include in
their gross income the subpart F income or the RPII of a CFC, are subject to
change, possibly on a retroactive basis. There are currently no regulations
regarding the application of the PFIC rules to insurance companies and the
regulations regarding RPII are still in proposed form. New regulations or
pronouncements interpreting or clarifying such rules may be forthcoming. We
cannot be certain if, when or in what form such regulations or pronouncements
may be provided and whether such guidance will have a retroactive effect.

133

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as
book-running manager of this offering and, together with Banc of America
Securities LLC, Dowling & Partners Securities, LLC, Fox-Pitt, Kelton Inc. and
Keefe, Bruyette & Woods, Inc., is acting as representative of the underwriters
named below. Subject to the terms and conditions described in a purchase
agreement between us and the underwriters, we agreed to sell to the
underwriters, and the underwriters severally agreed to purchase from us the
number of Class A common shares listed opposite their names below.

<Table>
<Caption>
NUMBER OF
CLASS A
COMMON SHARES
UNDERWRITER -------------
- -----------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Banc of America Securities LLC..............................
Dowling & Partners Securities, LLC..........................
Fox-Pitt, Kelton Inc. ......................................
Keefe, Bruyette & Woods, Inc. ..............................
-------
Total..........................................
=======
</Table>

The underwriters have agreed to purchase all of the Class A common shares
sold under the purchase agreement if any of these Class A common shares are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the non-defaulting underwriters may be increased or the
purchase agreement may be terminated.

We agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

The underwriters are offering the Class A common shares, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the Class A common
shares, and other conditions contained in the purchase agreement, such as the
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

The representatives advised us that the underwriters propose initially to
offer the Class A common shares to the public at the initial public offering
price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $ . per Class A common share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ . per Class
A common share to other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.

The following table shows the public offering price, underwriting
discount and proceeds before expenses to United National Group. The information
assumes either no exercise or full exercise by the underwriters of their
overallotment option.

<Table>
<Caption>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------

Public offering price...................... $ $ $
Underwriting discount...................... $ $ $
Proceeds, before expenses, to United
National Group........................... $ $ $
</Table>

The expenses of the offering, not including the underwriting discount,
are estimated at $ and are payable by United National Group.

134

OVERALLOTMENT OPTION

We have granted an option to the underwriters to purchase up to
additional Class A common shares at the public offering price less the
underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus solely to cover any overallotments. If the
underwriters exercise this option, each will be obligated, subject to conditions
contained in the purchase agreement, to purchase a number of additional Class A
common shares proportionate to that underwriter's initial amount reflected in
the above table.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to Class A common shares offered by this
prospectus for sale to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. If these persons purchase
reserved Class A common shares, this will reduce the number of Class A common
shares available for sale to the general public. Any reserved common shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other Class A common shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We and our executive officers and directors and all existing shareholders
have agreed, with exceptions, not to sell or transfer any Class A common shares
for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly:

- offer, pledge, sell or contract to sell any Class A common shares;

- sell any option or contract to purchase any Class A common shares;

- purchase any option or contract to sell any Class A common shares;

- grant any option, right or warrant for the sale of any Class A
common shares;

- lend or otherwise dispose of or transfer any Class A common shares;

- request or demand that we file a registration statement related to
any sale of Class A common shares; or

- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, the economic consequence of
ownership of any Class A common shares whether any such swap or
transaction is to be settled by delivery of Class A common shares
or other securities, in cash or otherwise.

This lockup provision applies to Class A common shares and to securities
convertible into or exchangeable or exercisable for or repayable with Class A
common shares, including our Class B common shares and our Series A preferred
shares, but permits the redemption of the Series A preferred shares. It also
applies to common shares owned now or acquired later by the person executing the
agreement or for which the person executing the agreement has or later acquires
the power of disposition.

NASDAQ QUOTATION

We have applied to have the Class A common shares approved for quotation
on the Nasdaq National Market, subject to notice of issuance, under the symbol
"UNGL."

Prior to this offering, there has been no public market for our Class A
common shares. The initial public offering price will be determined through
negotiations between us and the representatives. In

135

addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price include, among others:

- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;

- our financial information;

- the history of, and the prospects for, our company and the industry
in which we compete;

- an assessment of our management, its past and present operations,
and the prospects for, and timing of, our future revenues;

- the present state of our development; and

- the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar
to ours.

An active trading market for the Class A common shares may not develop.
It is also possible that after the offering, the Class A common shares will not
trade in the public market at or above the initial public offering price.

The underwriters do not expect to sell more than 5.0% of the Class A
common shares in the aggregate to accounts over which they exercise
discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the Class A common shares is completed, SEC
rules may limit underwriters from bidding for and purchasing our Class A common
shares. However, the representatives may engage in transactions that stabilize
the price of our Class A common shares, such as bids or purchases to peg, fix or
maintain that price.

If the underwriters create a short position in our Class A common shares
in connection with the offering, i.e., if they sell more Class A common shares
than are listed on the cover of this prospectus, the representatives may reduce
that short position by purchasing Class A common shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the overallotment option described above. Purchases of our Class A
common shares to stabilize their price or to reduce a short position may cause
the price of our Class A common shares to be higher than it might be in the
absence of such purchases.

The representatives may also impose a penalty bid on underwriters. This
means that if the representatives purchase Class A common shares in the open
market to reduce the underwriters' short position or to stabilize the price of
such Class A common shares, they may reclaim the amount of the selling
concession from the underwriters who sold those Class A common shares. The
imposition of a penalty bid may also affect the price of our Class A common
shares in that it discourages resales of those Class A common shares.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common shares. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

Some of the underwriters or their affiliates have interests in investment
funds affiliated with Fox Paine & Company. Some of the underwriters or their
affiliates have engaged in, and in the future may engage in, investment banking
and other commercial dealings in the ordinary course of business with us or our
affiliates, including Fox Paine & Company. They have received customary fees and
commissions for

136

these transactions. We are involved in legal proceedings involving an affiliate
of one of the underwriters. See "Business -- Legal Proceedings."

LEGAL MATTERS

LeBoeuf, Lamb, Greene & MacRae, L.L.P., as special U.S. tax counsel, is
representing us in connection with this offering. Legal matters in connection
with the offering of the Class A common shares have been passed upon for United
National Group by its Cayman Islands counsel, Walkers, Cayman Islands. Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York, acts as counsel for the
underwriters. The underwriters are being advised as to certain legal matters
with respect to Cayman Islands law by Maples and Calder, Cayman Islands.

EXPERTS

The financial statements as of December 31, 2002 and 2001 and for each of
the three years in the period ended December 31, 2002 included in this
prospectus are included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission, or SEC, regarding this offering. This prospectus, which
is part of the registration statement, does not contain all of the information
included in the registration statement, and you should refer to the registration
statement and its exhibits to read that information. References in this
prospectus to any of our contracts or other documents are not necessarily
complete, and you should refer to the exhibits attached to the registration
statement for copies of the actual contract or document. You may read and copy
the registration statement, the related exhibits and the reports and other
information we file with the SEC at the SEC's public reference facilities
maintained at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
You can also request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. The SEC also
maintains an Internet website that contains reports, proxy and information
statements and other information regarding issuers that file with the SEC. The
website's Internet address is www.sec.gov.

Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and will be required to file
reports, proxy statements and other information with the SEC. You will be able
to obtain copies of this material from the public reference room of the SEC as
described above, or inspect them without charge at the SEC's website. In
addition, you will be able to inspect such reports free of charge on our company
Internet website, www.unitednat.com.

ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES
FEDERAL SECURITIES LAWS AND OTHER MATTERS

United National Group is an exempted company incorporated with limited
liability under the laws of the Cayman Islands. In addition, some of its
directors and officers reside outside the United States, and all or a
substantial portion of their assets and United National Group's assets are or
may be located in jurisdictions outside the United States. Therefore, it may be
difficult for investors to effect service of process within the United States
upon our non-U.S. based directors and officers or to recover against United
National Group, or such directors and officers, or obtain judgments of U.S.
courts, including judgments predicated upon the civil liability provisions of
the U.S. federal securities laws against them.

However, United National Group may be served with process in the United
States with respect to actions against it arising out of or in connection with
violations of U.S. federal securities laws relating to
137

offers and sales of Class A common shares made hereby by serving National
Registered Agents, Inc., 440 Ninth Avenue, Fifth Floor, New York, New York
10001, our U.S. agent irrevocably appointed for that purpose.

We have been advised by our Cayman Islands counsel that, although there
is no statutory enforcement in the Cayman Islands of judgments obtained in the
United States, the courts of the Cayman Islands will, based on the principle
that a judgment by a competent foreign court imposes upon the judgment debtor an
obligation to pay the sum for which judgment has been given, recognize and
enforce a foreign judgment of a court of competent jurisdiction if such judgment
is final, for a liquidated sum, not in respect of taxes or a fine or penalty, is
not inconsistent with a Cayman Islands judgment in respect of the same matters,
and was not obtained in a manner, and is not a kind for which the enforcement is
contrary to the public policy of the Cayman Islands. There is doubt, however, as
to whether the courts of the Cayman Islands will (a) recognize or enforce
judgments of U.S. courts predicated upon the civil liability provisions of the
securities laws of the United States or any state of the United States, or (b)
in original actions brought in the Cayman Islands, impose liabilities predicated
upon the civil liability provisions of the securities laws of the United States
or any state of the United States, on the grounds that such provisions are penal
in nature.

A Cayman Islands court may stay proceedings if concurrent proceedings are
being brought elsewhere.

138

INDEX TO FINANCIAL STATEMENTS

<Table>

WIND RIVER INVESTMENT CORPORATION:

Report of Independent Auditors............................ F-2

Consolidated Balance Sheets as of December 31, 2001 and
2002................................................... F-3

Consolidated Statements of Operations For the Years Ended
December 31, 2000, 2001 and 2002....................... F-4

Consolidated Statements of Comprehensive Income For the
Years Ended December 31, 2000, 2001 and 2002........... F-5

Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 2000, 2001 and 2002... F-6

Consolidated Statements of Cash Flows For the Years Ended
December 31, 2000, 2001 and 2002....................... F-7

Notes to Consolidated Financial Statements................ F-8

UNITED NATIONAL GROUP:

Consolidated Balance Sheets as of December 31, 2002 and
September 30, 2003 (Unaudited)......................... F-26

Consolidated Statements of Operations For the Nine Months
Ended September 30, 2002 and 2003 (Unaudited).......... F-27

Consolidated Statements of Comprehensive Income For the
Nine Months Ended September 30, 2002 and 2003
(Unaudited)............................................ F-28

Consolidated Statements of Changes in Shareholders' Equity
For the Nine Months Ended September 30, 2002 and 2003
(Unaudited)............................................ F-29

Consolidated Statements of Cash Flows For the Nine Months
Ended September 30, 2002 and 2003 (Unaudited).......... F-30

Notes to Consolidated Financial Statements (Unaudited).... F-31

Report of Independent Auditors ........................... F-46

Balance Sheet as of August 29, 2003....................... F-47

Notes to Balance Sheet.................................... F-48
</Table>

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Wind River Investment Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Wind River Investment Corporation and its subsidiaries
at December 31, 2001 and 2002, and the results of their operations and their
cash flows for the three years ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP
Philadelphia, PA
June 25, 2003

F-2

WIND RIVER INVESTMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2002

(DOLLARS IN THOUSANDS)

<Table>
<Caption>
2001 2002
ASSETS ---------- ----------

Bonds:
Trading securities, at fair value (amortized cost:
2001-$15,766; 2002-$14,913)............................ $ 16,196 $ 14,607
Available for sale securities, at fair value (amortized
cost: 2001-$334,250; 2002-$434,957).................... 337,167 446,418
Preferred stocks:
Trading securities, at fair value......................... 1,893 3,106
Available for sale securities, at fair value.............. 865 --
Common stocks:
Trading securities, at fair value......................... 49,006 31,604
Other invested assets....................................... 32,998 41,285
Mortgage loans.............................................. 1,226 1,167
---------- ----------
Total investments...................................... 439,351 538,187
Cash and cash equivalents................................... 77,057 72,942
Receivable for securities................................... 280 --
Agents' balances, net of allowance.......................... 40,724 50,744
Reinsurance receivables, net of allowance................... 799,066 1,743,524
Funds held by reinsured companies........................... 8,250 --
Accrued investment income................................... 4,932 6,567
Federal income taxes receivable............................. 2,144 31,798
Deferred federal income taxes............................... 15,663 29,970
Deferred acquisition costs, net............................. 428 3,289
Prepaid reinsurance premiums................................ 172,988 196,172
Other assets................................................ 14,871 12,427
---------- ----------
Total assets........................................... $1,575,754 $2,685,620
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses.................. $ 907,357 $2,004,422
Unearned premiums........................................... 214,028 247,138
Amounts held for the account of others...................... 5,794 13,766
Ceded balances payable...................................... 53,853 61,787
Payable for securities...................................... -- 6,250
Contingent commissions...................................... 9,496 5,426
Due to affiliates........................................... 101 163
Other liabilities........................................... 60,281 78,031
---------- ----------
Total liabilities...................................... 1,250,910 2,416,983
---------- ----------
Commitments and Contingencies (Note 11)..................... -- --
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 100 shares authorized, issued
and outstanding........................................... -- --
Additional paid-in capital.................................. 81,186 81,186
Accumulated other comprehensive income...................... 1,873 7,329
Retained earnings........................................... 241,785 180,122
---------- ----------
Total shareholders' equity............................. 324,844 268,637
---------- ----------
Total liabilities and shareholders' equity............. $1,575,754 $2,685,620
========== ==========
</Table>

See accompanying notes to consolidated financial statements.
F-3

WIND RIVER INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
2000 2001 2002
REVENUES: --------- --------- ---------

Gross premiums written.................................... $ 453,464 $ 670,520 $ 793,083
========= ========= =========
Net premiums written...................................... $ 127,572 $ 169,310 $ 172,689
========= ========= =========
Net premiums earned....................................... $ 136,931 $ 150,336 $ 162,763
Net investment income..................................... 22,490 19,353 17,685
Net realized investment gains (losses).................... 593 (12,719) (11,702)
--------- --------- ---------
Total revenues....................................... 160,014 156,970 168,746
--------- --------- ---------
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses................... 113,151 128,338 201,750
Acquisition costs and other underwriting expenses......... 14,999 15,867 18,938
Provision for doubtful reinsurance receivables............ -- -- 44,000
Other operating expenses.................................. 2,918 2,220 5,874
Interest expense.......................................... 322 77 115
--------- --------- ---------
Income (loss) before income taxes.................... 28,624 10,468 (101,931)
Income tax (benefit) expense.............................. 5,883 295 (40,520)
--------- --------- ---------
Net income (loss) before equity in net income (loss)
of partnerships.................................... 22,741 10,173 (61,411)
Equity in net income (loss) of partnerships............... -- 664 (252)
--------- --------- ---------
Net income (loss).................................... $ 22,741 $ 10,837 $ (61,663)
========= ========= =========
PER SHARE DATA:
Weighted-average common shares outstanding........... 100 100 100
Weighted-average share equivalents outstanding....... -- -- --
--------- --------- ---------
Weighted-average share and share equivalents
outstanding........................................ 100 100 100
========= ========= =========
Basic and diluted earnings per share................. $ 227 $ 108 $ (617)
========= ========= =========
</Table>

See accompanying notes to consolidated financial statements.
F-4

WIND RIVER INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(DOLLARS IN THOUSANDS)

<Table>
<Caption>
2000 2001 2002
-------- -------- --------

Net income (loss)........................................... $ 22,741 $ 10,837 $(61,663)
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period............................................... 14,512 (10,016) (3,880)
Less:
Reclassification adjustment for (losses) gains
included in net income (loss)..................... (2,915) 7,961 12,275
-------- -------- --------
Other comprehensive income (loss), before tax............. 11,597 (2,055) 8,395
Income tax (expense) benefit related to items of other
comprehensive loss..................................... (4,059) 719 (2,939)
-------- -------- --------
Other comprehensive income (loss), net of tax............. 7,538 (1,336) 5,456
-------- -------- --------
Comprehensive income (loss), net of tax..................... $ 30,279 $ 9,501 $(56,207)
======== ======== ========
</Table>

See accompanying notes to consolidated financial statements.
F-5

WIND RIVER INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

(DOLLARS IN THOUSANDS)

<Table>
<Caption>
2000 2001 2002
Common shares: -------- -------- --------

Balance at beginning and end of year...................... 100 100 100
Common stock:
Balance at beginning and end of year...................... $ -- $ -- $ --
Additional paid-in capital
Balance at beginning and end of year...................... 81,186 81,186 81,186
Accumulated other comprehensive income:
Net of deferred income taxes:
Balance at beginning of year........................... (4,329) 3,209 1,873
Other comprehensive income (loss), net of taxes........ 7,538 (1,336) 5,456
-------- -------- --------
Balance at end of year............................... 3,209 1,873 7,329
-------- -------- --------
Retained earnings:
Balance at beginning of year........................... 208,207 230,948 241,785
Net income (loss)...................................... 22,741 10,837 (61,663)
-------- -------- --------
Balance at end of year............................... 230,948 241,785 180,122
-------- -------- --------
Total shareholders' equity.................................. $315,343 $324,844 $268,637
======== ======== ========
</Table>

See accompanying notes to consolidated financial statements.
F-6

WIND RIVER INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(DOLLARS IN THOUSANDS)

<Table>
<Caption>
2000 2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- ---------- ----------

Net income (loss)......................................... $ 22,741 $ 10,837 $ (61,663)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Deferred federal income taxes........................... 1,986 (4,533) (17,104)
Amortization of bond premium and discount, net.......... (1,178) (81) 853
(Loss) gain on sale of investments...................... (2,917) 7,961 12,275
Unrealized loss (gain) on trading securities............ 2,324 4,758 (573)
Equity in net income or loss of partnerships............ -- (664) 252
Proceeds from sale or maturity of trading securities.... 2,142 20,855 33,598
Purchase of trading securities.......................... (49,281) (49,471) (27,896)
Provision for doubtful agent's balances................. -- -- 2,500
Provision for doubtful reinsurance receivables.......... -- -- 44,000
CHANGES IN:
Agents' balances........................................ 19,467 (3,280) (12,520)
Reinsurance receivables................................. (46,578) (104,300) (988,458)
Unpaid losses and loss adjustment expenses.............. (5,087) 106,727 1,097,065
Unearned premiums....................................... 4,668 63,950 33,110
Ceded balances payable.................................. (2,121) 15,855 7,934
Other liabilities....................................... 19,170 4,232 17,750
Amounts held for the account of others.................. (2,144) 2,961 7,972
Funds held by reinsured companies....................... 45,381 (7,250) 8,250
Contingent commissions.................................. 1,961 444 (4,070)
Federal income tax receivable........................... 3,559 255 (29,655)
Prepaid reinsurance premiums............................ (14,027) (44,981) (23,184)
Receivable for securities............................... 4,566 (400) 6,530
Other -- net............................................ (5,080) (5,829) (1,993)
---------- ---------- ----------
Net cash from operating activities................... (448) 18,046 104,973
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of bonds and preferred stocks.......... 36,264 95,255 187,391
Proceeds from maturity of bonds........................... 675 3,075 6,000
Proceeds from sale of other invested assets............... 1,977 196 4,347
Purchase of bonds and preferred stocks.................... (54,855) (142,105) (292,410)
Proceeds from sale or repayment of mortgage principal..... -- 51 59
Purchase of mortgages..................................... -- (1,277) --
Purchase of other invested assets, including promissory
notes................................................... (10,321) (20,962) (14,475)
---------- ---------- ----------
Net cash from investing activities................... (26,260) (65,767) (109,088)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility.......................... -- -- 17,600
Repayments of credit facility............................. -- -- (17,600)
---------- ---------- ----------
Net cash from financing activities................... -- -- --
---------- ---------- ----------
Net decrease in cash and cash equivalents............ (26,708) (47,721) (4,115)
Cash and cash equivalents at beginning of year.............. 151,486 124,778 77,057
---------- ---------- ----------
Cash and cash equivalents at end of year.................... $ 124,778 $ 77,057 $ 72,942
========== ========== ==========
Supplemental disclosure of cash flows information:
Income taxes paid......................................... $ 4,650 $ 4,470 $ 6,147
========== ========== ==========
</Table>

See accompanying notes to consolidated financial statements.
F-7

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 2001 AND 2002

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Wind River
Investment Corporation ("Wind River") and its wholly-owned subsidiary, American
Insurance Service, Inc. ("AIS")(collectively, the "Company"). AIS owns all of
the outstanding shares of American Insurance Adjustment Agency, Inc.,
International Underwriters, Inc., Unity Risk Partners Insurance Services, Inc.
and United National Insurance Company ("UNIC"). UNIC owns all of the outstanding
shares of Diamond State Insurance Company ("DSIC"). DSIC owns all of the
outstanding shares of United National Specialty Insurance Company ("UNSIC"),
United National Casualty Insurance Company ("UNCIC") and J.H. Ferguson &
Associates, LLC. All significant intercompany balances and transactions have
been eliminated in consolidation.

The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"), which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

FORMATION OF UNITED NATIONAL CASUALTY INSURANCE COMPANY

During 2002, UNIC and its subsidiaries formed UNCIC. On May 9, 2002, DSIC
purchased $5.0 million of UNCIC common stock. UNIC subsequently contributed
$40.2 million to DSIC. DSIC contributed $20.0 million of capital to UNSIC and
$15.0 million to UNCIC. The formation of a new insurance carrier and capital
contributions to DSIC and UNSIC were completed to increase the admitted writing
capabilities of the group.

DESCRIPTION OF BUSINESS

The Company writes property and casualty insurance lines on both a
surplus lines and admitted basis. These coverages include general liability
(consisting of owners, landlords and tenants, manufacturers and contractors,
products, comprehensive personal, liquor law and umbrella liability forms),
commercial multiple peril, commercial and private passenger auto, fire coverages
and miscellaneous errors and omissions. Facilities are also available for
writing of unique and unusual risks. Collectively, Wind River's insurance
subsidiaries are licensed in all 50 states and the District of Columbia.

CASH AND CASH EQUIVALENTS

For the purpose of the statements of cash flows, the Company considers
all liquid instruments with maturities, at date of acquisition, of three months
or less to be cash equivalents. The Company has a cash management program that
provides for the investment of excess cash balances primarily in short-term
money market instruments. Generally, bank balances exceed federally insured
limits. The carrying amount of cash and cash equivalents approximates fair
value.

INVESTMENTS

The Company's investments in bonds classified as available for sale and
trading are carried at their fair value. The difference between book value and
fair value of bonds classified as available for sale, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in

F-8

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. The current year change in
the difference between book value and fair value of bonds classified as trading
is included in income.

Preferred stocks are carried at fair value. The difference between book
and fair value of preferred stocks classified as available for sale, net of the
effect of deferred income taxes, is reflected in accumulated other comprehensive
income in shareholders' equity and, accordingly, has no effect on net income
other than for impairments deemed to be other than temporary. The current year
change in the difference between book value and fair value of preferred stocks
classified as trading is included in income.

Common stocks are carried at fair value. All of the Company's investments
in common stock are classified as trading as of December 31, 2001 and 2002. The
current year change in the difference between book value and fair value of
common stocks is included in income.

Other invested assets are comprised primarily of limited liability
partnerships interests and uncollateralized commercial loans. Partnership
interests of three percent ownership or greater are accounted for under the
equity method. Partnership interests of less than three percent ownership are
carried at their fair value. The difference between book value and fair value of
partnership interests of less than three percent ownership, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. Uncollateralized commercial
loans are stated at unpaid principal balance, net of allowances.

Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

The Company's investments are regularly evaluated to determine if
declines in market value below amortized cost are other than temporary. If
market value declines are determined to be other than temporary, the security's
cost basis is adjusted to the market value of the security, with the loss
recognized in the current period.

The Company measures the fair value of investments in fixed income and
equity portfolios based upon quoted market prices. The Company also holds
investments in several limited partnerships, which were valued at $24.5 million
and $37.7 million as of December 31, 2001 and 2002, respectively. Several of
these partnerships invest solely in securities that are publicly traded and are
valued at the net asset value as reported by the investment manager. As of
December 31, 2001 and 2002, respectively, the limited partnership portfolio
includes $9.2 million and $16.8 million in securities for which there is no
readily available independent market price. The estimated fair value of such
securities is determined by the general partner of each limited partnership
based on comparisons to transactions involving similar investments. Material
assumptions and factors utilized in pricing these securities include future cash
flows, constant default rates, recovery rates and any market clearing activity
that may have occurred since the prior month-end pricing period.

The provisions of Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,"
require, among other things, that all derivatives be recognized in the
consolidated balance sheets as either assets or liabilities and measured at fair
value. The corresponding derivative gains and losses should be reported based
upon the hedge relationship, if such a relationship exists. Changes in the fair
value of derivatives that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS 133 are required to be reported in income. The
Company held no derivative financial instruments, nor embedded financial
derivatives, as of December 31, 2001 or 2002.

F-9

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AGENTS' BALANCES

In the normal course of business, the Company has various receivables due
from agents or insureds. However, cash received prior to the processing of the
related policies is recorded as a credit to agents' balances. During 2002, the
Company established a $2.5 million allowance for uncollectible receivables due
from agents or insureds. The expense associated with the establishment of this
reserve has been reflected in the Company's results of operation in 2002. The
five largest general agencies accounted for approximately 37.5% of the net
premiums written for the year ended December 31, 2002.

DEFERRED ACQUISITION COSTS/FUTURE SERVICING COSTS

The excess of the Company's costs of acquiring new and renewal insurance
and reinsurance contracts over the related ceding commissions earned from
reinsurers is capitalized as deferred acquisition costs and amortized over the
period in which the related premiums are earned. The excess of the ceding
commissions earned from reinsurers over the Company's costs of acquiring new and
renewal insurance and reinsurance contracts is capitalized as future servicing
costs and amortized over the period in which the related premiums are earned.
Deferred acquisition costs and future servicing costs are netted in the
accompanying consolidated financial statements. The costs of acquiring new and
renewal insurance and reinsurance contracts include commissions, premium taxes
and certain other costs that are directly related to and vary with the
production of business. The method followed in computing such amounts limits
them to their estimated realizable value that gives effect to the premium to be
earned, related investment income, losses and loss adjustment expenses, and
certain other costs expected to be incurred as the premium is earned.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for unpaid losses and loss adjustment expenses represents
the Company's best estimate of future amounts needed to pay losses and related
settlement expenses with respect to insured events. This liability is based upon
the accumulation of individual case estimates for losses reported prior to the
close of the accounting period with respect to direct business, estimates
received from ceding reinsurers with respect to assumed reinsurance and
estimates of unreported losses established by management.

The process of establishing the liability for property and casualty
unpaid losses and loss adjustment expenses is a complex process, requiring the
use of informed estimates and judgments. In some cases, significant periods of
time, up to several years or more, may elapse between the occurrence of an
insured loss and the reporting of the loss to the Company. To establish this
liability, the Company reviews past loss experience and considers a variety of
other factors such as legal, social and economic developments. The Company
regularly reviews and updates the methods of making such estimates and
establishing the resulting liabilities. Any resulting adjustments are recorded
in income during the period in which the determination is made.

PREMIUMS

Premiums are recognized as revenue ratably over the term of the
respective policies. Unearned premiums are computed to the day of expiration.
Premium suspense is recorded in Other Liabilities in the accompanying balance
sheets.

INCOME TAXES

The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement

F-10

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining deferred tax
assets.

CONTINGENT COMMISSIONS

Certain managing general agencies receive special incentives when certain
premium thresholds are met or when loss results of programs are more favorable
than predetermined thresholds. These costs are estimated and charged to other
underwriting expenses when incurred.

REINSURANCE

In the normal course of business, the Company seeks to reduce the loss
that may arise from events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with reinsurers.
Amounts receivable from reinsurers are estimated in a manner consistent with the
reinsured policy. The Company regularly reviews the collectibility of
reinsurance receivables. Any allowances resulting from this review are included
in income during the period in which the determination is made. During 2002, the
Company recorded an allowance for doubtful reinsurance receivables of $44.0
million.

EARNINGS PER SHARE

Basic earnings per share has been calculated by dividing net income
available to common shareholders by the weighted-average common shares
outstanding. Diluted earnings per share has been calculated by dividing net
income available to common shareholders by the weighted-average common shares
outstanding and the weighted-average share equivalents outstanding.

(2) INVESTMENTS

Bonds, included in the available for sale category, with an amortized
cost of approximately $84.1 million and $136.3 million, and an estimated fair
market value of approximately $86.6 million and $141.4 million, were deposited
with various governmental authorities in accordance with statutory requirements
at December 31, 2001 and 2002, respectively.

F-11

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The cost and estimated fair value of investments classified as available
for sale are as follows as of December 31, 2001 and 2002:

<Table>
<Caption>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
2001 (DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- -------------------------------- --------- ---------- ---------- ----------

Bonds:
Obligations of states and political
subdivisions.......................... $253,550 $5,212 $2,479 $256,283
Mortgage-backed securities............... 48,450 1,225 552 49,123
U.S. treasury and agency obligations..... 18,847 400 8 19,239
Corporate notes.......................... 13,403 192 1,073 12,522
-------- ------- ------ --------
Total bonds........................... 334,250 7,029 4,112 337,167
Preferred stock............................ 900 -- 35 865
-------- ------- ------ --------
Total................................. $335,150 $7,029 $4,147 $338,032
======== ======= ====== ========
</Table>

<Table>
<Caption>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
2002 COST GAINS LOSSES FAIR VALUE
- ---- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Bonds:
Obligations of states and political
subdivisions.......................... $391,706 $13,446 $2,072 $403,080
Mortgage-backed securities............... 8,566 35 451 8,150
U.S. treasury and agency obligations..... 29,364 1,303 -- 30,667
Corporate notes.......................... 5,321 -- 800 4,521
-------- ------- ------ --------
Total................................. $434,957 $14,784 $3,323 $446,418
======== ======= ====== ========
</Table>

The Company held no debt or equity investments in a single issuer
totaling in excess of 10% of shareholders' equity at December 31, 2001 or 2002.

The amortized cost and estimated fair value of debt securities classified
as available for sale at December 31, 2002, by contractual maturity, are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

<Table>
<Caption>
AMORTIZED ESTIMATED
COST FAIR VALUE
(DOLLARS IN THOUSANDS) --------- ----------

Due in one year or less..................................... $ 27,071 $ 28,319
Due after one year through five years....................... 141,163 145,104
Due after five years through ten years...................... 203,264 207,968
Due after ten years......................................... 54,893 56,877
Mortgage-backed securities.................................. 8,566 8,150
-------- --------
$434,957 $446,418
======== ========
</Table>

Proceeds from sales of investments in debt and preferred stocks
classified as available for sale were $36.3 million, $95.3 million and $187.4
million during 2000, 2001 and 2002, respectively. Gross gains of $1.4 million,
$1.2 million and $3.2 million and gross losses of $0.3 million, $3.6 million and
$1.6 million were realized on those sales during 2000, 2001 and 2002,
respectively. During 2001, the Company recorded realized losses, net of tax, of
$2.9 million for bonds that experienced other than temporary declines in their

F-12

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated market value. During 2000, 2001, and 2002, the Company recorded
realized losses, net of tax, of $0, $1.6 million, and $0.8 million for other
invested assets that experienced other than temporary declines in their
estimated market value.

Investments in debt securities classified as trading securities at
December 31, 2001 and 2002, had a fair value of $16.2 million and $14.6 million,
respectively. In addition, common stocks with a fair value of $49.0 million and
$31.6 million at December 31, 2001 and 2002, respectively, were classified as
trading securities.

A loss of $1.5 million, net of tax benefit of $0.8 million in 2000, a
loss of $3.1 million, net of tax benefit of $1.7 million in 2001, and a gain of
$0.4 million, net of tax expense of $0.2 million in 2002, on debt and equity
securities classified as trading securities were included in earnings in 2000,
2001 and 2002, respectively.

The sources of net investment income for the years ended December 31, 2000, 2001
and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
(DOLLARS IN THOUSANDS) ------- ------- -------

Fixed maturities........................................ $17,991 $19,307 $20,868
Equity securities....................................... 271 976 872
Cash and cash equivalents............................... 2,119 3,665 1,411
Short term investments.................................. 8,197 66 --
Other................................................... -- 477 1,444
------- ------- -------
Total investment income............................ 28,578 24,491 24,595
Investment expense...................................... (6,088) (5,138) (6,910)
------- ------- -------
Net investment income.............................. $22,490 $19,353 $17,685
======= ======= =======
</Table>

There were no material investments in fixed maturity securities that were
non-income producing for the years ended December 31, 2000, 2001 or 2002.

(3) FEDERAL INCOME TAXES

The effective tax rate for the years ended December 31, 2000, 2001 and
2002 differs from the United States statutory rate principally due to tax-exempt
investment income.

For income tax purposes, property and casualty insurance companies are
required to recalculate the liability for unpaid losses and loss adjustment
expenses on a discounted basis and to recalculate unearned premium.

The Company incurred a net operating loss and realized losses in 2002 and
will carry those losses back to prior years to recover federal income taxes. The
current tax receivable represents the expected refund claim for the carryback
along with the refund request for estimated payments and similar payments

F-13

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

made for the 2002 federal income tax return. The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets at
December 31, 2001 and 2002 are presented below:

<Table>
<Caption>
(DOLLARS IN THOUSANDS)
2001 2002
Deferred tax assets: ------- -------

Losses on trading securities.............................. $ 1,986 $ 2,004
Losses on other securities................................ 2,400 2,279
Discounted unpaid losses and loss adjustment expenses..... 9,190 15,808
Unearned premiums......................................... 2,873 3,568
Alternative minimum tax credit carryover.................. -- 7,301
Other..................................................... 781 4,760
------- -------
Total deferred tax assets.............................. 17,230 35,720
Deferred tax liabilities:
Unrealized gain on securities available for sale.......... 1,366 4,011
Deferred acquisition costs................................ 150 1,151
Other..................................................... 51 588
------- -------
Total deferred tax liabilities......................... 1,567 5,750
------- -------
Total net deferred tax assets.......................... $15,663 $29,970
======= =======
</Table>

The alternative minimum tax credit carryover is available for future
years and does not expire.

Management believes it is more likely than not that the deferred tax
assets will be completely utilized in future years.

Cash paid for federal income taxes was $4.7 million, $4.5 million and
$6.1 million in 2000, 2001 and 2002, respectively.

(4) REINSURANCE

The Company cedes insurance to unrelated insurers in the ordinary course
of business to limit its net loss exposure. In addition, there are excess of
loss contracts that protect against losses over stipulated amounts. Reinsurance
ceded arrangements do not discharge the Company of primary liability as the
originating insurer.

F-14

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2002, the Company had reinsurance receivables
(including prepaid reinsurance premiums) due from the following reinsurers that
exceeded 3% of shareholders' equity:

<Table>
<Caption>
A.M. BEST
RATINGS
(AS OF
REINSURANCE DECEMBER 31,
RECEIVABLES 2002)
(DOLLARS IN MILLIONS) ------------ ------------

Berkshire Hathaway....................................... $ 84.7 A++
CNA Insurance Group...................................... 10.9 A
Converium Re (North America)............................. 103.9 A
Everest Reinsurance Company.............................. 23.4 A+
Fairfax Financial........................................ 29.8 A
GE Global Group.......................................... 424.5 A+
Gerling Global Re Group.................................. 29.9 NR-5/NR-3
Hartford Fire Insurance Co. ............................. 111.1 A+
Insurance Corp of Hannover............................... 12.1 A+
Lumbermans Mutual Casualty Co. .......................... 19.0 D
Motors Insurance Corporation............................. 15.1 A
Munich Group............................................. 708.3 A+
Penn Mfr Asn Ins......................................... 8.9 A-
Riunione Adriatica Di Sicurta............................ 23.5 A+
SCOR Reinsurance Company................................. 49.0 A-
St. Paul Group........................................... 24.5 A
Swiss Re Group........................................... 64.8 A++\A+
Trenwick America Reins Corp. ............................ 29.7 NR-4
White Mountains Group.................................... 8.2 A-
XL Reinsurance Company................................... 28.9 A+
--------
$1,810.2
========
</Table>

During 2000, the Company commuted several assumed reinsurance treaties.
These commutations release the Company from all future obligations under the
agreement. No gain or loss was recognized on the transactions. Losses and loss
adjustment expenses paid in connection with these commutations, totaling $36.5
million in 2000, were offset by funds held by the reinsured companies relative
to these treaties.

On April 6, 2001, the Company commuted all of its reinsurance
arrangements with Reliance Insurance Company. As a result of this commutation,
the Company has reported in its operations in 2001 losses and loss adjustment
expenses incurred of $5.0 million.

During 2002, the Company established a $44.0 million allowance for
potentially uncollectible reinsurance. The Company believes its reinsurance
receivables are collectible net of the allowance.

On April 16, 2002, the Company commuted an assumed aggregate stop loss
retrocession agreement. The commutation released the Company from all future
obligations under the agreement. Losses paid in connection with this
commutation, totaling $82.9 million, were offset by funds held by the reinsurer
relative to this treaty. Losses and loss adjustment expenses incurred during
2001 were $49.9 million and $5.4 million, respectively. Premiums earned were
$52.0 million for the year ended December 31, 2001 in connection with this
assumed agreement. No gain or loss was recognized as a result of this
commutation.

F-15

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 2001 and 2002, the Company had letters of credit totaling
$159.2 million and $104.5 million, respectively, collateralizing reinsurance
receivables.

During 2002, the Company was involved in arbitration proceedings with one
of its reinsurers, Riunione Adriatica Di Sicurta ("RAS"). RAS was seeking to
rescind the reinsurance agreement and prohibit the Company from drawing down on
available lines of credit, and demanding repayment of funds drawn from the line
of credit. On October 1, 2002 the arbitration panel issued an Order and Award
holding RAS liable for a portion of the total amount in dispute. RAS was also
ordered to pay interest at a rate of 4% compounded annually with respect to
balances currently due. The panel further ordered a portion of the reinsurance
agreement between RAS and the Company to be rescinded from inception. RAS was
released from all future liabilities or responsibilities to the Company with
respect to the rescinded portion of the reinsurance agreement. This rescission
had a $20.6 million detrimental impact on the underwriting results of the
Company during 2002.

In connection with this rescission, the Company reported the following
amounts in its operations for the year ended December 31, 2002:

<Table>
<Caption>
(DOLLARS IN THOUSANDS)

Losses and loss adjustment expense incurred................. $(23,610)
Premium earned.............................................. 3,968
Reversal of ceding commission income........................ (938)
--------
Total -- underwriting income effect.................... $(20,580)
========
</Table>

The effect of reinsurance on premiums written and earned is as follows:

<Table>
<Caption>
WRITTEN EARNED
(DOLLARS IN THOUSANDS) -------- --------

For the year ended December 31, 2000:
Direct business........................................... $389,348 $374,179
Reinsurance assumed....................................... 64,116 74,627
Reinsurance ceded......................................... 325,892 311,875
-------- --------
Net premiums......................................... $127,572 $136,931
======== ========
Percentage assumed of net................................... 54.5%
========
For the year ended December 31, 2001:
Direct business........................................... $604,738 $547,963
Reinsurance assumed....................................... 65,782 58,599
Reinsurance ceded......................................... 501,210 456,226
-------- --------
Net premiums......................................... $169,310 $150,336
======== ========
Percentage assumed of net................................... 39.0%
========
For the year ended December 31, 2002:
Direct business........................................... $791,864 $750,426
Reinsurance assumed....................................... 1,220 9,538
Reinsurance ceded......................................... 620,395 597,201
-------- --------
Net premiums......................................... $172,689 $162,763
======== ========
Percentage assumed of net................................... 5.9%
========
</Table>

F-16

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) PENSION AND DEFERRED COMPENSATION PLANS

UNIC participates in a non-contributory pension plan with the American
Manufacturing Corporation (an affiliate) covering all employees. The plan
provides pension benefits that are based on length of service and a percentage
of average qualifying compensation for the highest five consecutive years of
employment. The funding policy is to contribute the requirements set forth in
the Employee Retirement Income Security Act ("ERISA") plus such additional
amounts that the Company may determine to be appropriate. Total plan assets
exceeded the projected benefit obligations at December 31, 2001 and 2002. The
Company recorded prepaid pension assets of $1.3 million and $0.8 million, as of
December 31, 2001 and 2002, respectively. The Company recorded pension income of
$0.5 million for 2000 and pension expense of $0.1 million and $0.5 million in
2001 and 2002, respectively.

The Company has a qualified 401(k) defined contribution plan that covers
substantially all of its full-time employees. Eligible employees may elect to
defer up to 15% of their salary. The Company matches 50% of employees'
contributions up to 6% of their salary. Eligible employees are vested in the
Company's contribution and related investment income after five years of
service. Expense for the plan in 2000, 2001 and 2002 was $0.2 million, $0.2
million and $0.3 million, respectively.

The Company also has a qualified deferred compensation plan for certain
key executives. At December 31, 2000, 2001 and 2002, the Company accrued $3.5
million, $4.7 million and $3.9 million, respectively, in other liabilities
related to this plan, and the Company recorded expense (income) of $1.4 million,
$1.1 million and $(0.8) million for the years ended December 31, 2000, 2001 and
2002, respectively, for this plan.

(6) STATUTORY FINANCIAL INFORMATION

These consolidated financial statements vary in certain respects from
those prepared using statutory accounting practices prescribed or permitted by
the applicable state Departments of Insurance ("Insurance Departments").
Prescribed Statutory Accounting Practices ("SAP") include state laws,
regulations and general administrative rules, as well as a variety of National
Association of Insurance Commissioners ("NAIC") publications. Permitted SAP
encompasses all accounting practices that are not prescribed. In 1998, the NAIC
adopted the Codification of Statutory Accounting Principles ("Codification")
guidance that replaced the previous version of the Accounting Practices and
Procedures manual as the NAIC's primary guidance on statutory accounting
beginning in 2001. Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in some
areas, such as deferred income taxes, which are recorded under the Codification.
The effect of the adoption on the Company's statutory surplus as of January 1,
2001 was an increase of $4.2 million, primarily as a result of the recording of
a deferred tax asset.

GAAP differs in certain respects from SAP prescribed or permitted by the
Insurance Departments. The principal differences between SAP and GAAP are as
follows:

- Under SAP, investments in debt securities are carried at amortized
cost, while under GAAP, the Company records its debt securities at
estimated fair value.

- Under SAP, policy acquisition costs, such as commissions, premium
taxes, fees and other costs of underwriting policies are charged to
current operations as incurred, while under GAAP, such costs are
deferred and amortized on a pro rata basis over the period covered
by the policy.

- Under SAP, certain assets, designated as "Non-admitted Assets"
(such as prepaid expenses) are charged against surplus.

F-17

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- Under SAP, net deferred income tax assets are admitted following
the application of certain criteria, with the resulting admitted
deferred tax amount being credited directly to surplus.

- Under SAP, receivables are non-admitted based upon aging criteria.

- Under SAP, the costs and related recoverables for guaranty funds
and other assessments are recorded based on management's estimate
of the ultimate liability and related recoverable settlement, while
under GAAP, such costs are accrued when the liability is probable
and reasonably estimable and the related recoverable amount is
based on future premium collections or policy surcharges from
in-force policies.

The NAIC issues model laws and regulations, many of which have been
adopted by state insurance regulators, relating to: (a) risk-based capital
("RBC") standards; (b) codification of insurance accounting principles; (c)
investment restrictions; and (d) restrictions on the ability of insurance
companies to pay dividends.

Wind River's subsidiaries are required by law to maintain certain minimum
surplus on a statutory basis, and are subject to regulations under which payment
of a dividend from statutory surplus is restricted and may require prior
approval of regulatory authorities. Applying the current regulatory restrictions
as of December 31, 2002, approximately $22.9 million is available for
distribution during 2003. The Company paid no dividends during the three years
ended December 31, 2003.

The NAIC's risk-based capital model provides a tool for insurance
regulators to determine the levels of statutory capital and surplus an insurer
must maintain in relation to its insurance and investment risks, as well as its
reinsurance exposures, to assess the potential need for regulatory attention.
The model provides four levels of regulatory attention, varying with the ratio
of the insurance company's total adjusted capital to its authorized control
level RBC ("ACLRBC"): (a) if a company's total adjusted capital is less than or
equal to 200%, but greater than 150% of its ACLRBC (the "Company Action Level"),
the company must submit a comprehensive plan to the regulatory authority
proposing corrective actions aimed at improving its capital position; (b) if a
company's total adjusted capital is less than or equal to 150%, but greater than
100% of its ACLRBC (the "Regulatory Action Level"), the regulatory authority
will perform a special examination of the company and issue an order specifying
the corrective actions that must be followed; (c) if a company's total adjusted
capital is less than or equal to 100%, but greater than 70% of its ACLRBC (the
"Authorized Control Level"), the regulatory authority may take any action it
deems necessary, including placing the company under regulatory control; and (d)
if a company's total adjusted capital is less than or equal to 70% of its ACLRBC
(the "Mandatory Control Level"), the regulatory authority must place the company
under its control.

The following is selected information for Wind River's domestic insurance
subsidiaries, net of intercompany eliminations, where applicable, as determined
in accordance with SAP:

<Table>
<Caption>
2000 2001 2002
(DOLLARS IN THOUSANDS) -------- -------- --------

Statutory capital and surplus........................ $299,198 $304,266 $228,751
Statutory net income (loss).......................... $ 33,025 $ 11,651 $(78,015)
</Table>

As of December 31, 2002, the total adjusted capital of UNIC, DSIC, UNSIC,
and UNCIC exceeds the levels that would result in regulatory action under these
standards. However, UNIC's ACLRBC ratio has declined significantly during the
past year and is near the level that would require it to submit a comprehensive
plan aimed at improving its capital position.

F-18

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) LEASE COMMITMENTS

Total rental expense under operating leases for the years ended December
31, 2000, 2001 and 2002 aggregated $1.3 million, $1.6 million and $1.8 million,
respectively. Future minimum payments under non-cancelable operating leases are
as follows:

<Table>
<Caption>
(DOLLARS IN THOUSANDS)

2003........................................................ $ 2,084
2004........................................................ 1,953
2005........................................................ 1,923
2006........................................................ 1,953
2007 and thereafter......................................... 3,999
-------
Total..................................................... $11,912
=======
</Table>

(8) LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for unpaid losses and loss adjustment expenses
is summarized as follows:

<Table>
<Caption>
2000 2001 2002
(DOLLARS IN THOUSANDS) ---------- ---------- ----------

Unpaid losses and loss adjustment expenses at January
1...................................................... $805,717 $800,630 $907,357
Less gross reinsurance receivables on unpaid losses and
loss adjustment expenses............................... 637,850 669,504 750,573
---------- ---------- ----------
Net balance at January 1............................ 167,867 131,126 156,784
Incurred losses and loss adjustment expenses related to:
Current year........................................... 123,476 134,558 130,327
Prior years............................................ (10,325) (6,220) 71,423
---------- ---------- ----------
Total incurred losses and loss adjustment
expenses.......................................... 113,151 128,338 201,750
Paid losses and loss adjustment expenses related to:
Current year........................................... 85,811 76,508 34,045
Prior years(1)......................................... 64,081 26,172 63,669
---------- ---------- ----------
Total paid losses and loss adjustment expenses...... 149,892 102,680 97,714
---------- ---------- ----------
Net balance at December 31............................... 131,126 156,784 260,820
Plus gross reinsurance receivables on unpaid losses and
loss adjustment expenses............................... 669,504 750,573 1,743,602
---------- ---------- ----------
Unpaid losses and loss adjustment expenses at December
31..................................................... $800,630 $907,357 $2,004,422
========== ========== ==========
</Table>

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

(1) Paid losses and loss adjustment expenses in 2001, related to prior years,
included the commutation with Reliance Insurance Company in the amount of
$9.9 million.

The increase in losses and loss adjustment expenses of $71.4 million
related to prior years is primarily attributable to higher than anticipated
losses of $47.8 million in the multiple peril and other liability lines of both
our excess and surplus ("E&S") and specialty admitted segments and the results
of an arbitration proceeding that resulted in the rescission of a reinsurance
agreement that caused prior year losses to increase by $23.6 million. See Note 4
for additional details regarding the rescission.

F-19

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Prior to 2002, management used its traditional methods of examining
reserves for losses and loss adjustment expenses relative to these accident
years. In 2002, management determined that it was necessary to increase the
projected ultimate loss ratios, relative to these accident years, due to the
fact that losses relative to these accident years were emerging at a rate that
was greater than originally expected. As a result, prior year losses were
increased by $47.8 million.

In the past, the Company underwrote a product of multi-peril business
insuring general contractors and developers that has resulted in significant
exposure to construction defect claims. Management believes its reserves for
this product ($36.8 million as of December 31, 2002, net of reinsurance) are
appropriately established based upon known facts, existing case law and
generally accepted actuarial methodologies. However, due to the inherent
uncertainty concerning this type of business, the ultimate exposure for these
claims may vary significantly from the amounts currently recorded.

The Company has 37 direct claims related to the September 11th terrorist
attacks as of December 31, 2002. The majority of these claims are first party
property claims while a few stem from event interruption. Estimated direct
indemnity exposure as of December 31, 2002, was $5.0 million with ceded exposure
to non-affiliates totaling $4.6 million, leaving net indemnity exposure of $0.4
million. The Company does not anticipate any additional material impact to its
financial statements, nor does it expect any future obligations related to this
tragedy.

The Company has exposure to environmental and asbestos claims. The
environmental exposure arises from the sale of general liability and commercial
multi-peril insurance and the asbestos exposure primarily arises from the sale
of product liability insurance. In establishing the liability for unpaid losses
and loss adjustment expenses related to asbestos and environmental exposures,
management considers facts currently known and the current state of the law and
coverage litigation. Liabilities are recognized for known claims (including the
cost of related litigation) when sufficient information has been developed to
indicate the involvement of a specific insurance policy, and management can
reasonably estimate its liability. In addition, liabilities have been
established to cover additional exposures on both known and unasserted claims.
Estimates of the liabilities are reviewed and updated continually. Developed
case law and adequate claim history do not exist for such claims, especially
because significant uncertainty exists about the outcome of coverage litigation
and whether past claim experience will be representative of future claim
experience. In 2001 and prior years, environmental and asbestos claims were
aggregated and reviewed with other long-tailed lines of business. IBNR was
established in the aggregate for these long-tailed lines. In 2002, the Company
performed a detailed reserve review. Asbestos and environmental reserves were
separately analyzed and the Company identified the portion of its IBNR reserves
related to those claims. Included in net unpaid losses and loss adjustment
expenses as of December 31, 2002 were IBNR reserves of $6.4 million and case
reserves of approximately $1.8 million for known asbestos- and
environmental-related claims. As of December 31, 2001 the Company held case
reserves of $2.1 million for known asbestos- and environmental-related claims.

(9) SEGMENT INFORMATION

The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expenses experience. Investments and investment performance
including investment income and net realized investment gains and losses;
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level by the corporate accounting function in conjunction with other
corporate departments and are included in "Corporate."

F-20

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reinsurance segment was de-emphasized in 2002 and the Company did not write
any business in this segment in 2002.

Gross premiums written, excluding the reinsurance segment, by product
class for the years ended December 31, 2000, 2001, and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
(DOLLARS IN THOUSANDS) -------- -------- --------

Specific specialty.......................................... $277,167 $375,962 $439,364
Umbrella and excess......................................... 58,095 138,425 209,369
Property and general liability.............................. 32,360 50,725 75,376
Non-medical professional liability.......................... 23,842 43,408 68,974
-------- -------- --------
Total................................................... $391,464 $608,520 $793,083
======== ======== ========
</Table>

The gross premiums written information above is not segregated by
business segment because product lines cross segments.

Following is a tabulation of business segment information for each of the
past three years. Corporate information is included to reconcile segment data to
the consolidated financial statements:

<Table>
<Caption>
SPECIALTY
(DOLLARS IN THOUSANDS) E&S ADMITTED REINSURANCE CORPORATE TOTAL
2000: ----------- ----------- ----------- ----------- -----------

Revenues:
Gross premiums written.................... $ 260,730 $ 130,734 $ 62,000 $ -- $ 453,464
Net premiums written...................... 40,663 24,909 62,000 -- 127,572
Net premiums earned....................... 40,504 25,677 70,750 -- 136,931
Net investment income..................... -- -- -- 22,490 22,490
Net realized investment gains............. -- -- -- 593 593
---------- ---------- ---------- ---------- ----------
Total revenues........................ 40,504 25,677 70,750 23,083 160,014
Losses and expenses:
Net losses and loss adjustment expenses... 24,613 18,408 70,130 -- 113,151
Acquisition costs and other underwriting
expenses................................ -- -- -- 14,999 14,999
Other operating expenses.................. -- -- -- 2,918 2,918
Interest expense.......................... -- -- -- 322 322
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes..... 15,891 7,269 620 4,844 28,624
Income tax (benefit) expense.............. -- -- -- 5,883 5,883
---------- ---------- ---------- ---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships....... 15,891 7,269 620 (1,039) 22,741
Equity in net income (loss) of
partnerships............................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ 15,891 $ 7,269 $ 620 $ (1,039) $ 22,741
========== ========== ========== ========== ==========
Total assets.............................. $1,376,528 $1,376,528
========== ==========
</Table>

F-21

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
SPECIALTY
(DOLLARS IN THOUSANDS) E&S ADMITTED REINSURANCE CORPORATE TOTAL
2001: ----------- ----------- ----------- ----------- -----------

Revenues:
Gross premiums written.................... $ 398,308 $ 210,212 $ 62,000 $ -- $ 670,520
Net premiums written...................... 68,226 39,084 62,000 -- 169,310
Net premiums earned....................... 59,004 36,582 54,750 -- 150,336
Net investment income..................... -- -- -- 19,353 19,353
Net realized and unrealized gains
(loss).................................. -- -- -- (12,719) (12,719)
---------- ---------- ---------- ---------- ----------
Total revenues........................ 59,004 36,582 54,750 6,634 $ 156,970
Losses and Expenses:
Net losses and loss adjustment expenses... 43,880 29,075 55,383 -- 128,338
Acquisition costs and other underwriting
expenses................................ -- -- -- 15,867 15,867
Other operating expenses.................. -- -- -- 2,220 2,220
Interest expense.......................... -- -- -- 77 77
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes..... 15,124 7,507 (633) (11,530) 10,468
Income tax (benefit) expense.............. -- -- -- 295 295
---------- ---------- ---------- ---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships....... 15,124 7,507 (633) (11,825) 10,173
Equity in net income (loss) of
partnerships............................ -- -- -- 664 664
---------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ 15,124 $ 7,507 $ (633) $ (11,161) $ 10,837
========== ========== ========== ========== ==========
Total assets.............................. $1,575,754 $1,575,754
========== ==========
2002:
Revenues:
Gross premiums written.................... $ 543,998 $ 249,085 $ -- $ -- $ 793,083
Net premiums written...................... 112,110 60,579 -- -- 172,689
Net premiums earned....................... 101,474 53,039 8,250 -- 162,763
Net investment income..................... -- -- -- 17,685 17,685
Net realized and unrealized gains
(loss).................................. -- -- -- (11,702) (11,702)
---------- ---------- ---------- ---------- ----------
Total revenues........................ 101,474 53,039 8,250 5,983 168,746
Losses and Expenses:
Net losses and loss adjustment expenses... 140,943 52,556 8,251 -- 201,750
Acquisition costs and other underwriting
expenses................................ -- -- -- 62,938 62,938
Other operating expenses.................. -- -- -- 5,874 5,874
Interest expense.......................... -- -- -- 115 115
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes..... (39,469) 483 (1) (62,944) (101,931)
Income tax (benefit) expense.............. -- -- -- (40,520) (40,520)
---------- ---------- ---------- ---------- ----------
</Table>

F-22

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
(DOLLARS IN THOUSANDS) SPECIALTY
E&S ADMITTED REINSURANCE CORPORATE TOTAL
----------- ----------- ----------- ----------- -----------

Net income (loss) before equity in net
income (loss) of partnerships....... (39,469) 483 (1) (22,424) (61,411)
Equity in net income (loss) of
partnerships............................ -- -- -- (252) (252)
---------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ (39,469) $ 483 $ (1) $ (22,676) $ (61,663)
========== ========== ========== ========== ==========
Total assets.............................. $2,685,620 $2,685,620
========== ==========
</Table>

(10) RELATED PARTY TRANSACTIONS

During 2000, 2001 and 2002, the Company paid management and investment
advisory fees of approximately $7.1 million, $7.1 million and $9.9 million,
respectively, to affiliates.

As of December 31, 2001 and 2002, the Company had payable balances due to
affiliates totaling approximately $0.1 million and $0.2 million, respectively.

During 2001, the Company purchased a promissory note from Wind River
Investments, LLC, an affiliate, for $3.9 million, which included a note
receivable of $3.5 million and interest receivable of $0.4 million. The annual
rate of interest on this note was 6%. During 2002, this note was sold for $4.2
million (the sum of book value plus accrued interest) to American Manufacturing
Corporation (an affiliate). No gain or loss was realized on the sale to American
Manufacturing Corporation.

During 2001, the Company issued a promissory note for $1.4 million to The
AMC Group, LLC, an affiliate. The annual rate of interest on this note is 6%.
This note, which was carried at amortized cost of $1.2 million and $0.8 million,
was included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $0.6 million (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

During 2001, the Company purchased a promissory note from Philadelphia
Gear Corporation, an affiliate, for $2.4 million. The annual rate of interest on
this note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2.4 million, was
included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $2.4 million (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

For the year ended December 31, 2000, the Company issued insurance
policies with premiums totaling approximately $0.1 million to affiliates.

(11) COMMITMENTS AND CONTINGENCIES

The Company has committed to investing $62.2 million over a period of
time into several limited liability partnership funds. As of December 31, 2002,
$41.2 million has been invested. During the period of January 1st to May 31st,
2003, an additional $2.9 million has been invested. The timing and funding of
the remaining commitment of $18.1 million has not been determined. As investment
opportunities are identified by the partnerships, capital calls will be made.

Various lawsuits against the Company have arisen in the ordinary course
of business, including defending coverage claims brought against the Company by
its policyholders or others. The Company's litigation, including coverage claims
matters, is subject to many uncertainties, and given their complexity and scope,
the outcomes cannot be predicted with certainty. It is possible that the results
of operations in

F-23

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a particular quarterly or annual period could be materially affected by an
ultimately unfavorable outcome of litigation or coverage claim matters.
Management believes, however, that the ultimate outcome of all litigation and
coverage claim matters after consideration of applicable reserves should not
have a material adverse effect on the Company's financial condition.

On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29
million, plus interest in excess of $10 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc., purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance Company Ltd. and Partner
Reinsurance Company of the U.S. seeking recovery under a reinsurance agreement
covering the business produced by Worldwide Weather Insurance Agency on a 100%
quota share basis. In addition, if it were held liable to Bank of America on the
grounds DSIC was negligent in appointing the Worldwide Weather Insurance Agency,
DSIC is claiming indemnification and contribution from Partner Reinsurance
Company of the U.S. because of its role in the appointment of the agency's
principal and the Worldwide Weather Insurance Agency. The arbitration has been
consolidated into the Bank of America litigation for discovery purposes, and is
not likely to proceed to a hearing until the Bank of America litigation is
resolved.

During 2002, the Company established a $25 million Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate (LIBOR) plus 65 basis points or the
Prime Rate. As of December 31, 2002, there were no balances due in connection
with this credit facility. The Revolving Credit Facility was converted to a
Demand Discretionary Facility in February 2003.

(12) SUBSEQUENT EVENTS

On May 1, 2003, affiliates of Fox Paine and Company, LLC, a San
Francisco, California based private equity firm, entered into an Investment
Agreement in which they agreed to acquire a controlling interest in the Company.

In March 2003, the Company resolved a claim by one of its producers that
his agency sustained damages in loss of business and in the value of his agency
as a result of the alleged delay in DSIC obtaining regulatory approval of rates
and forms necessary to support the producer's business. The Company paid the
agent $0.4 million in connection with this resolution.

On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries

F-24

WIND RIVER INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

will file a consolidated federal income tax return and AIS and its other
subsidiaries, AIAA, IUI and URP, will each file a separate, stand-alone federal
income tax return.

(13) NEW ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS NO. 148") which amends
SFAS Statement No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). The objective of SFAS No. 148 is to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 does not change the
provisions of SFAS No. 123 that permit entities to continue to apply the
intrinsic value method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Management has determined that this interpretation will have no effect
on the Company's consolidated financial statements.

FASB Interpretation 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" became effective December 15, 2002. This interpretation elaborates on
the disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Management has
determined that this interpretation will have no effect on the Company's
consolidated financial statements.

FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. This interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.

F-25

UNITED NATIONAL GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
PREDECESSOR SUCCESSOR
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
2002 2003
------------------ -------------------
(UNAUDITED)
ASSETS

Bonds:
Trading securities, at fair value (amortized cost:
2002 -- $14,913; 2003 -- $0)............................ $ 14,607 $ --
Available for sale securities, at fair value (amortized
cost: 2002 -- $434,957; 2003 -- $475,117)............... 446,418 486,519
Preferred shares:
Trading securities, at fair value......................... 3,106 --
Available for sale securities, at fair value.............. -- 3,354
Common shares:
Trading securities, at fair value......................... 31,604 --
Available for sale securities, at fair value.............. -- 31,237
Other invested assets....................................... 41,285 44,703
Mortgage loans.............................................. 1,167 --
---------- ----------
Total investments....................................... 538,187 565,813
Cash and cash equivalents................................... 72,942 234,356
Agents' balances............................................ 50,744 68,915
Reinsurance receivables..................................... 1,743,524 1,785,213
Accrued investment income................................... 6,567 6,403
Federal income taxes receivable............................. 31,798 7,557
Deferred federal income taxes............................... 29,970 22,882
Deferred acquisition costs, net............................. 3,289 1,373
Prepaid reinsurance premiums................................ 196,172 118,892
Other assets................................................ 12,427 23,515
---------- ----------
Total assets............................................ $2,685,620 $2,834,919
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses.................. $2,004,422 $2,085,658
Unearned premiums........................................... 247,138 168,146
Amounts held for the account of others...................... 13,766 12,919
Ceded balances payable...................................... 61,787 78,592
Payable for securities...................................... 6,250 --
Contingent commissions...................................... 5,426 7,219
Senior notes payable to related party....................... -- 72,848
Due to affiliates........................................... 163 158
Subordinated Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely
junior subordinated securities............................ -- 10,000
Other liabilities........................................... 78,031 42,465
---------- ----------
Total liabilities....................................... $2,416,983 $2,478,005
---------- ----------
Commitments and contingencies (Note 9)...................... -- --
SHAREHOLDERS' EQUITY:
Common shares, $0.0001 par value, 900,000,000 common shares
authorized, 2,698,750 Class A common shares, issued and
outstanding and 12,687,500 Class B common shares issued
and outstanding........................................... -- 1
Preferred shares, $0.0001 par value, 100,000,000 shares
authorized, 15,000,000 issued and outstanding............. -- 2
Additional paid-in capital.................................. 81,186 315,107
Accumulated other comprehensive income...................... 7,329 8,689
Retained earnings........................................... 180,122 33,115
---------- ----------
Total shareholders' equity.............................. 268,637 356,914
---------- ----------
Total liabilities and shareholders' equity.............. $2,685,620 $2,834,919
========== ==========
</Table>

See accompanying notes to consolidated financial statements.
F-26

UNITED NATIONAL GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
PREDECESSOR PREDECESSOR SUCCESSOR
NINE MONTHS JANUARY 1, 2003 SEPTEMBER 6, 2003
ENDED THROUGH THROUGH
SEPTEMBER 30, 2002 SEPTEMBER 5, 2003 SEPTEMBER 30, 2003
------------------ ----------------- ------------------

REVENUES:
Gross premiums written........................ $ 680,817 $ 510,623 $ 33,190
========= ========= ===========
Net premiums written.......................... 171,047 139,116 9,692
========= ========= ===========
Net premiums earned........................... 157,557 128,254 10,687
Net investment income......................... 12,968 13,289 792
Net realized investment (losses) gains........ (15,039) 5,589 (718)
--------- --------- -----------
Total revenues........................... 155,486 147,132 10,761
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses....... 143,187 84,885 7,349
Acquisition costs and other underwriting
expenses.................................... 14,339 30,543 4,587
Provision for doubtful reinsurance
receivables................................. 1,750 --
Other operating expenses...................... 2,436 288 124
Interest expense.............................. 676 46 249
--------- --------- -----------
Income (loss) before income taxes........... (5,152) 29,620 (1,548)
Income tax (benefit) expense.................. (5,333) 6,850 (1,106)
--------- --------- -----------
Net income (loss) before equity in net
income (loss) of partnerships............ 181 22,770 (442)
Equity in net income (loss) of partnerships... (995) 1,834 258
--------- --------- -----------
Net income (loss) before extraordinary
gain..................................... (814) 24,604 (184)
Extraordinary gain............................ -- -- 46,424
--------- --------- -----------
Net income.................................. $ (814) $ 24,604 $ 46,240
========= ========= ===========
PER SHARE DATA:
Net income (loss) available to common
shareholders before extraordinary gain...... $ (814) $ 24,604 $ (13,309)
Basic....................................... $ (8,140) $ 246,040 $ (1.04)
========= ========= ===========
Diluted..................................... $ (8,140) $ 246,040 $ (1.04)
========= ========= ===========
Extraordinary gain............................ $ -- $ -- $ 46,424
Basic....................................... $ -- $ -- $ 3.63
========= ========= ===========
Diluted..................................... $ -- $ -- $ 3.63
========= ========= ===========
Net income (loss) available to common
shareholders................................ $ (814) $ 24,604 $ 33,115
Basic....................................... $ (8,140) $ 246,040 $ 2.59
========= ========= ===========
Diluted..................................... $ (8,140) $ 246,040 $ 2.59
========= ========= ===========
Weighted-average number of shares outstanding
Basic....................................... 100 100 12,806,250
========= ========= ===========
Diluted..................................... 100 100 12,806,250
========= ========= ===========
</Table>

See accompanying notes to consolidated financial statements.
F-27

UNITED NATIONAL GROUP, LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(DOLLARS IN THOUSANDS)

<Table>
<Caption>
PREDECESSOR SUCCESSOR
PREDECESSOR JANUARY 1, SEPTEMBER 6,
NINE MONTHS 2003 2003
ENDED THROUGH THROUGH
SEPTEMBER 30, SEPTEMBER 5, SEPTEMBER 30,
2002 2003 2003
-------------- ------------- -------------

Net income (loss)..................................... $ (814) $ 24,604 $ 46,240
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period............................... 14,333 (2,450) 13,538
Less:
Reclassification adjustment for (losses)
gains included in net income.............. (1,407) 568 (170)
Other comprehensive income (loss), before tax....... 12,926 (3,018) 13,368
Income tax expense (benefit) related to items of
other comprehensive income (loss)................ 4,524 (1,056) 4,679
-------- -------- --------
Other comprehensive income (loss), net of tax....... 8,402 (1,962) 8,689
-------- -------- --------
Comprehensive income, net of tax...................... $ 7,588 $ 22,642 $ 54,929
======== ======== ========
</Table>

See accompanying notes to consolidated financial statements

F-28

UNITED NATIONAL GROUP, LTD.

CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS' EQUITY

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
PREDECESSOR PREDECESSOR SUCCESSOR
NINE MONTHS JANUARY 1, 2003 SEPTEMBER 6, 2003
ENDED THROUGH THROUGH
SEPTEMBER 30, 2003 SEPTEMBER 5, 2003 SEPTEMBER 30, 2003
------------------ ------------------ ------------------

Common shares:
Number at beginning of period............ 100 100 --
Class A common shares issued............. -- -- 2,698,750
Class B common shares issued............. 10,000,000
Class B common shares issued in exchange
for Series A preferred shares......... -- -- 2,687,500
-------- -------- -----------
Number at end of period............... 100 100 15,386,250
-------- -------- -----------
Common stock:
Balance at beginning of period........... $ -- $ -- $ --
Class A common shares issued............. -- -- --
Class B common shares issued in exchange
for Series A preferred shares......... -- -- 1
-------- -------- -----------
Balance at end of period.............. $ -- $ -- $ 1
-------- -------- -----------
Preferred shares:
Number at beginning of period............ -- --
Preferred shares issued.................. -- 17,500,000
Preferred shares exchanged For Class B
common shares......................... (2,500,000)
-------- -------- -----------
Number at end of period............... -- -- 15,000,000
-------- -------- -----------
Preferred stock:
Balance at beginning of period........... $ -- $ -- $ --
Preferred stock issued................... -- -- 2
Preferred shares exchanged For Class B
common shares......................... -- -- --
-------- -------- -----------
Balance at end of period.............. $ -- $ -- $ 2
-------- -------- -----------
Additional paid-in capital:
Balance at beginning of period........... $ 81,186 $ 81,186 $ --
Preferred shares exchanged for Class B
common shares......................... 1,875
Preferred share dividends................ 11,250
Contributed capital...................... -- 5,638 301,982
-------- -------- -----------
Balance at end of period.............. $ 81,186 $ 86,824 $ 315,107
-------- -------- -----------
Accumulated other comprehensive income net
of deferred income:
Balance at beginning of period........... $ 1,873 $ 7,329 $ --
Other comprehensive income, net of
taxes................................. 8,402 (1,962) 8,689
-------- -------- -----------
Balance at end of period.............. $ 10,275 $ 5,367 $ 8,689
-------- -------- -----------
Retained earnings:
Balance at beginning of period........... $241,785 $180,122 $ --
Net income............................... (814) 24,604 46,240
Preferred share dividends................ (11,250)
Preferred share dividends received and
exchanged for Class B common shares... (1,875)
-------- -------- -----------
Balance at end of period.............. 240,971 204,726 33,115
-------- -------- -----------
Total shareholders' equity.......... $332,432 $296,917 $ 356,914
======== ======== ===========
</Table>

See accompanying notes to consolidated financial statements.

F-29

UNITED NATIONAL GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(DOLLARS IN THOUSANDS)

<Table>
<Caption>
PREDECESSOR PREDECESSOR SUCCESSOR
NINE JANUARY 1, 2003 SEPTEMBER 6, 2003
MONTHS ENDED THROUGH THROUGH
SEPTEMBER 30, 2002 SEPTEMBER 5, 2003 SEPTEMBER 30, 2003
CASH FLOWS FROM OPERATING ACTIVITIES: ------------------ ----------------- ------------------

Net income..................................... $ (814) $ 25,963 $ 46,240
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain........................... -- -- (46,424)
Deferred federal income taxes................ (6,173) 842 2,253
Amortization of bond premium and discount,
net........................................ 518 1,504 266
Net realized investment gains................ 6,400 2,994 718
Equity in loss (income) of partnerships...... 995 (1,834) (258)
Unrealized loss (gain) on trading
securities................................. 8,639 (8,583) --
Provision for doubtful reinsurance
receivables................................ (569) 1,750 --
Proceeds from sale or maturity of trading
securities................................. 24,182 9,827 --
Purchase of trading securities............... (17,736) (9,764) --
CHANGES IN:
Agents' balances............................. (44,604) (32,077) 13,906
Reinsurance receivables...................... (46,827) (102,611) 53,794
Unpaid losses and loss adjustment expenses... 87,011 116,172 14,469
Unearned premiums............................ 73,946 5,450 (4,570)
Ceded balances payable....................... 37,428 25,691 (53,631)
Other liabilities............................ 13,115 (24,170) (13,167)
Amounts held for the account of others....... 10,966 5,070 (5,917)
Funds held by reinsured companies............ 8,250 -- --
Contingent commissions....................... (4,393) 1,718 75
Federal income tax receivable................ (6,378) 31,099 (6,858)
Prepaid reinsurance premiums................. (60,456) 5,100 3,890
Payable for securities....................... 190 (6,227) (23)
Other -- net................................. (729) 1,489 (20,113)
----------- --------- ---------
Net cash from operating activities......... 82,961 47,241 (15,350)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of bonds and preferred
stocks....................................... 140,481 71,654 12,473
Proceeds from maturity of bonds................ 5,000 2,500 --
Proceeds from sale of other invested assets.... 937 14,433 125
Purchase of bonds and preferred stocks......... (222,777) (101,924) (1,151)
Proceeds from sale or repayment of mortgage
principal.................................... 44 8 --
Proceeds from sale of mortgage................. -- 1,166 --
Purchase of other invested assets.............. (12,077) (8,663) (2,892)
Acquisition of business, net of cash
acquired..................................... -- -- (10,837)
----------- --------- ---------
Net cash from investing activities......... (88,392) (20,826) (2,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility............... -- 4,650 --
Repayments of credit facility.................. -- (4,650) --
Capital contribution from Ball family trusts... -- 5,638 --
Issuance of common shares under stock purchase
plan......................................... -- -- 1,988
Issuance of trust preferred securities......... -- -- 10,000
----------- --------- ---------
Net cash from financing activities......... -- 5,638 11,988
----------- --------- ---------
Net decrease in cash and cash
equivalents............................. (5,431) 32,053 (5,644)
Cash and cash equivalents at beginning of
period....................................... 77,057 72,942 240,000
----------- --------- ---------
Cash and cash equivalents at end of period..... $ 71,626 $ 104,995 $ 234,356
=========== ========= =========
</Table>

See accompanying notes to consolidated financial statements.
F-30

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002 AND 2003

(UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CAPITALIZATION OF UNITED NATIONAL GROUP, LTD.

United National Group, Ltd. ("United National Group" or the "Company")
was organized by affiliates of Fox Paine & Company, LLC ("Fox Paine") on August
27, 2003, for the purpose of acquiring Wind River Investment Corporation and its
subsidiaries ("Wind River" or the "Predecessor"). On September 5, 2003, Fox
Paine made a capital contribution of $240.0 million to the Company, in exchange
for 10.0 million Class B common shares and 14.0 million Series A preferred
shares. $100.0 million of this capital contribution was used to purchase a
portion of the common stock of the Predecessor from a group of family trusts
affiliated with the Ball family of Philadelphia, Pennsylvania. Of the remaining
$140.0 million contributed, $80.0 million was contributed to our U.S.
Operations, $43.5 million was used to capitalize our Non-U.S. Operations and
$16.5 million to fund fees and expenses incurred in connection with the
acquisition. A total of $17.6 million of expenses was incurred in connection
with the acquisition. The remaining unpaid costs of acquisition will be paid
through the U.S. Operations. Also during September 2003, Fox Paine exchanged 2.5
million Series A preferred shares for 2,687,500 Class B common shares. United
National Group did not have any material assets or operations prior to September
5, 2003.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements as of September 30, 2003 and for
the nine months ended September 30, 2002 and 2003 are unaudited, but in the
opinion of management, have been prepared on the same basis as the annual
audited consolidated financial statements of Wind River and reflect all
adjustments, consisting of only normal recurring accruals, necessary for a fair
statement of the information set forth therein. The December 31, 2002
consolidated balance sheet was derived from audited financial statements but
does not include all disclosures required by accounting principles generally
accepted in the United States of America (GAAP). The results of operations for
the nine months ended September 30, 2003, are not necessarily indicative of the
operating results to be expected for the full year or any other period.

The consolidated financial statements include the accounts of United
National Group, and its wholly-owned subsidiaries Wind River Insurance Company
(Barbados), Ltd., U.N. Holdings II, Inc., U.N. Holdings Inc., and Wind River
Investment Corporation, and its wholly-owned subsidiary, American Insurance
Service, Inc. ("AIS"). AIS owns all of the outstanding shares of American
Insurance Adjustment Agency, Inc. ("AIAA"), International Underwriters, Inc.
("IUI"), Unity Risk Partners Insurance Services, Inc. ("URP") and United
National Insurance Company ("UNIC"). UNIC owns all of the outstanding shares of
Diamond State Insurance Company ("DSIC"). DSIC owns all of the outstanding
shares of United National Specialty Insurance Company ("UNSIC"), United National
Casualty Insurance Company ("UNCIC") and J.H. Ferguson & Associates, LLC. All
significant intercompany balances and transactions have been eliminated in
consolidation.

The consolidated financial statements have been prepared in conformity
with GAAP, which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

F-31

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

These financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Predecessor's annual
audited consolidated financial statements as of and for the year ended December
31, 2002.

INVESTMENTS

As a result of the preliminary purchase price allocation, all of the
Predecessor's investments at September 5, 2003 were adjusted to their fair value
on that date. Thus, the fair value of all investments on September 5, 2003
became the book value prospectively for the Company. In addition, the Company
used different classifications for its investments when compared to the
classifications used by the Predecessor.

The Predecessor's investments in bonds were classified as available for
sale and trading and were carried at their fair value. The difference between
book value and fair value of bonds classified as available for sale, net of the
effect of deferred income taxes, was reflected in accumulated other
comprehensive income in shareholders' equity and, accordingly, has no effect on
net income other than for impairments deemed to be other than temporary. The
current year change in the difference between book value and fair value of bonds
classified as trading was included in income.

The Company's investments in bonds are classified as available for sale
and are carried at their fair value. The difference between book value and fair
value of bonds, excluding the derivative components, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. The difference between book
value and fair value of the derivative components of the bonds is included in
income.

As of September 5, 2003, the Predecessor owned approximately $15.3
million of convertible securities, which were classified as trading. After the
acquisition, the Company's convertible securities were classified as available
for sale and the Company bifurcated the embedded derivative component of these
securities from the host contract. During the period September 6, 2003 through
September 30, 2003, the Company recorded a $0.5 million loss in current
operations due to the change in fair value of the embedded derivatives.

The Predecessor's investments in preferred stocks were classified as
trading and were carried at fair value. The current year change in the
difference between book value and fair value of preferred stocks was included in
income.

The Company's investments in preferred stocks are classified as available
for sale and are carried at fair value. The difference between book and fair
value of preferred stocks, net of the effect of deferred income taxes, is
reflected in accumulated other comprehensive income in shareholders' equity and,
accordingly, has no effect on net income other than for impairments deemed to be
other than temporary.

The Predecessor's investments in common stocks were classified as trading
and were carried at fair value. The current year change in the difference
between book value and fair value of common stocks was included in income.

The Company's investments in common stocks are classified as available
for sale and carried at fair value. The difference between book and fair value
of common stocks, net of the effect of deferred income taxes, is reflected in
accumulated other comprehensive income in shareholders' equity and, accordingly,
has no effect on net income other than for impairments deemed to be other than
temporary.

During 2003, the Predecessor recorded other than temporary impairment
losses of $1.9 million on its fixed income portfolio and $0.7 million on its
investments in limited partnerships. No such losses were incurred during the
nine months ended September 30, 2002.

F-32

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

Other invested assets are comprised primarily of limited liability
partnership interests and uncollateralized commercial loans. Partnership
interests of 3% ownership or greater are accounted for under the equity method.
Partnership interests of less than 3% ownership are carried at their fair value.
The difference between book value and fair value of partnership interests of
less than three percent ownership, net of the effect of deferred income taxes,
is reflected in accumulated other comprehensive income in shareholders' equity
and, accordingly, has no effect on net income other than for impairments deemed
to be other than temporary. Uncollateralized commercial loans are stated at
unpaid principal balances, net of allowances.

Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

Realized losses recorded, as a result of other than temporary impairment
evaluations, for the nine months ended September 30, 2002 and 2003 were $0 and
$2.6 million, respectively.

Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction with willing parties. The fair values of the
Company's investments in bonds and stocks are determined on the basis of quoted
market prices.

OTHER UNDERWRITING EXPENSES

In March 2003, the Predecessor resolved a claim by one of its producers.
The Predecessor paid the agent $0.4 million in connection with this resolution.
This $0.4 million charge is included in the Predecessor's results of operations
in 2003 as an other underwriting expense.

During 2003, the Predecessor increased its allowance for doubtful
uncollectible reinsurance receivables by $1.8 million.

INCOME TAXES

The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries will file a consolidated
federal income tax return and AIS and its other subsidiaries, AIAA, IUI and URP,
will each file a separate, stand-alone federal income tax return.

F-33

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

On September 5, 2003, Wind River and AIS converted from an S Corporation
to a C Corporation. A consolidated income tax return will be filed for all U.S.
entities for the stub period from September 5, 2003 to December 31, 2003.

(2) ACQUISITION OF WIND RIVER

On September 5, 2003, the Company acquired 100% of the outstanding common
stock of Wind River from a group of family trusts affiliated with the Ball
family of Philadelphia, Pennsylvania. The purchase price for Wind River
consisted of $100.0 million in cash, the issuance of 2.5 million Class A common
shares valued at $10.00 per share, the issuance of 3.5 million Series A
preferred shares valued at $10.00 per share and the issuance of senior notes by
Wind River having an aggregate principal amount of approximately $72.8 million.
The fair market valuations of the Class A common shares and Series A preferred
shares were determined by using the book value of the shares on September 5,
2003, since the Company received its initial capitalization on that date.

The primary reason for the acquisition was that the Company valued the
significance of Wind River's leading role in the specialty insurance markets. In
addition, the Company believed that Wind River was properly positioned to take
advantage of the strengthening market conditions in the property and casualty
insurance industry.

In connection with the acquisition on September 5, 2003, the $250.4
million purchase price was allocated to the estimated fair values of the
acquired assets and liabilities as follows (dollars in thousands):

<Table>

ASSETS
Investments and cash...................................... $ 667,836
Agents' balances.......................................... 82,821
Reinsurance receivables................................... 1,794,262
Accrued investment income................................. 5,176
Federal income taxes receivable........................... 699
Deferred federal income taxes............................. (5,462)
Prepaid reinsurance premiums.............................. 122,782
Intangible assets......................................... 96,350
Other assets.............................................. 9,535
----------
Total.................................................. $2,773,999
----------
LIABILITIES
Unpaid losses and loss adjustment expenses................ $2,071,189
Unearned premiums......................................... 172,716
Amounts held for the account of others.................... 12,857
Ceded balances payable.................................... 87,478
Payable for securities.................................... 23
Contingent commissions.................................... 7,144
Due to affiliates......................................... 104
Other liabilities......................................... 59,840
----------
Total.................................................. $2,411,351
----------
Estimated fair value of net assets acquired................. $ 362,648
</Table>

F-34

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

<Table>

Less: write-down of non-current non-financial assets, net of
tax
Intangible assets, net of $33,722 of taxes................ (62,628)
Other assets, net of $1,694 of taxes...................... (3,146)
----------
Total write-downs...................................... (65,774)
Adjusted estimated fair value of net assets acquired........ 296,874
----------
Excess of estimated fair value of net assets over purchase
price..................................................... $ (46,424)
==========
</Table>

The transaction was accounted for using the purchase method of accounting
in accordance with Statement of Financial Accounting Standards No. 141, Business
Combinations (SFAS No. 141).

In connection with the acquisition of Wind River, the assets and
liabilities acquired by the Company were adjusted to fair value. Accordingly,
the fair value of the reserve for unpaid losses and loss adjustment expenses and
reinsurance receivables was estimated by (1) discounting the gross reserves and
reinsurance receivables, (2) applying a risk margin to the gross reserves and
reinsurance receivables and (3) reducing gross reinsurance receivables by an
amount equal to Wind River's estimate of potentially uncollectible reinsurance
receivables as of the acquisition date. The final factor did not impact net
reinsurance receivables because Wind River had recorded an allowance for
uncollectible reinsurance, which was considered a reasonable estimate of the
credit risk inherent in the reinsurance receivables as of the acquisition date.

Wind River discounted the reserve for unpaid losses and loss adjustment
expenses and reinsurance receivables based on the present value of the expected
underlying cash flows using a risk-free interest rate of 3%, which approximated
the U.S. Treasury rate on the acquisition date. The discounting pattern was
developed by Wind River's actuarial department based on historical loss data.

A risk margin of approximately 10% was applied to the discounted reserve
for unpaid losses and loss adjustment expenses to reflect management's estimate
of the cost Wind River would incur to reinsure the full amount of its unpaid
losses and loss adjustment expenses with a third party reinsurer. This risk
margin was based upon management's assessment of the uncertainty inherent in the
reserve for unpaid losses and loss adjustment expenses and their knowledge of
the reinsurance marketplace.

As a result of these adjustments, the fair value of the reserve for
losses and loss adjustment expenses was reduced by $49.4 million as of the
acquisition date. Based on the nature of Wind River's reinsurance program and
expected future payout patterns, its reinsurance receivables were also reduced
by $49.4 million.

As of the acquisition date, Wind River adjusted its gross and net
unearned premium reserves to fair value by (1) discounting the unearned premium
reserves and (2) applying a risk margin to the unearned premium reserves. The
risk margin utilized to record the gross unearned premium reserves at fair value
was 25%. A slightly lower 20% risk margin was utilized to calculate the net
unearned premium reserves because of the shorter period of the underlying
exposures, which produces a lower degree of variability in the embedded future
profits. Wind River discontinued the unearned premium reserves based on the
present value of the expected underlying cash flows using a risk-free interest
rate of 3%, which approximated the U.S. Treasury rate on the acquisition date.
The discounting pattern was developed by Wind River's actuarial department based
on historical loss data.

As a result of these adjustments, the fair value of the gross unearned
premium reserves was reduced by $79.9 million as of September 5, 2003, with a
$68.3 million decrease in prepaid reinsurance premiums, thereby resulting in an
$11.6 million decrease in the net unearned premium reserves. The

F-35

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

adjustments to the gross and net unearned premium reserves had a directly
proportional impact to gross and net premiums earned.

(3) DEBT

As a result of the acquisition of Wind River, senior notes in an
aggregate principal amount of approximately $72.8 million, subject to
adjustment, were issued to the Ball family trusts, as part of the purchase
price. These senior notes have an interest rate of 5%, which may be paid either
in cash or in kind. These senior notes mature on September 5, 2015; however, in
certain circumstances the Company is required to make mandatory pre-payments on
these senior notes. The Company is required to make such mandatory prepayments
if "excess cash flow," as defined, was generated in the preceding fiscal year.
"Excess cash flow" is defined as an amount equal to consolidated net income,
less such amounts as the Company's Board of Directors may determine are
necessary to: (1) maintain an A.M. Best rating of at least "A" (Excellent) for
each of our U.S. insurance subsidiaries; (2) make permitted dividend payments;
(3) maintain the statutory surplus of our U.S. insurance subsidiaries at
acceptable levels and (4) provide us with adequate levels of working capital.

On September 30, 2003, AIS sold $10.0 million (aggregate principal
amount) of Floating Rate Preferred Securities to Dekania CDO I, Ltd., an
exempted company incorporated with limited liability under the law of the Cayman
Islands ("Dekania"), in a private placement through AIS's wholly owned Delaware
subsidiary United National Group Capital Trust I (the "Trust").

AIS, through the Trust, together with other insurance companies and
insurance holding companies, issued trust preferred securities to the
collateralized debt obligation pool organized by Dekania, which in turn issued
its securities to institutional and accredited investors. The Trust issued
10,000 trust preferred securities, having a stated liquidation amount of $1,000
per security, which mature on September 30, 2033 and bear a floating interest
rate, reset quarterly, equal to LIBOR plus 4.05%. AIS, through the Trust, has
the right to call the trust preferred securities at par after September 30,
2008. The trust preferred securities have not been and will not be registered
under the Securities Act of 1933, as amended, and satisfy the eligibility
requirements of Rule 144A(d)(3) under the Act.

The entire proceeds from the sale of the trust preferred securities was
used for the purchase of $10.0 million of unsecured junior subordinated
deferrable interest notes issued by AIS under a junior subordinated indenture
dated as of September 30, 2003 between AIS and JPMorgan Chase Bank, as indenture
trustee.

(4) PENSION AND DEFERRED COMPENSATION PLANS

Prior to September 5, 2003, UNIC participated in a non-contributory
pension plan with American Manufacturing Corporation (an affiliate) covering all
employees. The plan provided pension benefits that were based on length of
service and a percentage of the average qualifying compensation for the highest
five consecutive years of employment. On September 5, 2003, the non-contributory
pension plan was terminated. As a result of the acquisition of Wind River, all
employees became immediately vested.

The Company maintains a 401(k) defined contribution plan covering
substantially all U.S. employees. Prior to September 5, 2003, American
Manufacturing Corporation had managed the Predecessor's 401(k) plan. This 401(k)
plan covered substantially all full-time employees. Eligible employees could
defer up to 15% of their salary. The Predecessor matched 50% of employees'
contributions up to 6% of their salary. Eligible employees were vested in the
Predecessor's contribution and related investment income after five years of
service. As a result of the acquisition, all employees who participated in the
plan were immediately vested. The Company is now responsible for managing its
own

F-36

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

401(k) plan. Starting on September 5, 2003, the Company matches 75% of the first
6% contributed by the employee. In addition, the Company contributes 1% of the
employee's salary regardless of whether the employee contributes to the plan.

The Predecessor had a qualified deferred compensation plan for certain
key executives. Through September 5, 2003, the Predecessor had accrued $7.6
million in other liabilities related to this plan. This plan was settled and
terminated upon completion of the acquisition.

(5) STOCK COMPENSATION PLANS

The Company follows Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") which establishes a fair
value-based method of accounting for stock-based compensation plans.

The Company has various stock option plans to reward key executives and
employees of the Company. The fair value of options at the date of grant are
charged to compensation costs over the vesting or performance period. $0.4
million of compensation expense was recognized for the period ended September
30, 2003. A summary of the options granted is as follows:

OPTION-A TRANCHE

<Table>
<Caption>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE PRICE
SHARES PER SHARE
------- --------------

Options outstanding August 29, 2003......................... -- --
Options issued and exercisable.............................. 256,074 $6.50
Options cancelled (reversed)................................ -- --
Options exercised........................................... -- --
-------
Options outstanding September 30, 2003...................... 256,074 $6.50
======= =====
</Table>

256,074 Option-A tranche options were granted on September 5, 2003 at an
exercise price of $6.50 per share and are fully vested at the time of the grant.
The Company recognized compensation expense of $0.4 million for the period ended
September 30, 2003.

F-37

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

TIME-BASED OPTIONS

<Table>
<Caption>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE PRICE
SHARES PER SHARE
------- --------------

Options outstanding August 29, 2003......................... -- --
Options issued and exercisable.............................. 341,875 $10.00
Options cancelled (reversed)................................ -- --
Options exercised........................................... -- --
-------
Options outstanding September 30, 2003...................... 341,875 $10.00
======= ======
</Table>

341,875 options were granted on September 5, 2003 at an exercise price of
$10.00 per share. The options vest in 20% increments over a five-year period,
with any unvested options forfeitable upon termination of employment for any
reason. The first vesting period begins on December 31, 2003 and ends on
December 31, 2004.

PERFORMANCE-BASED OPTIONS

<Table>
<Caption>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE PRICE
SHARES PER SHARE
------- --------------

Options outstanding August 29, 2003......................... -- --
Options issued and exercisable.............................. 540,625 $10.00
Options cancelled (reversed)................................ -- --
Options exercised........................................... -- --
-------
Options outstanding September 30, 2003...................... 540,625 $10.00
======= ======
</Table>

540,625 performance-based options were granted on September 5, 2003 at an
exercise price of $10.00 per share. The options vest in 25% increments and are
conditioned upon the Company achieving various operating targets or Fox Paine
achieving an agreed upon rate of return. The first vesting period begins on
December 31, 2003 and ends on December 31, 2004.

The weighted average fair value of options granted under employee
incentive plans was $1.55 using a Black-Scholes option-pricing model and the
following assumptions:

<Table>

Dividend yield...................................... 0.0%
Expected volatility................................. 0.0%
Risk-free interest rate............................. 3.51%
Expected option life................................ 5 years
</Table>

The Company also issued a total of 55,000 warrants at an exercise price
of $10.00 per share.

(6) EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. The effects of stock options,
warrants and conversion of Series A preferred shares have not been included in
the computation of diluted earnings per share for the period September 6, 2003
through September 30, 2003 as their effect would have been anti-dilutive.
Weighted

F-38

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

average shares for the diluted earnings per share calculation would have been
18,705,000 higher if stock options, warrants and conversion of Series A
Preferred Shares were included.

The following table sets forth the computation of basic and diluted
earnings per share.

<Table>
<Caption>
PREDECESSOR SUCCESSOR
PREDECESSOR ----------------- ------------------
------------------ JANUARY 1, 2003 SEPTEMBER 6, 2003
NINE MONTHS ENDED THROUGH THROUGH
SEPTEMBER 30, 2002 SEPTEMBER 5, 2003 SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ------------------ ----------------- ------------------

Net income (loss) before extraordinary
gain..................................... $ (814) $ 24,604 $ (184)
Less: Preferred stock dividends............ -- -- (13,125)
------- -------- -----------
Income (loss) available to common
shareholders before extraordinary
gain................................ (814) 24,604 (13,309)
Extraordinary gain......................... -- -- 46,424
------- -------- -----------
Net income (loss)..................... $ (814) $ 24,604 $ 33,115
======= ======== ===========
Weighted average shares for basic earnings
per share................................ 100 100 12,806,250
======= ======== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) available to common
shareholders before extraordinary gain... $(8,140) $246,040 $ (1.04)
Extraordinary gain......................... -- -- 3.63
------- -------- -----------
Net income (loss)..................... $(8,140) $246,040 $ 2.59
======= ======== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average shares for diluted
earnings per share....................... 100 100 12,806,250
======= ======== ===========
Net income (loss) available to common
shareholders before extraordinary
gain................................ $(8,140) $246,040 $ (1.04)
Extraordinary gain......................... -- -- 3.63
------- -------- -----------
Net income (loss)..................... $(8,140) $246,040 $ 2.59
======= ======== ===========
</Table>

(7) SEGMENT INFORMATION

The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expense experience. Investments and investment performance,
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level and are included in "Corporate."

The reinsurance segment was de-emphasized in 2002. Subsequent to
September 30, 2002, the Company amended the treaty with the reinsurer to reduce
the net premiums written and earned for 2002 to $0; subsequently, the treaty was
commuted.

F-39

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

Gross premiums written, excluding the reinsurance segment, by product
class are as follows:

<Table>
<Caption>
PREDECESSOR PREDECESSOR SUCCESSOR
------------------ ------------------ ------------------
NINE MONTHS JANUARY 1, 2003 SEPTEMBER 6, 2003
ENDED THROUGH THROUGH
SEPTEMBER 30, 2002 SEPTEMBER 5, 2003 SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS) ------------------ ------------------ ------------------

Specific specialty......................... $361,330 $230,183 $14,962
Umbrella and excess........................ 170,090 126,617 8,230
Property and general liability............. 59,192 91,022 5,916
Non-medical professional liability......... 56,205 62,801 4,082
-------- -------- -------
$646,817 $510,623 $33,190
======== ======== =======
</Table>

The gross premiums written information is not segregated by business
segment because product lines cross segments.

<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2002: PREDECESSOR
- ------------------------------------- ------------------------------------------------------------
(DOLLARS IN THOUSANDS) SPECIALTY
E&S ADMITTED REINSURANCE CORPORATE TOTAL
-------- --------- ----------- ---------- ----------

REVENUES:
Gross premiums written.................. $446,071 $200,746 $34,000 $ -- $ 680,817
======== ======== ======= ========== ==========
Net premiums written.................... 92,270 44,777 34,000 -- 171,047
======== ======== ======= ========== ==========
Net premiums earned..................... 77,274 38,033 42,250 157,557
Net investment income................... -- -- -- 12,968 12,968
Net realized investment (losses)
gains................................. -- -- -- (15,039) (15,039)
-------- -------- ------- ---------- ----------
Total revenues........................ 77,274 38,033 42,250 (2,071) 155,486
LOSSES AND EXPENSES:
Net losses and loss adjustment
expenses.............................. 73,799 27,138 42,250 -- 143,187
Acquisition costs and other underwriting
expenses.............................. -- -- -- 14,339 14,339
Provision for doubtful reinsurance
receivables........................... -- -- -- -- --
Other operating expenses................ -- -- -- 2,436 2,436
Interest expense........................ -- -- -- 676 676
-------- -------- ------- ---------- ----------
Income (loss) before income taxes..... 3,475 10,895 -- (19,522) (5,152)
Income tax (benefit) expense............ -- -- -- (5,333) (5,333)
-------- -------- ------- ---------- ----------
Net income (loss) before equity in net
(loss) income of partnerships...... 3,475 10,895 -- (14,189) 181
Equity in net income (loss) of
partnerships.......................... (995) (995)
-------- -------- ------- ---------- ----------
Net income (loss) before extraordinary
gain............................... 3,475 10,895 -- (15,184) (814)
Extraordinary gain...................... -- -- -- -- --
-------- -------- ------- ---------- ----------
Net income (loss)..................... $ 3,475 $ 10,895 $ -- $ (15,184) $ (814)
======== ======== ======= ========== ==========
Total assets............................ $1,804,256 $1,804,256
========== ==========
</Table>

F-40

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

<Table>
<Caption>
SPECIALTY
JANUARY 1, 2003 THROUGH SEPTEMBER 5, 2003: E&S ADMITTED REINSURANCE CORPORATE TOTAL
- ------------------------------------------ -------- --------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)

REVENUES:
Gross premiums written................... $357,394 $153,229 $ -- $ -- $ 510,623
======== ======== ===== ========== ==========
Net premiums written..................... 83,046 56,070 -- -- 139,116
======== ======== ===== ========== ==========
Net premiums earned...................... 77,942 50,312 -- -- 128,254
Net investment income.................... -- -- -- 13,289 13,289
Net realized investment (losses) gains... -- -- -- 5,589 5,589
-------- -------- ----- ---------- ----------
Total revenues......................... 77,942 50,312 -- 18,878 147,132
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses... 50,990 33,895 -- -- 84,885
Acquisition costs and other underwriting
expenses............................... -- -- -- 30,543 30,543
Provision for doubtful reinsurance
receivables............................ -- -- -- 1,750 1,750
Other operating expenses................. -- -- -- 288 288
Interest expense......................... -- -- -- 46 46
-------- -------- ----- ---------- ----------
Income (loss) before income taxes...... 26,952 16,417 -- (13,749) 29,620
Income tax (benefit) expense............. -- -- -- 6,850 6,850
-------- -------- ----- ---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships....... 26,952 16,417 -- (20,599) 22,770
Equity in net income (loss) of
partnerships........................... -- -- -- 1,834 1,834
-------- -------- ----- ---------- ----------
Net income (loss) before extraordinary
gain................................ 26,952 16,417 -- (18,765) 24,604
Extraordinary gain....................... -- -- -- -- --
-------- -------- ----- ---------- ----------
Net income (loss)...................... $ 26,952 $ 16,417 $ -- $ (18,765) $ 24,604
======== ======== ===== ========== ==========
</Table>

F-41

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

<Table>
<Caption>
E&S SPECIALTY
SEPTEMBER 6, 2003 THROUGH SEPTEMBER 30, 2003: LINES ADMITTED REINSURANCE CORPORATE TOTAL
- --------------------------------------------- -------- --------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)

REVENUES:
Gross premiums written.................... $ 23,230 $ 9,960 $ -- $ -- $ 33,190
======== ======== ===== ========== ==========
Net premiums written...................... 5,786 3,906 -- -- 9,692
======== ======== ===== ========== ==========
Net premiums earned....................... 6,495 4,192 -- -- 10,687
Net investment income..................... -- -- -- 792 792
Net realized investment (losses) gains.... -- -- -- (718) (718)
-------- -------- ----- ---------- ----------
Total revenues.......................... 6,495 4,192 -- 74 10,761
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses... 4,415 2,934 -- -- 7,349
Acquisition costs and other underwriting
expenses................................ -- -- -- 4,587 4,587
Provision for doubtful reinsurance
receivables............................. -- -- -- -- --
Other operating expenses.................. -- -- -- 124 124
Interest expense.......................... -- -- -- 249 249
-------- -------- ----- ---------- ----------
Income (loss) before income taxes....... 2,080 1,258 -- (4,886) (1,548)
Income tax (benefit) expense.............. -- -- -- (1,106) (1,106)
-------- -------- ----- ---------- ----------
Net income (loss) before equity in net
income (loss) of partnerships........ 2,080 1,258 -- (3,780) (442)
Equity in net income (loss) of
partnerships............................ -- -- -- 258 258
-------- -------- ----- ---------- ----------
Net income (loss) before extraordinary
gain................................. 2,080 1,258 -- (3,522) (184)
Extraordinary gain........................ -- -- -- 46,424 46,424
-------- -------- ----- ---------- ----------
Net income (loss)....................... $ 2,080 $ 1,258 $ -- $ 42,902 $ 46,240
======== ======== ===== ========== ==========
Total assets.............................. $2,834,919 $2,834,919
========== ==========
</Table>

(8) RELATED PARTY TRANSACTIONS

During 2001, the Company made a loan to The AMC Group, LLC (an
affiliate). This note, which was carried at amortized cost of $0.8 million, was
included in other invested assets as of December 31, 2002. In April 2003, this
note was sold for $0.6 million (the amortized value as of April 30, 2003) to
American Manufacturing Corporation (an affiliate). No gain or loss was realized
on the sale to American Manufacturing Corporation.

During 2001, AIS purchased a promissory note from Philadelphia Gear
Corporation (an affiliate) for $2.3 million. The annual rate of interest on this
note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2.3 million, was
included in other invested assets as of December 31, 2002. In April 2003, this
note was sold for $2.3 million to American Manufacturing Corporation. No gain or
loss was realized on the sale to American Manufacturing Corporation.

On August 25, 2003, the Predecessor sold its interest in six limited
liability partnership funds to American Manufacturing Corporation, an affiliate,
for $6.0 million, the sum of carrying values per UNIC's

F-42

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

March 31, 2003 statutory financial statement plus any capital calls and less any
distributions between July 1, 2003 and August 25, 2003. The Predecessor recorded
a capital loss of $0.1 million in connection with this transaction.

On September 5, 2003, the Company prepaid $1.5 million of management fees
to Fox Paine & Company ($1.2 million) and The AMC Group, L.P. ($0.3 million), an
affiliate of the Ball family trusts. The prepaid management fees cover the
period from September 5, 2003 through September 4, 2004 and will be recognized
ratably over that period.

As of December 31, 2002 and September 30, 2003, the Company had balances
payable due to affiliates totaling approximately $0.2 million and $0.2 million,
respectively.

On August 25, 2003, Wind River sold a series of limited partnership
interests to Wind River Investments, LLC. Proceeds from the sale of those
investments totaled $6.0 million.

On September 5, 2003, the Company paid Fox Paine a fee of $12.0 million
related to the Company's acquisition of Wind River.

(9) COMMITMENTS AND CONTINGENCIES

The Company has committed to investing $45.1 million over a period of
time into several limited liability partnership funds. As of September 30, 2003,
$39.7 million has been invested. The Company has a remaining commitment of $5.4
million. The timing and funding of this remaining commitment has not been
determined.

Various lawsuits against the Company have arisen in the ordinary course
of the Company's business, including defending coverage claims brought against
the Company by its policyholders or others. The Company's litigation, including
coverage claims matters, is subject to many uncertainties, and given their
complexity and scope, the outcomes cannot be predicted with certainty. It is
possible that the results of operations in a particular quarterly or annual
period could be materially affected by an ultimate unfavorable outcome of
litigation and/or coverage claim matters. Management believes, however, that the
ultimate outcome of all litigation and coverage claim matters after
consideration of applicable reserves should not have a material adverse effect
on the Company's financial condition.

On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29.0
million, plus interest in excess of $10.0 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc. purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance

F-43

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Company Ltd. and Partner Reinsurance Company of the U.S. seeking recovery under
a reinsurance agreement covering the business produced by Worldwide Weather
Insurance Agency on a 100% quota share basis. In addition, if it were held
liable to Bank of America on the grounds DSIC was negligent in appointing
Worldwide Weather Insurance Agency, DSIC is claiming indemnification and
contribution from Partner Reinsurance Company of the U.S. because of its role in
the appointment of the agency's principal and Worldwide Weather Insurance
Agency. The arbitration has been consolidated into the Bank of America
litigation for discovery purposes, and is not likely to proceed to a hearing
until the Bank of America litigation is resolved.

During 2002, the Company established a $25.0 million Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate (LIBOR) plus 65 basis points or the
Prime Rate. The Revolving Credit Facility was converted to a Demand
Discretionary Facility in February 2003. As of September 30, 2003, there were no
balances due in connection with this credit facility.

On July 11, 2003, our subsidiary United National Insurance Company was
named a defendant in a lawsuit filed in the Superior Court of Fulton County,
Georgia (since removed to the United States District Court for the Northern
District of Georgia), by Gulf Underwriters Insurance Company seeking rescission
of a facultative reinsurance certificate issued to United National Insurance
Company with regard to an individual insurance policy. The facultative
reinsurance certificate provided 100% reinsurance to United National Insurance
Company for loss and loss adjustment expenses paid under the insurance policy.
The rescission claim is based on allegations of breach of contract;
misrepresentation; non-disclosure and breach of duty of good faith; and fraud.
The complaint also seeks attorney's fees and costs. United National Insurance
Company denies the allegations in the complaint and has filed a counterclaim for
$1.6 million. This litigation has just begun and a trial date has not been set.
In the opinion of management, the ultimate disposition of this matter is not
expected to have a material adverse effect on the Company's financial condition.

(10) NEW ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

In December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure ("SFAS No. 148"), which amends SFAS Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). The objective of SFAS No. 148 is to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148 does not change the provisions of SFAS No. 123 that permit entities to
continue to apply the intrinsic value method of Accounting Principles Board
Opinion No. 25, Accounting for Stock issued to Employees ("APB No. 25"). In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.

F-44

UNITED NATIONAL GROUP, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(UNAUDITED)

Management has determined that this interpretation will have no effect on the
Company's consolidated financial statements.

FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. The interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.

F-45

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of

United National Group, Ltd.:

In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of United National Group, Ltd. (the
"Company") at August 29, 2003 in conformity with accounting principles generally
accepted in the United States of America. This financial statement is the
responsibility of the Company's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this statement in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall balance sheet presentation. We believe that our audit of
the balance sheet provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Philadelphia, PA

October 7, 2003

F-46

UNITED NATIONAL GROUP, LTD.

BALANCE SHEET

AS OF AUGUST 29, 2003

<Table>

ASSETS
Cash........................................................ $150,000
--------
Total assets........................................... $150,000
========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Commitments and contingencies............................... --
SHAREHOLDERS' EQUITY
Common shares, Class A $0.0001 par value 900,000,000 common
shares authorized, 0 Class A shares issued and
outstanding............................................... --
Common shares, Class B $0.0001 par value 900,000,000 shares
authorized, 15,000 shares issued and outstanding.......... 2
Preferred shares, $0.0001 par value, 100,000,000 shares
authorized, 0 shares issued and outstanding...............
Additional paid-in capital.................................. $149,998
--------
Total shareholders' equity............................. $150,000
--------
Total liabilities and shareholders' equity............. $150,000
========
</Table>

See accompanying notes to balance sheet

F-47

UNITED NATIONAL GROUP, LTD.

NOTES TO BALANCE SHEET

(1) FORMATION

On August 26, 2003, United National Group, Ltd. (the "Company") was
formed by U.N. Holdings (Cayman), Ltd., which was established by affiliates of
Fox Paine & Company, LLC. On August 29, 2003, the Company issued 15,000 Class B
common shares to U.N. Holdings (Cayman), Ltd. in exchange for $150,000.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The balance sheet has been prepared in conformity with accounting
principles generally accepted in the United States of America ("GAAP").

CASH AND CASH EQUIVALENTS

The Company considers all investments with maturities of three months or
less at the date of acquisition to be cash equivalents.

(3) SHAREHOLDERS' EQUITY

Upon the formation of the Company, its board of directors authorized
900,000,000 common shares and 100,000,000 preferred shares. As of August 29,
2003, 15,000 Class B common shares were issued and outstanding. No preferred
shares were issued and outstanding as of August 29, 2003.

Common shares

Class A common shares and Class B common shares have identical rights and
rank equally in all respects except for voting rights and conversion features.
Neither Class A common shares nor Class B common shares are entitled to any
sinking or preemptive rights.

Each Class A common share is entitled to one vote, while each Class B
common share is entitled to ten votes on all matters upon which the common
shareholders is entitled to vote, including the election of directors.

Each Class B common share is convertible at any time into one Class A
common share at the option of the holder. Additionally, each Class B common
share will automatically convert into one share of Class A common share upon any
transfer by the registered holder of that share, whether or not for value,
except for transfers to (1) a nominee or affiliate of such holder that will not
result in a change of beneficial ownership as determined under Rule 13d-3 under
the Exchange Act or (2) a person who already holds Class B common shares.

Preferred shares

Each Series A preferred share is convertible at any time into one Class B
common share, subject to adjustment in certain circumstances, including in the
event of share splits and combinations, dividends of shares and other property,
transactions in which the shares are exchanged and issuances of common shares at
values below market value. In addition, on September 5, 2005, each Series A
preferred share will automatically convert into one Class B common share,
subject to similar adjustments.

Upon completion of a public offering of common shares resulting in net
proceeds of $50.0 million or more to the Company, a number of Series A preferred
shares (determined so that 110% of the aggregate liquidation preference plus
accrued but unpaid dividends is equal to the net proceeds to United

F-48

UNITED NATIONAL GROUP, LTD.

NOTES TO BALANCE SHEET -- (CONTINUED)

National Group from such initial public offering) shall be redeemed. The
redemption price will be paid as follows:

- an amount equal to 100% of the liquidation preference shall be paid
in cash; and

- the remainder of the redemption price shall be through delivery of
Class A common shares having a value (based on the initial public
offering price to the public, gross of any underwriting discounts
or commissions, in such public offering) equal to 10% of the
liquidation preference plus all accrued but unpaid dividends.

Series A preferred shares are entitled to receive dividends at an annual
rate of 15% of the liquidation preference of each such share plus all accrued
but unpaid dividends. Dividends on Series A preferred shares are payable
semi-annually, beginning on March 1, 2004. Such dividends are accrued on the
first day of each semi-annual period. Dividends on the Series A preferred shares
are payable in cash, additional Series A preferred shares or any combination
thereof, at the discretion of the Company's board of directors.

Holders of Series A preferred shares are entitled to notice of and to
vote at general meetings of shareholders on all matters upon which the holders
of common shares are entitled to vote. The holders of Series A preferred shares
and common shares vote together as a single class. Each Series A preferred share
has the same number of votes that could be cast by the holder of the number of
Class B common shares into which each Series A preferred share could be
converted.

(4) SUBSEQUENT EVENTS

On September 5, 2003, U.N. Holdings (Cayman) Ltd. contributed an
additional $239.9 million to the Company in exchange for 14,000,000 shares of
Series A preferred stock and 9,985,000 shares of Class B common stock.

On September 5, 2003, the Company acquired 100% of the outstanding common
stock of Wind River Investment Corporation in exchange for $100.0 million of
cash, 2.5 million shares of the Company's Class A common stock, 3.5 million
shares of the Company's Series A preferred stock and $72.8 million of Senior
Notes issued by Wind River Investment Corporation. The Senior Notes bear
interest at 5.0% per annum and mature on September 5, 2015. However, in certain
circumstances, the Company may be required to make pre-payments on these Senior
Notes on November 1 of each year if "excess cash flow" was generated by the
Company in the preceding fiscal year. Excess cash flow is defined as an amount
equal to consolidated net income, less such amounts that the Company's board of
directors determines necessary to (1) maintain an A.M. Best rating of at least
"A" (Excellent) for each of the U.S. Insurance Subsidiaries; (2) make dividend
payments from certain subsidiaries; (3) maintain the statutory surplus of the
Company's insurance subsidiaries at acceptable levels and (4) allow the
Company's insurance subsidiaries to maintain adequate levels of working capital.

On September 4, 2003, the Company contributed $130,000 to Wind River
Insurance Company (Barbados), Ltd. On September 5, 2003, the Company contributed
Wind River Investment Corporation and $197.5 million to Wind River Insurance
Company (Barbados), Ltd.

In connection with the acquisition of Wind River Investment Corporation
on September 5, 2003, certain key executives purchased 198,750 shares of Class A
common stock at $10.00 per share.

F-49

UNITED NATIONAL GROUP, LTD.

NOTES TO BALANCE SHEET -- (CONTINUED)

On September 5, 2003, the Company issued options to purchase 1,138,574
shares of Class A common stock and warrants to purchase 55,000 shares of Class A
common stock.

On September 17, 2003, the Company filed a Registration Statement under
the Securities Act of 1933 stating that it intends to sell shares of Class A
common stock to the public. The Company intends to use the proceeds from the
offering to redeem the outstanding shares of Series A preferred shares. Any
remaining proceeds are expected be used for general corporate purposes,
including capital contributions to the Company's insurance subsidiaries.

On September 30, 2003, our subsidiary, American Insurance Service, Inc.,
a Delaware Corporation ("AIS"), sold $10.0 million (aggregate liquidation
preference) of Floating Rate Preferred Securities to Dekania CDO I, Ltd., an
exempted company incorporated with limited liability under the laws of the
Cayman Islands ("Dekania"), in a private placement through AIS's wholly-owned
Delaware subsidiary, United National Group Capital Trust I (the "Trust").

The entire proceeds from the sale of the trust preferred securities was
used for the purchase of $10.0 million (in principal amount) of unsecured junior
subordinated deferrable interest notes issued by AIS under a junior subordinated
indenture dated as of September 30, 2003 between AIS and JPMorgan Chase Bank, as
indenture trustee.

During September 2003, $25.0 million of Series A preferred shares were
exchanged for 2,687,500 Class B common shares.

F-50

GLOSSARY OF SELECTED INSURANCE TERMS

Admitted...................... An insurer that is authorized and licensed to
do business in a given jurisdiction.

Broker........................ An intermediary that negotiates contracts of
insurance or reinsurance on behalf of an
insured party, receiving a commission from the
insurer or reinsurer for placement and other
services rendered.

Capacity...................... The percentage of surplus, or the dollar amount
of exposure, that an insurer or reinsurer is
willing or able to place at risk. Capacity may
apply to a single risk, a program, a line of
business or an entire book of business.
Capacity may be constrained by legal
restrictions, corporate restrictions or
indirect restrictions.

Casualty Insurance or
Reinsurance................... Insurance or reinsurance that is primarily
concerned with the losses caused by injuries to
third persons, i.e., not the insured, or to
property owned by third persons and the legal
liability imposed on the insured resulting
therefrom. It includes, but is not limited to,
employers' liability, workers' compensation,
public liability, automobile liability,
personal liability and aviation liability
insurance. It excludes certain types of losses
that by law or custom are considered as being
exclusively within the scope of other types of
insurance or reinsurance, such as fire or
marine.

Catastrophe................... A severe loss, typically involving multiple
claimants. Common perils include earthquakes,
hurricanes, hailstorms, severe winter weather,
floods, fires, tornadoes, explosions and other
natural or man-made disasters. Catastrophe
losses may also arise from acts of war, acts of
terrorism and political instability.

Cede; Ceding Company.......... When an insurer reinsures some or all of its
liability with another insurer, it "cedes"
business and is referred to as the "ceding
company."

Claim......................... Request by an insured or reinsured for
indemnification by an insurance company or a
reinsurance company for loss incurred from an
insured peril or event.

Clash......................... Exposure to a larger single loss than intended
due to losses incurred under two or more
coverages or policies for the same event.

Combined Ratio................ The sum of the expense ratio and the losses and
loss adjustment expense ratio.

Development................... The difference between the amount of reserves
for losses and loss adjustment expenses
initially estimated by an insurer and the
amount reestimated in an evaluation on a later
date.

Direct Insurance.............. Insurance sold by an insurer that contracts
with the insured, as distinguished from
reinsurance.

Directors and Officers
Liability..................... Insurance that covers liability for corporate
directors and officers for wrongful acts,
subject to applicable exclusions, terms and
conditions of the policy.

G-1

Premiums Earned............... That portion of property and casualty premiums
written that applies to the expired portion of
the policy term. Earned premiums are recognized
as revenues under both SAP and U.S. GAAP.

Excess and Surplus Lines...... Lines of insurance that admitted companies
generally are not providing in a given
jurisdiction and which are placed through
excess and surplus line brokers with companies
not admitted in the jurisdiction. Excess and
surplus lines policies generally are not
subject to regulations governing premium rates
or policy language. Excess and surplus lines
coverage may be provided for specialty products
or for standard coverages that at such time are
not being offered by admitted companies in the
particular jurisdiction.

Excess of Loss................ Reinsurance or insurance that indemnifies the
reinsured or insured against all or a specified
portion of losses over a specified currency
amount or "retention."

Exclusions.................... Provisions in an insurance or reinsurance
policy excluding certain risks or otherwise
limiting the scope of coverage.

Expense Ratio................. Under SAP, the ratio of underwriting expenses
to net premiums written. Under generally
accepted accounting principles, the ratio of
acquisition costs and underwriting expenses to
net premiums earned.

Exposure...................... The possibility of loss. A unit of measure of
the amount of risk a company assumes.

Frequency..................... The number of claims occurring during a given
coverage period.

General Agency................ An independent agency that represents one or
more insurers and has the authority to appoint
sub-agents who write their business through the
general agency. A general agency places
insurance with an insurance company in
accordance with underwriting criteria, terms
and rates established by the insurance company.

Gross Premiums Written and
Acquired...................... Total premiums for insurance written and
assumed reinsurance during a given period.

Incurred but Not Reported, or
"IBNR"........................ The liability for future payments on losses
which have occurred but have not yet been
reported in the insurer's records. This may
include expected future development on reported
claims.

Liability Insurance........... Same as casualty insurance.

Loss; Losses.................. An occurrence that is the basis for submission
or payment of a claim. Losses may be covered,
limited or excluded from coverage, depending on
the terms of the policy.

Loss Adjustment Expense....... The expenses of settling claims, including
legal and other fees.

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

G-2

Losses and Loss Adjustment
Expense Ratio................. The ratio of incurred losses and loss
adjustment expenses to premiums earned.
Incurred losses include an estimated provision
for incurred but not reported claims.

Loss Reserves................. Liabilities established by insurers and
reinsurers to reflect the estimated cost of
claims incurred that the insurer or reinsurer
will ultimately be required to pay in respect
of insurance or reinsurance it has written.
Reserves are established for losses and for
loss expenses, and consist of case reserves and
IBNR reserves. As the term is used in this
prospectus, "loss reserves" is meant to include
reserves for both losses and for loss expenses.

Losses Incurred............... The total losses sustained by an insurer or
reinsurer under a policy or policies, whether
paid or unpaid. Incurred losses include a
provision for IBNR.

National Association of
Insurance Commissioners, or
"NAIC"........................ An organization of the insurance commissioners
or directors of all 50 states and the District
of Columbia organized to promote consistency of
regulatory practice and statutory accounting
standards throughout the United States.

Net Premiums Earned........... The portion of net premiums written during or
prior to a given period that was actually
recognized as income during such period.

Net Premiums Written.......... Premiums retained by an insurer after deducting
premiums on business ceded to others.

Non-Admitted.................. An insurer not licensed in a given
jurisdiction, but writing insurance in that
jurisdiction on an unregulated basis with the
permission of the insurance regulatory
authorities of that jurisdiction. In some
jurisdictions, non-admitted companies appear on
a list of approved, non-admitted companies.

Policyholders' Surplus........ The amount remaining after all liabilities of
an insurance company are subtracted from all of
its assets, applying statutory accounting
principles. This amount is regarded as
financial protection to policyholders in the
event an insurer suffers unexpected or
unreserved losses.

Premiums...................... The amount charged during the term on policies
and contracts issued, renewed or reinsured by
an insurance company or reinsurance company.

Professional Liability........ Insurance that provides coverage for attorneys,
doctors, accountants and other professionals.

Rates......................... Amounts charged per unit of insurance and
reinsurance.

Reinsurance................... A procedure whereby an insurer remits or cedes
a portion of the premium to a reinsurer as
payment to the reinsurer for assuming a portion
of the related risk.

Reported Losses............... Claims or potential claims that have been
identified to a reinsurer by a ceding company
or to an insurer by an insured.

G-3

Reserves...................... Estimates at a given point in time of amounts
that an insurance carrier expects to pay on
losses based on facts and circumstances then
known.

Retention..................... The amount of exposure a policyholder company
retains on any one risk or group of risks. The
term may apply to an insurance policy, where
the policyholder is an individual, family or
business, or a reinsurance policy, where the
policyholder is an insurance company.

Risk-Based Capital, or
"RBC"......................... A measure adopted by the NAIC and enacted by
states for determining the minimum statutory
capital and surplus requirements of insurers
with required regulatory and company actions
that apply when an insurer's capital and
surplus is below these minimums.

Specialty Lines............... Lines of insurance for risks that are unique,
unusual or otherwise difficult to find insurers
willing to insure.

Statutory Accounting
Principles, or "SAP".......... Those principles required by state law that
must be followed by insurers in submitting
their financial statements to state insurance
departments.

TPAs.......................... Third party administrators that are used to
assist in the processing of claims.

Underwriting.................. The process of reviewing applications submitted
for insurance coverage and determining whether
to accept all or part of the coverage being
requested and what the applicable premiums,
terms and conditions should be.

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

U.S. GAAP..................... United States generally accepted accounting
principles as defined by the American Institute
of Certified Public Accountants or statements
of the Financial Accounting Standards Board.
U.S. GAAP is the method of accounting to be
used by the Company for reporting to
shareholders.

Umbrella Liability............ A form of insurance protection against losses
in excess of amounts covered by other liability
insurance policies or amounts not covered by
the usual liability policies.

Underwriter................... An employee of an insurance or reinsurance
company who examines, accepts or rejects risks
and classifies accepted risks in order to
charge an appropriate premium for each accepted
risk. The underwriter is expected to select
business that will produce an average risk of
loss no greater than that anticipated for the
class of business.

Unearned Premium.............. The portion of premiums written that is
allocable to the unexpired portion of the
policy term.

G-4

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

Through and including , 2003 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

[UNITED NATIONAL GROUP LOGO]

UNITED NATIONAL GROUP, LTD.

CLASS A COMMON SHARES

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

PROSPECTUS
----------------------

MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
DOWLING & PARTNERS SECURITIES, LLC

FOX-PITT, KELTON

KEEFE, BRUYETTE & WOODS, INC.

, 2003

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses expected to be
incurred by the registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions.

<Table>

Securities and Exchange Commission registration fee......... $18,607
National Association of Securities Dealers, Inc. filing
fee....................................................... 23,500
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Registrar and transfer agent fees and expenses.............. *
Miscellaneous fees and expenses............................. *
-------
Total.................................................. $ *
=======
</Table>

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

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The articles of association of the registrant provide for the
indemnification of its directors and officers. Specifically, under the
indemnification provisions, the registrant will indemnify its directors and
officers to the fullest extent permitted by law against liabilities that are
incurred by the directors or officers while executing the duties of their
respective offices. The directors and officers, however, will not be entitled to
the indemnification if they incurred the liabilities through their own willful
default or fraud.

The board resolutions of the registrant provide for the indemnification
of its directors and officers against any claims arising out of or relating to
the preparation, filing and distribution of this registration statement or the
prospectus contained in this registration statement. The resolutions expressly
authorize the registrant to indemnify its directors and officers to the fullest
extent permitted by law.

The registrant is an exempted company with limited liability incorporated
in the Cayman Islands. As such, it is subject to and governed by the laws of the
Cayman Islands with respect to the indemnification provisions. Although The
Companies Law (2003 Revision) of the Cayman Islands does not specifically
restrict a Cayman Islands company's ability to indemnify its directors or
officers, it does not expressly provide for such indemnification either. Certain
English case law (which is likely to be persuasive in the Cayman Islands),
however, indicate that the indemnification is generally permissible, unless
there had been fraud, willful default or reckless disregard on the part of the
director or officer in question.

The registrant has entered into indemnification agreements with its
directors and officers, whereby the registrant agreed to indemnify its directors
and officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that such director or officer is or was a director, officer, employee or
agent of the registrant, provided that such director or officer acted in good
faith and in a manner that the director or officer reasonably believed to be in,
or not opposed to, the best interest of the registrant. At present, there is no
pending litigation or proceeding involving a director or officer of the
registrant regarding which indemnification is sought, nor is the registrant
aware of any threatened litigation that may result in claims for
indemnification.

II-1

The registrant maintains insurance policies that indemnify its directors
and officers against various liabilities arising under the Securities Act of
1933 and the Securities Exchange Act of 1934 that might be incurred by any
director or officer in his capacity as such.

The underwriters are obligated, under certain circumstances, pursuant to
the underwriting agreement to be filed as Exhibit 1.1 hereto, to indemnify the
registrant, the directors, certain officers and controlling persons of the
registrant against liabilities under the Securities Act of 1933, as amended.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years prior to the filing of this registration statement,
the registrant issued the following unregistered securities:

1. Upon the incorporation of the registrant on August 26, 2003, one
subscriber share was issued to the incorporator, Roderick Palmer,
which share was repurchased by the registrant on September 5, 2003.
Such sale was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.

2. On August 29, 2003, the registrant issued 15,000 Class B Common
Shares, par value $0.0001 per share (the "Class B Shares") to U.N.
Holdings (Cayman) Ltd. in exchange for consideration of $150,000 in
cash. Such sale was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.

3. On September 5, 2003, the registrant issued an aggregate of 2,500,000
Class A Common Shares, par value $0.0001 per share (the "Class A
Shares"), 9,985,000 Class B Shares, and 17,500,000 Series A Preferred
Shares, par value $0.0001 per share (the "Preferred Shares"), in
connection as described under "Our Relationship with Fox Paine &
Company." Such sales were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act
as a transaction not involving any public offering. The Amended and
Restated Investment Agreement pursuant to which such issuances were
effected is filed as an exhibit to this registration statement.

4. On September 5, 2003, the registrant issued an aggregate of 198,750
Class A Shares to Seth A. Freudberg, Richard S. March, Kevin L. Tate,
Robert Cohen, William F. Schmidt and Jonathan Ritz, each of whom is
an officer of subsidiaries of the registrant, in exchange for an
aggregate of $2 million in cash. Such sales were deemed to be exempt
from registration under the Securities Act in reliance on Section
4(2) of the Securities Act as a transaction not involving any public
offering.

5. On September 5, 2003, options to purchase an aggregate of 1,138,574
Class A Shares were granted under the registrant's Stock Incentive
Plan at a weighted average exercise price of $9.21 per share. The
issuance of the Class A Shares under such plan was deemed to be
exempt from registration under the Securities Act by virtue of Rule
701 promulgated under Section 3(b) of the Securities Act as
transactions pursuant to compensation benefit plans and contracts
relating to compensation.

6. On September 11, 2003, we issued warrants to purchase an aggregate of
55,000 Class A common shares with an exercise price of $10.00 per
share. Such issuances were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering.

II-2

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following exhibits are being filed with this registration statement
pursuant to Item 601 of Regulation S-K.

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

1.1* Form of Underwriting Agreement
2.1 Amended and Restated Investment Agreement, dated as of
September 5, 2003, by and among U.N. Holdings (Cayman),
Ltd., United National Group Ltd., U.N. Holdings II, Inc.,
U.N. Holdings Inc., Wind River Investment Corporation and
certain Trusts Listed on Schedule A thereof
3.1* Amended and Restated Memorandum and Articles of Association
of United National Group Ltd.
3.2 Written Resolutions of the Board of Directors Designating
the Rights and Preferences of the Series A Preferred Shares
of United National Group Ltd., dated September 5, 2003
4.1* Form of 5.0% Senior Note, due September 5, 2015, of Wind
River Investment Corporation
4.2* Deed of Guaranty, dated September 5, 2003, by United
National Group Ltd. in favor of the holders of the 5.0%
Senior Notes, due September 5, 2015, of Wind River
Investment Corporation
5.1* Legal Opinion of Walkers
10.1* Amended and Restated Shareholders Agreement, dated as of
, 2003, by and among United National Group Ltd.,
U.N. Holdings (Cayman) Ltd. and those trusts signatory
thereto
10.2 Management Shareholders Agreement, dated as of September 5,
2003, by and among United National Group Ltd. and those
management shareholder signatory thereto
10.3 Management Agreement, dated as of September 5, 2003, by and
among United National Group Ltd., Fox Paine & Company, LLC
and The AMC Group, L.P., with related Indemnity Letter
10.4* United National Group Ltd. Stock Incentive Plan
10.5 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Seth D.
Freudberg
10.6 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Richard S.
March
10.7 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Kevin L. Tate
10.8 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Robert Cohen
10.9 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and William F.
Schmidt
10.10 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Jonathan Ritz
11.1* Statement Regarding Computation of Per Share Earnings
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Walkers (included in Exhibit 5.1)
23.3* Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
23.4* Consent of David King & Co.
23.5* Consent of Appleby Spurling & Kempe
24.1+ Powers of Attorney
27.1* Financial Data Schedule
99.1* Form F-N
</Table>

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

* To be filed by amendment.

+ Previously filed.

II-3

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

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

2. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on October 28, 2003.

UNITED NATIONAL GROUP, LTD.

By: /s/ SAUL A. FOX
------------------------------------
Name: Saul A. Fox
Title: Chairman and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on October 28, 2003.

<Table>
<Caption>
SIGNATURE TITLE
- --------- -----

/s/ SAUL A. FOX Chairman and Chief Executive Officer
- --------------------------------------------------------
Saul A. Fox

/s/ TROY W. THACKER President and Director
- --------------------------------------------------------
Troy W. Thacker

/s/ KEVIN L. TATE Principal Financial and Accounting Officer
- --------------------------------------------------------
Kevin L. Tate

/s/ W. DEXTER PAINE, III Director
- --------------------------------------------------------
W. Dexter Paine, III

/s/ ANGELOS J. DASSIOS Director
- --------------------------------------------------------
Angelos J. Dassios

/s/ RUSSELL C. BALL, III Director
- --------------------------------------------------------
Russell C. Ball, III
</Table>

II-5

REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of
Wind River Investment Corporation:

Our audits of the consolidated financial statements referred to in our report
dated June 25, 2003 appearing in this Registration Statement on Form S-1 also
included an audit of the financial statement schedules listed in Item 16(a)(2)
of this Registration Statement. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP
Philadelphia, PA
June 25, 2003

S-1

WIND RIVER INVESTMENT CORPORATION

SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS
IN RELATED PARTIES AS OF DECEMBER 31, 2002

<Table>
<Caption>
AMOUNT AT
WHICH
SHOWN IN THE
COST* VALUE BALANCE SHEET
------------ ------------ -------------

TYPE OF INVESTMENT:
BONDS
United States Government and government agencies
and authorities............................... $ 29,364,450 $ 30,667,363 $ 30,667,363
States, municipalities, and political
subdivisions.................................. 395,938,043 407,297,598 407,297,598
Foreign Governments.............................. -- -- --
Public Utilities................................. 823,049 748,125 748,125
Convertibles and bonds with warrants attached.... 14,090,269 13,859,313 13,859,313
All other corporate bonds........................ 9,654,972 8,452,673 8,452,673
Certificates of deposit............................ -- -- --
Redeemable preferred stock......................... 825,404 653,600 653,600
------------ ------------ ------------
Total fixed maturities...................... $450,696,187 $461,678,672 $461,678,672
============ ============ ============
EQUITY SECURITIES
Common Stocks...................................... 669,740 542,327 542,327
Public Utilities................................. 4,437,379 3,863,048 3,863,048
Banks, trusts and insurance companies............ 32,038,313 27,198,250 27,198,250
Non-redeemable preferred stock..................... 2,159,780 2,452,888 2,452,888
------------ ------------ ------------
Total equity securities..................... $ 39,305,212 $ 34,056,513 $ 34,056,513
============ ============ ============
Mortgage loans on real estate...................... $ 1,166,556 $ 1,166,556 $ 1,166,556
Real estate........................................ -- -- --
Policy loans....................................... -- -- --
Other long-term investments........................ 42,354,777 41,285,106 41,285,106
Short-term investments............................. -- -- --
------------ ------------ ------------
Total Investments........................... $533,522,732 $538,186,847 $538,186,847
============ ============ ============
</Table>

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

* Original cost of equity securities; original cost of fixed maturities adjusted
for amortization of premiums and accretion of discounts. All amounts are shown
net of impairment losses.

S-2

WIND RIVER INVESTMENT CORPORATION

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<Table>
<Caption>
FUTURE POLICY OTHER BENEFITS,
DEFERRED BENEFITS, POLICY CLAIMS,
POLICY LOSSES, CLAIMS AND NET LOSSES AND
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES
------- ----------- -------------- ------------ -------- ------------ ----------- ------------

2000:
Excess and Surplus
Lines.............. $ -- $ -- $ -- $ -- $ 40,504,000 $ -- $ 24,613,000
Specialty Admitted... -- -- -- -- 25,677,000 -- 18,408,000
Reinsurance.......... -- -- -- -- 70,750,000 -- 70,130,000
Corporate............ (8,000) 800,630,000 150,078,000 -- -- 22,490,000 --
Total................ $ (8,000) $ 800,630,000 $150,078,000 $ -- $136,931,000 $22,490,000 $113,151,000

2001:
Excess and Surplus
Lines.............. $ -- $ -- $ -- $ -- $ 59,004,000 $ -- $ 43,880,000
Specialty Admitted... -- -- -- -- 36,582,000 -- 29,075,000
Reinsurance.......... -- -- -- -- 54,750,000 -- 55,383,000
Corporate............ 428,000 907,357,000 214,028,000 -- -- 19,353,000 --
Total................ $ 428,000 $ 907,357,000 $214,028,000 $ -- $150,336,000 $19,353,000 $128,338,000

2002:
Excess and Surplus
Lines.............. $ -- $ -- $ -- $ -- $101,474,000 $ -- $128,642,000
Specialty Admitted... -- -- -- -- 53,039,000 -- 64,857,000
Reinsurance.......... -- -- -- -- 8,250,000 -- 8,251,000
Corporate............ 3,289,000 2,004,422,000 247,138,000 -- -- 17,685,000 --
Total................ $3,289,000 $2,004,422,000 $247,138,000 $ -- $162,763,000 $17,685,000 $201,750,000

<Caption>
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES WRITTEN
------- ------------ ----------- ------------

2000:
Excess and Surplus
Lines.............. $ -- $ $ 40,663,000
Specialty Admitted... -- -- 24,909,000
Reinsurance.......... -- -- 62,000,000
Corporate............ 280,000 2,918,000 --
Total................ $ 280,000 $ 2,918,000 $127,572,000

2001:
Excess and Surplus
Lines.............. $ -- $ -- $ 68,226,000
Specialty Admitted... -- -- 39,084,000
Reinsurance.......... -- -- 62,000,000
Corporate............ (436,000) 2,220,000 --
Total................ $ (436,000) $ 2,220,000 $169,310,000

2002:
Excess and Surplus
Lines.............. $ -- $ -- $112,110,000
Specialty Admitted... -- -- 60,579,000
Reinsurance.......... -- -- --
Corporate............ 2,861,000 5,874,000 --
Total................ $ 2,861,000 $ 5,874,000 $172,689,000
</Table>

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

S-3

WIND RIVER INVESTMENT CORPORATION

SCHEDULE IV -- REINSURANCE
EARNED PREMIUMS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<Table>
<Caption>
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
(DOLLARS IN THOUSANDS) -------- --------- ------------ ---------- ----------

2000
Property & Liability Insurance...... $374,179 $311,875 $74,627 $136,931 54%
2001
Property & Liability Insurance...... $547,963 $456,226 $58,599 $150,336 39%
2002
Property & Liability Insurance...... $750,426 $597,201 $ 9,538 $162,763 6%
</Table>

S-4

WIND RIVER INVESTMENT CORPORATION
SCHEDULE VI -- SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY UNDERWRITERS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<Table>
<Caption>
RESERVES FOR
DEFERRED UNPAID CLAIMS
POLICY AND CLAIM DISCOUNT IF ANY
ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED NET INVESTMENT
(DOLLARS IN THOUSANDS) COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME
- ---------------------- ----------- ------------- --------------- -------- -------- --------------

Consolidated Property
& Casualty Entities
2002............... $3,289 $2,004,422 $247,138 $162,763 $17,685
2001............... 428 907,357 214,028 150,336 19,353
2000............... (8) 800,630 150,078 136,931 22,490
Unconsolidated
Property Casualty
Entities(1)
2002...............
2001...............
2000...............
Proportionate share of
UNG and its
subsidiaries
50-percent-or-less-
owned property
casualty
investees(1)
2002...............
2001...............
2000...............

<Caption>
CLAIMS AND CLAIM
ADJUSTMENT EXPENSE AMORTIZATION OF PAID CLAIMS
INCURRED RELATED TO DEFERRED POLICY AND CLAIM
------------------------- ACQUISITION ADJUSTMENT PREMIUMS
(DOLLARS IN THOUSANDS) CURRENT YEAR PRIOR YEAR COSTS EXPENSES WRITTEN
- ---------------------- ------------ ---------- --------------- ----------- --------

Consolidated Property
& Casualty Entities
2002............... $130,327 $ 71,423 $(2,861) $ 97,714 $172,689
2001............... 134,558 (6,220) (436) 102,680 169,310
2000............... 123,476 (10,325) 280 149,892 127,572
Unconsolidated
Property Casualty
Entities(1)
2002...............
2001...............
2000...............
Proportionate share of
UNG and its
subsidiaries
50-percent-or-less-
owned property
casualty
investees(1)
2002...............
2001...............
2000...............
</Table>

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

(1) All of the Company's subsidiaries are 100% owned and consolidated.

S-5

EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

1.1* Form of Underwriting Agreement
2.1 Amended and Restated Investment Agreement, dated as of
September 5, 2003, by and among U.N. Holdings (Cayman),
Ltd., United National Group, Ltd., U.N. Holdings II, Inc.,
U.N. Holdings LLC, U.N. Holdings Inc., Wind River Investment
Corporation and certain Trusts Listed on Schedule A thereof
3.1* Amended and Restated Memorandum and Articles of Association
of United National Group Ltd.
3.2 Written Resolutions of the Board of Directors Designating
the Rights and Preferences of the Series A Preferred Shares
of United National Group, Ltd., dated September 5, 2003
4.1* Form of 5.0% Senior Note, due September 5, 2015, of Wind
River Investment Corporation
4.2* Deed of Guaranty, dated September 5, 2003, by United
National Group, Ltd. in favor of the holders of the 5.0%
Senior Notes, due September 5, 2015, of Wind River
Investment Corporation
5.1* Legal Opinion of Walkers
10.1* Amended and Restated Shareholders Agreement, dated as of
, 2003, by and among United National Group Ltd.,
U.N. Holdings (Cayman) Ltd. and those trusts signatory
thereto
10.2 Management Shareholders Agreement, dated as of September 5,
2003, by and among United National Group, Ltd. and those
management shareholder signatory thereto
10.3 Management Agreement, dated as of September 5, 2003, by and
among United National Group, Ltd., Fox Paine & Company, LLC
and The AMC Group, L.P., with related Indemnity Letter
10.4* United National Group, Ltd. Stock Incentive Plan
10.5 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Seth D.
Freudberg
10.6 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Richard S.
March
10.7 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Kevin L. Tate
10.8 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Robert Cohen
10.9 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and William F.
Schmidt
10.10 Employment Agreement, dated as of September 5, 2003, by and
between United National Insurance Company and Jonathan Ritz
11.1* Statement Regarding Computation of Per Share Earnings
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Walkers (included in Exhibit 5.1)
23.3* Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
23.4* Consent of David King & Co.
23.5* Consent of Appleby Spurling & Kempe
24.1+ Powers of Attorney
27.1* Financial Data Schedule
99.1* Form F-N
</Table>

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

* To be filed by amendment.

+ Previously filed.