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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549
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FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________________ TO
________________________
COMMISSION FILE NUMBER 0-13891
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NAC RE CORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

DELAWARE 13-3297840
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

ONE GREENWICH PLAZA, GREENWICH, CT 06836-2568
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 622-5200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.10 per share New York Stock Exchange

Preferred Stock Purchase Rights New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None
(TITLE OF CLASS)

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

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

The aggregate market value on March 3, 1998 of the voting stock held by
non-affiliates of the registrant was approximately $862 million.

There were 18,369,389 shares outstanding of the Registrant's Common Stock,
$.10 par value as of March 3, 1998.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the 1997 Annual Report to Shareholders, as indicated herein
(Parts I and II).

(2) Proxy Statement involving the election of directors and other matters which
the registrant intends to file with the Commission within 120 days after
December 31, 1997 (Part III).

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NAC RE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS

PAGE
ITEM NUMBER
- --------- -------------

PART I

1. Business.......................................................................................... 1

2. Properties........................................................................................ 14

3. Legal Proceedings................................................................................. 14

4. Submission of Matters to a Vote of Security Holders............................................... 14

PART II

5. Market for the Registrant's Common Stock and Related Stockholder Matters.......................... 15

6. Selected Financial Data........................................................................... 15

7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 15

8. Financial Statements and Supplementary Data....................................................... 16

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............. 16

PART III

10. Directors and Executive Officers.................................................................. 16

11. Executive Compensation............................................................................ 16

12. Security Ownership of Certain Beneficial Owners and Management.................................... 16

13. Certain Relationships and Related Transactions.................................................... 16

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 16

PART I

ITEM 1. BUSINESS

HISTORY

NAC Re Corp. ("NAC Re") is a Delaware corporation that was organized on June
27, 1985 for the purpose of holding all the outstanding shares of common stock
of NAC Reinsurance Corporation ("NAC"), a property and casualty reinsurance
company. Based on industry data published by the Reinsurance Association of
America ("RAA") as of December 31, 1997, NAC is the 8th largest reinsurance
company in the United States, ranked by statutory surplus. NAC is the parent
company of three subsidiaries: Greenwich Insurance Company, Indian Harbor
Insurance Company and NAC Re International Holdings Limited. NAC Re and its
subsidiaries are collectively referred to as the Company.

NAC was incorporated in New York in 1929 and from 1939 until April 30, 1984,
NAC was a wholly-owned subsidiary of CIT Financial Corporation ("CIT"). On April
30, 1984, CIT transferred ownership of NAC to RCA Corporation ("RCA"), the then
parent corporation of CIT. On May 24, 1984, Kramer Capital Corporation ("KCC"),
through Grey Eagle Enterprises, Inc., a Delaware corporation owned 95% by KCC
and 5% by the former President and Chief Operating Officer of NAC, acquired NAC
from RCA. After completion of a public offering in October 1985, KCC controlled
approximately 51% of the Common Stock of NAC Re. On January 8, 1987, following
the approval of their respective stockholders, KCC was merged into NAC Re. As a
result of the merger, NAC Re became 100% publicly owned.

NAC is licensed to write reinsurance in all 50 states, the District of
Columbia, Puerto Rico and all provinces of Canada. Prior to 1977, NAC wrote both
primary insurance and reinsurance business for a variety of risks. Because of
substantial losses incurred from such business, NAC discontinued writing any
significant new insurance or reinsurance and was operated as a run-off company
from 1977 to 1981. NAC's reserves, net of reinsurance recoverables, for business
written prior to 1977, which includes aircraft and marine risks, general
liability, medical, accountant's and attorney's malpractice, other professional
risks and foreign risks, are approximately $39.5 million or less than 3% of
total net claims and claims expense reserves as of December 31, 1997.

In 1990, NAC acquired Greenwich Insurance Company ("Greenwich"), formerly
Harbor Insurance Company, from The Continental Corporation. All liabilities
incurred before the acquisition date, including insurance obligations under
expired as well as in-force business, remained with the previous owner and its
affiliates. Greenwich writes principally primary insurance and is licensed in
all 50 states to write primary insurance and reinsurance.

In 1992, NAC received regulatory authorization for a newly formed insurance
subsidiary, Indian Harbor Insurance Company ("Indian Harbor"). As a surplus
lines carrier, Indian Harbor is licensed in only its state of domicile, North
Dakota, and writes primary business on a nonadmitted basis in selected states.

In December 1993, NAC, through NAC Re International Holdings Limited, formed
and received U.S. and U.K. regulatory authorization for a new reinsurance
subsidiary, NAC Reinsurance International Limited ("NAC Re International"),
based in London, England. NAC Re International, capitalized as of December 31,
1997 with approximately $148.5 million, primarily writes non-U.S. international
property and casualty treaty and facultative reinsurance business. During 1997,
NAC Re International Holdings Limited formed a subsidiary, Stonebridge
Underwriting, Ltd., which is participating as a corporate capital vehicle on a
Lloyd's syndicate commencing with underwriting year 1998. See Note 10 of the
Notes to the Consolidated Financial Statements of NAC Re for further discussion.

GENERAL

The Company, through NAC and its subsidiaries, is principally engaged in
providing treaty and facultative reinsurance to primary insurers of casualty
risks (principally general liability, professional liability, automobile and
workers' compensation) and commercial and personal property risks (including
fidelity/surety and ocean marine). In consideration for reinsuring risks, the
Company receives premiums from the primary insurer. In many cases, the Company
reinsures part of its risk with other reinsurers and pays a premium to such
reinsurers.

Reinsurance provides primary insurers with three principal benefits:
reducing net exposure on individual risks, protecting against catastrophic
losses and maintaining acceptable capital ratios. Retrocessions provide
reinsurers with similar benefits. Reinsurance, including retrocessions, does not
legally discharge the reinsured from its liability with respect to its
obligations to the policyholder.

The Company generally writes property and casualty treaty business through
reinsurance brokers, facultative business on a direct basis (directly with the
primary company), and fidelity/surety and ocean marine through both reinsurance
brokers and on a direct basis.

Treaty reinsurance is a contractual arrangement that provides for the
automatic reinsuring by the Company of a specified type or category of risks
underwritten by the primary insurer. Typically, the primary insurer is required
to cede the agreed type or category of risks to the Company and the Company is
obligated to accept a specified portion of such risks. The Company determines
whether to write particular treaties based on many factors, including the
reinsured's risk management and underwriting practices. In treaty reinsurance,
the reinsurer typically does not separately evaluate each of the individual
risks assumed and, within prescribed parameters, is generally dependent on the
underwriting decisions made by the primary insurer. Such dependence subjects the
reinsurer to the risk that the primary insurer has not adequately determined the
risk to be reinsured and, accordingly, the premium ceded to the reinsurer in
connection therewith may not adequately compensate the reinsurer for the risk
assumed. Treaty reinsurance, including fidelity/surety business, constitutes
approximately 76% of the Company's business.

Facultative reinsurance is the reinsurance of individual risks; rather than
an agreement to reinsure all or a portion of a class of risks, the reinsurer
separately rates and underwrites each risk. A portion of the Company's
facultative business is written on an "automatic" basis. Automatic facultative
agreements provide coverage on a blanket basis for risks which would otherwise
be reinsured on an individual basis. Eligible risks must be underwritten by the
cedant in accordance with agreement guidelines, which are generally more
restrictive than typical treaty arrangements. Traditionally, risks covered by
facultative reinsurance are those excluded from coverage by treaty reinsurance.

Approximately 54% of the Company's business in 1997 was written on an excess
of loss basis, under which the Company indemnifies an insurer for a portion of
the losses on insurance policies in excess of a specified loss amount, generally
$1 million or more, and up to an amount per loss specified in the contract. The
balance of the Company's business is written on either a pro rata basis under
which the Company assumes from the primary insurer a percentage of loss
specified in the treaty of each risk in the reinsured class or on a primary
insurance basis as discussed below.

Premiums that the primary insurer pays to the reinsurer for excess of loss
coverage are not directly proportional to the premiums that the primary insurer
receives because the reinsurer does not assume a proportionate risk. In most
instances, the reinsurer does not pay commissions to the primary insurer in
connection with excess of loss reinsurance. In pro rata reinsurance, premiums
that the primary insurer pays to the reinsurer are proportional to the premiums
that the primary insurer receives and the reinsurer generally pays the primary
insurer a ceding commission. Generally, the ceding commission is based on the
primary insurer's cost of obtaining the business being reinsured, such as
commission, local taxes, settlement costs and miscellaneous administrative
expenses.

The amount of premium received by the reinsurer for reinsuring risks on a
pro rata basis is generally based on the primary insurer's initial underwriting
assumptions. Thus, if the primary insurer does not accurately estimate the
ultimate losses to be incurred on the risks insured, the reinsurer may also
incur an underwriting loss. Excess of loss reinsurance allows the flexibility to
negotiate a premium based on the reinsurer's own estimate of the actual amount
of losses to be incurred. However, as a practical matter, the rates charged by
primary insurers and the policy terms of primary insurance agreements may affect
the rates charged and the policy terms associated with reinsurance agreements.

The Company also writes primary program insurance business through Greenwich
and Indian Harbor. The principle lines of primary business written include
automobile, auto warranty, aviation, multiple peril and inland marine. The
business is written principally through participation in underwriting pools and
contractual relationships with managing general agents and general agents. The
Company evaluates each business relationship based upon the underwriting
experience and operational expertise of each distribution channel selected, and
performs an analysis to evaluate financial security. The Company periodically
performs underwriting, claims and operational audits of each pool and agency
relationship.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of the Company's premium revenues.

COMPETITION

The property and casualty reinsurance industry has been characterized by
severe price competition over the last few years. The Company competes with
numerous international and domestic reinsurance companies. These competitors,
several of which have far greater financial and other resources, include
independent reinsurance companies and subsidiaries or affiliates of established
worldwide insurance companies. They also include the reinsurance departments of
some primary insurance companies and underwriting syndicates in Lloyd's.

Competition in the types of reinsurance business in which the Company is
engaged is based on many factors. These factors include perceived overall
financial strength, size, premiums charged, limits capacity, A.M. Best Company's
("A.M. Best") ratings (see Ratings discussion), services offered, underwriting
expertise and quality of claims management. The number of jurisdictions in which
a reinsurer is licensed to do business is also a factor. The Company believes
that the A.M. Best "A+" rating and the Standard and Poor's ("S&P") "AA-" rating
of NAC and its domestic subsidiaries, its nationwide licensing, its reputation
for prompt claims payment and a high level of client service, together with its
limits capacity and surplus size, put it in a favorable position to compete for
new reinsurance opportunities and retain its existing client base.

See Industry Overview included in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of current
market conditions.

REGULATION

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 11 of the Notes to the Consolidated Financial Statements
of NAC Re for a discussion of the regulatory issues that impact the Company.

MARKETING

The Company obtains substantially all of its treaty business through
reinsurance brokers. The Company evaluates the financial condition of its
reinsurance brokers on a regular basis. The Company generally pays brokers from
1% to 2.5% of premiums ceded on pro rata business, 5% on "working layer" excess
of loss reinsurance (i.e., reinsurance attaching within the first $1 million of
coverage), and 10% on "non-working layer" excess of loss reinsurance (i.e.,
reinsurance attaching at or above the $1 million layer).

The reinsurance broker typically represents the primary insurer in negotiating
and purchasing reinsurance. The Company's facultative reinsurance generally is
written on a direct basis, with the exception of automatic agreements which may
be written through reinsurance brokers.

See Note 10 of the Notes to the Consolidated Financial Statements of NAC Re
for information regarding the Company's major clients and brokers.

UNDERWRITING

Underwriting opportunities presented to the Company are evaluated based upon
a number of factors, including the type and layer of risk to be assumed,
actuarial evaluation of premium adequacy, the primary insurer's underwriting and
claims experience, the primary insurer's financial condition and A.M. Best's
rating, the Company's exposure and experience with the primary insurer and the
line of business to be underwritten. The Company will also perform on-site
underwriting reviews of the primary insurers where deemed necessary to determine
the quality of a current or prospective client's underwriting operation.

CLAIMS

Claims are managed by the Company's professional claims staff whose
responsibilities include reviewing initial loss reports and coverage issues,
monitoring claims handling activities of ceding companies, establishing and
adjusting proper case reserves and approving payment of claims. In addition to
claims assessment, processing and payment, the claims staff selectively conducts
comprehensive claims audits of both specific claims and overall claims
procedures at the offices of selected ceding companies.

RESERVES

The Company establishes reserves to provide for the ultimate settlement and
administration of claims for losses, including both claims that have been
reported to the Company and claims for losses that have occurred but have not
been reported to the Company.

The Company establishes reserves for reported claims when it first receives
notice of the claim and may change the reserve as new information becomes known.
It is the Company's policy not to establish a reserve less than the reserve
established by the primary insurer; in many cases, the Company sets up a reserve
higher than the reserve established by the ceding company based on its
evaluation of the claim. In the case of excess of loss reinsurance, reserves are
established on a case by case basis by evaluating several factors. These factors
include the type of claim involved, the circumstances surrounding such claim,
the severity of injury or damage, the Company's experience with the primary
insurer and the policy provisions relating to the type of claim. The Company
regularly adjusts its reserves to reflect newly reported claims, inflation and
other developments. The Company periodically conducts claims audits of its
ceding companies to determine if the amount recommended by the primary insurer
is sufficient or should be increased. Reserves for incurred but not reported
(IBNR) claims are established on the basis of actuarial analysis of statistical
loss information, which is utilized to project ultimate claims costs. Actuarial
reviews of the Company's reserves are conducted quarterly by actuaries employed
by the Company.

Claims reserves are only estimates at a given point in time, based on facts
and circumstances then known, of the amount the insurer or reinsurer expects to
pay on claims. It is possible that the ultimate liability may exceed or be less
than such estimates. The estimates are not precise inasmuch as, among other
things, they are based on predictions of future events and estimates of future
trends in claims severity and frequency and other variable factors. As
additional facts become known during the claim settlement period, it often
becomes necessary to refine and adjust the estimates of liability on a claim
and, even then, the ultimate liability may exceed or be less than the revised
estimates. The estimation of reserves for reinsurers, particularly those that
have experienced recent substantial growth in premium revenues, such as the
Company, is inherently more difficult than the reserve estimations of primary
companies or reinsurers with a fairly stable volume of business and loss
history.

The reserving process is intended to provide implicit recognition of the
impact of inflation and other factors affecting claims payments by taking into
account changes in historical payment patterns and perceived probable trends
(note additional consideration for workers' compensation case reserves as
described below). There is generally no precise method, however, for
subsequently evaluating the adequacy of the consideration given to inflation or
to any other specific factor, because the eventual deficiency or redundancy of
reserves is affected by many factors, some of which are interdependent.

The Company's reserving process includes periodic evaluation of the
potential impact on claims liabilities from exposure to asbestos and
environmental claims, including related loss adjustment expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of the Notes to the Consolidated Financial Statements of
NAC Re for a discussion of asbestos and environmental claims.

The Company establishes claims expense reserves to provide for the ultimate
cost of investigating all claims, administering the claims payment process and
defending lawsuits arising from claims. Such claims expense reserves represent
estimates based on actual experience and historical data such as the ratio of
claims expenses to claims paid and other currently available information. Claims
expense reserves comprise "allocated expenses" (those directly attributable to
the specific risk being covered) and "unallocated expenses" (those expenses not
directly attributable to a given risk, such as overhead, administrative expenses
and salary).

Except for certain workers' compensation case reserves, the Company does not
discount its reserves in an attempt to present-value the claims or claims
expenses. The Company utilizes tabular reserving for certain workers'
compensation case reserves that are considered fixed and determinable, and
discounts such reserves using a 7% interest rate for financial statements
prepared in accordance with generally accepted accounting principles (GAAP) and
a 5% interest rate for statutory accounting purposes. Tabular reserving
methodology results in applying uniform and consistent criteria for establishing
expected future indemnity and medical payments (including an explicit factor for
inflation) and the use of mortality tables to determine expected payment
periods.

A reconciliation of the difference between the reserves for claims and
claims expenses determined in accordance with GAAP and those recorded for
statutory reporting purposes is as follows:

(IN THOUSANDS)
----------------------------------------

1997 1996 1995
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Domestic liability reported on a statutory basis, net of reinsurance.... $ 1,319,908 $ 1,036,227 $ 914,045
International liability, net of reinsurance............................. 91,528 74,530 42,414
Difference in discount rate applied to workers' compensation case
reserves, net......................................................... (4,300) (3,540) (2,790)
Reinsurance recoverable................................................. 196,836 406,128 338,746
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Consolidated liability reported on a GAAP basis, gross of reinsurance... $ 1,603,972 $ 1,513,345 $ 1,292,415
------------ ------------ ------------
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Note 4 of the Notes to the Consolidated Financial Statements of NAC Re
provides a table which analyzes paid and unpaid claims and claims expenses and a
reconciliation of beginning and ending reserve balances for the years ended
December 31, 1997, 1996 and 1995. Included in such analysis is a discussion of
certain factors which impact both current and prior year claims activity.

The following table on page 7 represents the development of GAAP balance
sheet reserves for 1987 through 1997. The top line of the table shows the
reserves, net of reinsurance recoverables, at the balance sheet date for each of
the indicated years. This represents the estimated amounts of net claims and
claims expenses arising in all prior years that are unpaid at the balance sheet
date, including IBNR. The reserve

for claims and claims expenses for 1988 and subsequent years is net of the 7%
discount related to workers' compensation tabular reserves. The upper portion of
the table shows the re-estimated amount of the previously recorded reserve based
on experience as of the end of each succeeding year. The estimate changes as
more information becomes known about the frequency and severity of claims for
individual years. The re-estimated reserve for each year reflects the 7%
discount related to workers' compensation tabular reserves. The "Cumulative
Redundancy (Deficiency)" represents the aggregate change in the estimates over
all prior years. The lower portion of the table shows the cumulative amounts
paid as of successive years with respect to that reserve liability. The table on
page 8 represents the claim development of the gross balance sheet reserves for
years 1992 through 1997.

With respect to the information in the table below, it should be noted that
each amount includes the effects of all changes in amounts for prior periods.
For example, the amount of the deficiency related to claims settled in 1990, but
incurred in 1987, will be included in the cumulative deficiency amount for years
1987, 1988 and 1989. This table does not present accident or policy year
development data. Conditions and trends that have affected development of the
liability in the past may not necessarily occur in the future. Accordingly, it
may not be appropriate to extrapolate future reserve development based on these
tables. For further discussion of reserve and retrocessional activity see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 4 and 6 of the Notes to the Consolidated Financial
Statements of NAC Re.

DEVELOPMENT OF CLAIMS AND CLAIMS EXPENSE RESERVES
NET OF REINSURANCE RECOVERABLES
(IN MILLIONS)

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ------
RESERVE FOR CLAIMS AND CLAIMS EXPENSES, NET OF REINSURANCE
RECOVERABLES.............................................. $201 $292* $388 $469 $529 $626 $697 $808 $954 $1,107 $1,407
RESERVE RE-ESTIMATED AS OF:
One year later............................................ 209* 293 384 460 494 602 653 788 921 1,068
Two years later........................................... 214 289 376 427 464 548 648 755 882
Three years later......................................... 214 281 350 407 423 549 630 724
Four years later.......................................... 213 258 336 379 424 531 606
Five years later.......................................... 199 253 321 392 417 531
Six years later........................................... 203 245 331 391 425
Seven years later......................................... 199 265 336 409
Eight years later......................................... 226 273 352
Nine years later.......................................... 234 283
Ten years later........................................... 239
CUMULATIVE REDUNDANCY (DEFICIENCY).......................... (38) 9 36 60 104 95 91 84 72 39
PERCENTAGE.................................................. (19%) 3% 9% 13% 20% 15% 13% 10% 8% 4%
CUMULATIVE AMOUNT OF LIABILITY PAID, NET OF REINSURANCE
RECOVERABLES, PAID THROUGH:
One year later............................................ $23 $34 $60 $81 $65 $104 $119 $140 $146 $27
Two years later........................................... 48 73 109 126 116 173 207 233 161
Three years later......................................... 72 102 134 166 158 229 258 240
Four years later.......................................... 91 117 161 197 199 261 246
Five years later.......................................... 101 133 179 226 220 257
Six years later........................................... 112 148 200 244 213
Seven years later......................................... 125 163 213 240
Eight years later......................................... 137 174 212
Nine years later.......................................... 148 176
Ten years later........................................... 151

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* The reserve for claims and claims expense, net of reinsurance recoverables
for 1988 and subsequent years is net of the 7% discount related to certain
workers' compensation case reserves. The re-estimated reserve for each year
includes the discount effect.

DEVELOPMENT OF CLAIMS AND CLAIMS EXPENSE RESERVES

GROSS OF REINSURANCE RECOVERABLES
(IN MILLIONS)

YEAR ENDED DECEMBER 31,
-----------------------------------------------------

1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
GROSS RESERVE FOR CLAIMS AND CLAIMS EXPENSES:....................... $ 808 $ 909 $ 1,086 $ 1,292 $ 1,513
Reserve re-estimated as of:
One year later.................................................... 798 873 1,097 1,280 1,446
Two years later................................................... 755 882 1,093 1,208
Three years later................................................. 773 888 1,028
Four years later.................................................. 774 832
Five years later.................................................. 742
CUMULATIVE REDUNDANCY (DEFICIENCY).................................. 66 77 58 84 67
PERCENTAGE.......................................................... 8% 8% 5% 7% 4%

1997
---------
GROSS RESERVE FOR CLAIMS AND CLAIMS EXPENSES:....................... $ 1,604
Reserve re-estimated as of:
One year later....................................................
Two years later...................................................
Three years later.................................................
Four years later..................................................
Five years later..................................................
CUMULATIVE REDUNDANCY (DEFICIENCY)..................................
PERCENTAGE..........................................................

RETROCESSION AGREEMENTS

Reinsurance companies enter into retrocession arrangements to increase
aggregate premium capacity and to reduce the risk of loss on reinsurance
underwritten. Historically, the Company has obtained reinsurance for itself
primarily through excess of loss reinsurance agreements. The Company has also
obtained reinsurance protection against liability on a single event arising from
several different treaty obligations, and reinsurance protection against
liability arising from related losses involving more than one reinsured or
contract. The Company's retrocession agreements are generally structured on a
treaty basis, and cover both its treaty and facultative business. The Company
has occasionally purchased specific retrocessional protections for certain
business that may be specifically excluded from its retrocessional agreements.

The Company retrocedes its risks to other reinsurers both through
reinsurance brokers and on a direct basis. The retrocession of risks
underwritten by the Company does not legally discharge the Company from
liability for any part of the risk reinsured. The Company would be required to
absorb the full amount of the loss associated with the reinsured risk if the
retrocessionnaire were unable to or failed to meet its reinsurance obligations
for any reason. The Company evaluates the financial condition of
retrocessionnaires prior to the commencement of underwriting activities and at
least annually thereafter. The Company utilizes financial guidelines to assess
the retrocessionnaires' ability to satisfy future claim obligations. The
Company's retrocessionnaires are subject to periodic evaluation to ensure that
there have been no significant adverse changes in their financial condition.

In the case of retrocessionnaires that are unable to meet their obligation
under the retrocessional agreement or do not satisfy the Company's financial
guidelines, a reserve for actual and potential non-recovery is established,
which includes a provision for paid and unpaid claims and claims expenses,
inclusive of IBNR claims. The reserve for non-recoveries is continually reviewed
and updated to reflect current activity and developments. The Company evaluates
its exposure to reinsurance recoveries after considering the extent to which it
has collateralized the retrocessionnaires' balances by letters of credit, trust
accounts or funds withheld.

At December 31, 1997, the Company had reinsurance recoverables, exclusive of
available offsets, in the form of letters of credit, trust accounts and funds
withheld, totaling $238.8 million, with approximately 165 domestic and 147
foreign retrocessionnaires. The Company had no amounts recoverable from a single
entity or group of entities that exceeded 5% of stockholders' equity as of
December 31, 1997.

The Company evaluates its retrocessional requirements in relation to many
factors, including its surplus capacity, gross line capacity (amount of risk of
loss assumed on any one contract) and changing market conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 6 of the Notes to Consolidated Financial Statements for
information regarding the Company's retrocessional arrangements.

The following discussion outlines the Company's gross lines and net
retentions for the years indicated.

1998

The following table summarizes the Company's expected gross lines, initial
and maximum retentions on any one claim for 1998:

(IN MILLIONS)
-------------------------------

GROSS INITIAL MAXIMUM
LINE RETENTION RETENTION
------ --------- -------
Casualty Treaty and Casualty Facultative Automatics............................. $ 7.5(1) $5.0 $5.0(2)
Casualty Facultative (3)........................................................ $ 7.5 $3.0 $3.0
Property Treaty................................................................. $ 7.5(1) $3.0 $5.0(4)
Property Facultative............................................................ $100.0 $3.0 $3.0
Surety.......................................................................... $ 20.0(5) $2.0 $4.0
Ocean Marine.................................................................... $ 25.0(6) $1.0 $1.0

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(1) The Company has reinsurance protection which provides additional per risk or
per occurrence protection in excess of $7.5 million.

(2) The maximum retention could increase to $10 million in certain limited
circumstances.

(3) Individual risk only.

(4) The maximum retention could increase to $6.2 million in certain limited
circumstances.

(5) Per Principal.

(6) Per Event.

The Company's 1998 reinsurance program for multiple claims arising from two
or more risks in a single occurrence or event is indicated below:

PROPERTY--Property business is protected by two sets of retrocessional
agreements. The first set of agreements provides protection for a total of $97
million in excess of an initial retention of $5 million for loss events within
the United States and Canada. NAC's retention gradually increases up to an
additional $3 million should gross losses exceed $60 million. The second set of
agreements provides protection for loss events that occur outside of United
States and Canada for 100% of $65 million in excess of an initial retention of
$5 million. Both sets of agreements are on a first and second event basis.

WORKERS' COMPENSATION--100% of $195 million in excess of a $5 million
retention for any one occurrence.

CASUALTY CONTINGENCY COVER--100% of $25 million in excess of $5 million for
any one occurrence.

In addition to the above reinsurance protections, the Company has coverage
in the event the accident year claims and claims expense ratio exceeds a
predetermined amount.

1997

The following table summarizes the Company's gross lines, initial and
maximum retentions on any one claim for 1997:

(IN MILLIONS)
-------------------------------

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

(1) The Company has reinsurance protection which provides additional per risk or
per occurrence protection in excess of $7.5 million.

(2) The maximum retention could increase to $10 million in certain limited
circumstances.

(3) Individual risk only.

(4) The maximum retention could increase to $6.2 million in certain limited
circumstances.

(5) Per Principal.

(6) Per Event.

The Company's 1997 reinsurance program for multiple claims arising from two
or more risks in a single occurrence or event is indicated below:

PROPERTY--Property business is protected by a series of retrocessional
agreements which provide protection for 100% of $115 million in excess of $5
million on a first and second event. Within the Company's $115 million of
catastrophe protection, $25 million of protection in excess of the first $55
million of protection, is available only if industry-wide claims exceed certain
minimum levels.

WORKERS' COMPENSATION--100% of $195 million in excess of a $5 million
retention for any one occurrence.

CASUALTY CONTINGENCY COVER--100% of $25 million in excess of $5 million for
any one occurrence.

In recognition of the Company's strong surplus position and financial
capacity, and the continued positive contribution of business written since
1986, the Company terminated two retrocessional programs effective January 1,
1997. The Company received total consideration of approximately $225 million
representing reinsurance recoverable balances for unpaid claims and claims
expenses of approximately the same amount. The termination of these programs has
resulted in an increase in net retention levels for the years 1996 and prior.
Particularly as the casualty book of business matures, the increase in net
retentions for these years may result in increased volatility in future years to
the extent the actual frequency and severity of claims differs from management's
current estimates. The Company believes its exposure to such volatility is
within acceptable levels. Refer to the following tables and discussion for the
impact of the termination on the Company's 1996 retrocessional programs.

1996

The following table summarizes the Company's gross lines, initial and
maximum retention on any one claim for 1996:

(IN MILLIONS)
---------------------------------------------------------------------------

INITIAL RETENTION MAXIMUM RETENTION
-------------------------------- ------------------------------

GROSS BEFORE AFTER BEFORE AFTER
LINE TERMINATION TERMINATION TERMINATION TERMINATION
--------- --------------- --------------- --------------- -------------

Casualty Treaty and Casualty Facultative........... $ 7.5 $ 2.0 $ 7.5 $ 5.0 $ 7.5
Property Treaty.................................... $ 7.5 $ 2.0 $ 7.5 $ 4.0 $ 7.5
Property Facultative............................... $ 75.0 $ 2.0 $ 5.0 $ 3.7 $ 5.0
Surety............................................. $ 20.0 $ 2.0 $ 7.5 $ 4.0 $ 12.5

The Company's 1996 reinsurance program for multiple claims arising from two
or more risks in a single occurrence or event is indicated below:

PROPERTY--Property business is protected by a series of reinsurance
agreements which provide protection for 100% of $120 million in excess of $5
million on a first and second event. Certain of the Company's retrocessional
protection is available only if industry-wide claims exceed certain minimum
levels. Within the Company's $120 million of catastrophe protection, $30 million
of coverage, in excess of the first $60 million of coverage, is available only
if industry-wide claims exceed certain minimum levels. As a result of the
termination of the retrocessional programs, the protection has been reduced by
$10 million, increasing the Company's initial and maximum retentions to $10
million and $15 million, respectively. This coverage was not subject to an
industry-wide claims minimum. The Company is unaware of any property catastrophe
claim in excess of $5 million that would initiate this coverage.

WORKERS' COMPENSATION--100% of $195 million in excess of a $5 million
retention for any one occurrence. This protection was not affected by the
termination of the retrocessional programs.

CASUALTY CONTINGENCY COVER--100% of $25 million in excess of $5 million for
any one occurrence. As a result of the termination of the retrocessional
programs, the protection has been reduced by $10.8 million, increasing the
Company's initial and maximum retentions to $7.5 million and $15.8 million,
respectively. However, the maximum retention could exceed these retention levels
should the net loss from any one insured or reinsured exceed the casualty
contingency agreements' maximum net retention warranty. The maximum net
retention warranty for 1996 was $5 million for treaty and facultative automatics
and $3.7 million for individual risk facultative certificates.

INVESTMENTS

The Finance and Investment Committee (the "Committee") of NAC Re's Board of
Directors is responsible for establishing investment policy and guidelines and
for overseeing their execution. The Company utilizes independent investment
advisors to manage its investment portfolio within the established guidelines.
These advisors are required to report investment transaction activities and
portfolio results on a periodic basis and to meet periodically with the
Committee to review and discuss portfolio structure, security selection and
performance results.

The investment strategy, established by the Committee and management,
focuses on income predictability and asset value stability. Accordingly, the
Company emphasizes investment grade fixed maturity securities. For statutory
accounting purposes, investment grade securities are recorded at amortized cost
and, therefore, statutory surplus is not impacted by fluctuations in their
market value. For GAAP reporting purposes, all of the Company's fixed maturities
and equity securities are categorized as available for sale and are recorded at
their fair value. Periodic changes in fair value are recorded directly in the
Company's stockholders' equity, net of applicable deferred taxes.

A summary of the Company's investment portfolio as of December 31, 1997 and
1996 is set forth below:

(IN THOUSANDS)
DECEMBER 31,
---------------------------------------------------

1997 1996
------------------------- ------------------------

CARRYING % OF CARRYING % OF
VALUE PORTFOLIO VALUE PORTFOLIO
------------ ----------- ------------ ----------

Cash and short-term............................................ $ 116,919 5.0% $ 100,746 5.1%
------------ ----- ------------ ----------
Fixed maturities:
U.S. Treasury................................................ 14,507 0.6 70,608 3.6
Tax-exempt................................................... 1,250,973 53.3 848,390 42.8
Foreign Government........................................... 172,321 7.3 161,988 8.1
Corporate.................................................... 425,857 18.1 376,826 19.0
Mortgage-backed.............................................. 216,845 9.2 189,748 9.6
Subordinated convertibles.................................... 8,085 0.4 55,977 2.8
------------ ----- ------------ ----------
Subtotal..................................................... 2,088,588 88.9 1,703,537 85.9
------------ ----- ------------ ----------
Equity securities.............................................. 142,527 6.1 179,619 9.0
------------ ----- ------------ ----------
Total........................................................ $ 2,348,034 100.0% $ 1,983,902 100.0%
------------ ----- ------------ ----------
------------ ----- ------------ ----------

Guidelines established by the Committee restrict the portion of the
portfolio that can be held in lower rated or non-investment grade securities.
Consistent with the Company's focus on asset quality, at December 31, 1997,
approximately 94% of the Company's fixed maturity investments were considered
"investment grade" by Moody's Investor Services, Inc., ("Moody's") or S&P.

The guidelines also address portfolio diversification by establishing
certain restrictions regarding the portion of the investment portfolio that can
be invested in a particular security, issuer, an industry sector or, in the case
of tax-exempt securities, in a state or municipality. Such restrictions do not
apply to investments in direct or indirect obligations of the U.S. Government
(i.e., US Treasury and GNMA Securities), which comprised 3.2% of the Company's
cash and invested assets at December 31, 1997.

The portfolio guidelines generally prohibit investment in derivative
products (i.e., products which include features such as futures, forwards,
swaps, options and other investments with similar characteristics), without
prior approval and written authorization by the Committee. Such authorization
would be provided only after obtaining regulatory approval and evaluating a
written plan submitted by the advisor which documents the strategy, the
objective, a description of the size and nature of each transaction, the
expected return, the costs/benefits, and the possible risk factors. The Company
did not own any derivative investment products as of December 31, 1997.

The portfolio guidelines permit the purchase of certain securities which
derive their values or their contractually required cash flows from other
securities, such as mortgage-backed securities, where the underlying collateral
is a pool of residential or commercial real estate mortgages. These securities
are generally considered to have high credit quality since they are either
government or quasi-government agency-backed or are equivalent to a "AAA"
rating. The risks associated with mortgage-backed securities are interest rate
risk (as with all fixed-rate securities) and prepayment risk or extension risk
which may result in a decline in the expected return and/or value of the
security. Prepayment or extension of principal payments occur and can be
exacerbated depending upon the level of interest rates in the marketplace.
Mortgage-backed securities in the Company's investment portfolio totaled $216.8
million at December 31, 1997, of which 40.9% are collateralized mortgage
obligations (CMO's) which generally reduce the uncertainty concerning the
maturity of a mortgage-backed security.

Uncertainties exist regarding interest rates and inflation and their
potential impact on the market values of the Company's fixed income securities.
The Company actively considers the risks and financial rewards associated with
the maturity distribution of its fixed income portfolio. In this regard, the
Company takes into consideration the pattern of expected claims payments and the
Company's future cash flow projections in evaluating its investment
opportunities. Consistent with the payment profile of the Company's claims
reserve liabilities, and based upon the expected maturity of fixed maturity
investments as of December 31, 1997, the Company's fixed maturity investments
which include mortgage-backed securities but exclude convertible securities, had
an expected average maturity of 7.9 years.

A summary of expected maturities of the Company's fixed maturity investments
is set forth below:

(IN THOUSANDS)
DECEMBER 31, 1997
-------------------------------

CARRYING VALUE % OF PORTFOLIO
-------------- ---------------
Less than 1 year............................................... $ 22,553 1.1%
1-5 years...................................................... 608,280 29.1
6-10 years..................................................... 1,020,735 48.8
11-15 years.................................................... 337,877 16.2
16-20 years.................................................... 18,775 0.9
More than 20 years............................................. 72,283 3.5
-------------- -----
Subtotal....................................................... 2,080,503 99.6
Convertibles................................................... 8,085 0.4
-------------- -----
Total.................................................... $ 2,088,588 100.0%
-------------- -----
-------------- -----

The balance of the Company's investment portfolio at December 31, 1997,
consisting of cash, short-term investments and equity securities, amounted to
$259.4 million. The Company's equity investment strategy is designed to build a
quality equity portfolio. As of December 31, 1997, the Company held $142.5
million or 6.1% of cash and invested assets in equity securities, representing
20.3% of statutory surplus. The Company does not hold any direct investments in
real estate. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for further discussion of the Company's investing
activities and results.

RATINGS

NAC, Greenwich, Indian Harbor and NAC Re International, comprising the NAC
Re group of companies, have been assigned an "A+" (Superior) rating as
determined by A.M. Best, and published in A.M. Best Rating Service,
Property/Casualty Edition. An "A+", which is A.M. Best's second highest rating,
is assigned to companies which have demonstrated superior overall performance
when compared to established standards. Such companies are considered by A.M.
Best to have demonstrated a very strong ability to meet their obligations to
policyholders over a long period of time.

NAC and its domestic subsidiaries, as well as NAC Re International, have
been assigned a "AA-" claims-paying rating from S&P, which is S&P's fourth
highest rating. A "AA-" is assigned to insurers that offer excellent financial
security. The Company's capacity to meet policyholder obligations is considered
strong under a variety of economic and underwriting conditions. NAC Re
International is supported by a Net Worth Maintenance Agreement with NAC
pursuant to which NAC has agreed to provide certain specified financial support
to NAC Re International in meeting its regulatory standards and liquidity needs,
subject to regulatory requirements on NAC.

Both the A.M. Best rating and S&P claims-paying rating are based upon
factors of concern to policyholders and should not be considered an indication
of the degree or lack of risk involved in an equity investment in an insurance
or reinsurance company.

NAC Re debt instruments have the following investment grade ratings from S&P
and Moody's:

S&P MOODY'S
--------- -----------

$100 Million 8% Senior Notes due 1999......................................................... A- Baa1
$100 Million 7.15% Senior Notes due 2005...................................................... A- Baa1
$100 Million 5.25% Convertible Subordinated Debentures due 2002............................... BBB+ Baa2

Debt ratings are a current assessment of the credit-worthiness of an obligor
with respect to a specific obligation. A company with a debt rating of "A-" is
considered by S&P to have a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. A
company with a debt rating of "BBB+" by S&P and "Baa1" and "Baa2" by Moody's is
considered to have adequate capacity to pay interest and repay principal but
capacity to meet long-term obligations is susceptible to adverse economic
conditions or changing circumstances.

All of the above-mentioned ratings are continually monitored and readjusted
by each of the rating agencies. While the Company believes that it will maintain
and could possibly improve its ratings over time, there is no assurance that it
will continue to receive these favorable ratings in the future.

EMPLOYEES

At December 31, 1997, the Company had 315 full-time employees, including 43
employees in the Company's international operation. The Company's employees are
not represented by a labor union and the Company believes that its employee
relations are good.

ITEM 2. PROPERTIES

The Company leases its present corporate and administrative offices in a
building located in Greenwich, Connecticut. The Company also has operating
leases for office space at regional branch locations and its international
subsidiary. See Note 7 of Notes to the Consolidated Financial Statements of NAC
Re for a schedule on future minimum rentals related to the Company's operating
leases.

ITEM 3. LEGAL PROCEEDINGS

NAC, Greenwich and Indian Harbor are parties to various lawsuits generally
arising in the normal course of their business. The Company does not believe
that the eventual outcome of any of the litigations to which NAC, Greenwich or
Indian Harbor are a party will have a material effect on the Company's financial
condition. NAC has been fully indemnified by The Continental Corporation and its
successor, CNA Insurance, for any losses incurred by Greenwich from events
occurring prior to NAC's acquisition of Greenwich.

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

There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Common Stock ($.10 par value) of NAC Re is traded on the New York Stock
Exchange (NYSE) under the symbol NRC. For the periods presented below, the high
and low sales price and close prices of the Common Stock as reported by the NYSE
were as follows:

THREE MONTHS ENDED
------------------------------------------------------

MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
----------- ----------- ------------- -------------
High................................................. $ 39.88 $ 49.00 $ 51.56 $ 52.88
Low.................................................. $ 33.25 $ 35.50 $ 45.50 $ 43.50
Close................................................ $ 35.63 $ 48.38 $ 51.38 $ 48.81

THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
----------- ----------- ------------- -------------

High................................................. $ 36.25 $ 33.88 $ 40.63 $ 37.63
Low.................................................. $ 31.75 $ 28.50 $ 30.25 $ 32.63
Close................................................ $ 32.63 $ 33.50 $ 36.00 $ 33.88

STOCKHOLDERS

There were 392 holders of record of shares of Common Stock as of March 3,
1998. Cede & Company held over 97% of the outstanding shares as nominee for an
unknown number of beneficial stockholders.

DIVIDENDS

The Company declared a quarterly cash dividend of $.05 per share for March
1996 and increased this to $.06 per share for June 1996 through March 1997. In
June 1997, the Company increased its quarterly dividend to $.075 per share. The
Company considers increasing the dividend on its Common Stock from time to time.
There is presently no intention to decrease the cash dividend in the foreseeable
future. Future dividends will be dependent upon, among other factors, the
earnings of the Company, its financial condition, its capital requirements,
general business conditions and the ability of NAC to pay dividends to NAC Re.

For a description of restrictions on NAC's ability to pay dividends,
reference is made to Note 11 of Notes to the Consolidated Financial Statements
of NAC Re.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data included in the "Eleven Year Financial Summary"
on pages 34 through 35 of NAC Re's 1997 Annual Report to Shareholders is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 20 through 33 of NAC Re's 1997 Annual Report to Shareholders
is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of NAC Re and its subsidiary
companies, included on pages 36 through 64 of NAC Re's 1997 Annual Report to
Shareholders, are incorporated herein by reference:

--Consolidated Balance Sheet at December 31, 1997 and 1996.

--Consolidated Statement of Income for the years ended December 31, 1997,
1996 and 1995.

-- Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.

-- Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995.

--Notes to Consolidated Financial Statements.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Incorporated by reference to the caption "Directors and Executive Officers"
in the definitive proxy statement involving the election of directors and other
matters (the "Proxy Statement") which NAC Re intends to file with the Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934 not later
than 120 days after December 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the caption "Compensation of Directors and
Executive Officers" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the captions "Certain Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider Participation"
in the Proxy Statement.

PART IV

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

FINANCIAL STATEMENTS AND SCHEDULES

The Financial Statements and schedules listed in the accompanying Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.

EXHIBITS

The exhibits listed on the Index to Exhibits set forth below are filed as
part of this report.

EXHIBIT NO.
- -----------

(3) -- Articles of incorporation and bylaws:

3.1 -- Restated Certificate of Incorporation of NAC Re incorporated herein by reference to Exhibit 3.1 to
the Annual Report on Form 10-K of NAC Re for the year ended December 31, 1990

3.2 -- Bylaws of NAC Re as amended through June 9, 1988 incorporated herein by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of NAC Re for the year ended December 31, 1988 (the "1988 10-K")

(4) -- Instruments defining rights of security holders, including indentures:

4.1 -- Rights Agreement dated as of June 9, 1988 by and between NAC Re Corporation and American Stock
Transfer and Trust Company (the "Rights Agreement") incorporated herein by reference to Exhibit A
to the Current Report on Form 8-K filed June 24, 1988

4.2 -- First Amendment to the Rights Agreement dated as of March 28, 1990 incorporated herein by reference
to Exhibit A to the Current Report on Form 8-K filed April 2, 1990

4.3 -- Second Amendment to the Rights Agreement dated as of September 13, 1990 incorporated herein by
reference to Exhibit 4.3 to the Current Report on Form 8-K filed September 21, 1990

(10) -- Material contracts:

10.1 -- Lease of NAC Re's corporate and administrative offices in Greenwich, CT incorporated herein by
reference to Exhibit 10.11 to the Annual Report on Form 10-K for the year ended December 31, 1985

10.2 -- Form of Sublease between NAC Re and NAC incorporated herein by reference to Exhibit 10.16 to the
Joint Proxy Statement/Prospectus on Form S-4 (No. 33-8836) of NAC Re and KCC

*10.3 -- Amended 1985 Stock Option Plan of NAC Re incorporated herein by reference to Exhibit 10.6 to the
Registration Statement on Form S-1 (No. 2-99952)

*10.4 -- 1986 Incentive and Non-qualified Stock Option Plan of NAC Re incorporated herein by reference to
Exhibit 10.12 to the Registration Statement on Form S-1 (No. 33-5198)

*10.5 -- NAC Re Corp. 1989 Stock Option Plan incorporated herein by reference to Exhibit 4.2 to the
Registration Statement on Form S-8 (No. 33-27745)

*10.6 -- NAC Re Corp. 1993 Stock Option Plan incorporated herein by reference to Exhibit A to the definitive
Proxy Statement filed with the Securities and Exchange Commission on March 26, 1993 ("1993 Proxy
Statement")

*10.7 -- Amended and Restated NAC Re Corp. Directors' Stock Option Plan incorporated herein by reference to
Exhibit B to the 1993 Proxy Statement

*10.8 -- Amended and Restated NAC Re Corp. Benefits Equalization Plan incorporated herein by reference to
Exhibit 10.8 to the Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993
10-K")

EXHIBIT NO.
- -----------

*10.9 -- Amended and Restated NAC Re Corp. Excess Benefit Savings Plan incorporated herein by reference to
Exhibit 10.9 to the 1993 10-K

*10.10 -- Form of Severance Contract between NAC Re Corp. and the executive officers of NAC Re incorporated
herein by reference to Exhibit 10.23 to the 1988 10-K

*10.11 -- NAC Re Corp. Amended and Restated Annual Incentive Plan incorporated herein by reference to Exhibit
10.17 to the Annual Report on Form 10-K of NAC Re for the year ended December 31, 1991 (the "1991
10-K")

*10.12 -- NAC Re Corp. Long-term Incentive Plan incorporated herein by reference to Exhibit 10.12 to the
Annual Report on Form 10-K of NAC Re for the year ended December 31, 1994 (the "1994 10-K")

*10.13 -- Employment contract with Ronald L. Bornhuetter dated as of March 4, 1992 incorporated herein by
reference to Exhibit 10.19 to the 1991 10-K

*10.14 -- Trust Agreement, dated as of July 1, 1989, between NAC Re and Marine Midland Bank, N.A. relating to
supplemental pension benefits for Ronald L. Bornhuetter incorporated herein by reference to Exhibit
10.22 to the Annual Report on Form 10-K of NAC Re for the year ended December 31, 1989 (the "1989
10-K")

*10.15 -- NAC Re Corp. Directors' Deferred Compensation Agreement incorporated herein by reference to Exhibit
10.20 to the 1989 10-K

*10.16 -- Consulting Agreement with Michael G. Fitt effective as of March 1, 1995 incorporated herein by
reference to Exhibit 10.17 to the 1994 10-K

*10.17 -- Employment contract with Ronald L. Bornhuetter dated as of October 30, 1996 incorporated herein by
reference to Exhibit 10.17 to the Annual Report on Form 10-K for year ended December 31, 1996 (the
"1996 10-K")

*10.18 -- Employment contract with Nicholas M. Brown, Jr., dated as of October 30, 1996 incorporated herein
by reference to Exhibit 10.18 to the 1996 10-K

*10.19 -- Form of Employment contract with Executive Vice Presidents dated as of October 30, 1996
incorporated herein by reference to Exhibit 10.19 to the 1996 10-K

*10.20 -- 1997 Incentive and Capital Accumulation Plan incorporated herein by reference to Exhibit A to the
definitive Proxy Statement filed with The Securities and Exchange Commission on March 26, 1997

*10.21 -- 1997 Stock Retainer Plan For Nonemployee Directors

(11) -- Statement regarding computation of per share earnings incorporated herein by reference to Note 12
of the Notes to the Consolidated Financial Statements on page 62 of NAC Re's 1997 Annual Report to
Shareholders

(12) -- Statement regarding computation of ratios

(13) -- NAC Re's 1997 Annual Report to Shareholders only those portions thereof which are expressly
incorporated by reference in NAC Re's Annual Report on Form 10-K for 1997, are "filed" as part of
this Annual Report on Form 10-K

(21) -- Subsidiaries of the registrant

(23) -- Consents of experts and counsel

(24) -- Powers of attorney

EXHIBIT NO.
- -----------

(27.1) -- Financial Data Schedule fiscal year end 1997

(27.2) -- Financial Data Schedule fiscal year end 1995, 1996, and quarters 1, 2, 3, of 1996. Per share data
restated per SFAS No. 128

(27.3) -- Financial Data Schedule quarters 1, 2, 3, of 1997. Per share data restated per SFAS No. 128

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

* Executive Compensation Plans or Arrangements

REPORTS ON FORM 8-K

There were no reports on Form 8-K filed with the Securities and Exchange
Commission during the fourth quarter of 1997.

EXECUTIVE COMPENSATION PLANS OR ARRANGEMENTS

Executive compensation plans or arrangements are indicated by an asterisk on
the Index to Exhibits set forth above.

SIGNATURES

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

NAC RE CORP.
(Registrant)

By /s/ JEROME T. FADDEN
-----------------------------------------
Jerome T. Fadden
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER

Dated: March 24, 1998

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

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
RONALD L. BORNHUETTER* Director, Chairman and
- ------------------------------ Chief Executive Officer March 24, 1998
RONALD L. BORNHUETTER
NICHOLAS M. BROWN, JR.* Director, President and
- ------------------------------ Chief Operating Officer March 24, 1998
NICHOLAS M. BROWN, JR.
ROBERT A. BELFER* Director
- ------------------------------ March 24, 1998
ROBERT A. BELFER
JOHN P. BIRKELUND* Director
- ------------------------------ March 24, 1998
JOHN P. BIRKELUND
C. W. CARSON, JR.* Director
- ------------------------------ March 24, 1998
C. W. CARSON, JR.
DAN CIAMPA* Director
- ------------------------------ March 24, 1998
DAN CIAMPA
TODD G. COLE* Director
- ------------------------------ March 24, 1998
TODD G. COLE
MICHAEL G. FITT* Director
- ------------------------------ March 24, 1998
MICHAEL G. FITT
DANIEL J. MCNAMARA* Director
- ------------------------------ March 24, 1998
DANIEL J. MCNAMARA
STEPHEN ROBERT* Director
- ------------------------------ March 24, 1998
STEPHEN ROBERT
HERBERT S. WINOKUR, JR.* Director
- ------------------------------ March 24, 1998
HERBERT S. WINOKUR, JR.
/s/ JEROME T. FADDEN Vice President, Chief
- ------------------------------ Financial Officer and March 24, 1998
JEROME T. FADDEN Treasurer

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

* By CELIA R. BROWN, his attorney-in-fact and agent, pursuant to a power of
attorney, a copy of which has been filed with the Securities and Exchange
Commission as Exhibit 24 hereto.

By: /s/ CELIA R. BROWN
-----------------------------------------
Celia R. Brown
SECRETARY

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

NAC RE CORP. PAGES
---------

Report of Independent Auditors on Financial Statements and Schedules......... F-2

Consolidated Balance Sheet at December 31, 1997 and 1996..................... *

Consolidated Statement of Income for the years ended December 31, 1997, 1996
and 1995................................................................... *

Consolidated Statement of Stockholders' Equity for the years ended December
31, 1997, 1996 and 1995.................................................... *

Consolidated Statement of Cash Flows for the years ended December 1997, 1996
and 1995................................................................... *

Notes to Consolidated Financial Statements................................... *

SCHEDULES

I Summary of Investments Other Than Investments in Related Parties at December
31, 1997................................................................... S-1

II Condensed Financial Information of Registrant................................ S-2-S-4

III Supplementary Insurance Information for the years ended December 31, 1997,
1996, and 1995............................................................. S-5

IV Reinsurance for the years ended December 31, 1997, 1996 and 1995............. S-6

VI Supplementary Information Concerning Property-Casualty Insurance
Operations................................................................. S-7

Schedules other than those listed above are omitted for the reason that they are not
applicable.

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

* Incorporated by reference to NAC Re's 1997 Annual Report to Shareholders.

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
NAC RE CORPORATION:

We have audited the consolidated balance sheet of NAC Re Corporation and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997 incorporated by reference at Item 8.
Our audits also included the financial statement schedules listed in the Index
at Item 14. These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NAC Re Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.

ERNST & YOUNG LLP

New York, New York
February 3, 1998

F-2

SCHEDULE I

NAC RE CORP. AND SUBSIDIARIES

OTHER THAN INVESTMENTS IN RELATED PARTIES
SUMMARY OF INVESTMENTS
(IN THOUSANDS)

DECEMBER 31, 1997
-----------------------------------------

AMOUNT AT
WHICH
AMORTIZED MARKET SHOWN IN THE
COST VALUE BALANCE SHEET
------------ ------------ -------------
Type of Investment:
FIXED MATURITY SECURITIES
United States Government............................................. $ 13,957 $ 14,507 $ 14,507
Foreign Governments.................................................. 166,899 172,321 172,321
Mortgage-backed securities........................................... 212,434 216,845 216,845
States, municipalities and political subdivisions.................... 1,200,314 1,250,973 1,250,973
Corporate bonds...................................................... 419,715 425,857 425,857
Subordinated convertibles............................................ 8,182 8,085 8,085
------------ ------------ -------------
Total Fixed Maturities........................................... 2,021,501 2,088,588 2,088,588
EQUITY SECURITIES...................................................... 124,999 142,527 142,527
CASH AND SHORT-TERM INVESTMENTS........................................ 116,919 116,919 116,919
------------ ------------ -------------
Total Investments................................................ $ 2,263,419 $ 2,348,034 $ 2,348,034
------------ ------------ -------------
------------ ------------ -------------

S-1

SCHEDULE II
NAC RE CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NAC RE CORP.
BALANCE SHEET
(PARENT COMPANY)
(IN THOUSANDS)

DECEMBER 31,
----------------------

1997 1996
---------- ----------
ASSETS
Fixed maturities............................................................................. $ 25,283 $ 30,066
Short-term investments....................................................................... 1,657 5,377
Cash......................................................................................... 3,186 266
Accrued investment income.................................................................... 353 444
Deferred expenses............................................................................ 1,527 1,865
Federal income tax recoverable............................................................... -- 940
Investment in wholly-owned subsidiaries...................................................... 934,124 825,283
Fixed assets................................................................................. 9,614 7,679
Intercompany receivable, net................................................................. 8,813 --
Other assets................................................................................. 1,037 876
---------- ----------
Total assets............................................................................. $ 985,594 $ 872,796
---------- ----------
---------- ----------
LIABILITIES
8% Notes due 1999............................................................................ $ 100,000 $ 100,000
7.15% Notes due 2005......................................................................... 99,942 99,934
5.25% Convertible Subordinated Debentures due 2002........................................... 100,000 100,000
Revolving credit loan........................................................................ 12,924 12,924
Federal income tax payable................................................................... 9,318 --
Interest payable............................................................................. 1,587 1,537
Intercompany payable, net.................................................................... -- 974
Dividend payable............................................................................. 1,372 1,104
Accrued expenses and other liabilities....................................................... 3,390 3,054
---------- ----------
Total liabilities........................................................................ 328,533 319,527
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value: 1,000 shares authorized, none issued (includes 90 shares of
Series A Junior Participating Preferred Stock)............................................. -- --
Common stock, $.10 par value: 25,000 shares authorized (1997, 21,707; 1996, 21,464 issued) 2,171 2,146
Additional paid-in capital................................................................... 255,424 248,662
Unrealized appreciation of investments, net of tax........................................... 55,000 31,700
Currency translation adjustments, net of tax................................................. 5,989 8,377
Retained earnings............................................................................ 426,309 335,868
Less treasury stock, at cost (1997, 3,398 shares; 1996, 3,061 shares)........................ (87,832) (73,484)
---------- ----------
Total stockholders' equity............................................................... 657,061 553,269
---------- ----------
Total liabilities and stockholders' equity............................................... $ 985,594 $ 872,796
---------- ----------
---------- ----------

S-2

SCHEDULE II

NAC RE CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OR REGISTRANT--(CONTINUED)
NAC RE CORP.
STATEMENT OF INCOME
(PARENT COMPANY)
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------

1997 1996 1995
--------- --------- ---------
INCOME
Dividend declared from insurance subsidiary.................................... $ 22,500 $ 38,000 $ 7,500
Net investment income.......................................................... 2,097 2,815 3,193
Net investment (losses) gains.................................................. (14) 87 126
Rental and other income........................................................ 2,312 1,559 1,164
--------- --------- ---------
26,895 42,461 11,983
--------- --------- ---------
EXPENSES
Interest and amortization expense.............................................. 21,697 22,284 15,610
Other operating costs and expenses............................................. 4,656 2,672 2,104
--------- --------- ---------
26,353 24,956 17,714
--------- --------- ---------
Income (loss) before intercompany tax allocation and equity in net income of
wholly-owned subsidiaries less dividend declared............................... 542 17,505 (5,731)
--------- --------- ---------
Current intercompany tax credit.................................................. 7,702 6,778 4,711
Deferred tax benefit............................................................. 190 424 41
--------- --------- ---------
Total tax credit, net............................................................ 7,892 7,202 4,752
--------- --------- ---------
Income (loss) before equity in net income of wholly-owned subsidiaries less
dividend declared.............................................................. 8,434 24,707 (979)
Equity in net income of wholly-owned subsidiaries less dividend declared......... 87,243 45,813 63,803
--------- --------- ---------
Net income....................................................................... $ 95,677 $ 70,520 $ 62,824
--------- --------- ---------
--------- --------- ---------

S-3

SCHEDULE II

NAC RE CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OR REGISTRANT--(CONTINUED)

NAC RE CORP.
STATEMENT OF CASH FLOWS
(PARENT COMPANY)
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-----------------------------------

1997 1996 1995
---------- ---------- -----------
OPERATING ACTIVITIES
Net income................................................................. $ 95,677 $ 70,520 $ 62,824
Less equity in net income of subsidiaries, less cash dividend ($22,500 in
1997, $38,000 in 1996, $7,500 in 1995)................................... 87,243 45,813 63,803
---------- ---------- -----------
8,434 24,707 (979)
Adjustments to reconcile net income to net cash provided by operating
activities................................................................. 3,328 2,482 1,866
---------- ---------- -----------
Net cash provided by operating activities.................................... 11,762 27,189 887
---------- ---------- -----------
INVESTING ACTIVITIES
Sales of fixed maturity investments........................................ 10,489 8,844 9,722
Maturities of fixed maturity investments................................... 3,000 7,000 4,700
Purchases of fixed maturity investments.................................... (8,435) (12,425) (10,527)
Net sales (purchases) of short-term investments............................ 3,720 9,553 (7,285)
Purchases of furniture and equipment....................................... (4,164) (4,648) (1,290)
Contribution to subsidiary................................................. -- -- (146,556)
---------- ---------- -----------
Net cash provided (used) by investing activities............................. 4,610 8,324 (151,236)
---------- ---------- -----------
FINANCING ACTIVITIES
Issuance of shares......................................................... 5,864 1,951 52,056
Net proceeds from issuance of 7.15% Notes.................................. -- -- 99,214
Purchase of treasury shares, net of reissuance............................. (14,348) (30,886) (204)
Cash dividends paid to stockholders........................................ (4,968) (4,163) (3,260)
Borrowings under revolving credit agreement................................ -- 8,162 --
Repayments under revolving credit agreement................................ -- (13,000) --
---------- ---------- -----------
Net cash (used) provided by financing activities............................. (13,452) (37,936) 147,806
---------- ---------- -----------
Increase (decrease) in cash.................................................. 2,920 (2,423) (2,543)
Cash--beginning of year...................................................... 266 2,689 5,232
---------- ---------- -----------
Cash--end of year............................................................ $ 3,186 $ 266 $ 2,689
---------- ---------- -----------
---------- ---------- -----------

S-4

SCHEDULE III
NAC RE CORP. AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)

FUTURE
POLICY
BENEFITS, BENEFITS,
LOSSES, CLAIMS, AMORTIZATION
DEFERRED CLAIMS LOSSES OF DEFERRED
POLICY AND NET AND POLICY OTHER
ACQUISITION CLAIMS UNEARNED PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING
COSTS EXPENSES PREMIUMS REVENUE INCOME EXPENSES COSTS EXPENSES
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------

DECEMBER 31, 1997
Domestic:
Property/Casualty... $ 89,072 $1,513,416 $ 285,217 $ 525,017 $ 109,545 $ 346,005 $ 140,862 $ 77,932
Accident and
Health........... -- (462) (219) (1,386) (458) (1,697) -- (326)
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Subtotal....... 89,072 1,512,954 284,998 523,631 109,087 344,308 140,862 77,606
International:
Property/Casualty... 3,637 98,692 17,461 51,016 13,963 35,187 10,290 9,289
Intercompany
elimination........ -- (7,674) (748) -- -- -- -- --
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Total.......... $ 92,709 $1,603,972 $ 301,711 $ 574,647 $ 123,050 $ 379,495 $ 151,152 $ 86,895
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
DECEMBER 31, 1996
Domestic:
Property/Casualty... $ 82,369 $1,434,429 $ 255,514 $ 474,025 $ 93,062 $ 303,485 $ 133,423 $ 71,231
Accident and
Health........... -- 2,764 775 1,987 144 (950) -- 110
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Subtotal....... 82,369 1,437,193 256,289 476,012 93,206 302,535 133,423 71,341
International:
Property/Casualty... 2,842 80,531 15,609 50,330 11,124 36,418 9,901 7,587
Intercompany
elimination........ -- (4,379) -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Total.......... $ 85,211 $1,513,345 $ 271,898 $ 526,342 $ 104,330 $ 338,953 $ 143,324 $ 78,928
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
DECEMBER 31, 1995
Domestic:
Property/Casualty... $ 68,158 $1,246,187 $ 216,213 $ 450,068 $ 80,875 $ 293,262 $ 132,049 $ 55,919
Accident and
Health........... -- 3,584 2,005 2,926 708 1,776 -- 489
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Subtotal....... 68,158 1,249,771 218,218 452,994 81,583 295,038 132,049 56,408
International:
Property/Casualty... 2,308 43,277 12,520 38,791 7,725 31,110 7,014 6,044
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Intercompany
elimination........ -- (633) -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
Total.......... $ 70,466 $1,292,415 $ 230,738 $ 491,785 $ 89,308 $ 326,148 $ 139,063 $ 62,452
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------
----------- --------- ----------- ----------- ----------- ----------- ------------ -----------

PREMIUMS
WRITTEN
-----------

DECEMBER 31, 1997
Domestic:

Property/Casualty... $ 543,633
Accident and
Health........... (2,271)
-----------
Subtotal....... 541,362
International:

Property/Casualty... 52,294
Intercompany
elimination........ --
-----------
Total.......... $ 593,656
-----------
-----------
DECEMBER 31, 1996
Domestic:

Property/Casualty... $ 521,072
Accident and
Health........... 804
-----------
Subtotal....... 521,876
International:

Property/Casualty... 52,128
Intercompany
elimination........ --
-----------
Total.......... $ 574,004
-----------
-----------
DECEMBER 31, 1995
Domestic:

Property/Casualty... $ 471,917
Accident and
Health........... 4,131
-----------
Subtotal....... 476,048
International:

Property/Casualty... 45,441
-----------
Intercompany
elimination........ --
-----------
-----------
Total.......... $ 521,489
-----------
-----------

S-5

SCHEDULE IV

NAC RE CORP. AND SUBSIDIARIES

REINSURANCE

(IN THOUSANDS)

PERCENTAGE
CEDED ASSUMED OF AMOUNT
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- ---------- ----------- ---------- -------------

DECEMBER 31, 1997
Premiums Written:
Property/casualty.................................. $ 120,509 $ 130,645 $ 606,063 $ 595,927 102%
Accident and health................................ (26) (433) (2,678) (2,271) 118
---------- ---------- ----------- ---------- ---
Total.......................................... $ 120,483 $ 130,212 $ 603,385 $ 593,656 102%
---------- ---------- ----------- ---------- ---
---------- ---------- ----------- ---------- ---
DECEMBER 31, 1996
Premiums Written:
Property/casualty.................................. $ 72,749 $ 139,928 $ 640,379 $ 573,200 112%
Accident and health................................ 61 148 891 804 111
---------- ---------- ----------- ---------- ---
Total.......................................... $ 72,810 $ 140,076 $ 641,270 $ 574,004 112%
---------- ---------- ----------- ---------- ---
---------- ---------- ----------- ---------- ---
DECEMBER 31, 1995
Premiums Written:
Property/casualty.................................. $ 70,138 $ 155,777 $ 602,997 $ 517,358 117%
Accident and health................................ 45 672 4,758 4,131 115
---------- ---------- ----------- ---------- ---
Total.......................................... $ 70,183 $ 156,449 $ 607,755 $ 521,489 117%
---------- ---------- ----------- ---------- ---
---------- ---------- ----------- ---------- ---

S-6

SCHEDULE VI

NAC RE CORP. AND SUBSIDIARIES

SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
(IN THOUSANDS)

DEFERRED RESERVE FOR
POLICY UNPAID CLAIMS DISCOUNT NET
ACQUISITION AND CLAIMS IF ANY, UNEARNED EARNED INVESTMENT
AFFILIATION WITH REGISTRANT COSTS EXPENSES DEDUCTED(1) PREMIUMS PREMIUMS INCOME
- ---------------------------------------- ----------- ------------- ----------- ---------- ---------- ----------

CONSOLIDATED SUBSIDIARIES
December 31, 1997....................... $ 92,709 $ 1,603,972 $ 26,290 $ 301,711 $ 574,647 $ 120,953
December 31, 1996....................... $ 85,211 $ 1,513,345 $ 20,766 $ 271,898 $ 526,342 $ 101,515
December 31, 1995....................... $ 70,466 $ 1,292,415 $ 18,340 $ 230,738 $ 491,785 $ 86,115

CLAIMS AND
CLAIMS
EXPENSES AMORTIZATION
INCURRED OF
RELATED TO (2) DEFERRED
-------------- POLICY PAID CLAIMS
CURRENT PRIOR ACQUISITION AND CLAIMS PREMIUMS
AFFILIATION WITH REGISTRANT YEAR YEARS COSTS EXPENSES WRITTEN
- ------------------------------------------ ---------- ------------ ----------- ----------

CONSOLIDATED SUBSIDIARIES
December 31, 1997.......................$418,091 ($ 38,596) $ 151,152 $ 78,918 $ 593,656
December 31, 1996.......................$372,294 ($ 33,341) $ 143,324 $ 190,424 $ 574,004
December 31, 1995.......................$345,783 ($ 19,635) $ 139,063 $ 180,386 $ 521,489

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

(1) Relates to certain workers' compensation case reserves which are discounted
for statutory accounting purposes utilizing a 5% interest rate, and a 7%
interest rate for GAAP.

(2) Amounts are net of discount related to certain workers' compensation case
reserves.

S-7