10-K 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) ( X ) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 2002 OR ( ) 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: 0-29042 SYMONS INTERNATIONAL GROUP, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1707115 (State or other jurisdiction of (I.R.S. Employer incorporation Identification No.) or organization) 4720 KINGSWAY DRIVE, INDIANAPOLIS, INDIANA 46205 (Address of Principal Executive Offices, Including Zip Code) Registrant's telephone number, including area code: (317) 259-6300 Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS -------------- Common Stock (no par value) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to 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) Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).Yes ( ) No (X) The aggregate market value of the 1,865,925 shares of the Registrant's common stock held by non-affiliates as of June 3, 2003 was $55,828. The number of shares of common stock of the Registrant, without par value, outstanding as of April 28, 2003 was 10,385,399. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 2002 are incorporated by reference in Parts II and IV hereof. Table of Contents ITEM PAGE ---- ---- PART I 1. Business 4 2. Properties 21 3. Legal Proceedings 21 4. Submission of Matters to a Vote of Security Holders 23 PART II 5. Market for Registrant's Common Equity and Related Shareholder Matters 23 6. Selected Consolidated Financial Data 23 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 7A. Quantitative and Qualitative Disclosures about Market Risk 24 8. Financial Statements and Supplementary Data 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24 PART III 10. Directors and Executive Officers of the Registrant 24 11. Executive Compensation 25 12. Security Ownership of Certain Beneficial Owners and Management 31 13. Certain Relationships and Related Transactions 32 14. Controls and Procedures 33 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 33 16. Signatures 41 PART I ITEM 1 - BUSINESS FORWARD-LOOKING STATEMENTS All statements, trend analyses, and other information herein contained relative to markets for the Company's products and/or trends in the Company's operations or financial results, as well as other statements including words such as "anticipate," "could," "feel(s)," "believes," "plan," "estimate," "expect," "should," "intend," "will," and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (i) the effect on customers, agents, employees and others due to the Company's receipt of going concern opinions from its accountants; (ii) general economic conditions, including prevailing interest rate levels and stock market performance; (iii) factors affecting the Company's nonstandard automobile operations such as rate increase approval, policy renewals, new business written, and premium volume; and (iv) the factors described in this section and elsewhere in this report. OVERVIEW OF THE BUSINESS Symons International Group, Inc. (the "Company") owns insurance companies that underwrite and market nonstandard private passenger automobile insurance. The Company's principal insurance company subsidiaries are Pafco General Insurance Company ("Pafco") and Superior Insurance Company ("Superior"). The Company is a 73.8% owned subsidiary of Goran Capital Inc. ("Goran"). NONSTANDARD AUTOMOBILE INSURANCE Overview Pafco, Superior and Superior's subsidiaries, Superior Guaranty Insurance Company ("Superior Guaranty") and Superior American Insurance Company ("Superior American") are engaged in the writing of insurance coverage for automobile physical damage and liability policies. Nonstandard insureds are those individuals who are unable to obtain insurance coverage through standard market carriers due to factors such as poor premium payment history, poor driving experience, and type of vehicle. The Company offers several different policies, which are directed toward different classes of risk within the nonstandard market. Premium rates for nonstandard risks are higher than for standard risks. Since it can be viewed as a residual market, the size of the nonstandard private passenger automobile insurance market changes with the insurance environment and grows when standard coverage becomes more restrictive. Nonstandard policies have relatively short policy periods and low limits of liability. Also, since the nonstandard automobile insurance business typically experiences a lower rate of retention than standard automobile insurance, the number of new policyholders underwritten by nonstandard automobile insurance carriers each year is substantially greater than the number of new policyholders underwritten by standard carriers. Products The Company offers both liability and physical damage coverage in the insurance marketplace, with policies having terms from three to twelve months. Most nonstandard automobile insurance policyholders choose the basic limits of liability coverage which, though varying from state to state, generally is $25,000 per person and $50,000 per accident for bodily injury to others and in the range of $10,000 to $20,000 for damage to cars or other property. Where permitted, Superior offers a tiered product covering the full spectrum of automobile insurance customers from nonstandard to ultra-preferred. Marketing The Company's nonstandard automobile insurance business is concentrated in the states of Florida, California, Virginia, Georgia, Indiana and Nevada. The Company also has the ability to write nonstandard automobile insurance in 12 additional states. The Company selects states for expansion or withdrawal based on a number of criteria, including the size of the nonstandard automobile insurance market, state-wide loss results, competition, capitalization of its companies and the regulatory climate. The following table sets forth the geographic distribution of gross premiums written by the Company for the periods indicated sorted in descending order of 2002 volume.

The Company markets its nonstandard products exclusively through independent agencies. The Company has several territory managers, each of whom resides in a specific marketing region and has access to the technology and software necessary to provide marketing, rating and administrative support to the agencies in his or her region. The Company aims to foster strong service relationships with its agents and customers. The Company has automated certain marketing, underwriting and administrative functions and has allowed on-line communication with its agency force. In addition to delivering prompt service while ensuring consistent underwriting, the Company provides state of the art point of sale rating software to its agents, which permits them to rate risks in their offices. All new business applications are electronically uploaded directly from the agents' office to the Company through this software. The Company's in-house developed point of sale product allows agents in most states to order motor vehicle, credit and other reports on line at the time of sale. Most of the Company's agents have limited authority to sell and bind insurance coverages in accordance with procedures established by the Company, which is a common practice in the nonstandard automobile insurance business. The Company promptly reviews all coverages bound by the agents and generally accepts coverages that fall within its stated underwriting criteria. The Company has the right within a specified time period to cancel any policy even if the risk falls within its underwriting criteria. The Company compensates its agents by paying a commission based on a percentage of premiums produced. The Company believes its four insurance companies licensed in various states allows it the flexibility to engage in multi-tiered marketing efforts in which specialized automobile insurance products are directed toward specific segments of the market. Since certain state insurance laws prohibit a single insurer from offering similar products with different commission structures or, in some cases premium rates, it is necessary to have multiple licenses in certain states in order to obtain the benefits of market segmentation. Underwriting The Company utilizes many factors in determining its premium rates. Some of the characteristics used are type, age and location of the vehicle, number of vehicles per policyholder, number and type of convictions and accidents, limits of liability, deductibles, and, where allowed by law, credit, age, sex and marital status of the insured. The rate approval process varies from state to state. Some states allow filing and immediate use of rates, while others require approval by the state's insurance department prior to the use of the rates. Underwriting results of insurance companies are frequently measured by their combined ratios. However, investment income, federal income taxes and other non-underwriting income or expense are not reflected in the combined ratio. The profitability of property and casualty insurance companies depends on income from underwriting, investment and service operations. Underwriting results are generally considered profitable when the combined ratio is under 100% and unprofitable when the combined ratio is over 100%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion on the combined ratio. In an effort to maintain and improve underwriting profits, the territory managers monitor loss ratios of the agencies in their regions and meet periodically with the agents in order to address any adverse trends in loss ratios or other profitability indicators. Claims The Company's nonstandard automobile insurance claims departments handle claims on a regional and local basis from claim offices in Indianapolis, Indiana; Atlanta, Georgia; Tampa and West Palm Beach, Florida; and Anaheim, California. The Company uses a combination of its own adjusters and independent appraisers and adjusters for estimating physical damage claims and limited elements of investigation. Claims settlement authority levels are established for each adjuster or manager based on the employee's ability and experience. Upon receipt, each claim is reviewed and assigned to an adjuster based on the type and severity of the claim. A home office supervisor or litigation manager monitors all claim-related litigation. The claims policy of the Company emphasizes prompt and fair settlement of meritorious claims, appropriate reserving for outstanding claims and controlling claims adjustment expenses. Reinsurance The Company follows the customary industry practice of reinsuring a portion of its risks. Insurance is ceded principally to reduce the Company's exposure on large individual risks and to provide protection against large losses, including catastrophic losses. Although reinsurance does not legally discharge the ceding insurer from its primary obligation to pay the full amount of losses incurred under policies reinsured, it does render the reinsurer liable to the insurer to the extent provided by the terms of the reinsurance treaty. As part of its internal procedures, the Company evaluates the financial condition of each prospective reinsurer before it cedes business to that carrier. Based on the Company's review of its reinsurers' financial health and reputation in the insurance marketplace, the Company believes its reinsurers are financially sound and that they can meet their obligations to the Company under the terms of the respective reinsurance treaties. In 2002, Pafco and Superior maintained casualty excess of loss reinsurance on their nonstandard automobile insurance business covering 35.0% of $700,000 of losses on an individual occurrence basis in excess of $300,000 up to a maximum of $3,000,000 at 100.0%. As of December 31, 2002, amounts recoverable from reinsurers relating to nonstandard automobile operations is as follows (in thousands):

Effective January 1, 2000, Pafco and Superior entered into an automobile quota share agreement with National Union Fire Insurance Company of Pittsburgh. The amount of cession for Pafco is variable up to a maximum of 60% or $10 million and for Superior is variable up to a maximum of 75% or $60 million for all new and renewal business. In 2002, Pafco and Superior ceded 71% of their nonstandard automobile gross written premiums under this treaty. On April 29, 1996, Pafco also entered into a 100% quota share reinsurance agreement with Granite Reinsurance Company Ltd. ("Granite Re"), a wholly owned subsidiary of Goran, (no A.M. Best rating), whereby all of Pafco's commercial business from 1996 and thereafter was ceded effective January 1, 1996. This agreement was in effect during 2002. Neither Pafco nor Superior has any facultative reinsurance with respect to its nonstandard automobile insurance business. Competition The Company competes with both large national and smaller regional companies in each state in which it operates. The Company's competitors include other companies that serve the agency market, as well as companies that sell insurance directly to consumers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, increased loyalty of their customer base and, potentially, reduced acquisition costs. The Company's primary competitors are Progressive Casualty Insurance Company and specialty subsidiaries of a number of insurance groups, including AIG, Allstate, American Financial Group and GMAC. Generally, these competitors are larger and have greater financial resources than the Company. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES Loss reserves are estimates, established at a given point in time based on facts then known, of an insurer's prediction of its exposure in connection with incurred losses. Loss adjustment expense ("LAE") reserves are estimates of the ultimate liability associated with the expense of settling all claims, including investigation and litigation costs resulting from such claims. The actual liability of an insurer for its loss and LAE reserves at any point in time will be greater or less than these estimates. The Company maintains reserves for the eventual payment of losses and LAE with respect to both reported and unreported claims. Nonstandard automobile reserves for reported claims are established on a case-by-case basis. The reserving process takes into account the type of claim, policy provisions relating to the type of loss and historically paid loss and LAE for similar claims. Loss and LAE reserves for claims that have been incurred but not reported are estimated based on many variables including historical and statistical information, inflation, legal developments, economic conditions, trends in claim severity and frequency and other factors that could affect the adequacy of loss reserves. The loss reserve development table below illustrates the change over time of reserves established for loss and loss expenses as of the end of the various calendar years for the nonstandard automobile segment of the Company. The table includes the loss reserves acquired from the acquisition of Superior in 1996 and the related loss reserve development thereafter. The first section shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to the reserve liability. The third section, reading down, shows the re-estimates of the original recorded reserve as of the end of each successive year which is a result of sound insurance reserving practices of addressing new emerging facts and circumstances which indicate that a modification of the prior estimate is necessary. The last section compares the latest re-estimated reserve to the reserve originally established, and indicates whether or not the original reserve was adequate or inadequate to cover the estimated costs of unsettled claims. The loss reserve development table is cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior years. The reserve for losses and loss expenses is an accumulation of the estimated amounts necessary to settle all outstanding claims as of the date for which the reserve is stated. The reserve and payment data shown below have been reduced for estimated subrogation and salvage recoveries. The Company does not discount its reserves for unpaid losses and loss expenses. No attempt is made to isolate explicitly the impact of inflation from the multitude of factors influencing the reserve estimates though inflation is implicitly included in the estimates. The Company regularly updates its reserve forecasts by type of claim as new facts become known and events occur which affect unsettled claims. The Company's insurance subsidiaries filed their annual statutory financial statements as of December 31, 2002 which included the Company's estimate of loss and loss reserve expense. In May 2003, pursuant to a reserve analysis completed by the consulting actuary engaged by BDO Seidman, LLP, the Company's independent auditor, it was determined that reserves for losses and loss adjustment expenses for Superior and Pafco should be increased. These reserve adjustments, along with resulting adjustments to the permitted carrying values of certain assets, were recorded in the 2002 audited statutory financial statements filed for Superior and Pafco with the Insurance Department of Florida and the Indiana Department of Insurance, respectively. Activity in the liability for unpaid loss and loss adjustment expenses for nonstandard automobile insurance is summarized below, in thousands:

Reserve estimates are regularly adjusted in subsequent reporting periods as new facts and circumstances emerge to indicate that a modification of the prior estimate is necessary. The adjustment, referred to as "reserve development," is inevitable given the complexities of the reserving process and is recorded in the statements of operations in the period when the need for the adjustment becomes known. The foregoing reconciliation indicates unfavorable development of $12,775,000 on the December 31, 2001 reserves. A portion of the 2001 reserve development was caused by a larger than normal number of previously closed claims that reopened in 2002. The remainder of the 2001 reserve development resulted from a higher than expected frequency and severity on nonstandard automobile claims. The anticipated effect of inflation is implicitly considered when estimating losses and loss adjustment expenses liabilities. While anticipated price increases due to inflation are considered in estimating the ultimate claims costs, increases in average claim severities is caused by a number of factors. Future severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, claims management practices and procedures and general economic trends. Anticipated severity trends are monitored relative to actual development and are modified if necessary. Liabilities for loss and loss adjustment expenses have been established when sufficient information has been developed to indicate the involvement of a specific insurance policy. In addition, reserves have been established to cover additional exposure on both known and unasserted claims.

RATINGS A.M. Best has currently assigned a "B-" rating to Superior and a "C" rating to Pafco. A.M. Best's ratings are based upon a comprehensive review of a company's financial performance, which is supplemented by certain data, including responses to A.M. Best's questionnaires, telephone conferences and other correspondence between A.M. Best analysts and company management, quarterly NAIC filings, state insurance department examination reports, loss reserve reports, annual reports, company business plans and other reports filed with state insurance departments. A.M. Best undertakes a quantitative evaluation, based upon profitability, leverage and liquidity, and a qualitative evaluation, based upon the composition of a company's book of business or spread of risk, the amount, appropriateness and soundness of reinsurance, the quality, diversification and estimated market value of its assets, the adequacy of its loss reserves and policyholders' surplus, the soundness of a company's capital structure, the extent of a company's market presence and the experience and competence of its management. A.M. Best's ratings represent an independent opinion of a company's financial strength and ability to meet its obligations to policyholders. A.M. Best's ratings are not a measure of protection afforded investors. "B-" and "C" ratings are A.M. Best's eighth and eleventh highest rating classifications, respectively, out of fifteen ratings. A "B-" rating is awarded to insurers which, in A.M. Best's opinion, "have, on balance, fair financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company" and "have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions". A "C" rating is awarded to insurers which, in A. M. Best's opinion, "have, on balance, weak financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company" and "have an ability to meet their current obligations to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions". A.M. Best has currently assigned an "E" rating (Under Regulatory Supervision) to IGF reflecting the significant regulatory constraint resulting from the Consent Order entered into between IGF and the Indiana Department Of Insurance (see Regulation-" Regulatory Actions"). REGULATION General The Company's insurance businesses are subject to comprehensive, detailed regulation throughout the United States, under statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. The primary purpose of such regulations and supervision is the protection of policyholders and claimants rather than shareholders or other investors. Depending on whether an insurance company is domiciled in the state and whether it is an admitted or non-admitted insurer, such authority may extend to such things as (i) periodic reporting of the insurer's financial condition; (ii) periodic financial examination; (iii) approval of rates and policy forms; (iv) loss reserve adequacy; (v) insurer solvency; (vi) the licensing of insurers and their agents; (vii) restrictions on the payment of dividends and other distributions; (viii) approval of changes in control; and (ix) the type and amount of permitted investments. The losses, adverse trends and uncertainties discussed in this report have been and continue to be matters of concern to the domiciliary and other insurance regulators of the Company's operating subsidiaries. (See "Regulatory Actions", "Risk- Based Capital Requirements", and "RISK FACTORS"). Regulatory Actions On June 6, 2001, IGF sold substantially all of its crop insurance assets to Acceptance. On June 24, 2001, following the sale of IGF's crop insurance assets and as a result of losses experienced by IGF in its crop insurance operations, the IDOI and IGF entered into a consent order (the "Consent Order") relating to IGF. IGF has discontinued writing new business and its operations are presently in run off. The IDOI has continued to monitor the status of IGF. The Consent Order prohibits IGF from taking any of the following actions without prior written consent of the IDOI: - Sell or encumber any of its assets, property, or business in force; - Disburse funds, except to pay direct unaffiliated policyholder claims and normal operating expenses in the ordinary course of business (which does not include payments to affiliates except for the reimbursement of costs of running IGF by the Company, and does not include payments in excess of $10,000); - Lend its funds or make investments, except in specified types of investments; - Incur debts or obligations, except in the ordinary course of business to unaffiliated parties; - Merge or consolidate with another company; - Enter into new, or amend existing, reinsurance agreements; - Complete, enter into or amend any transaction or arrangement with an affiliate, and - Disburse funds or assets to any affiliate. The Consent Order also requires IGF to provide the IDOI with monthly written updates and immediate notice of any material change regarding the status of litigation with Continental Casualty Company, statutory reserves, number of non-standard automobile insurance policies in-force by state, and reports of all non-claims related disbursements. IGF's failure to comply with the Consent Order could cause the IDOI to begin proceedings to have a rehabilitator or liquidator appointed for IGF or to extend the provisions of the Consent Order. Pafco has been subject to an agreed to order of the IDOI since February 17, 2000 that requires Pafco, among other matters, to: - Refrain from doing any of the following without the IDOI's prior written consent: - Selling assets or business in force or transferring property, except in the ordinary course of business; - Disbursing funds, other than for specified purposes or for normal operating expenses and in the ordinary course of business (which does not include payments to affiliates, other than under written contracts previously approved by the IDOI, and does not include payments in excess of $10,000); - Lending funds; - Making investments, except in specified types of investments; - Incurring debt, except in the ordinary course of business and to unaffiliated parties; - Merging or consolidating with another company; or - Entering into new, or modifying existing, reinsurance contracts. - Reduce its monthly auto premium writings, or obtain additional statutory capital or surplus, such that the ratio of gross written premium to surplus and net written premium to surplus does not exceed 4.0 and 2.4, respectively; and provide the IDOI with regular reports demonstrating compliance with these monthly writings limitations. - Continue to comply with prior IDOI agreements and orders to correct business practices under which Pafco must provide monthly financial statements to the IDOI, obtain prior IDOI approval of reinsurance arrangements and affiliated party transactions, submit business plans to the IDOI that address levels of surplus and net premiums written, and consult with the IDOI on a monthly basis. Pafco's inability or failure to comply with any of the above conditions could result in the IDOI requiring further reductions in Pafco's permitted premium writings or in the IDOI instituting future proceedings against Pafco. Restrictions on premium writings result in lower premium volume. Management fees payable to Superior Group are based on gross written premium; therefore, lower premium volume results in reduced management fees paid by Pafco to Superior Group. In March 2000, Pafco agreed with the Iowa Department of Insurance ("IADOI") that it would not write any new non-standard business in Iowa, until such time as Pafco has reduced its overall non-standard automobile policy counts in the state or has: - Increased surplus; or - Has achieved a net written premium to surplus ratio of less than three to one; or - Has surplus reasonable to its risk. Pafco has continued to service existing policyholders and renew policies in Iowa and provide policy count information on a monthly basis in conformance with IADOI requirements. Superior and Pafco provide monthly financial information to the departments of insurance in certain states in which they write business at the states' request. On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the "Notice") which principally addressed certain policy and finance fee payments by Superior to Superior Group. A formal administrative hearing to review the Notice and a determination that the order contemplated by the Notice not be issued was held in February 2001. The administrative law judge entered a recommended order on June 1, 2001 that was acceptable to the Company. On August 30, 2001, the FDOI rejected the recommended order and issued its final order which the Company believes improperly characterized billing and policy fees paid by Superior to Superior Group. On September 28, 2001, Superior filed an appeal of the final order to the Florida District Court of Appeal. On March 4, 2002, the FDOI filed a petition in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida seeking court enforcement of the FDOI's final order. Superior filed a motion with the FDOI for stay of the FDOI's final order. Superior also filed a motion for stay with the District Court of Appeal, which was denied pending a ruling from the FDOI. On April 5, 2002 the FDOI granted a stay of the final order that was conditional upon the cessation of the payment of billing fees by Superior to Superior Group and the posting of a $15 million appeal bond. Superior did not agree to the conditions imposed by the FDOI's conditional stay. On May 6, 2002 Superior filed a motion with the District Court of Appeal seeking a stay of the final order pending Superior's appeal or, in the alternative, a consolidation of the FDOI's enforcement action with the pending appeal. On June 19, 2002, the District Court of Appeal entered an order which struck the FDOI's conditional requirement for the stay that Superior post a $15 million appeal bond. However, the order denied Superior's request to consolidate the appeal with the enforcement action. On September 26, 2002, the District Court of Appeal affirmed the final order of the FDOI. On October 31, 2002 the Circuit Court entered a final order which granted the FDOI's petition for enforcement of the FDOI's final order and which requires Superior to comply with the FDOI final order. In accordance with the FDOI's final order, Superior ceased payment of finance and service fees as of October 1, 2002 and has requested repayment from Superior Group of $15 million of finance and service fees paid from 1997 through 1999 and additional finance and service fees paid thereafter in the approximate amount of $20 million. Without the payment of finance and service fee income to Superior Group or an amendment to the management agreement or reallocation of operational responsibilities, Superior Group could not operate profitably. Accordingly, on October 1, 2002, Superior Group discontinued the provision of certain claims services to Superior. Superior provided a number of proposals to the FDOI in an effort to establish an acceptable repayment plan in accordance with the final order. None of the proposals were acceptable to the FDOI. On March 21, 2003 the FDOI filed a Motion for Enforcement of Final Order Granting Petition to Enforce Agency Action (the"Motion for Enforcement") in the Circuit Court which seeks to hold Superior in contempt for failing to obtain the immediate repayment of approximately $15 million from Superior Group. Superior Group presently does not have the ability to make a $15 million repayment, and Superior believes that this petition seeks to fashion a remedy not intended by the Circuit Court's Novemeber 1, 2002 order and contravenes the spirit of numerous discussion between the FDOI and Superior to resolve the issues during the pendency of Superior's appeal to the District Court of Appeal and the original enforcement action. Superior intends to vigorously defend the recent action brought by the FDOI. On May 7, 2003 a hearing was held on the Motion for Enforcement, and an order has not yet been issued. On September 10, 2002, the FDOI filed a petition in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida for an order to show cause and notice of automatic stay which sought the appointment of a receiver for the purpose of rehabilitation of Superior. The court entered an order to show cause, temporary injunction and notice of automatic stay on September 13, 2002 and a hearing was held on October 24, 2002. On November 1, 2002, the court entered an order that denied the FDOI's petition for appointment of a receiver. On November 8, 2002, the FDOI filed a motion for rehearing, which was denied on December 17, 2002. On November 20, 2002, the FDOI issued a notice and order to show cause which seeks to suspend or revoke Superior's certificate of authority principally based upon allegations that Superior did not comply with the FDOI's August 30, 2001 final order during the pendency of the appeal of the order to the District Court of Appeal. Superior believes that it has fully and timely complied with the final order and that the action brought by the FDOI is barred by res judicata. A formal administrative hearing to review the notice and a determination that the order or administrative action contemplated by the notice not be issued was held in May 2003. A recommended order has not been issued, which the FDOI may accept or reject. On October 9, 2001, the State Corporation Commission of Virginia ("Virginia Commission") issued an order to take notice regarding an order suspending Superior's license to write business in that state. An administrative hearing for a determination that the suspension order not be issued was held March 5, 2002. On May 3, 2002, the hearing examiner issued his report and recommended that Superior's license not be suspended and that Superior file its risk based capital plans and monthly and quarterly financial information with the Virginia Bureau of Insurance ("Bureau"). On June 19, 2002 the Virginia Commission entered an order which adopted the findings of the hearing examiner, continued the matter until such time as the Bureau requests further action and requires the continued monitoring of the financial condition of Superior by the Bureau. On October 11, 2002, the Virginia Commission filed an administrative Rule to Show Cause. A hearing was scheduled for November 18, 2002 to determine whether Superior's license to transact insurance business in Virginia should be suspended. Because of Superior's improved financial condition, the Virginia Commission continued the hearing indefinitely. The nonstandard automobile insurance policies written in Virginia by Superior accounted for approximately 13.1% and 14.5% of the total gross written premiums of the Company in 2001 and in 2002, respectively. Insurance Holding Company Regulation The Company also is subject to laws governing insurance holding companies in Florida and Indiana, the domicilary states of its insurance company subsidiaries. These laws, among other things, (i) require the Company to file periodic information with state regulatory authorities including information concerning its capital structure, ownership, financial condition and general business operations; (ii) regulate certain transactions between the Company, its affiliates and IGF, Pafco, Superior, Superior American and Superior Guaranty (the Insurers), including the amount of dividends and other distributions and the terms of surplus notes; and (iii) restrict the ability of any one person to acquire certain levels of the Company's voting securities without prior regulatory approval. Any purchaser of 10% or more of the outstanding shares of common stock of the Company would be presumed to have acquired control of Pafco and IGF unless the Indiana Commissioner of Insurance ("Indiana Commissioner") upon application, has determined otherwise. In addition, any purchaser of 5% or more of the outstanding shares of common stock of the Company will be presumed to have acquired control of Superior unless the Florida Commissioner of Insurance ("Florida Commissioner"), upon application, has determined otherwise. Dividend payments by the Company's insurance subsidiaries are subject to restrictions and limitations under applicable law, and under those laws an insurance subsidiary may not pay dividends to the Company without prior notice to, or approval by, the subsidiary's domiciliary insurance regulator. As a result of regulatory actions taken by the IDOI with respect to Pafco and IGF, those subsidiaries may not pay dividends to the Company without prior approval by the IDOI (see "Recent Regulatory Developments" above). Further, payment of dividends may be constrained by business and regulatory considerations, and state insurance laws and regulations require that the statutory surplus of an insurance company following any dividend or distribution by such company be reasonable in relation to its outstanding liabilities and adequate for its financial needs. Accordingly, there can be no assurance that the IDOI or the FDOI would permit any of the Company's insurance subsidiaries to pay dividends at this time or in the future (see "RISK FACTORS"). While the non-insurance company subsidiaries are not subject directly to the dividend and other distribution limitations, insurance holding company regulations govern the amount which a subsidiary within the holding company system may charge any of the Insurers for services (e.g., management fees and commissions). These regulations may affect the amount of management fees which may be paid by Pafco and Superior to Superior Group. The management agreement between the Company and Pafco was assigned to Superior Group and provides for an annual management fee equal to 15% of gross premiums. A similar management agreement with a management fee of 17% of gross premiums was entered into between Superior and Superior Group. There can be no assurance that either the IDOI or the FDOI will not in the future require a reduction in these management fees. In addition, neither Pafco nor IGF may engage in any transaction with an affiliate, including the Company, without the prior approval of the IDOI (see "Regulatory Actions " above). Underwriting and Marketing Restrictions During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to deal with the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing. These regulations include (i) the creation of "market assistance plans" under which insurers are induced to provide certain coverages; (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term; (iii) advance notice requirements or limitations imposed for certain policy non-renewals; and (iv) limitations upon or decreases in rates permitted to be charged. Insurance Regulatory Information System The NAIC Insurance Regulatory Information System ("IRIS") was developed primarily to assist state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies. IRIS ratios consist of twelve ratios with defined acceptable ranges. They are used as an initial screening process for identifying companies that may be in need of special attention. Companies that have several ratios that fall outside of the acceptable range are selected for closer review by the NAIC. If the NAIC determines that more attention may be warranted, one of five priority designations is assigned and the insurance department of the state of domicile is then responsible for follow-up action. Based on the December 31, 2002 statutory financials filed with the NAIC, Pafco had values outside of the acceptable ranges for five IRIS tests. These included the two-year overall operating ratio, the investment yield ratio, the change in surplus ratio, the liabilities and liquid assets ratio, and the estimated current reserve deficiency to policyholders' surplus ratio. Based on the December 31, 2002 statutory financials filed with the NAIC, Superior had values outside of the acceptable ranges for six IRIS tests. These included the surplus aid to policyholders' surplus ratio, the two-year overall operating ratio, the change in surplus ratio, the liabilities to liquid assets ratio, the one-year reserve development to policyholders' surplus ratio, and the two-year reserve development to policyholders' surplus ratio. As of December 31, 2002, IGF had values outside of the acceptable ranges for five IRIS tests. These included the change in net writings ratio, the two-year overall operating ratio, the change in surplus ratio, the liabilities to liquid assets ratio, and the agent's balances to policyholders' surplus ratio. Risk-Based Capital Requirements In order to enhance the regulation of insurer solvency, the NAIC has adopted a formula and model law to implement risk-based capital ("RBC") requirements for property and casualty insurance companies designed to assess minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Indiana and Florida have substantially adopted the NAIC model law and Indiana directly, and Florida indirectly, have adopted the NAIC model formula. The RBC formula for property and casualty insurance companies measures four major areas of risk facing property and casualty insurers: (i) underwriting, which encompasses the risk of adverse loss developments and inadequate pricing; (ii) declines in asset values arising from credit risk; (iii) declines in asset values arising from investment risks; and (iv) off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for affiliates, contingent liabilities and reserve and premium growth. Pursuant to the model law, insurers having less statutory surplus than that required by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The RBC model law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of surplus to RBC decreases. The first level, the Company Action Level (as defined by the NAIC), requires an insurer to submit a plan of corrective actions to the regulator if surplus falls below 200% of the RBC amount. The Regulatory Action Level requires an insurer to submit a plan containing corrective actions and requires the relevant insurance commissioner to perform an examination or other analysis and issue a corrective order if surplus falls below 150% of the RBC amount. The Authorized Control Level gives the relevant insurance commissioner the option either to take the aforementioned actions or to rehabilitate or liquidate the insurer if surplus falls below 100% of the RBC amount. The fourth action level is the Mandatory Control Level that requires the relevant insurance commissioner to rehabilitate or liquidate the insurer if surplus falls below 70% of the RBC amount. At the time of filing the annual statutory financial statements of the Company's insurance subsidiaries as of December 31, 2002, the RBC calculations for Pafco and Superior were in excess of 200% which concluded that no action is required. The RBC calculation for IGF as of December 31, 2002 was in excess of 100%, which is above the Authorized Control Level. (See "Regulatory Actions"). In May 2003, pursuant to a reserve analysis completed by the consulting actuary engaged by BDO Seidman, LLP, the Company's independent auditor, it was determined that reserves for losses and loss adjustment expenses for Superior and Pafco should be increased. These reserve adjustments, along with resulting adjustments to the permitted carrying values of certain assets, were recorded in the 2002 audited statutory financial statements filed for Superior and Pafco with the Insurance Department of Florida and the Indiana Department of Insurance, respectively. Based on the adjusted audited statutory financial statements, the surplus for Superior fell below 70% of the RBC amount and the surplus level for Pacfo was above 150% of the RBC amount. Guaranty Funds; Residual Markets The insurance company subsidiaries also may be required under the solvency or guaranty laws of most states in which they do business to pay assessments (up to certain prescribed limits) to fund policyholder losses or liabilities of insolvent or rehabilitated insurance companies. These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's financial strength and, in certain instances, may be offset against future premium taxes. Some state laws and regulations further require participation by the insurance company subsidiaries in pools or funds to provide some types of insurance coverage that they would not ordinarily accept. The Company recognizes its obligations for guaranty fund assessments when it receives notice that an amount is payable to the fund. The ultimate amount of these assessments may differ from that which has already been assessed. It is not possible to predict the future impact of changing state and federal regulation on the Company's operations and there can be no assurance that laws and regulations enacted in the future will not be more restrictive than existing laws. Employees At March 1, 2003, the Company and its subsidiaries employed approximately 218 full and part-time employees. None of the Company's employees is represented by either unions or collective bargaining agreements. The Company believes that relations with its employees are excellent. RISK FACTORS The following factors, in addition to the other information contained in this report should be considered in evaluating the Company and its prospects. The Financial Condition of the Company Has Continued to Decline The Company reported losses from continuing operations of $(35,260,000) for the year 2002, $(30,736,000) for 2001 and $(71,384,000) for 2002. Results from continuing operations before the effects of income taxes, minority interest and amortization expense were losses of $(19,065,000) and $(15,759,000) for 2002 and 2001, respectively. Further, the deficit in shareholder's equity increased from $(144,012,000) at December 31, 2001 to $(178,879,000) at December 31, 2002. There can be no assurance that the Company can continue in business if these operating losses continue The Company's Accountants Have Issued Going Concern Opinions The Company's accountants have issued reports on their audits of the Consolidated Financial Statements of the Company as of December 31, 2001 and December 31, 2002 which express doubt as to the Company's ability to continue as a going concern given the recurring operating losses experienced by the Company over the past few years and the Company's net capital deficiency. Regulatory Actions May Affect the Company's Future Operations The Company's insurance company subsidiaries, their business operations, and their transactions with affiliates, including the Company, are subject to extensive regulation and oversight by the IDOI, the FDOI and the insurance regulators of other states in which the insurance company subsidiaries write business. Moreover, the insurance company subsidiaries' losses, adverse trends and uncertainties discussed in this report have been and continue to be matters of concern to the domiciliary and other insurance regulators of the Company's insurance company subsidiaries and have resulted in enhanced scrutiny and regulatory action by several regulators including the FDOI's current proceding seeking to suspend or revoke Superior's Certificate of Authority. (See "Regulatory Actions" and "Risk-Based Capital Requirements"). The primary purpose of insurance regulation is the protection of policyholders rather than shareholders. Failure to resolve issues with the IDOI and the FDOI, and with other regulators, in a manner satisfactory to the Company could impair the Company's ability to execute its business strategy or cause the Company's subsidiaries to cease writing insurance or result in future regulatory actions or proceedings that could otherwise materially and adversely affect the Company's operations. The Company is Subject to a Number of Pending Legal Proceedings As discussed elsewhere in this report, in addition to regulatory actions, the Company is involved in a number of pending civil legal proceedings (see Part I - Item 3, "Legal Proceedings"). Although the Company believes that many of the allegations of wrongdoing are without merit and intends to vigorously defend the claims brought against it, there can be no assurance that such proceedings will not have a material adverse effect on the Company's financial position or results of operations. Furthermore, the existence of these lawsuits diverts the time and attention of management, and they are expensive to defend. The Terms of the Trust Preferred Securities May Restrict The Company's Ability to Act The Company has issued through a wholly owned trust subsidiary $135 million aggregate principal amount in trust originated preferred securities ("Preferred Securities"). The Preferred Securities have a term of 30 years with annual interest at 9.5% paid semi-annually. The obligations of the Preferred Securities were expected to be funded from the Company's nonstandard automobile insurance management company. The Company elected to defer the semi-annual interest payments due in February and August 2000, 2001 and 2002 and the payment due in February 2003 and may continue to defer such payments for up to an aggregate of five years as permitted by the indenture for the Preferred Securities. All of the deferred interest (if all payments due in 2003 and 2004 are deferred) approximating $84 million will become due and payable in February 2005. Although there is no present default under the indenture that would accelerate the payment of the Preferred Securities, the indenture contains a number of covenants that may restrict the Company's ability to act in the future. These covenants include restrictions on the Company's ability to incur or guarantee debt, make certain payments to affiliates, repurchase its common stock, pay dividends on common stock or increase its level of certain investments other than investment-grade, fixed-income securities. There can be no assurance that compliance with these restrictions and other provisions of the indenture for the Preferred Securities will not adversely affect the cash flow of the Company. The Company May Not Be Able to Satisfy Its Obligations to the Holders of the Trust Preferred Securities The Company may continue to defer semi-annual interest payments for up to an aggregate of five (5) years as permitted by the indenture for the Preferred Securities. All of the deferred interest (approximately $84 million, if all payments due in 2003 and 2004 are deferred) will become due and payable in February 2005. The Company relies on the payment of finance and service fees by its subsidiaries to fund its operations, including its payment of interest on the Preferred Securities. Certain state regulators, including the FDOI, have issued orders prohibiting the Company's subsidiaries from paying such fees to the Company. In the event such orders continue, the Company may not have sufficient revenue to fund its operations or to pay the deferred interest on the Preferred Securities. Such failure to pay could result in a default under the indenture and acceleration of the payment of the Preferred Securities. Uncertain Pricing and Profitability One of the distinguishing features of the property and casualty industry is that its products are priced before losses are reported and final costs are known. Premium rate levels are related in part to the availability of insurance coverage, which varies according to the level of surplus in the industry. Increases in surplus have generally been accompanied by increased price competition among property and casualty insurers. The nonstandard automobile insurance business, in recent years, has experienced very competitive pricing conditions and there can be no assurance as to the Company's ability to achieve adequate pricing. Changes in case law, the passage of new statutes or the adoption of new regulations relating to the interpretation of insurance contracts can retroactively and dramatically affect the liabilities associated with known risks after an insurance contract is in place. New products also present special issues in establishing appropriate premium levels in the absence of experience with such products' performance. The level of claims cannot be accurately determined for periods after the sale of policies, therefore reserves are estimated and these estimates are used to set price. If they are low, then resulting rates could be inadequate. The number of competitors and the similarity of products offered, as well as regulatory constraints, limit the ability of property and casualty insurers to increase prices in response to declines in profitability. In states that require prior approval of rates, it may be more difficult for the Company to achieve premium rates that are commensurate with the Company's underwriting experience with respect to risks located in those states. Accordingly, there can be no assurance that these rates will be sufficient to produce an underwriting profit. The reported profits and losses of a property and casualty insurance company are also determined, in part, by the establishment of, and adjustments to, reserves reflecting estimates as to the amount of losses and LAE that will ultimately be incurred in the settlement of claims. In May 2003, pursuant to a reserve analysis completed by the consulting actuary engaged by BDO Seidman, LLP, the Company's independent auditor, it was determined that reserves for losses and loss adjustment expenses for Superior and Pafco should be increased. These reserve adjustments, along with resulting adjustments to the permitted carrying values of certain assets, were recorded in the 2002 audited statutory financial statements filed for Superior and Pafco with the Insurance Department of Florida and the Indiana Department of Insurance, respectively and are included in this report. The ultimate liability of the insurer for all losses and LAE reserved at any given time will likely be greater or less than these estimates, and material differences in the estimates may have a material adverse effect on the insurer's financial position or results of operations in future periods. Uncertainty Associated with Estimating Reserves for Unpaid Losses and LAE The reserve for unpaid losses and LAE reflected in this report is an estimate of amounts needed to pay reported and unreported claims and related loss adjustment expenses based on facts and circumstances then known. These reserves are based on estimates of trends in claims severity, judicial theories of liability and other factors. Although the nature of the Company's insurance business is primarily short-tail, the establishment of adequate reserves is an inherently uncertain process, provides no assurance that the ultimate liability will not materially exceed the Company's reserves for losses and LAE and have a material adverse effect on the Company's results of operations and financial condition. Due to the inherent uncertainty of estimating these amounts, it has been necessary, and may over time continue to be necessary, to revise estimates of the Company's reserves for losses and LAE. The historical development of reserves for losses and LAE may not necessarily reflect future trends in the development of these amounts. Accordingly, it may not be appropriate to extrapolate redundancies or deficiencies based on historical information. Nature of Nonstandard Automobile Insurance Business The nonstandard automobile insurance business is affected by many factors that can cause fluctuation in the results of operations of this business. Many of these factors are not subject to the control of the Company. The size of the nonstandard market can be significantly affected by, among other factors, the underwriting capacity and underwriting criteria of standard automobile insurance carriers. In addition, an economic downturn in the states in which the Company writes business could result in fewer new car sales and less demand for automobile insurance. These factors, together with competitive pricing and other considerations, could result in fluctuations in the Company's underwriting results. Highly Competitive Business Nonstandard automobile insurance is a highly competitive business. Many of the Company's competitors have substantially greater financial resources than the Company and there can be no assurance that the Company will be able to compete effectively against such competitors in the future. The Company competes with both large national writers and smaller regional companies. The Company's competitors include other companies which, like the Company, serve the independent agency market and companies that sell insurance directly to consumers. Direct writers may have certain competitive advantages over agency writers, including increased name recognition, loyalty of the customer base to the insurer, and potentially reduced acquisition costs. In addition, certain competitors of the Company have from time to time decreased their prices in an apparent attempt to gain market share. Also, in certain states, assigned risk plans may provide nonstandard automobile insurance products at a lower price than private insurers. In addition, because the Company's insurance products are only marketed through independent insurance agencies, which represent more than one insurance company, the Company faces competition within each agency. Reliance on Independent Insurance Agents The Company markets and sells its insurance products through independent, non-exclusive insurance agents and brokers. The agents and brokers also sell competitors' insurance products. The Company's business depends, in part, on the marketing efforts of those agents and brokers and the Company must offer insurance products that meet the requirements of their customers. If those agents and brokers fail to market the Company's products successfully, the Company's business may be adversely impacted. Reliance upon Reinsurance In order to reduce risk and to increase its underwriting capacity, the Company purchases reinsurance. Reinsurance does not relieve the Company of liability to its insureds for the risks ceded to reinsurers. As such, the Company is subject to credit risk with respect to the risks ceded to reinsurers. Although the Company places its reinsurance with reinsurers that the Company generally believes to be financially stable, a significant reinsurer's insolvency or inability to make payments under the terms of a reinsurance treaty could have a material adverse effect on the Company's financial condition or results of operations. The amount and cost of reinsurance available to companies specializing in property and casualty insurance is subject, in large part, to prevailing market conditions beyond the control of such companies. The Company's ability to provide insurance at competitive premium rates and coverage limits on a continuing basis depends upon its ability to obtain adequate reinsurance in amounts and at rates that will not adversely affect its competitive position. Due to continuing market uncertainties regarding reinsurance capacity, no assurances can be given as to the Company's ability to maintain its current reinsurance facilities, which generally are subject to annual renewal. If the Company is unable to renew such facilities upon their expiration and is unwilling to bear the associated increase in net exposures, the Company may need to reduce the level of its underwriting commitments. ITEM 2 - PROPERTIES Headquarters The headquarters for the Company is located at 4720 Kingsway Drive, Indianapolis, Indiana. All corporate administration, accounting and management functions are contained at this location. Pafco is also located at 4720 Kingsway Drive, Indianapolis, Indiana in a building that is owned 100% by Pafco with no encumbrances. The building is an 80,000 square foot multilevel structure; approximately 50% of which is utilized by the Company, its subsidiaries and Goran. Superior Group leases office space in the building. Goran subleases office space in that building from Superior Group. The remaining space is leased to third parties at a price of approximately $10 per square foot per annum Superior Superior's operations are conducted at leased facilities in Atlanta, Georgia; Anaheim, California; and Tampa and West Palm Beach, Florida. Under a lease term that extends through 2003, Superior leases an office at 280 Interstate North Circle, N.W., Suite 500, Atlanta, Georgia. Superior leases an office located at 5483 West Waters Avenue, Suite 1200, Tampa, Florida for a lease term extending through December 2007. Superior occupies a leased office located at 1745 West Orangewood, Anaheim, California for a lease term extending through May 2006. Superior occupies a leased office at 4500 PGA Blvd., Suite 304A, West Palm Beach, Florida for a lease term extending through September 2003. Claims activities are performed in Atlanta, Indianapolis, Tampa, and Anaheim locations. Underwriting, customer service, and accounting and administration activities are performed at the headquarters location in Indianapolis, Indiana. The Company considers all of its properties suitable and adequate for its current operations. ITEM 3 - LEGAL PROCEEDINGS Superior Guaranty is a defendant in a case filed on November 26, 1996, in the Circuit Court for Lee County, Florida entitled Raed Awad v. Superior Guaranty Insurance Company, et al., Case No. 96-9151 CA LG. The case purported to be brought on behalf of a class consisting of purchasers of insurance from Superior Guaranty. The plaintiffs alleged that Superior Guaranty charged premium finance service charges in violation of Florida law. The parties have reached a class settlement which has been approved by the court which will not have a material effect on the financial condition of Superior Guaranty. As previously reported, IGF, which is a wholly owned subsidiary of the Company, had been a party to a number of pending legal proceedings and claims relating to agricultural production interruption insurance policies (the "AgPI Program") which were sold during 1998. All of the policies of insurance which were issued in the AgPI Program were issued by and under the name of Mutual Service Casualty Insurance Company ("MSI"), a Minnesota corporation with its principal place of business located in Arden Hills, Minnesota. Sales of this product resulted in large underwriting losses by IGF. Approximately $29 million was paid through December 31, 2002 in settlement of legal proceedings and policyholder claims related to the AgPI Program. All AgPI policyholder claims were settled during 2000. However, on January 12, 2001 a case was filed in the Superior Court of California, County of Fresno, entitled S&W Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo & Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought by four AgPI policyholders who had previously settled their AgPI claims pursuant to binding settlement agreements who now seek additional compensation by asserting through litigation that IGF and the third party carrier paid less than the policy limits they were promised when they purchased the policy and that each settling policyholder was forced to accept the lesser amount due to their economic duress - a legal theory recognized in California if certain elements can be established. The plaintiff's amended their complaint four times during 2002. A demurrer to the fourth amended complaint was filed by MSI and a motion to strike was filed by IGF, which were denied. IGF filed a motion for summary judgment to dismiss the claims in the plaintiff's fourth amended complaint on the basis that releases previously executed by the plaintiffs are binding, which was granted. The cross claims between the selling brokers and MSI and IGF remain pending. The trial is scheduled to begin in August 2003. Superior Guaranty is a defendant in a case filed on October 8, 1999, in the Circuit Court for Manatee County, Florida entitled Patricia Simmons v. Superior Guaranty Insurance Company, Case No. 1999 CA-4635. The case purported to be brought on behalf of a class consisting of purchasers of insurance from Superior Guaranty. The Plaintiff alleged that the defendant charged interest in violation of Florida law. The parties have settled the case in an amount that was not material to the financial condition of Superior Guaranty. The Company is a defendant in a case filed on February 23, 2000, in the United States District Court for the Southern District of Indiana entitled Robert Winn, et al. v. Symons International Group, Inc., et al., Cause No. IP 00-0310-C-B/S. Other parties named as defendants are Goran, three individuals who were or are officers or directors of the Company or of Goran, PricewaterhouseCoopers LLP and Schwartz Levitsky Feldman, LLP. The case purports to be brought on behalf of a class consisting of purchasers of the Company's stock or Goran's stock during the period February 27, 1998, through and including November 18, 1999. Plaintiffs allege, among other things, that defendants misrepresented the reliability of the Company's reported financial statements, data processing and financial reporting systems, internal controls and loss reserves in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") and SEC Rule 10b-5 promulgated thereunder. The individual defendants are also alleged to be liable as "controlling persons" under Sec.20 (a) of the 1934 Act. As previously reported in the Company's September 30, 2002 Form 10-Q, the Company, Goran and the individual defendants entered into an agreement with the plaintiffs for settlement. The settlement is subject to certain terms and conditions and court approval. As previously reported, the Company and two of its subsidiaries, IGFH and IGF, were parties to a "Strategic Alliance Agreement" dated February 28, 1998 (the "SAA") with Continental Casualty Company ("CNA"), pursuant to which IGF acquired certain crop insurance operations of CNA. The obligations of the Company, IGFH, IGF and CNA under the SAA are the subject of an action filed on June 4, 2001 and pending in United States District Court for the Southern District of Indiana, Indianapolis Division. Claims have also been asserted in the action against Goran, Granite Re, Pafco, Superior and certain members of the Symons family. Discovery is proceeding. Although the Company continues to believe that it has claims against CNA and defenses to CNA's claims which may offset or reduce amounts owing by the Company or its affiliates to CNA, there can be no assurance that the ultimate resolution of the claims asserted by CNA against the Company and its affiliates will not have a material adverse effect upon the Company's and its affiliates' financial condition or results of operations. Superior was a defendant in a case filed on May 8, 2001 in the United States District Court Southern District of Florida entitled The Chiropractic Centre, Inc. v. Superior Insurance Company, Case No. 01-6782. The case purported to be brought on behalf of a class consisting of healthcare providers improperly paid discounted rates on services to patients based upon a preferred provider contract with a third party. The plaintiff alleged that Superior breached a third party beneficiary contract, committed fraud and engaged in racketeering activity in violation of federal and Florida law by obtaining discounted rates offered by a third party with whom the plaintiff contracted directly. On September 30, 2002, the court issued an administrative order which dismissed the case. The court's order administratively closing the case could be temporary or permanent. Superior believes that the allegations of wrongdoing as alleged in the complaint were without merit and in the event the order is temporary, Superior intends to vigorously defend the claims brought against it. IGF is a defendant in a case filed on December 31, 2002 in the Circuit Court of Greene County, Missouri entitled Kevin L. Stevens v. Wilkerson Insurers, et al., Case No. 102CC5135. Other parties named as defendants are Goran, Goran's subsidiaries, Symons International Group (Florida), Inc. and Granite Re, Superior Group Management, Superior, Superior American, Superior Guaranty, Pafco and three individuals who were or are officers or directors of the Company. Goran, Granite Re, Symons International Group (Florida), Inc, Superior Group Management, Superior, Superior American, Superior Guaranty and certain individual defendants have filed motions to dismiss for lack of personal jurisdiction which are pending. The case purports to be brought on behalf of an IGF insured seeking to recover alleged damages based on allegations of bad faith, negligent claims handling and breach of fiduciary duties with respect to a claim which arose from an accident caused by the IGF insured. IGF believes that the allegations of wrongdoing as alleged in the complaint are without merit and intends to vigorously defend the claims brought against it. See footnote 12, "Regulatory Matters", and footnote 13, "Commitment and Contingencies", to the Company's consolidated financial statements in Part II of this report, incorporated herein by reference, for additional legal matters. The Company's insurance subsidiaries are parties to other litigation arising in the ordinary course of business which the Company does not believe will have a material adverse effect upon the Company's and its affiliates financial conditions or results. The Company, through its claims reserves, reserves for both the amount of estimated damages attributable to these lawsuits and the estimate costs of litigation. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Information regarding the trading market for the Company's common stock, the range of selling prices for each quarterly period since January 1, 2000, and the approximate number of holders of common stock as of December 31, 2002 and other matters is included under the caption "Market and Dividend Information" on page 42 of the 2002 Annual Report, included as Exhibit 13, which information is incorporated herein by reference. No securities were issued in the fourth quarter of 2002. DRAFT The following table sets forth certain information as of December 31, 2002 regarding securities of the Registrant authorized for issuance under the Company's equity compensation plans. As of December 31, 2002, all of the Company's equity compensation plans were approved by the Company's shareholders.

The Company's Stock Option Plan provides it with the authority to grant nonqualified stock options and incentive stock options to officers and key employees of the Company and its subsidiaries and nonqualified stock options to non-employee directors of the Company and Goran. Options have been granted at an exercise price equal to the fair market value of the Company's stock at date of grant. All of the outstanding stock options vest and become exercisable in three equal installments on the first, second and third anniversaries of the date of grant. ITEM 6 - SELECTED FINANCIAL DATA The data included on page 4 of the 2002 Annual Report, included as Exhibit 13, under "Selected Financial Data" is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2002 Annual Report on pages 5 through 14 included as Exhibit 13 is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The discussion entitled "Quantitative and Qualitative Disclosures About Market Risk" included in the 2002 Annual Report on pages 12 through 14 included as Exhibit 13 is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements in the 2002 Annual Report, included as Exhibit 13, and listed in Item 15 of this Report are incorporated herein by reference. ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF THE REGISTRANT The following table sets forth certain information as of April 30, 2003 regarding current directors of the Company: Name Age Director Since G. Gordon Symons 81 1987 Douglas H. Symons 50 1987 Terry W. Anker 37 2001 Michael D. Puckett 50 2002 G. Gordon Symons has been Chairman of the Board of Directors of the Company since its formation in 1987. Mr. Symons founded the predecessor to Goran, the 73.8% shareholder of the Company, in 1964 and has served as the Chairman of the Board of Goran since its formation in 1986. Mr. Symons also served as the President of Goran until 1992 and the Chief Executive Officer of Goran until 1994. Mr. Symons currently serves as a director of Symons International Group Ltd. ("SIGL"), a Canadian corporation controlled by him, which together with members of the Symons family, controls Goran. Mr. Symons also serves as Chairman of the Board of Directors of all of the subsidiaries of Goran. Mr. Symons is the father of Douglas H. Symons. Douglas H. Symons served as the Company's Chief Operating Officer from July 1996 until he became its Chief Executive Officer in November 1999. Mr. Symons also served as Chief Executive Officer of the Company from 1989 until July 1996. Mr. Symons has been a director of Goran since 1989 and served as Goran's Chief Operating Officer and Vice President from 1989 until May 31, 2002 when he became Chief Executive Officer and President. Mr. Symons is the son of G. Gordon Symons. Terry W. Anker is the chairman of the board of Anthology Companies, a holding company consisting of Keystone Lighting and Keystone's Light Lab, retail and wholesale residential lighting distribution businesses. Mr. Anker previously led the Marion County, Indiana Regulatory Review Commission, an organization charged with streamlining city-county government bureaucracy in Indianapolis, Indiana. Mr. Anker also developed the I.T.S. technology for electronic submission of court filings for HPS, Inc. Michael D. Puckett is President and Chief Executive Officer of CFG Wealth Management Services, Inc., an SEC Registered Investment Advisor authorized to transact business in all 50 states. Mr. Puckett is a Certified Financial Planner. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, as well as persons who own more than 10% of the outstanding common shares of the Company, to file reports of ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of such forms received by it, or written representations from certain reporting persons that no reports were required for those persons, the Company believes that during 2002, all filing requirements applicable to its officers, directors and greater than 10% shareholders were met. EXECUTIVE OFFICERS OF THE REGISTRANT Presented below is certain information regarding the executive officers of the Company who are not also directors. Their respective ages and their respective positions with the Company are listed as follows: NAME AGE POSITION Bruce K. Dwyer 53 Chief Financial Officer Gregg F. Albacete 41 Vice President and Chief Information Officer of the Company David N. Hafling 55 Vice President and Chief Actuary of the Company Mr. Dwyer has served as interim Chief Financial Officer of the Company since September 2002. Mr. Dwyer also served as Chief Financial Officer of Goran and the Company in 1999 and 2000 and in a similar position in Goran from 1981 to 1996. Since 2000 Mr. Dwyer also has had a consulting practice which he also had from 1996 to 1999. Mr. Albacete has served as Vice President and Chief Information Officer of the Company since January 2000. Mr. Albacete served as Vice President and Chief Information Officer of Leader Insurance from December 1987 to January 2000. From March 1982 to February 1985 Mr. Albacete worked for Transport Insurance. Prior to March 1982, Mr. Albacete was a self-employed consultant. Mr. Hafling has served as Vice President and Chief Actuary of the Company since December 1998. Prior to joining the Company, Mr. Hafling spent 26 years with American States Insurance Company, with his last seven years as Senior Vice President-Actuary. He has been a fellow of the Casualty Actuarial Society since 1979 and is a member of the American Actuarial Society. ITEM 11 - EXECUTIVE COMPENSATION The following table shows the cash compensation paid by the Company or any of its subsidiaries and other compensation paid during the last three calendar years to the Company's Chief Executive Officer during 2002 and the Company's four other most highly paid executive officers during 2002 (the "named executive officers").

OPTION EXERCISES AND YEAR-END VALUES The following table shows unexercised stock options held by the Company's named executive officers at December 31, 2002. In addition, this table includes the number of shares covered by both exercisable and non-exercisable stock options. The closing OTC stock price as of December 31, 2002 was $.03, which was lower than the option exercise prices; therefore, there were no unexercised in-the-money options. There were no exercises of stock options by the named executive officers during 2002. AGGREGATED OPTION EXERCISES IN 2002 AND DECEMBER 31, 2002 OPTION VALUES

STOCK OPTION GRANTS There were no grants of stock options to the Company's named executive officers in 2002. LONG TERM INCENTIVE PLAN AWARDS IN 2002 There were no long-term incentive plan awards to the Company's named executive officers in 2002. Report of the Compensation Committee The Committee regularly reviews the Company's executive compensation policies and practices and approves of the compensation of executive officers. The Committee's executive compensation policy is designed to attract, retain, and motivate highly talented individuals at the executive level of the organization. Executive compensation is based on the level of job responsibility, individual performance, and Company performance. Compensation also reflects the value of the job in the marketplace. To attract and retain highly skilled executives, the Company must remain competitive with the pay of other premier employers who compete with the Company for talent. The Committee believes that the Company's executive compensation program reflects these principles and gives executives strong incentives to maximize Company performance and therefore enhance shareholder value. The policy consists of both annual and long-term components, which should be considered together in assessing whether the policy is attaining its objectives. To align the interest of employees with those of shareholders, the Company provides employees the opportunity for equity ownership through the Plan. The Compensation Committee makes recommendations to the board for the award of stock options pursuant to the Plan. The objectives of the Plan are to align employee and shareholder long-term interests by creating a strong and direct link between employee compensation and shareholder return and to enable employees to develop and maintain a long-term ownership position in the Company's common stock. A total of 1,500,000 shares of the Company's common stock have been reserved for issuance under the Plan. As of April 17, 2003, 615,000 shares were available for grant of options pursuant to the Plan. There were no grants of options during 2002. The Company's total compensation program for officers includes base salaries, bonuses and the grant of stock options pursuant to the Plan. The Company's primary objective is to achieve above-average performance by providing the opportunity to earn above-average total compensation (base salary, bonus and value derived from stock options) for above-average performance. The program is designed to attract, motivate, reward and retain the management talent required to serve shareholder, customer and employee interests. The Company believes that this program also motivates the Company's officers to acquire and retain appropriate levels of stock ownership. It is the opinion of the Compensation Committee that the total compensation earned by Company officers during 2002 achieves these objectives and is fair and reasonable. The compensation of Douglas H. Symons, Chief Executive Officer of the Company, was approved by the Compensation Committee in March, 1999. Effective May 31, 2002, Goran Capital Inc. agreed to pay the salary of Douglas H. Symons. The Committee has reviewed the salary of Douglas H. Symons subsequent to the date he became Chief Executive Officer. The Compensation Committee has reviewed other compensation paid to Douglas H. Symons during 2002. Federal income tax law disallows corporate deductibility for "compensation" paid in excess of $1 million, unless such compensation is payable solely on account of achievement of an objective performance goal. As part of its on-going responsibilities with respect to executive compensation, the Compensation Committee will monitor this issue to determine what actions, if any, should be taken as a result of the limitation on deductibility. The Compensation Committee Terry W. Anker, Chairman Michael D. Puckett Douglas H. Symons Compensation Committee Interlocks and Insider Participation Prior to May 31, 2002, the Company's Compensation Committee consisted of Terry W. Anker, Robert C. Whiting and Douglas H. Symons. Mr. Whiting resigned as a director of the Company on May 31, 2002. Michael D. Puckett joined the Company's Compensation Committee on November 13, 2002. Neither Mr. Whiting nor Mr. Puckett has any interlocks reportable under Item 402(j)(3) of Regulation S-K. Douglas H. Symons has served as a director and executive officer of the Company since its formation in 1987 and as a director and executive officer of Goran, the majority owner of the Company, since 1989. Douglas H. Symons is also an executive officer of each of the Company's subsidiaries. G. Gordon Symons, Chairman of the Company, is a director of each of the Company's subsidiaries and is empowered to determine the compensation of the executive officers of the Company's subsidiaries. Alan G. Symons was an executive officer and director of the Company and its subsidiaries until May 31, 2002. Compensation of Directors Directors of the Company who are not employees of the Company or its affiliates receive an annual retainer of $10,000. In addition, the Company reimburses its directors for reasonable travel expenses incurred in attending board and board committee meetings. Each director of the Company who is not also an employee of the Company receives a meeting fee of $1,000 for each committee meeting attended, with committee chairs receiving an additional $1,500 per quarter. EMPLOYMENT AGREEMENTS Certain of the Company's officers have entered into employment contracts with the Company or one of its subsidiaries. Douglas H. Symons, Chief Executive Officer of the Company, is subject to an employment agreement, with such agreement calling for a base salary of not less than $500,000 per year. This agreement became effective on May 31, 2002 and continues in effect for an initial period of two years. Upon the expiration of the initial two-year period, the term of the agreement is automatically extended from year to year thereafter and is cancelable upon six months' notice. This agreement contains customary restrictive covenants respecting confidentiality and non-competition during the term of employment and for a period of two years after the termination of the agreement. In addition to annual salary, Douglas H. Symons may earn a bonus in an amount ranging from 0 to 100% of base salary. At the discretion of the board, bonus awards may be greater than the amounts indicated if agreed upon financial targets are exceeded. Upon a change of control of the Company or Goran and in the event of a non-renewal of Douglas H. Symons' employment agreement, Douglas H. Symons is entitled to a severance amount equal to two years salary. On May 31, 2002 Douglas H. Symons became the Chief Executive Officer and President of Goran, and Goran approved the payment of Goran's and the Company's annual salary obligations under the employment agreement. The Company and Goran entered into an employment agreement with David N. Hafling under which he serves as Vice President and Chief Actuary of the Company. The agreement became effective on October 15, 2001 and continues until December 31, 2004. The agreement is automatically renewed for one year periods thereafter unless earlier terminated upon 60 days advance notice. The agreement provides that Mr. Hafling will receive a base salary of not less than $150,000 annually and an annual bonus of up to $30,000. The Company and Goran entered into an employment agreement with Gregg F. Albacete, Vice President and Chief Information Officer of the Company. The agreement became effective on January 26, 2000 for an initial term of three years and was automatically renewable for one-year periods thereafter unless sooner terminated. The agreement provided for a base salary of not less than $175,000 annually and an annual bonus of up to $75,000. This agreement terminated on January 31, 2003. The Company and Goran entered into an employment agreement with Gene S. Yerant under which he served as Executive Vice President of the Company and President of Superior Insurance Group, Inc., a subsidiary of the Company. The agreement became effective on January 10, 2000 and was terminated on May 20, 2002. The agreement provided for a base salary of $500,000 annually and a bonus of up to 100% of salary based upon achievement of certain performance objectives. Following the termination of the employment of Gene S. Yerant on May 20, 2002, the Company and Goran entered into an agreement with Mr. Yerant which provided for two separation payments of $250,000 each, both of which were paid as of January 31, 2003. The Company, Goran, and Granite Reinsurance Company Ltd. ("Granite Re"), a wholly-owned subsidiary of Goran, have entered into an employment agreement with G. Gordon Symons, Chairman of the Board of the Company, pursuant to which G. Gordon Symons is entitled to receive from Granite Re an annual sum of $150,000. Upon a change of control of the Company or Goran, G. Gordon Symons is entitled to a payment in the amount of $1,125,000. In the event Granite Re shall fail to pay the amounts due under the agreement, the Company and Goran become jointly and severally liable for such amounts. The Company, Goran, Granite Re, Goran Management Bermuda Ltd. ("Goran Bermuda") and G. Gordon Symons have entered into a consulting agreement, pursuant to which Goran Bermuda is entitled to receive from Granite Re an annual sum of $250,000. Upon a change of control of the Company or Goran, Goran Bermuda is entitled to a payment in the amount of $1,875,000. In the event Granite Re shall fail to pay the amounts due under the agreement, the Company and Goran become jointly and severally liable for such amounts. PERFORMANCE GRAPH The following performance graph compares the cumulative total shareholder return on the Company's common stock with Standard & Poor's 500 Stock Index and the Company's peer group for the years 1996 through 2002. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that may incorporate future filings (including this proxy statement, in whole or in part), the preceding Compensation Committee and Audit Committee Reports and the stock price performance graph shall not be incorporated by reference in any such filings. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that may incorporate future filings (including this proxy statement, in whole or in part), the preceding Compensation Committee and Audit Committee Reports and the stock price performance graph shall not be incorporated by reference in any such filings. [GRAPHIC OMITED] ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of April 21, 2003, the number and percentage of shares of common stock of the Company held by each person known to the Company to own beneficially more than five percent of the issued and outstanding common stock of the Company, and the ownership interests of each of the Company's directors and named executive officers, and all directors and executive officers of the Company as a group, in the common stock of the Company and in the common stock of the Company's 73.8% shareholder, Goran. Unless otherwise indicated in a footnote to the following table, each beneficial owner possesses sole voting and investment power with respect to the shares owned.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has made the following personal loans to Alan G. Symons, who resigned as an executive officer and director of the Company on May 31, 2002, which were outstanding during 2002:

The Company has made the following personal loans to Douglas H. Symons, which were outstanding during 2002:

On December 28, 2001, Superior Insurance Group, Inc., a subsidiary of the Company, obtained a line of credit from Granite Reinsurance Company Ltd. ("Granite Re"), a wholly-owned subsidiary of Goran, in the amount of $2,500,000. On October 23, 2002, Superior Insurance Group, Inc. obtained an additional line of credit of up to $1,000,000 from Granite Re. Both of the loans bear interest at a rate equal to the prime rate plus 5 %. The total principal balance outstanding on the loans as of April 17, 2003 was $2,030,000. In 1997, the Company guaranteed a personal loan by an unrelated third party lender to Douglas H. Symons in the amount of $250,000. During 2002, the loan was renewed by the unrelated third party lender, and the Company did not renew its guarantee. Pafco General Insurance Company ("Pafco"), an insurance subsidiary of the Company, engaged in reinsurance transactions with Granite Re during 2002. Granite Re is a wholly owned subsidiary of Goran. On an ongoing basis, Pafco also reinsures with Granite Re non-automobile business written by Pafco and originated through Symons International Group (Florida), Inc., a subsidiary of Goran. Pafco did not cede premiums to Granite Re under this reinsurance agreement in 2002. Those reinsurance arrangements have been continued for 2003. During 2002, IGF paid $500,000 to Granite Re as consideration for an indemnity provided to a third party by Granite Re for the benefit of IGF. The Company paid $12,967 to Stargate Solutions Group, Inc. in 2002 for consulting and other services relative to the conversion to the Company's non-standard automobile operating system. Stargate Solutions Group, Inc., is owned by Kirk Symons, son of G. Gordon Symons and brother of Alan G. Symons and Douglas H. Symons. During 2002, the Company paid David G. Symons approximately $7,076 for legal services. David G. Symons is the son of Alan G. Symons. Superior Insurance Group, Inc., a wholly owned subsidiary of the Company, owns a less than 1% limited partnership interest in Monument Capital Partners I. The amount of the investment was $100,000. Larry S. Wechter, a director of the Company until August 12, 2002, is Managing Director and Chief Executive Officer of Monument Advisors, Inc. and Alan G. Symons, a director of the Company until May 31, 2002, is a director of Monument Advisors, Inc. Monument Advisors, Inc. is the general partner of Monument Capital Partners I. PART IV ITEM 14 - CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended), as of a date (the "Evaluation Date") within 90 days before the filing date of this annual report, have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and are designed to ensure that material information relating to the Company is timely gathered, analyzed and disclosed to such officers within the Company, as appropriate, to allow timely decisions regarding required disclosure in the Company's reports filed under the Securities Exchange Act of 1934, as amended. (b) Changes in internal controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the Evaluation Date. ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The documents listed below are filed as a part of this Report, except as otherwise indicated: 1. Financial Statements. The following described consolidated financial statements found on the pages of the 2002 Annual Report indicated below are incorporated into Item 8 of this Report by reference. Description of Financial Statement Item Location in 2002 Annual Report ---------------------------------------- ------------------------------ Report of Independent Accountants Page 45 Consolidated Balance Sheets, December 31, 2002 and 2001 Page 17 Consolidated Statements of Operations, Years Ended December 31, 2002, 2001 and 2000 Page 18 Consolidated Statements of Changes In Shareholders' Equity (Deficit), Years Ended December 31, 2002, 2001 and 2000 Page 19 Consolidated Statements of Cash Flows, Years Ended December 31, 2002, 2001 and 2000 Page 20 Notes to Consolidated Financial Statements, Years Ended December 31, 2002, 2001 and 2000 Pages 21 through 44 2. Financial Statement Schedules. The following financial statement schedules are included beginning on page 27. Report of Independent Accountants Schedule II - Condensed Financial Information of Registrant Schedule IV - Reinsurance Schedule V - Valuation and Qualifying Accounts Schedule VI - Supplemental Information Concerning Property - Casualty Insurance Operations 3. Exhibits. The Exhibits set forth on the Index to Exhibits are incorporated herein by reference to the Index. 4. Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 2002. BOARD OF DIRECTORS AND SHAREHOLDERS OF SYMONS INTERNATIONAL GROUP, INC. AND SUBSIDIARIES The audit referred to in our report dated May 9, 2003, relating to the consolidated financial statements of Symons International Group, Inc. and subsidiaries, which is incorporated in Item 8 of this Form 10-K by reference to the annual report to shareholders for the year ended December 31, 2002 included the audit of the financial statement schedules listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audits. In our opinion, such financial statement schedules present fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP BDO SEIDMAN, LLP Grand Rapids, Michigan May 9, 2003 SYMONS INTERNATIONAL GROUP, INC. SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES. The information required by this schedule is included in Note 3 of Notes to Consolidated Financial Statements.

SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended December 31, 2002, 2001 and 2000 BASIS OF PRESENTATION The condensed financial information should be read in conjunction with the consolidated financial statements of Symons International Group, Inc. The condensed financial information includes the accounts and activities of the parent company which acts as the holding company for the insurance subsidiaries.

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Symons International Group, Inc. /s/ Douglas H. Symons ------------------------ June 3, 2003 By: Douglas H. Symons President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on June 3 2003, on behalf of the Registrant in the capacities indicated: (1) Principal Executive Officer: /s/ Douglas H. Symons ------------------------ Douglas H. Symons President and Chief Executive Officer (Principal Executive Officer) (2) Principal Financial Officer: /s/ Bruce K. Dwyer --------------------- Bruce K. Dwyer Chief Financial Officer (3) The Board of Directors: /s/ G. Gordon Symons ----------------------- G. Gordon Symons Chairman of the Board /s/ Douglas H. Symons ------------------------ Douglas H. Symons Director /s/ Terry W. Anker --------------------- Terry W. Anker Director /s/ Michael D. Puckett ------------------------- Michael D. Puckett Director CERTIFICATE OF THE PRINCIPAL EXECUTIVE OFFICER OF SYMONS INTERNATIONAL GROUP, INC. I, Douglas H. Symons, certify that: 1. I have reviewed this annual report on Form 10-K of Symons International Group, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company, and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 3, 2003 By: /s/ Douglas H. Symons ------------------------ Douglas H. Symons Chief Executive Officer CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF SYMONS INTERNATIONAL GROUP, INC. I, Bruce K. Dwyer, certify that: 1. I have reviewed this annual report on Form 10-K of Symons International Group, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company, and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 3, 2003 By: /s/Bruce K. Dwyer ------------------- Bruce K. Dwyer Chief Financial Officer EXHIBIT INDEX REFERENCE TO SEQUENTIAL Regulation S-K Page --------------- ---- Exhibit No. Document Number -------------------- ------ 2.1 The Strategic Alliance Agreement by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.1 of the Registrant's 1997 Form 10-K. 2.2 The MPCI Quota Share Reinsurance Contract by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.2 of the Registrant's 1997 Form 10-K. 2.3 The MPCI Quota Share Reinsurance Agreement by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.3 of the Registrant's 1997 Form 10-K. 2.4 The Crop Hail Insurance Quota Share Contract by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.4 of the Registrant's 1997 Form 10-K. 2.5 The Crop Hail Insurance Quota Share Agreement by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.5 of the Registrant's 1997 Form 10-K. 2.6 The Crop Hail Insurance Services and Indemnity Agreement by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.6 of the Registrant's 1997 Form 10-K. 2.7 The Multiple Peril Crop Insurance Services and Indemnity Agreement by and between Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998 is incorporated by reference to Exhibit 2.7 of the Registrant's 1997 Form 10-K. 2.8 The Stock Purchase Agreement between IGF Holdings, Inc. and 1911 CORP, dated July 7, 1998 is incorporated by reference to Exhibit 2.9 of the Registrant's 1998 Form 10-K. 3.1 The Registrant's Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 3.2 Registrant's Restated Code of Bylaws, as amended, is incorporated by reference to Exhibit 1 of the Registrant's 1996 Form 10-K. 4.1(1) The Senior Subordinated Indenture between Symons International Group, Inc. as issuer and Wilmington Trust Company as trustee for SIG Capital Trust I dated August 12, 1997 is incorporated by reference to Exhibit 4 of the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713. 4.1(2) First Supplemental Senior Subordinated Indenture between Symons International Group, Inc. and Wilmington Trust Company Related to SIG Capital Trust I dated January 15, 1998 is incorporated by reference to Exhibit 4.3(2) of the Registrant's 1997 Form 10-K. 10.1 The Management Agreement among Superior Insurance Company, Superior American Insurance Company, Superior Guaranty Insurance Company and GGS Management, Inc. dated April 30, 1996 is incorporated by reference to Exhibit 10.5 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.2 The Management Agreement between Pafco General Insurance Company and Registrant dated May 1, 1987, as assigned to GGS Management, Inc. effective April 30, 1996, is incorporated by reference to Exhibit 10.6 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.3 The Administration Agreement between IGF Insurance Company and Registrant dated February 26, 1990, as amended, is incorporated by reference to Exhibit 10.7 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.4 The Agreement between IGF Insurance Company and Registrant dated November 1, 1990 is incorporated by reference to Exhibit 10.8 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.5 The Registration Rights Agreement between Goran Capital Inc. and Registrant dated May 29, 1996 is incorporated by reference to Exhibit 10.13 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.6* The Employment Agreement between Goran Capital Inc., Symons International Group, Inc. and Douglas H. Symons effective March 8, 1999 is incorporated by reference to Exhibit 10.5 of the Registrant's 2000 Form 10-K. 10.7* The Employment Agreement between Goran Capital Inc., Symons International Group, Inc. and David N. Hafling dated October 15, 2002 is incorporated by reference to Exhibit 10.7 to Registrant's 2001 Form 10-K. 10.8* The Employment Agreement between Symons International Group, Inc. and Mark A. Paul dated July 30, 2001is incorporated by reference to Exhibit 10.8 to Registrant's 2001 Form 10-K. 10.9 The GGS Management Holdings, Inc. 1996 Stock Option Plan is incorporated by reference to Exhibit 10.21 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.10 The Registrant's 1996 Stock Option Plan is incorporated by reference to Exhibit 10.22 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.11 The Registrant's Retirement Savings Plan is incorporated by reference to Exhibit 10.24 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.12 The Insurance Service Agreement between Mutual Service Casualty Company and IGF Insurance Company dated May 20, 1996 is incorporated by reference to Exhibit 10.25 of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.13(2) The Crop Hail Quota Share Reinsurance Contract and Crop Insurance Service Agreement between Pafco General Insurance Company and IGF Insurance Company is incorporated by reference to Exhibit 10.27(2) of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.13(3) The Automobile Third Party Liability and Physical Damage Quota Share Reinsurance Contract between IGF Insurance Company and Pafco General Insurance Company is incorporated by reference to Exhibit 10.27(3) of the Registrant's Registration Statement on Form S-1, Reg. No. 333-9129. 10.13(5) The Standard Reinsurance Agreement between Federal Crop Insurance Corporation and IGF Insurance Company dated July 1, 1997 is incorporated by reference to Exhibit 10.13(6) to the Registrant's 1999 Form 10-K. 10.13(9) Amendment No. 1 to the 1998 Standard Reinsurance Agreement dated July 29, 1998 is incorporated by reference to Exhibit 10.18(8) to the Registrant's 1999 Form 10-K. 10.13(11) Quota Share Reinsurance Agreement between Superior Insurance Company and its Wholly -Owned Insurance Subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA effective January 1, 2000 is incorporated by reference to Exhibit 10.13(11) to the Registrant's 2001 Form 10-K. 10.13(12) Quota Share Reinsurance Agreement between Pafco General Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA effective January 1, 2000 is incorporated by reference to Exhibit 10.13(12) to the Registrant's 2001 Form 10-K. 10.13(14) Addendum No. 2 to Quota Share Reinsurance Agreement effective January 1, 2000 between Superior Insurance Company and its Wholly-Owned Insurance Subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA effective December 30, 2000 is incorporated by reference to Exhibit 10.13(14) to Registrant's 2001 Form 10-K. 10.13(15) Addendum No. 2 to Quota Share Reinsurance Agreement effective January 1, 2000 between Pafco General Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA effective December 30, 2000 is incorporated by reference to Exhibit 10.13(15) to Registrant's 2001 Form 10-K. 10.13(16) Addendum No. 3 to Quota Share Reinsurance Agreement effective January 1, 2000 between Superior Insurance Company and its Wholly-Owned Insurance Subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA effective January 1, 2002. 10.13(17) Addendum No. 3 to Quota Share Reinsurance Agreement effective January 1, 2000 between Pafco General Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA effective January 1, 2002. 10.13(18) Addendum No. 4 to Quota Share Reinsurance Agreement effective January 1, 2000 between Superior Insurance Company and its Wholly-Owned insurance subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA dated January 1, 2002. 10.13(19) Addendum No. 4 to Quota Share Reinsurance Agreement effective January 1, 2000 between Pafco General Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA effective January 1, 2002. 10.13(20) Addendum No. 5 to Quota Share Reinsurance Agreement effective January 1, 2000 between Superior Insurance Company and its Wholly-Owned insurance subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA dated September 26, 2002. 10.14(1) The SIG Capital Trust I 9 % Trust Preferred Securities Purchase Agreement dated August 7, 1997 is incorporated by reference in the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713. 10.14(2) The Registration Rights Agreement among Symons International Group, Inc., SIG Capital Trust I and Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., CIBC Wood Gundy Securities Corp. and Mesirow Financial, Inc. dated August 12, 1997 is incorporated by reference in the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713. 10.14(3) The Declaration of Trust of SIG Capital Trust 1 dated August 4, 1997 is incorporated by reference in the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713. 10.14(4) The Amended and Restated Declaration of Trust of SIG Capital Trust I dated August 12, 1997 is incorporated by reference in the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713. 10.15* The Employment Agreement between Goran Capital Inc., Symons International Group, Inc. and Gene S. Yerant effective January 10, 2000 is incorporated by reference to Exhibit 10.15 of the Registrant's March 31, 2000 Form 10-Q. 10.16* The Employment Agreement between Symons International Group, Inc., Goran Capital Inc. and Gregg F. Albacete effective January 26, 2000 is incorporated by reference to Exhibit 10.16 of the Registrant's March 31, 2000 Form 10-Q. 10.17 The Asset Purchase Agreement by and among Acceptance Insurance Companies Inc., American Growers Insurance Company, American Agrisurance, Inc., Goran Capital Inc., Symons International Group, Inc., IGF Holdings, Inc. and IGF Insurance Company dated Mary 23, 2001 incorporated by reference to Exhibit 10.9 of the Registrant's June 30, 2001 Form 10-Q. 10.18 First Amendment to Asset Purchase Agreement by and among Acceptance Insurance Companies Inc. American Growers Insurance Company, American Agrisurance, Inc., Goran Capital Inc., Symons International Group, Inc., IGF Holdings, Inc. and IGF Insurance Company dated June 5, 2001 incorporated by reference to Exhibit 10.10 of the Registrant's June 30, 2001 Form 10-Q. 10.19 Assignment and Assumption Agreement by IGF Holdings, Inc. and IGF Insurance Company and Acceptance Insurance Companies Inc. dated May 23, 2001 incorporated by reference to Exhibit 10.11 of the Registrant's June 30, 2001 Form 10-Q. 10.20 IGF/Acceptance Retrocession Agreement by and between Acceptance Insurance Company and IGF Insurance Company dated May 23, 2001 incorporated by reference to Exhibit 10.13 of the Registrant's June 30, 2001 Form 10-Q. 10.21 Consulting and Non-competition Agreement by and between Symons International Group, Inc. and Acceptance Insurance Companies Inc. dated May 23, 2001 incorporated by reference to Exhibit 10.15 of the Registrant's June 30, 2001 Form 10-Q. 10.22* Addendum to Employment Agreement between Goran Capital Inc., Symons International Group, Inc. and G. Gordon Symons effective January 1, 1998 is incorporated by reference to Exhibit 10.23 of the Registrant's 2001 Form 10-K. 10.23* The Employment Agreement dated May 31, 2002 between Goran Capital Inc., Symons International Group, Inc. and Douglas H. Symons. 10.24* Addendum to Consulting Agreement dated January 1, 1998 by and between Goran Capital Inc., the Company, Granite Reinsurance Company Ltd., Goan Management Bermuda Ltd. and G. Gordon Symons. 13 2002 Annual Report of Symons International Group, Inc. 99.1 Certifcation pursuant to section 906 of the Sarbanes -Oxley Act of 2002 99.2 Certifcation pursuant to section 906 of the Sarbanes -Oxley Act of 2002 * Compensation Related Agreement

SYMONS INTERNATIONAL GROUP INC 10-K