<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 2003

                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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

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

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

<Table>
<S>                                      <C>                                      <C>
             CAYMAN ISLANDS                                6399                                 APPLIED FOR
    (State or other jurisdiction of            (Primary Standard Industrial                   (I.R.S. Employer
     incorporation or organization)                Classification Code)                     Identification No.)
</Table>

                             ---------------------
                          WALKER HOUSE, 87 MARY STREET
                                P.O. BOX 9086GT
                           GEORGE TOWN, GRAND CAYMAN
                                 CAYMAN ISLANDS
                                 (345) 949-0100
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                             ---------------------
                        NATIONAL REGISTERED AGENTS, INC.
                         440 NINTH AVENUE, FIFTH FLOOR
                            NEW YORK, NEW YORK 10001
                                 (800) 767-1553
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                             ---------------------
                                   COPIES TO:

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

                             ---------------------
       APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
                             ---------------------
       If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 the Securities Act of
1933, check the following box:  [ ]

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

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

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

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

                        CALCULATION OF REGISTRATION FEE

<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
                                                                 PROPOSED MAXIMUM
                   TITLE OF EACH CLASS OF                       AGGREGATE OFFERING             AMOUNT OF
                SECURITIES TO BE REGISTERED                         PRICE(1)(2)            REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                       <C>
Class A common shares, $0.0001 par value per share..........       $230,000,000                 $18,607
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</Table>

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

(2) Estimated solely for the purposes of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
                             ---------------------
       THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

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

                             SUBJECT TO COMPLETION

                 PRELIMINARY PROSPECTUS DATED           , 2003

PROSPECTUS

                                           SHARES

                          [UNITED NATIONAL GROUP LOGO]
                          UNITED NATIONAL GROUP, LTD.
                             CLASS A COMMON SHARES
                             ----------------------
     This offering is the initial public offering of Class A common shares of
United National Group. Prior to this offering there has been no public market
for our Class A common shares. All of the Class A common shares are being sold
by United National Group.

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

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

<Table>
<Caption>
                                                              PER SHARE              TOTAL
                                                              ---------              -----
<S>                                                           <C>                    <C>
Public offering price.......................................      $                    $
Underwriting discount.......................................      $                    $
Proceeds, before expenses, to United National Group.........      $                    $
</Table>

     The underwriters may also purchase up to an additional           Class A
common shares from us and an additional      Class A common shares from the
selling shareholders at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
overallotments. United National Group will not receive any proceeds from the
sale of Class A common shares by the selling shareholders.

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

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

                              MERRILL LYNCH & CO.
                             ----------------------
BANC OF AMERICA SECURITIES LLC                DOWLING & PARTNERS SECURITIES, LLC
                             ----------------------
                The date of this prospectus is           , 2003.
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Summary.....................................................    1
Risk Factors................................................    8
Cautionary Note Regarding Forward-Looking Statements........   27
Use of Proceeds.............................................   28
Dividend Policy.............................................   28
Capitalization..............................................   29
Dilution....................................................   30
Pro Forma Financial Information.............................   31
Selected Historical Financial Data..........................   39
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   41
Industry Background and Trends..............................   58
Business....................................................   60
Regulation..................................................   78
Management..................................................   83
Principal Shareholders......................................   92
Selling Shareholders........................................   95
Our Relationship with Fox Paine & Company...................   96
Certain Relationships and Related Transactions..............   99
Description of Share Capital................................  101
Shares Eligible for Future Sale.............................  109
Material Tax Considerations.................................  111
Underwriting................................................  122
Legal Matters...............................................  125
Experts.....................................................  125
Where You Can Find More Information.........................  125
Enforceability of Civil Liabilities Under United States
  Federal Securities Laws and Other Matters.................  125
Index to Financial Statements...............................  F-1
Glossary of Selected Insurance Terms........................  G-1
</Table>

                             ---------------------
       You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information that is different from, or in addition to, that contained in this
prospectus. We are offering to sell and seeking offers to buy our Class A common
shares only in states and jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our Class A common shares.
                             ---------------------
       In this prospectus, unless the context requires otherwise, (1) references
to "United National Group" refer to United National Group, Ltd., an exempted
company incorporated with limited liability under the laws of the Cayman
Islands, (2) references to "we," "us" and "our" refer to United National Group
and its subsidiaries as a whole, (3) references to our "U.S. Operations" refer
to the insurance and related operations conducted by American Insurance Service,
Inc., and its subsidiaries, including American Insurance Adjustment Agency,
Inc., Diamond State Insurance Company, J.H. Ferguson & Associates, LLC, United
National Casualty Insurance Company, United National Insurance Company and
United National Specialty Insurance Company, (4) references to our "U.S.
Insurance Subsidiaries" refer to Diamond State Insurance Company, United
National Casualty Insurance Company, United National Insurance Company, and
United National Specialty Insurance Company, (5) references to "U.N. Barbados"
refer to Wind River Insurance Company (Barbados), Ltd., (6) our "Non-U.S.
Operations" refer to the insurance and reinsurance and related operations of
U.N. Barbados, (7) references to "Fox Paine & Company" refer to Fox Paine &
Company, LLC and affiliated investment funds, (8) references to our articles of
association are to our articles of association as they will be amended and
restated immediately prior to completion of this offering and (9) references to
"$" or "dollars" refer to U.S. dollars.
<PAGE>

                                    SUMMARY

       This summary highlights only selected information contained elsewhere in
this prospectus. This summary does not contain all of the information you should
consider before investing in our Class A common shares. You should read this
entire prospectus carefully, including "Risk Factors," "Cautionary Statement
Regarding Forward-Looking Statements" and the consolidated financial statements
and accompanying notes of Wind River Investment Corporation beginning on page
F-1 before investing in our Class A common shares. We have included a glossary
of insurance terms that are used in this prospectus beginning on page G-1.

                                  OUR BUSINESS

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

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

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

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

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

                       ACQUISITION OF OUR U.S. OPERATIONS

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

       To effect this acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We purchased the
remainder with consideration consisting of 2.5 million Class A common shares,
3.5 million Series A preferred shares and senior notes issued by Wind River
Investment Corporation having an aggregate principal amount of approximately
$72.8 million. Of the remaining $140.0 million contributed to us, we contributed
$80.0 million to our U.S. Operations, used $43.5 million to capitalize our

                                        1
<PAGE>

Non-U.S. Operations and used $16.5 million to fund fees and expenses incurred in
connection with the acquisition. See "Our Relationship with Fox Paine &
Company."

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

OUR COMPETITIVE STRENGTHS

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

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

       -     EXPERIENCED MANAGEMENT TEAM.  Our experienced management team has
             an average of over 23 years of experience in the insurance industry
             and has been with us for an average of 17 years.

       -     EXTENSIVE SPECIALIZED NICHE UNDERWRITING CAPABILITIES.  We have an
             experienced, focused underwriting organization of 63 dedicated
             underwriting professionals, which has contributed to a 95.4% simple
             average statutory combined ratio over the past 20 years.

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

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

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

OUR STRATEGY

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

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

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

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

       -     MAINTAINING A CONSERVATIVE BALANCE SHEET AND A STRONG A.M. BEST
             RATING.  We intend to remain conservative in our underwriting,
             reinsurance buying and investment practices and to use extensive
             modeling techniques to protect our current position with the rating
             agencies, particularly A.M. Best.

       -     BUILDING SHAREHOLDER VALUE.  By growing underwriting profits
             through our disciplined approach and conservatively managing our
             investment portfolio, we intend to grow shareholders' equity over
             the long term.
                                        2
<PAGE>

                         RECENT TRENDS IN OUR INDUSTRY

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

       We believe that these trends continued and accelerated in 2001 when the
property and casualty insurance industry experienced a severe dislocation as a
result of an unprecedented impairment of capital, causing a substantial
contraction in industry underwriting capacity. These factors have resulted in a
general environment of rate increases and conservative risk selection. In this
environment, rates tend to increase, coverage terms become more restrictive and
a significant volume of premium moves from the standard property and casualty
insurance market into the specialty insurance market. Growth in direct premiums
written for the E&S market has increased from 9.3% in 2000 to 35.7% in 2001 and
61.7% in 2002, according to data from A.M. Best.

       Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. Through June 30, 2003, our rate
increases on renewal business approximated 29%, which rates we will earn over
the period of time in which the policies are in force, generally the next 12
months. We cannot assure you, however, that these favorable trends will continue
or that these rate increases can be sustained.

          RISKS RELATING TO AN INVESTMENT IN OUR CLASS A COMMON SHARES

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

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

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

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

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

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

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

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

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

                                        3
<PAGE>

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

       Our principal executive offices are located at Walker House, 87 Mary
Street, P.O. Box 9086GT, George Town, Grand Cayman, Cayman Islands, and our
telephone number is (345) 949-0100.

                                        4
<PAGE>

                                 THIS OFFERING

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

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

Overallotment option offered
by the selling shareholders...             shares

Common shares to be
outstanding after this
  offering:

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

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

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

Use of proceeds...............   We intend to use up to $175.0 million of the
                                 net proceeds from this offering to redeem all
                                 of our outstanding Series A preferred shares,
                                 which are currently held by Fox Paine & Company
                                 and the Ball family trusts. We intend to use
                                 any remaining net proceeds for general
                                 corporate purposes, including to capitalize our
                                 Non-U.S. Operations. See "Use of Proceeds."

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

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

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

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

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

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

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

                                        5
<PAGE>

                       SUMMARY HISTORICAL FINANCIAL DATA

       United National Group, Ltd. was formed on August 27, 2003 and did not
have any material assets or operations prior to September 5, 2003. As a result,
we have not included any historical financial information for United National
Group, Ltd.

       The following table sets forth summary historical financial data for our
U.S. Operations for the periods ended or as of the dates indicated. This summary
historical financial data is derived from the consolidated financial statements
and accompanying notes of Wind River Investment Corporation included elsewhere
in this prospectus. You should read this summary historical financial
information together with the consolidated financial statements and accompanying
notes of Wind River Investment Corporation and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.

<Table>
<Caption>
                                                                                                  FOR THE SIX MONTHS
                                                     FOR THE YEARS ENDED DECEMBER 31,               ENDED JUNE 30,
                                           ----------------------------------------------------   -------------------
                                             1998       1999       2000       2001       2002       2002       2003
                                           --------   --------   --------   --------   --------   --------   --------
         (DOLLARS IN THOUSANDS)                                                                       (UNAUDITED)
<S>                                        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
  DATA:
Gross premiums written...................  $296,426   $357,605   $453,464   $670,520   $793,083   $435,082   $362,953
                                           ========   ========   ========   ========   ========   ========   ========
Net premiums written.....................  $ 94,547   $117,883   $127,572   $169,310   $172,689   $110,095   $ 99,461
                                           ========   ========   ========   ========   ========   ========   ========
Net premiums earned......................  $ 95,740   $103,455   $136,931   $150,336   $162,763   $ 95,096   $ 94,397
Investment income........................    22,628     24,637     28,578     24,491     24,595     12,256     11,481
Investment expenses......................    (4,778)    (4,969)    (6,088)    (5,138)    (6,910)    (3,377)    (2,152)
                                           --------   --------   --------   --------   --------   --------   --------
Investment income, net...................    17,850     19,668     22,490     19,353     17,685      8,879      9,329
Net realized investment gains (losses)...     3,556     (5,210)       593    (12,719)   (11,702)    (7,914)     3,116
                                           --------   --------   --------   --------   --------   --------   --------
  Total revenue..........................   117,146    117,913    160,014    156,970    168,746     96,061    106,842
Net losses and loss adjustment
  expenses(1)............................    67,002     76,257    113,151    128,338    201,750     74,826     61,846
Acquisition costs and other underwriting
  expenses...............................    15,584     11,913     14,999     15,867     18,938     12,286     20,733
Provision for doubtful reinsurance
  receivables(2).........................        --         --         --         --     44,000         --      1,750
Other operating expenses.................     2,399      2,112      2,918      2,220      5,874      1,423        367
Interest expense.........................       922        589        322         77        115         28         12
                                           --------   --------   --------   --------   --------   --------   --------
  Income (loss) before income taxes......    31,239     27,042     28,624     10,468   (101,931)     7,498     22,134
Income tax expense (benefit).............     6,751      6,252      5,883        295    (40,520)       431      5,012
                                           --------   --------   --------   --------   --------   --------   --------
Net income (loss) before equity in net
  income (loss) of partnerships..........    24,488     20,790     22,741     10,173    (61,411)     7,067     17,122
Equity in net earnings of partnerships...        --         --         --        664       (252)      (283)     1,487
                                           --------   --------   --------   --------   --------   --------   --------
  Net income (loss)......................  $ 24,488   $ 20,790   $ 22,741   $ 10,837   $(61,663)  $  6,784   $ 18,609
                                           ========   ========   ========   ========   ========   ========   ========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment expenses
  ratio(1)...............................      70.0%      73.7%      82.6%      85.3%     124.0%      78.7%      65.5%
Underwriting expense ratio(2)............      16.3       11.5       11.0       10.6       38.6       12.9       23.8
                                           --------   --------   --------   --------   --------   --------   --------
Combined ratio(3)........................      86.3%      85.2%      93.6%      95.9%     162.6%      91.6%      89.3%
                                           ========   ========   ========   ========   ========   ========   ========
Net/gross premiums written...............      31.9%      33.0%      28.1%      25.3%      21.8%      25.3%      27.4%
                                           ========   ========   ========   ========   ========   ========   ========
</Table>

                                        6
<PAGE>

<Table>
<Caption>
                                                                            AS OF JUNE 30, 2003
                                                            AS OF       ---------------------------
                                                         DECEMBER 31,                  PRO FORMA
                                                             2002         ACTUAL     AS ADJUSTED(4)
                                                         ------------   ----------   --------------
                (DOLLARS IN THOUSANDS)                                          (UNAUDITED)
<S>                                                      <C>            <C>          <C>
BALANCE SHEET DATA:
Total investments and cash and cash equivalents........   $  611,129    $  635,547      $
Reinsurance receivables, net of allowance..............    1,743,524     1,852,205
Total assets...........................................    2,685,620     2,782,655
Unpaid losses and loss adjustment expenses.............    2,004,422     2,133,728
Total shareholders' equity.............................   $  268,637    $  291,852      $
</Table>

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

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

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

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

(4) The pro forma as adjusted financial data reflects our acquisition of the
    group of companies that form our U.S. Operations, as described under "Our
    Relationship with Fox Paine & Company," as if such acquisition had been
    completed on June 30, 2003, and is further adjusted to reflect the sale of
    Class A common shares in this offering at an initial public offering price
    of $     per Class A common share (the midpoint of the estimated range set
    forth on the cover page of this prospectus) and the application of the net
    proceeds from this offering as described under "Use of Proceeds," including
    the redemption of the Series A preferred shares in accordance with their
    terms.

                                        7
<PAGE>

                                  RISK FACTORS

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

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

                  RISKS RELATING TO OUR BUSINESS AND INDUSTRY

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

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

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

       -     the amounts of claims payments;

       -     the expenses that we incur in resolving claims;

       -     legislative and judicial developments; and

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

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

                                        8
<PAGE>

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

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

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

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

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

       We cede significant amounts of gross premiums written to reinsurers under
reinsurance contracts. Although reinsurance makes the reinsurer liable to us to
the extent the risk is transferred, it does not relieve us of our liability to
our policyholders. Upon payment of claims, we will bill our reinsurers for their
share of such claims. Our reinsurers may not pay the reinsurance receivables
that they owe to us or they may not pay such receivables on a timely basis. If
our reinsurers fail to pay us or fail to pay us on a timely basis, our financial
results would be adversely affected. Lack of reinsurer liquidity, perceived
improper underwriting or claim handling by us, and other factors could cause a
reinsurer not to pay. As of June 30, 2003, we had $1,852.2 million of
reinsurance receivables, net of an allowance of $49.1 million for doubtful
reinsurance receivables. As of June 30, 2003, $483.2 million of collateral was
held in trust to support our reinsurance receivables. Our reinsurance
receivables, net of collateral held, were $1,369.0 million as of

                                        9
<PAGE>

June 30, 2003. We also had $159.7 million of prepaid reinsurance premiums as of
June 30, 2003. On August 29, 2003, an additional $200.5 million was placed in
trust on our behalf by one of our reinsurers.

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

       We derive a significant portion of our income from our invested assets.
As a result, our operating results depend in part on the performance of our
investment portfolio. For the six months ended June 30, 2003, our income derived
from invested assets, including net realized gains of $3.1 million, was $12.4
million, or 56.1% of our pre-tax income. For 2002, our income derived from
invested assets was $6.0 million, including net realized losses of $11.7
million, and we had a pre-tax loss of $101.9 million. Our operating results are
subject to a variety of investment risks, including risks relating to general
economic conditions, market volatility, interest rate fluctuations, liquidity
risk and credit and default risk. The fair value of fixed income investments can
fluctuate depending on changes in interest rates. Generally, the fair market
value of these investments has an inverse relationship with changes in interest
rates, while net investment income earned by us from future investments in fixed
income securities will generally increase or decrease with interest rates.
Additionally, with respect to certain of our investments, we are subject to
pre-payment or reinvestment risk.

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

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

       We also have an equity portfolio that represented approximately 6.1% of
our total investments and cash and cash equivalents portfolio, as of June 30,
2003. The performance of our equity portfolio is dependent upon a number of
factors, including many of the same factors that affect the performance of our
fixed income investments, although those factors sometimes have the opposite
effect on performance as to the equity portfolio. The equity markets as a whole
have performed negatively in recent years, and if such performance continues,
the value of our equity portfolio could decline.

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

       Our success substantially depends upon our ability to attract and retain
qualified employees and upon the ability of our senior management and other key
employees to implement our business strategy. We believe there are only a
limited number of available qualified executives in the business lines in which
we compete. Although we are not aware of any planned departures, we rely
substantially upon the services of Seth D. Freudberg, President and Chief
Executive Officer of our U.S. Operations, Richard S. March, Senior Vice
President and General Counsel of our U.S. Operations, Kevin L. Tate, our Chief
Financial Officer and Senior Vice President and Chief Financial Officer of our
U.S. Operations, Robert Cohen,

                                        10
<PAGE>

Senior Vice President -- Marketing of our U.S. Operations, William F. Schmidt,
Senior Vice President and Chief Underwriting Officer of our U.S. Operations and
Jonathan P. Ritz, Senior Vice President -- Ceded Reinsurance of our U.S.
Operations. Each of Messrs. Freudberg, March, Tate, Cohen, Schmidt and Ritz has
an employment agreement with us. The loss of any of their services or the
services of other members of our management team or the inability to attract and
retain other talented personnel could impede the further implementation of our
business strategy, which could have a material adverse effect on our business.
We do not currently maintain key man life insurance policies with respect to any
of our employees.

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

       We distribute the insurance products of our U.S. Operations through our
wholly-owned subsidiary, J.H. Ferguson, and a group of 51 professional general
agencies that have limited quoting and binding authority. For the six months
ended June 30, 2003, our top five agencies, including J.H. Ferguson, four of
which market more than one specific product, represent approximately 49% of our
net premiums written. Excluding the net premiums written attributable to J.H.
Ferguson, the remaining top four general agencies accounted for approximately
40% of our net premiums written. No one general agency accounted for more than
12% of our net premiums written. A loss of all or substantially all the business
produced by one or more of these general agencies could have an adverse effect
on our business and results of operations.

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

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

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

       U.N. Barbados was formed on August 18, 2003. U.N. Barbados has no
operating or financial history, and we have yet to begin conducting operations
through U.N. Barbados. While we intend to begin offering insurance and
reinsurance products to third parties that are substantially similar to those
products offered by our U.S. Operations and providing reinsurance to our U.S.
Operations in the near term, we may be unsuccessful in executing our business
plan. U.N. Barbados is not permitted to offer insurance products to third
parties without the approval of the Barbados Supervisor of Insurance. Barbados
has limited insurance industry infrastructure, and there is a limited number of
qualified personnel available to hire. As a result, it may be difficult for us
to locate a sufficient number of insurance professionals, including
underwriting, claims, sales and marketing and management personnel, to execute
our business plan for U.N. Barbados. It also may be difficult for U.N. Barbados
to establish the necessary market relationships, procedures and controls that
are necessary to operate effectively and profitably. If we fail to execute on
our business plan for U.N. Barbados or if the business written by U.N. Barbados
generates losses, it would prevent us from realizing the tax efficiencies that
our Non-U.S. Operations might otherwise provide.

       U.N. Barbados is currently not rated by A.M. Best. While we intend to
apply for a rating from A.M. Best for U.N. Barbados, we may not receive a
satisfactory rating. If we fail to receive a satisfactory rating from A.M. Best,
it would be difficult for U.N. Barbados to effectively sell insurance policies
to third parties.

                                        11
<PAGE>

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

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

       -     competition;

       -     capital capacity;

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

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

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

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

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

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

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

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

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

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

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

       These developments could make the property and casualty insurance
marketplace more competitive by increasing the supply of insurance capacity. In
that event, recent favorable industry trends
                                        12
<PAGE>

that have reduced insurance and reinsurance supply and increased demand could be
reversed and may negatively influence our ability to maintain or increase rates.
Accordingly, these developments could have an adverse effect on our earnings.

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

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

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

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

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

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

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

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

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

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

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

       -     restrictions on the nature, quality and concentration of
             investments;
                                        13
<PAGE>

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

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

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

       -     certain required methods of accounting;

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

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

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

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

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

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

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

                                        14
<PAGE>

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

OUR HOLDING COMPANY STRUCTURE, AS WELL AS REGULATORY AND OTHER CONSTRAINTS,
LIMIT OUR ABILITY TO PAY DIVIDENDS AND MAKE OTHER PAYMENTS.

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

       United National Group is subject to Cayman Islands regulatory constraints
that will affect its ability to pay dividends on its common shares and make
other payments. In addition, there are provisions in the senior notes issued by
one of our subsidiaries, which notes we have guaranteed, that prevent us from
paying dividends on or redeeming any of our common shares prior to repayment of
these senior notes.

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

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

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

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

       The dividend limitations imposed by the state laws are based on the
statutory financial results of our respective U.S. Insurance Subsidiaries
determined by using statutory accounting practices that differ in certain
respects from accounting principles used in financial statements prepared in
conformity with U.S.

                                        15
<PAGE>

GAAP. These differences include, among other items, deferred acquisition costs,
deferred income taxes, required investment reserves and surplus notes.

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

       Fox Paine & Company beneficially owns 82.2% of our outstanding Class A
common shares (assuming conversion of all outstanding Class B common shares and
Series A preferred shares), representing 88.2% of our total voting power and
82.7% of our outstanding Series A preferred shares. After this offering, Fox
Paine & Company will beneficially own      % of our outstanding Class A common
shares (assuming conversion of all outstanding Class B common shares and Series
A preferred shares), representing      % of our total voting power. Based on the
ownership structure of the affiliates of Fox Paine & Company that own these
shares, it is not expected that these affiliates will be subject to the voting
restriction contained in our articles of association following completion of
this offering. As a result, Fox Paine & Company has and will continue to have
control over the outcome of certain matters requiring shareholder approval,
including the power to, among other things:

       -     amend our memorandum or articles of association;

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

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

       In addition, under the terms of a shareholders agreement among us, Fox
Paine & Company and the Ball family trusts, Fox Paine & Company has the right to
appoint a majority of the members of our Board of Directors.

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

       In addition, we have agreed to pay Fox Paine & Company and an affiliate
of the Ball family trusts annual management fees totaling $1.5 million, in
addition to an initial management fee of $12.0 million already paid only to Fox
Paine & Company. See "Our Relationship with Fox Paine & Company." Fox Paine &
Company may in the future make significant investments in other insurance or
reinsurance companies. Some of these companies may compete with us or with our
subsidiaries. Fox Paine & Company is not obligated to advise us of any
investment or business opportunities of which they are aware, and they are not
prohibited or restricted from competing with us or our subsidiaries.

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

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

                                        16
<PAGE>

price of our Class A common shares may decline for many reasons, some of which
are beyond our control, including among others:

       -     quarterly variations in our results of operations;

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

       -     announcements by third parties of claims against us;

       -     changes in law and regulation;

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

       -     future sales of Class A common shares.

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

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

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

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

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

       We have never declared or paid any cash dividends on our common shares.
We intend to retain our earnings, if any, to finance the development and
expansion of our business, and, therefore, we do not
                                        17
<PAGE>

expect to pay any cash dividends on any of our common shares in the foreseeable
future. As a result, capital appreciation, if any, on our common shares will be
your sole source of gain for the foreseeable future. In addition, there are
regulatory and other constraints that could prevent us from paying dividends in
any event. See "-- Our holding company structure, as well as regulations and
other constraints, limit our ability to pay dividends and make our payments."

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

       The initial public offering price per Class A common share may be higher
than our net book value per share. In connection with redemption of the Series A
preferred shares, we will also issue up to an additional           Class A
common shares. See "Description of Share Capital -- Preferred Shares -- Series A
Preferred Shares -- Redemption." Accordingly, if you purchase Class A common
shares in this offering, you will suffer immediate and substantial dilution of
your investment. Based upon the issuance and sale of           Class A common
shares, you will incur immediate dilution of approximately $          in the net
book value per Class A common share if you purchase Class A common shares in
this offering. In addition, if funds sufficient to repurchase all of our
outstanding Series A preferred shares are not raised in this offering, the
remaining outstanding Series A preferred shares not repurchased may be converted
into Class A common shares, thereby further diluting your investment.

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

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

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

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

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

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

       Our Board of Directors may decline to register a transfer of any common
shares (1) if it appears to our Board of Directors, in their sole and reasonable
discretion, that as a result of such transfer, after taking account of the
limitations on voting rights in our articles of association, that any non-de
minimis
                                        18
<PAGE>

adverse tax, regulatory or legal consequences may occur to us, to any of our
subsidiaries or to any of our shareholders, or (2) if, subject to any applicable
requirements of the Nasdaq National Market, a written opinion has not been
provided by counsel supporting the legality of the transaction under the U.S.
securities laws or if any required governmental approvals have not been
obtained.

       Our articles of association also provide that if our Board of Directors
determines that share ownership by a person may result in non-de minimis adverse
tax, legal or regulatory consequences to us, to any of our subsidiaries or to
any of our shareholders, we have the option but not the obligation to require
such shareholders to sell for fair market value to us, or to a third party to
whom we have assigned that right to repurchase shares, the minimum number of
common shares that is necessary to eliminate the non-de minimis adverse tax,
legal or regulatory consequence. See "Description of Share Capital -- Articles
of Association -- Acquisition of Class A Common Shares by United National
Group."

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

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

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

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

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

       Following this offering, our corporate affairs will be governed by our
amended and restated memorandum and articles of association, by the Companies
Law (2003 Revision) and the common law of the Cayman Islands.

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

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

                                        19
<PAGE>

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

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

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

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

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

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

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

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

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

YOUR SHARES OF CLASS A COMMON STOCK MAY BE REDEEMED IN CONNECTION WITH A
BUSINESS COMBINATION TRANSACTION.

       Our articles of association provide that we may redeem Class A common
shares upon the approval by our Board of Directors of, and adoption by our
shareholders of an ordinary resolution approving, an agreement relating to a
business combination transaction involving us. We have included this provision
in our articles of association because Cayman Islands law does not provide for
any statutory merger.

       Our articles of association do not specify the type or amount of
consideration that you would receive in such a redemption, and you will not have
any appraisal or similar rights in such an event. Because Fox Paine & Company
has the right to appoint a majority of our Board of Directors and holds a
majority of our total outstanding voting power, Fox Paine & Company could cause
your shares to be redeemed without any action from any other shareholder. As a
result, you could be forced to redeem your Class A common stock at a time when
you have not elected to sell or for consideration that you deem inadequate.

                                        20
<PAGE>

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

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

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

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

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

                           RISKS RELATED TO TAXATION

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

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

       U.N. Barbados was incorporated under the laws of Barbados on August 18,
2003. We have applied for a guarantee from the Barbados Ministry of Finance to
the effect that, for a period of 15 years from the date of such guarantee, U.N.
Barbados will be entitled to benefits and exemptions from taxation as set forth
in current law. In addition, under such a guarantee, if at any time during such
15-year period, the laws are amended to provide tax rates or exemptions that are
more favorable than under current law, U.N. Barbados would be entitled to those
rates or exemptions for the remainder of such 15-year period. See "Material Tax
Considerations -- Taxation of United National Group and
Subsidiaries -- Barbados."

                                        21
<PAGE>

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

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

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

       United National Group or a subsidiary might be subject to U.S. tax on a
portion of its income (which in the case of a non-U.S. subsidiary would only
include income from U.S. sources) if United National Group or such subsidiary is
considered a personal holding company, "PHC," for U.S. federal income tax
purposes. This status will depend on whether more than 50% of the value of our
shares could be deemed to be owned (pursuant to certain constructive ownership
rules) by five or fewer individuals (including as individuals for this purpose
certain entities such as certain tax-exempt organizations and pension funds) and
whether 60% or more of United National Group's income, or the income of any of
its subsidiaries, as determined for U.S. federal income tax purposes, consists
of "personal holding company income." We believe that five or fewer individuals
or tax-exempt organizations will be treated as owning more than 50% of the value
of our shares. Consequently, United National Group or one or more of its
subsidiaries could become PHCs, depending on whether we or any of our
subsidiaries satisfy the PHC gross income test. As a result, we intend to manage
our business to minimize the possibility that we will meet the 60% income
threshold. If we or any of our subsidiaries is or were to become a PHC in a
given taxable year, such company would be subject to PHC tax on the portion of
its "undistributed personal holding company income" that is earned from U.S.
sources. There can be no assurance that we and each of our subsidiaries are not
or will not become a PHC immediately following this offering or in the future
because of various factors including factual uncertainties regarding the
application of the PHC rules, the makeup of our shareholder base and other
circumstances that affect the application of the PHC rules to us and our
subsidiaries. Additionally, we cannot be certain that the amount of U.S. tax
that would be imposed if United National Group or any of our subsidiaries were a
PHC would be immaterial. See "Material Tax Considerations -- Taxation of United
National Group and Subsidiaries -- United States -- Personal Holding Companies."

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

       Each "10% U.S. Shareholder" of a foreign corporation that is a CFC for an
uninterrupted period of 30 days or more during a taxable year, and who owns
shares in the CFC directly or indirectly through foreign entities on the last
day of the CFC's taxable year, must include in its gross income for U.S. federal
income tax purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. A foreign corporation is considered a
CFC if "10% U.S. Shareholders" own (directly, indirectly through foreign
entities or by attribution by application of the constructive ownership rules
(i.e., "constructively") of section 958(b) of the U.S. Internal Revenue Code of
1986, as amended, which we refer to as the "Code") more than 50% of the total
combined voting power of all classes of voting stock of

                                        22
<PAGE>

such foreign corporation or the total value of all stock of such corporation. A
"10% U.S. Shareholder" is a U.S. Person (as defined in "Material Tax
Considerations-Taxation of Shareholders -- United States Taxation") who owns
(directly, indirectly through foreign entities or constructively) at least 10%
of the total combined voting power of all classes of stock entitled to vote of
the foreign corporation. For purposes of taking into account insurance income, a
CFC also includes a foreign insurance company in which more than 25% of the
total combined voting power of all classes of stock (or more than 25% of the
total value of the stock) is owned by 10% U.S. Shareholders, on any day during
the taxable year of such corporation, if the gross amount of premiums or other
consideration for the reinsurance or the issuing of insurance or annuity
contracts exceeds 75% of the gross amount of all premiums or other consideration
in respect of all risks.

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

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

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

       The RPII rules provide that if a U.S. Person disposes of shares in a
foreign insurance corporation in which U.S. Persons own 25% or more of the
shares (even if the amount of RPII is less than 20% of the corporation's gross
insurance income and the ownership of its shares by direct or indirect insureds
and related persons is less than the 20% threshold), any gain from the
disposition will generally be treated as

                                        23
<PAGE>

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

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

       We believe that United National Group is not, has not been, and we
currently do not expect United National Group to become, a PFIC for U.S. federal
income tax purposes. We cannot assure you, however, that United National Group
will not be deemed a PFIC by the IRS. If United National Group were considered a
PFIC, it could have material adverse tax consequences for an investor that is
subject to U.S. federal income taxation, including subjecting the investor to a
greater tax liability than might otherwise apply and subjecting the investor to
tax on amounts in advance of when tax would otherwise be imposed. There are
currently no regulations regarding the application of the PFIC provisions to an
insurance company. New regulations or pronouncements interpreting or clarifying
these rules may be forthcoming. We cannot predict what impact, if any, such
guidance would have on an investor that is subject to U.S. federal income
taxation. See "Material Tax Considerations -- Taxation of Shareholders -- United
States Taxation -- Passive Foreign Investment Companies."

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

       United National Group or U.N. Barbados could be considered to be an FPHC
for U.S. federal income tax purposes if more than 50% of our shares could be
deemed to be owned by five or fewer individuals who are citizens or residents of
the United States, and 60% or more of United National Group's income, or of U.N.
Barbados' income, consists of "foreign personal holding company income," as
determined for U.S. federal income tax purposes. We believe that five or fewer
individuals will be treated as owning more than 50% of the voting power or the
value of our shares. Consequently, United National Group or U.N. Barbados could
be or become an FPHC, depending on whether either company satisfies the FPHC
gross income test. As a result, we intend to monitor the income of U.N. Barbados
and United National Group to minimize the possibility that either company will
meet the 60% income threshold. However, because of unknown factors including
factual uncertainties regarding the application of the FPHC rules, the makeup of
our shareholder base and other circumstances that affect the application of the
FPHC rules to us and our subsidiaries, we cannot be certain that United National
Group or U.N. Barbados will not be considered a FPHC. If we were considered an
FPHC it could have material adverse tax consequences for an investor that is
subject to U.S. federal income taxation, including subjecting the investor to a
greater tax liability than might otherwise apply and subjecting the investor to
tax on amounts in advance of when tax would otherwise be imposed. In addition,
if we were considered an FPHC in the tax year next preceding the date of death
of any U.S. individual owning Class A common shares, such individual's heirs or
estate would not be entitled to a "step-up" in the basis of the Class A common
shares
                                        24
<PAGE>

that might otherwise be available under U.S. federal income tax laws. See
"Material Tax Considerations -- Taxation of Shareholders -- United States
Taxation-Foreign Personal Holding Companies."

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

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

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

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

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

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

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

                                        25
<PAGE>

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

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

THE UNITED STATES COULD TERMINATE THE INCOME TAX TREATY BETWEEN THE UNITED
STATES AND BARBADOS.

       Recent comments made by the U.S. Treasury Department indicate that the
U.S. may renegotiate the income tax treaty between the United States and
Barbados. If and when this treaty is renegotiated, no assurances can be given as
to the availability of benefits under the treaty in future years.

                                        26
<PAGE>

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

       -     judicial decisions;

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

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

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

       -     the effect of acts of terrorism;

       -     the effects of terrorist related insurance legislation and laws;

       -     loss of key personnel;

       -     political stability of the Cayman Islands;

       -     changes in accounting policies or practices; and

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

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

                                        27
<PAGE>

                                USE OF PROCEEDS

       We estimate the net proceeds from this offering will be approximately
$     million, based on an assumed initial public offering price of $     , the
midpoint of the estimated range set forth on the cover page of this prospectus,
and after deducting the underwriting discount and our estimated offering
expenses of $   million. If the underwriters exercise their overallotment option
in full, we estimate our net proceeds will be approximately $       million. We
will not receive any proceeds from sales of Class A common shares by the selling
shareholders.

       We intend to use up to $175.0 million of these net proceeds to redeem all
of our outstanding Series A preferred shares, which are currently held by Fox
Paine & Company and the Ball family trusts. We will use any remaining proceeds
for general corporate purposes, including to capitalize our Non-U.S. Operations.

                                DIVIDEND POLICY

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

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

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

                                        28
<PAGE>

                                 CAPITALIZATION

       The following table sets forth our capitalization as of September 5,
2003:

       -     on an actual basis reflecting United National Group's
             capitalization prior to the acquisition;

       -     on a pro forma basis to reflect the acquisition of our U.S.
             Operations as described under "Our Relationship with Fox Paine &
             Company," and as if such acquisition had been completed on
             September 5, 2003; and

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

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

<Table>
<Caption>
                                                                                    PRO FORMA
                                                              ACTUAL   PRO FORMA   AS ADJUSTED
                   (DOLLARS IN THOUSANDS)                     ------   ---------   -----------
<S>                                                           <C>      <C>         <C>
Debt outstanding:
  Senior notes(1)...........................................      --
Shareholders' equity:
  Share capital (authorized 100,000,000 preferred shares,
     par value $0.0001; issued and outstanding: 0 actual;
     17,500,000 Series A preferred shares pro forma; and 0
     pro forma as adjusted)(2)..............................      --
  Share capital (authorized 900,000,000 common shares, par
     value $0.0001; issued and outstanding: 0 Class A common
     shares and 15,000 Class B common shares actual;
     2,698,750 Class A common shares and 10,000,000 Class B
     common shares pro forma; and          Class A common
     shares and 10,000,000 Class B common shares pro forma
     as adjusted)(2)........................................       0   $            $
  Additional paid in capital................................   150.0
  Retained earnings.........................................      --
                                                              ------   --------     --------
Total shareholders' equity..................................  $150.0
                                                              ------   --------     --------
Total capitalization........................................  $150.0   $            $
                                                              ======   ========     ========
</Table>

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

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

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

                                        29
<PAGE>

                                    DILUTION

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

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

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

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

<Table>
<Caption>
                                                 CLASS A COMMON
                                                SHARES PURCHASED    TOTAL CONSIDERATION
                                                -----------------   -------------------   AVERAGE PRICE
                                                 NUMBER      %       NUMBER        %        PER SHARE
                                                --------   ------   ---------   -------   -------------
<S>                                             <C>        <C>      <C>         <C>       <C>
     Existing shareholders....................                  %                     %      $
     New investors............................
                                                -------    -----     -------     -----       ------
          Total...............................             100.0%                100.0%      $
                                                =======    =====     =======     =====       ======
</Table>

                                        30
<PAGE>

                        PRO FORMA FINANCIAL INFORMATION

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

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

     The unaudited pro forma information gives effect to:

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

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

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

in each case, as if such transactions were completed as of June 30, 2003 for
balance sheet purposes and at the beginning of the applicable period for other
purposes.

                                        31
<PAGE>

            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

                              AS OF JUNE 30, 2003

                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                                      INITIAL
                                                  PURCHASE          PRO FORMA         PUBLIC        PRO FORMA
                                  HISTORICAL     ACCOUNTING      POST-ACQUISITION    OFFERING     POST OFFERING
                                 JUNE 30, 2003   ADJUSTMENTS      JUNE 30, 2003     ADJUSTMENTS   JUNE 30, 2003
                                 -------------   -----------     ----------------   -----------   -------------
<S>                              <C>             <C>             <C>                <C>           <C>
            ASSETS
Total investments..............   $  563,838      $      --         $  563,838
Cash and cash equivalents......       71,709        240,000(a)         202,835
                                                      5,638(b)
                                                   (100,000)(b)
                                                    (16,500)(b)
                                                      1,988(d)
Agents' balances, net of
  allowance....................       62,453             --             62,453
Reinsurance receivables, net of
  allowance....................    1,852,205          7,500(b)       1,811,904
                                                    (47,801)(c)
Accrued investment income......        6,266             --              6,266
Federal income taxes
  receivable...................       21,434             --             21,434
Deferred federal income
  taxes........................       27,881        (35,411)(c)         27,493
                                                     35,023(e)
Deferred acquisition costs,
  net..........................        5,096         (5,096)(c)             --
Prepaid reinsurance premiums...      159,653        (56,209)(c)        103,444
Intangible assets..............           --         96,604(c)              --
                                                    (96,604)(e)
Negative goodwill..............           --       (113,852)(b)             --
                                                     65,043(e)
                                                     48,809(f)
Other assets...................       12,120         (3,461)(e)          8,659
                                  ----------      ---------         ----------       --------       --------
  Total assets.................   $2,782,655      $  25,671         $2,808,326
                                  ==========      =========         ==========       ========       ========
 LIABILITIES AND SHAREHOLDERS'
             EQUITY
LIABILITIES:
Unpaid losses and loss
  adjustment expenses..........   $2,133,728      $ (47,801)(c)     $2,085,927
Unearned premiums..............      215,683        (65,873)(c)        149,810
Note payable...................           --         72,848(b)          72,848
Amounts held for the account of
  others.......................       14,834             --             14,834
Ceded balances payable.........       72,195             --             72,195
Payable for securities.........        2,362             --              2,362
Contingent commissions.........        6,861             --              6,861
Due to affiliates..............          101             --                101
Other liabilities..............       45,039          7,500(b)          52,539
                                  ----------      ---------         ----------       --------       --------
  Total liabilities............    2,490,803        (33,326)         2,457,477
                                  ----------      ---------         ----------       --------       --------
SHAREHOLDERS' EQUITY...........      291,852         58,997(g)         350,849
                                  ----------      ---------         ----------       --------       --------
  Total liabilities and
     shareholders' equity......   $2,782,655      $  25,671         $2,808,326
                                  ==========      =========         ==========       ========       ========
</Table>

           See accompanying notes to pro forma financial statements.
                                        32
<PAGE>

       NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

       The unaudited pro forma condensed consolidated balance sheet reflects
amounts contained in the unaudited historical financial statements of Wind River
Investment Corporation, United National Group's predecessor, as of June 30,
2003. In connection with the capitalization of United National Group and its
acquisition of Wind River Investment Corporation, the following adjustments are
reflected in the unaudited pro forma condensed consolidated balance sheet, as if
the acquisition was completed on June 30, 2003:

       (a) On September 5, 2003, United National Group issued 14.0 million
           Series A preferred shares and 10.0 million Class B common shares to
           Fox Paine & Company in exchange for $240.0 million in cash. This
           capital contribution is reflected as an increase to cash and
           shareholders' equity.

       (b) On September 5, 2003, United National Group acquired 100% of the
           outstanding common stock of Wind River Investment Corporation from
           the Ball family trusts. The adjustments to reflect the acquisition of
           Wind River Investment Corporation as if it was completed on June 30,
           2003 address the following facts:

          -     The Ball family trusts contributed $5.6 million to Wind River
                Investment Corporation immediately prior to completion of the
                acquisition in connection with certain retention payments to be
                made by Wind River Investment Corporation.

          -     The $249.3 million purchase price for Wind River Investment
                Corporation consisted of $100.0 million in cash, $72.8 million
                of senior notes issued by Wind River Investment Corporation,
                $16.5 million of acquisition fees and expenses, which includes a
                $12.0 million management fee paid to Fox Paine & Company, and
                $60.0 million, consisting of 2.5 million Class A common shares
                and 3.5 million Series A preferred shares of United National
                Group. The purchase price is reflected in the unaudited pro
                forma condensed consolidated balance sheet as a reduction of
                cash, an increase to notes payable and an increase to
                shareholders' equity.

          -     The Ball family trusts are entitled to receive contingent
                consideration of up to $7.5 million in a future period if the
                allowance for doubtful reinsurance receivables develops
                favorably. Because negative goodwill was recorded in connection
                with the acquisition, the maximum amount of such contingent
                consideration is reflected as an increase in contingent
                consideration payable with a corresponding reduction of the
                allowance for doubtful reinsurance receivables.

          -     Because the fair value of Wind River Investment Corporation
                exceeded the $249.3 million purchase price, negative goodwill of
                $113.9 million as of June 30, 2003 was calculated prior to
                reduction of long-term non-financial assets (see note e).

       (c) Upon its acquisition by United National Group, Wind River Investment
           Corporation adjusted its assets and liabilities to fair value. The
           following adjust the historical June 30, 2003 balances to fair value
           for the purpose of the unaudited pro forma condensed consolidated
           balance sheet:

          -     Wind River Investment Corporation applied a risk premium factor
                and a risk-free interest rate to its gross reserves for unpaid
                losses and loss adjustment expenses and its gross reinsurance
                receivables. As a result of this calculation, the fair value of
                the net reserves for unpaid losses and loss adjustment expenses
                approximated net carried reserves as of June 30, 2003. Gross
                reserves for unpaid losses and loss adjustment expenses
                decreased by $47.8 million as of June 30, 2003. Due to the
                method in which Wind River Investment Corporation calculates its
                gross reserves, its reinsurance receivables also decreased by
                $47.8 million.

                                        33
<PAGE>

          -     The $35.4 million net reduction of deferred federal income taxes
                represents the tax effect of the Wind River Investment
                Corporation's purchase accounting adjustments prior to
                adjustments related to negative goodwill.

          -     The $5.1 million reduction of deferred acquisition costs
                represents the write-off of all such deferred costs as of June
                30, 2003.

          -     Wind River Investment Corporation computed the fair value of its
                gross unearned premium reserves using a methodology similar to
                that used to calculate the fair value of its reserves. As a
                result of this calculation, Wind River Investment Corporation
                reduced its gross unearned premium reserves by $65.9 million and
                its prepaid reinsurance premiums by $56.2 million.

          -     Wind River Investment Corporation completed an assessment to
                determine the existence of any intangible assets not recognized
                in its historical financial statements as of June 30, 2003. As a
                result of this assessment, its agency relationships and
                insurance licenses were recorded as intangible assets. Based on
                a valuation performed as of June 30, 2003, the fair value of the
                agency relationships and insurance licenses were $87.3 million
                and $9.3 million, respectively.

       (d) Upon the acquisition of Wind River Investment Corporation on
           September 5, 2003, United National Group issued 198,750 Class A
           common shares to the management of United National Group's U.S.
           Operations for $2.0 million in exchange for cash.

       (e) Because the acquisition resulted in the recognition of negative
           goodwill, Wind River Investment Corporation reduced certain long-term
           non-financial assets prior to the recognition of any extraordinary
           gain. The resulting $65.0 million reduction of negative goodwill was
           due primarily to the elimination of intangible assets, furniture and
           equipment and certain other prepaid and deferred expenses, net of
           deferred income taxes of $35.0 million.

       (f) Following all other purchase accounting adjustments, Wind River
           Investment Corporation eliminated the residual $48.8 million negative
           goodwill balance as of June 30, 2003.

       (g) The following table summarizes the components of the $59.0 million
           increase to shareholders' equity as a result of the Wind River
           Investment Corporation's purchase accounting entries:

<Table>
<Caption>
(DOLLARS IN MILLIONS)
<S>                                                           <C>
Capitalization by Fox Paine & Company.......................    $240.0
Issuance of Class A common stock to U.S. Operations
  management................................................       2.0
Issuance of Class A common stock and Series A preferred
  shares to the Ball family trusts..........................      60.0
Extraordinary gain due to write-off of negative goodwill....      48.9
                                                                ------
                                                                 350.9
Wind River shareholders' equity, June 30, 2003..............     291.9
                                                                ------
Increase in shareholders' equity............................    $ 59.0
                                                                ======
</Table>

                                        34
<PAGE>

                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                            STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2002
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                   PRO FORMA
                                                                     POST-                          PRO FORMA
                                    HISTORICAL                    ACQUISITION                     POST-OFFERING
                                    YEAR ENDED     PURCHASE        YEAR ENDED    INITIAL PUBLIC    YEAR ENDED
                                   DECEMBER 31,   ACCOUNTING      DECEMBER 31,      OFFERING      DECEMBER 31,
                                       2002       ADJUSTMENTS         2002        ADJUSTMENTS         2002
                                   ------------   -----------     ------------   --------------   -------------
<S>                                <C>            <C>             <C>            <C>              <C>
REVENUE
Gross premiums written...........   $ 793,083       $    --        $ 793,083
                                    =========       =======        =========        ========        ========
Net premiums written.............     172,689            --          172,689
                                    =========       =======        =========        ========        ========
Net premium earned...............     162,763        (9,664)(h)      153,099
Net investment income............      17,685        (2,292)(i)       15,393
Net realized investment losses...     (11,702)           --          (11,702)
                                    ---------       -------        ---------        --------        --------
  Total revenue..................     168,746       (11,956)         156,790
LOSSES AND EXPENSES
Net losses and loss adjustment
  expenses.......................     201,750            --          201,750
Acquisition costs and other
  underwriting expenses..........      18,938        (5,096)(j)       11,668
                                                     (2,174)(k)
Provision for doubtful
  reinsurance receivables........      44,000            --           44,000
Other operating expenses.........       5,874            --            5,874
Interest expense.................         115         3,640(l)         3,755
                                    ---------       -------        ---------        --------        --------
Income before income taxes.......    (101,931)       (8,326)        (110,257)
Income tax benefit...............     (40,520)       (2,214)(m)      (42,734)
                                    ---------       -------        ---------        --------        --------
Net loss before equity in net
  loss of partnerships...........     (61,411)       (6,112)         (67,523)
Equity in net loss of
  partnerships...................        (252)           --             (252)
                                    ---------       -------        ---------        --------        --------
Net loss.........................   $ (61,663)      $(6,112)       $ (67,775)
                                    =========       =======        =========        ========        ========
PER AVERAGE SHARE DATA:
  Weighted-average common shares
     outstanding.................         100
  Weighted-average share
     equivalents outstanding.....          --
                                    ---------                                                       --------
  Weighted average share and
     share equivalents
     outstanding.................         100
                                    ---------                                                       --------
  Basic and diluted earnings per
     share.......................   $    (617)
                                    =========                                                       ========
</Table>

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

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

<Table>
<Caption>
                                                              PRO FORMA                            PRO FORMA
                          HISTORICAL        PURCHASE       POST-ACQUISITION       INITIAL        POST-OFFERING
                       SIX MONTHS ENDED    ACCOUNTING      SIX MONTHS ENDED   PUBLIC OFFERING   SIX MONTHS ENDED
                         JUNE 30, 2003     ADJUSTMENTS      JUNE 30, 2003       ADJUSTMENTS      JUNE 30, 2003
                       -----------------   -----------     ----------------   ---------------   ----------------
<S>                    <C>                 <C>             <C>                <C>               <C>
REVENUE
Gross premiums
  written............      $362,953          $    --           $362,953
                           ========          =======           ========          =========         =========
Net premiums
  written............        99,461               --             99,461
                           ========          =======           ========          =========         =========
Net premium earned...        94,397           (4,832)(h)         89,565
Net investment
  income.............         9,329           (1,146)(i)          8,183
Net realized
  investment gains...         3,116               --              3,116
                           --------          -------           --------          ---------         ---------
  Total revenue......       106,842           (5,978)           100,864
LOSSES AND EXPENSES
Net losses and loss
  adjustment
  expenses...........        61,846               --             61,846
Acquisition costs and
  other underwriting
  expenses...........        20,733           (2,547)(j)         17,099
                                              (1,087)(k)
Provision for
  doubtful
  reinsurance
  receivables........         1,750               --              1,750
Other operating
  expenses...........           367               --                367
Interest expense.....            12            1,820 (l)          1,832
                           --------          -------           --------          ---------         ---------
Income before income
  taxes..............        22,134           (4,164)            17,970
Income tax expense...         5,012           (1,720)             3,292
                           --------          -------           --------          ---------         ---------
Net income before
  equity in net
  income of
  partnerships.......        17,122           (2,444)            14,678
Equity in net income
  of partnerships....         1,487               --              1,487
                           --------          -------           --------          ---------         ---------
Net income...........        18,609           (2,444)            16,165
                           ========          =======           ========          =========         =========
PER AVERAGE SHARE
  DATA:
  Weighted-average
     common shares
     outstanding.....           100
  Weighted-average
     share
     equivalents
     outstanding.....            --
                           --------
  Weighted-average
     shares and share
     equivalents
     outstanding.....           100
                           --------
  Basic and diluted
     earnings per
     share...........      $    186
                           ========
</Table>

 See accompanying notes to unaudited pro forma condensed consolidated financial
                                  statements.
                                        36
<PAGE>

                     NOTES TO UNAUDITED PRO FORMA CONDENSED
                     CONSOLIDATED STATEMENTS OF OPERATIONS

       The unaudited pro forma condensed consolidated statements of operations
reflect amounts contained in the unaudited historical financial statements of
Wind River Investment Corporation, United National Group's predecessor, for the
year ended December 31, 2002 and for the six months ended June 30, 2003. In
connection with the capitalization of United National Group and its subsequent
acquisition of Wind River Investment Corporation, the following adjustments have
been reflected in the unaudited pro forma condensed consolidated statements of
operations as if the purchase occurred at the beginning of each period:

       (h)  For the year ended December 31, 2002 and the six months ended June
            30, 2003, Wind River Investment Corporation reduced gross premium
            earned by $65.9 million and $32.9 million and ceded premium earned
            by $56.2 million and $26.1 million, respectively, to reflect the
            proportionate reduction of unearned premium on the unaudited
            condensed consolidated balance sheet. This resulted in a decrease to
            net premium earned of $9.7 million and $4.8 million for the year
            ended December 31, 2002 and the six months ended June 30, 2003,
            respectively.

       (i)  Wind River Investment Corporation recalculated the net
            amortization/accretion of the premium/discount on its fixed maturity
            investments as if the cost basis of the securities had been adjusted
            to the estimated fair values of the securities at the beginning of
            each period. For the purpose of this calculation, the change in the
            market yield was estimated based on the amount of net unrealized
            gains on fixed maturity investments at the date of acquisition,
            amortized over the estimated average life of the portfolio (5
            years). This adjustment resulted in a decrease in net investment
            income of $2.3 million and $1.1 million, for the year ended December
            31, 2002 and the six months ended June 30, 2003, respectively.

       (j)  Acquisition costs and other underwriting expenses were adjusted to
            exclude amortization of deferred acquisition costs written off on
            the unaudited pro forma condensed consolidated balance sheet as of
            June 30, 2003. For the year ended December 31, 2002 and the six
            months ended June 30, 2003, acquisition costs and other underwriting
            expenses were reduced by $5.1 million and $2.5 million,
            respectively, as a result of this adjustment.

       (k)  Acquisition costs and other underwriting expenses were adjusted to
            exclude depreciation and amortization of certain assets, such as
            furniture and equipment and prepaid expenses, that were eliminated
            on the unaudited pro forma condensed consolidated balance sheet as
            of June 30, 2003. For the year ended December 31, 2002 and the six
            months ended June 30, 2003, acquisition costs and other underwriting
            expenses were reduced by $2.2 million and $1.1 million,
            respectively, as a result of this adjustment.

       (l)  The $72.8 million note issued by Wind River Investment Corporation
            to the Ball family trusts in connection with the acquisition bears
            interest at an annual rate of 5.0%. For the year ended December 31,
            2002 and the six months ended June 30, 2003, respectively, the
            unaudited pro forma condensed consolidated statements of operations
            have been adjusted to reflect additional interest expense of $3.6
            million and $1.8 million, respectively.

       (m)  The $4.3 million increase to the income tax benefit for the year
            ended December 31, 2002 and the $4.5 million reduction of income tax
            expense for the six months ended June 30, 2003 represents the tax
            effect of the adjustments reflected in the unaudited pro forma
            condensed consolidated statements of operations.

                                        37
<PAGE>

OTHER ITEMS

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

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

                                        38
<PAGE>

                       SELECTED HISTORICAL FINANCIAL DATA

       United National Group, Ltd. was formed on August 27, 2003 and did not
have any material assets or operations prior to September 5, 2003. As a result,
we have not included any historical financial information for United National
Group, Ltd.

       The following table sets forth selected historical financial data for our
U.S. Operations for the periods ended or as of the dates indicated. This
selected historical financial data is derived from the consolidated financial
statements and accompanying notes of Wind River Investment Corporation included
elsewhere in this prospectus. You should read this selected historical financial
information together with the consolidated financial statements and accompanying
notes of Wind River Investment Corporation and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.

<Table>
<Caption>
                                                                                                  FOR THE SIX MONTHS ENDED
                                                FOR THE YEARS ENDED DECEMBER 31,                          JUNE 30,
                                 --------------------------------------------------------------   -------------------------
                                    1998         1999         2000         2001         2002         2002          2003
                                 ----------   ----------   ----------   ----------   ----------   -----------   -----------
    (DOLLARS IN THOUSANDS)                                                                               (UNAUDITED)
<S>                              <C>          <C>          <C>          <C>          <C>          <C>           <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Gross premiums written.........  $  296,426   $  357,605   $  453,464   $  670,520   $  793,083   $  435,082    $  362,953
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net premiums written...........  $   94,547   $  117,883   $  127,572   $  169,310   $  172,689   $  110,095    $   99,461
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net premiums earned............  $   95,740   $  103,455   $  136,931   $  150,336   $  162,763   $   95,096    $   94,397
Investment income..............      22,628       24,637       28,578       24,491       24,595       12,256        11,481
Investment expenses............      (4,778)      (4,969)      (6,088)      (5,138)      (6,910)      (3,377)       (2,152)
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Investment income, net.........      17,850       19,668       22,490       19,353       17,685        8,879         9,329
Net realized investment gains
  (losses).....................       3,556       (5,210)         593      (12,719)     (11,702)      (7,914)        3,116
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Total revenue..............     117,146      117,913      160,014      156,970      168,746       96,061       106,842
Net losses and loss adjustment
  expenses(1)..................      67,002       76,257      113,151      128,338      201,750       74,826        61,846
Acquisition costs and other
  underwriting expenses........      15,584       11,913       14,999       15,867       18,938       12,286        20,733
Provision for doubtful
  reinsurance receivables(2)...          --           --           --           --       44,000           --         1,750
Other operating expenses.......       2,399        2,112        2,918        2,220        5,874        1,423           367
Interest expense...............         922          589          322           77          115           28            12
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Income (loss) before income
      taxes....................      31,239       27,042       28,624       10,468     (101,931)       7,498        22,134
Income tax expense (benefit)...       6,751        6,252        5,883          295      (40,520)         431         5,012
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Net income (loss) before equity
  in net income (loss) of
  partnerships.................      24,488       20,790       22,741       10,173      (61,411)       7,067        17,122
Equity in net income (loss) of
  partnerships.................          --           --           --          664         (252)        (283)        1,487
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Net income (loss)..........  $   24,488   $   20,790   $   22,741   $   10,837   $  (61,663)  $    6,784    $   18,609
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment
  expenses ratio(1)............        70.0%        73.7%        82.6%        85.3%       124.0%        78.7%         65.5%
Underwriting expense
  ratio(2).....................        16.3         11.5         11.0         10.6         38.6         12.9          23.8
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Combined ratio(3)..............        86.3%        85.2%        93.6%        95.9%       162.6%        91.6%         89.3%
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net/gross premiums written.....        31.9%        33.0%        28.1%        25.3%        21.8%        25.3%         27.4%
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
FINANCIAL POSITION AS OF LAST
  DAY OF PERIOD:
Total investments and cash and
  cash equivalents.............  $  444,417   $  423,397   $  483,435   $  516,408   $  611,129   $  580,772    $  635,547
Reinsurance receivables, net of
  allowance....................     598,086      648,189      694,766      799,066    1,743,524      841,991     1,852,205
Total assets...................   1,234,549    1,365,754    1,376,528    1,575,754    2,685,620    1,757,877     2,782,655
Unpaid losses and loss
  adjustment expenses..........     802,692      805,717      800,630      907,357    2,004,422      962,942     2,133,728
Total shareholders' equity.....  $  277,733   $  285,064   $  315,343   $  324,844   $  268,637   $  333,977    $  291,852
</Table>

                                        39
<PAGE>

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

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

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

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

                                        40
<PAGE>

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

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

OVERVIEW

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

  REVENUES

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

  EXPENSES

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

CRITICAL ACCOUNTING POLICIES

  INVESTMENTS

  Fair values

       The carrying amount for our investments approximates their estimated fair
value. We measure the fair value of investments in our fixed income and equity
portfolios based upon quoted market prices. We also hold investments in several
limited partnerships, which were valued at $41.8 million as of June 30, 2003.
Several of these partnerships invest solely in securities that are publicly
traded and are valued at the net asset value as reported by the investment
manager. As of June 30, 2003, the limited partnership portfolio included $17.6
million in securities for which there is no readily available independent market
price. The estimated fair value of such securities is determined by the general
partner of each limited partnership based on comparisons to transactions
involving similar investments. Material assumptions and factors utilized in
pricing these securities include future cash flows, constant default rates,
recovery rates and any market clearing activity that may have occurred since the
prior month-end pricing period.

                                        41
<PAGE>

  Classification of Investments

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

  Other Than Temporary Impairment

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

  LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       The liability for unpaid losses and loss adjustment expenses ($2,004.4
million and $2,133.7 million, gross of reinsurance; $260.8 million and $277.9
million, net of reinsurance, as of December 31, 2002 and June 30, 2003,
respectively) reflects our best estimate for future amounts needed to pay losses
and related adjustment expenses and the impact of our reinsurance coverages with
respect to insured events. The process of establishing the liability for
property and casualty unpaid losses and loss adjustment expenses is a complex
process, requiring the use of informed estimates and judgments. This liability
includes an amount determined on the basis of claim adjusters' evaluations with
respect to insured events that occurred and an amount for losses incurred that
have not been reported to us. In some cases significant periods of time, up to
several years or more, may elapse between the occurrence of an insured loss and
the reporting of such to us. The method for determining our liability for unpaid
losses and loss adjustment expenses includes among other things, reviewing past
loss experience and considering other factors such as legal, social and economic
developments. We regularly review and update the methods of making such
estimates and establishing the resulting liabilities and we make any resulting
adjustment in the accounting period in which the adjustment arose.

       During 2002 we increased the liability for unpaid losses and loss
adjustment expenses by $71.4 million. See "-- Year ended December 31, 2002
compared with Year ended December 31, 2001."

  RECOVERABILITY OF REINSURANCE RECEIVABLES

       We regularly review the collectibility of our reinsurance receivables and
we include adjustments resulting from this review in earnings in the period in
which the adjustment arises. As of December 31, 2002, we had $1,743.5 million of
reinsurance receivables, net of an allowance of $47.4 million for doubtful
reinsurance receivables, and $196.2 million of prepaid reinsurance premiums. As
of June 30, 2003, we had $1,852.2 million of reinsurance receivables, net of an
allowance of $49.1 million for doubtful reinsurance receivables, and $159.7
million of prepaid reinsurance premiums.

                                        42
<PAGE>

  DEFERRED ACQUISITION COSTS AND FUTURE SERVICING COSTS

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

  REALIZABILITY OF DEFERRED TAX ASSETS

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

SPECIAL NOTE REGARDING 2002

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

       -     We perform annual underwriting reviews on all our products. During
             2002, as part of the annual review process, we terminated a number
             of products as a result of factors such as unsatisfactory
             underwriting results and the absence of reinsurance capacity at
             pricing levels acceptable to us. During the first six months of
             2002, we terminated nine products within our four product classes,
             of which eight were excess and surplus, or "E&S," lines and one was
             specialty admitted. During the six months ended December 31, 2002,
             we terminated an additional five products, of which four were E&S
             lines and one was specialty admitted. While the following had no
             impact on 2002 net income, 13 additional products were terminated
             during the first six months of 2003, of which nine were E&S lines
             and four were specialty admitted. Gross premiums written relative
             to those terminated products were $320.4 million in 2002 and $95.1
             million for the six months ended June 30, 2003 and net premiums
             written relative to those terminated products were $37.1 million in
             2002 and $11.4 million for the six months ended June 30, 2003.

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

       -     We were involved in an arbitration proceeding with Riunione
             Adriatica Di Sicurta or "RAS", which acted as our reinsurer
             relative to certain of our products written in 1993 and 1994. RAS
             was seeking to rescind the reinsurance agreement, prohibit us from
             drawing down on available lines of credit and demanding repayment
             of funds drawn from the lines of credit. On October 1, 2002, the
             arbitration panel issued an order holding RAS liable for a majority
             of the total amount in dispute. RAS was also ordered to pay
             interest at a rate of
                                        43
<PAGE>

             4.0% compounded annually with respect to balances due. The panel
             further ordered a portion of the reinsurance agreement with RAS to
             be rescinded. RAS was released from all future liabilities or
             responsibilities to us with respect to the rescinded portion of the
             reinsurance agreement. This rescission, in total, had a $20.6
             million detrimental effect on pre-tax net income. We increased
             losses and loss adjustment expenses by $23.6 million as a result of
             the rescission.

       -     In the fourth quarter of 2002, we recorded a $44.0 million pre-tax
             charge for an allowance for doubtful reinsurance receivables.

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

OUR BUSINESS SEGMENTS

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

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

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

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

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

<Table>
<Caption>
                                                                              FOR THE SIX MONTHS
                                          FOR THE YEARS ENDED DECEMBER 31,      ENDED JUNE 30,
                                          ---------------------------------   -------------------
                                            2000        2001        2002        2002       2003
                                          ---------   ---------   ---------   --------   --------
         (DOLLARS IN THOUSANDS)                                                   (UNAUDITED)
<S>                                       <C>         <C>         <C>         <C>        <C>
Gross premiums written:
  Excess and surplus lines..............  $260,730    $398,308    $543,998    $278,991   $241,952
  Specialty admitted....................   130,734     210,212     249,085     133,091    121,001
  Reinsurance(1)........................    62,000      62,000          --      23,000         --
                                          --------    --------    --------    --------   --------
Gross premiums written..................  $453,464    $670,520    $793,083    $435,082   $362,953
                                          ========    ========    ========    ========   ========
Net premiums written:
  Excess and surplus lines..............  $ 40,663    $ 68,226    $112,110    $ 54,277   $ 57,493
  Specialty admitted....................    24,909      39,084      60,579      32,818     41,968
  Reinsurance...........................    62,000      62,000          --      23,000         --
                                          --------    --------    --------    --------   --------
Net premiums written....................  $127,572    $169,310    $172,689    $110,095   $ 99,461
                                          ========    ========    ========    ========   ========
Net premiums earned:
  Excess and surplus lines..............  $ 40,504    $ 59,004    $101,474    $ 46,899   $ 56,240
  Specialty admitted....................    25,677      36,582      53,039      25,447     38,157
  Reinsurance...........................    70,750      54,750       8,250      22,750         --
                                          --------    --------    --------    --------   --------
Net premiums earned.....................  $136,931    $150,336    $162,763    $ 95,096   $ 94,397
                                          ========    ========    ========    ========   ========
</Table>

                                        44
<PAGE>

<Table>
<Caption>
                                                                              FOR THE SIX MONTHS
                                          FOR THE YEARS ENDED DECEMBER 31,      ENDED JUNE 30,
                                          ---------------------------------   -------------------
                                            2000        2001        2002        2002       2003
                                          ---------   ---------   ---------   --------   --------
         (DOLLARS IN THOUSANDS)                                                   (UNAUDITED)
<S>                                       <C>         <C>         <C>         <C>        <C>
Net losses and loss adjustment expenses:
  Excess and surplus lines..............  $ 24,613    $ 43,880    $128,642    $ 33,868   $ 38,007
  Specialty admitted....................    18,408      29,075      64,857      18,208     23,839
  Reinsurance...........................    70,130      55,383       8,251      22,750         --
                                          --------    --------    --------    --------   --------
Total net losses and loss adjustment
  expenses..............................  $113,151    $128,338    $201,750    $ 74,826   $ 61,846
                                          ========    ========    ========    ========   ========
Total net losses and loss adjustment
  expense ratios:
  Excess and surplus lines..............      60.8%       74.4%      126.8%       72.2%      67.6%
  Specialty admitted....................      71.7        79.5       122.3        71.6       62.5
  Reinsurance...........................      99.1       101.2       100.0       100.0         --
                                          --------    --------    --------    --------   --------
Total net losses and loss adjustment
  expense ratio.........................      82.6%       85.3%      124.0%       78.7%      65.5%
                                          ========    ========    ========    ========   ========
</Table>

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

(1) For the six months ended June 30, 2002, we recorded $23.0 million of
    reinsurance gross premiums written. Our treaty subsequently was amended to
    reduce the amount of premiums written in 2002 to zero.

RESULTS OF OPERATIONS

  SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
  2002

       Premiums

       Gross premiums written, which represent the amount received or to be
received for insurance policies written without reduction for acquisition costs,
reinsurance costs or other deductions, were $363.0 million for the six months
ended June 30, 2003, compared with $435.1 million for the six months ended June
30, 2002, a decrease of $72.1 million or 16.6%. A further breakdown of gross
premiums written is as follows:

       -     E&S gross premiums written were $242.0 million for the six months
             ended June 30, 2003, compared with $279.0 million for the six
             months ended June 30, 2002, a decrease of $37.0 million or 13.3%.
             This decrease primarily resulted from the termination of 12
             products within our four product classes during 2002 and nine
             products during the six months ended June 30, 2003, offset by rate
             increases on other products. E&S gross premiums written relative to
             the terminated products were $54.9 million for the six months ended
             June 30, 2003.

       -     Specialty admitted gross premiums written were $121.0 million for
             the six months ended June 30, 2003, compared with $133.1 million
             for the six months ended June 30, 2002, a decrease of $12.1 million
             or 9.1%. The decrease in specialty admitted gross premiums written
             was primarily the result of the termination of two products during
             2002 and four products during the first six months ended June 30,
             2003, offset by rate increases on other products. Speciality
             admitted gross premiums written relative to the terminated products
             were $40.2 million for the six months ended June 30, 2003.

       -     There were no reinsurance gross premiums written for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002, a decrease of $23.0 million. The decrease in
             reinsurance gross premiums written was the result of the non-
             renewal of our reinsurance treaty in 2002.

                                        45
<PAGE>

       Net premiums written, which equal gross premiums written less ceded
premiums written, were $99.5 million for the six months ended June 30, 2003,
compared with $110.1 million for the six months ended June 30, 2002, a decrease
of $10.6 million or 9.6%. The ratio of net premiums written to gross premiums
written increased to 27.4% for the six months ended June 30, 2003, from 25.3%
for the six months ended June 30, 2002. A further breakdown of net premiums
written is as follows:

       -     E&S net premiums written were $57.5 million for the six months
             ended June 30, 2003, compared with $54.3 million for the six months
             ended June 30, 2002, an increase of $3.2 million or 5.9%. The ratio
             of net premiums written to gross premiums written was 23.8% for the
             six months ended June 30, 2003, compared with 19.5% for the six
             months ended June 30, 2002. The increase in net premiums written
             was primarily due to rate increases relative to products where our
             retention is relatively high, offset slightly by net premiums
             written associated with the terminated products previously
             mentioned. E&S net premiums written relative to products terminated
             in 2002 and subsequently were $5.4 million for the six months ended
             June 30, 2003.

       -     Specialty admitted net premiums written were $42.0 million for the
             six months ended June 30, 2003, compared with $32.8 million for the
             six months ended June 30, 2002, an increase of $9.2 million or
             28.0%. The ratio of net premiums written to gross premiums written
             was 34.7% for the six months ended June 30, 2003, compared with
             24.7% for the six months ended June 30, 2002. The increase in net
             premiums written relates to products within our specific specialty
             and property and general liability product classes. Specialty
             admitted net premiums written relative to products terminated in
             2002 and subsequently were $6.0 million for the six months ended
             June 30, 2003.

       -     There were no reinsurance net premiums written for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002. The decrease in reinsurance net premiums
             earned is consistent with the decrease in gross premiums written.

       Net premiums earned were $94.4 million for the six months ended June 30,
2003, compared with $95.1 million for the six months ended June 30, 2002, a
decrease of $0.7 million or 0.7%. A further breakdown of net premiums earned is
as follows:

       -     E&S net premiums earned were $56.2 million for the six months ended
             June 30, 2003, compared with $46.9 million for the six months ended
             June 30, 2002, an increase of $9.3 million or 19.8%. The increase
             in net premiums earned was greater than the increase in net
             premiums written due to the impact of the product terminations
             previously mentioned.

       -     Specialty admitted net premiums earned were $38.2 million for the
             six months ended June 30, 2003, compared with $25.4 million for the
             six months ended June 30, 2002, an increase of $12.8 million or
             50.4%.

       -     There were no reinsurance net premiums earned for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002. The decrease in net premiums earned for
             reinsurance was consistent with the decrease in net premiums
             written.

  Net Investment Income

       Gross investment income, excluding realized gains and losses, was $11.5
million for the six months ended June 30, 2003, compared with $12.3 million for
the six months ended June 30, 2002, a decrease of $0.8 million or 6.5%. The
decrease was primarily due to a decrease in the average yield on fixed income
investments and lower interest rates on overnight cash balances, partially
offset by growth in cash and invested assets. Cash and invested assets grew to
$635.5 million as of June 30, 2003, from $580.8 million as of June 30, 2002, an
increase of $54.7 million or 9.4%. The growth in the investment portfolio was
due to net cash flows provided from operating activities. The average duration
of our fixed income investments approximated 4.4 years as of June 30, 2003,
compared with 6.6 years as of June 30, 2002. Our book yield on our fixed income
investments was 4.09% at June 30, 2003, compared with 5.42% at June 30, 2002.
                                        46
<PAGE>

       Investment expenses were $2.2 million for the six months ended June 30,
2003, compared with $3.4 million for the six months ended June 30, 2002, a
decrease of $1.2 million or 35.3%. The decrease was due to a reduction in
investment management fees paid.

  Net Realized Investment Gain (Loss)

       Net realized investment gains were $3.1 million for the six months ended
June 30, 2003, compared with a $7.9 million net realized investment loss for the
six months ended June 30, 2002. The net investment gain for the current period
consists of net gains of $4.1 million relative to our equity portfolio, a net
loss on fixed income investments of $0.8 million and $0.2 million of net losses
relative to other invested assets. The six months ended June 30, 2002 included a
$8.1 million loss on our equity portfolio and a $0.2 million gain on our fixed
income investments.

  Net Losses and Loss Adjustment Expenses

       Net losses and loss adjustment expenses were $61.8 million for the six
months ended June 30, 2003, compared with $74.8 million for the six months ended
June 30, 2002, a decrease of $13.0 million or 17.4%. The loss ratio for the six
months ended June 30, 2003, was 65.5% compared with 78.7% for the six months
ended June 30, 2002. The loss ratio is calculated by dividing net losses and
loss adjustment expenses by net premiums earned. This improvement was
attributable to continuing rate increases and the termination of several
unprofitable products in 2002 and 2003. A further breakdown of losses incurred
is as follows:

       -     E&S net losses and loss adjustment expenses were $38.0 million for
             the six months ended June 30, 2003, compared with $33.9 million for
             the six months ended June 30, 2002. The loss ratio was 67.6% for
             the six months ended in June 30, 2003, compared with 72.2% for the
             six months ended June 30, 2002. The improvement in the loss ratio
             is a result of the previously mentioned rate increases.

       -     Specialty admitted net losses and loss adjustment expenses were
             $23.8 million for the six months ended June 30, 2003, compared with
             $18.2 million for the six months ended June 30, 2002. The loss
             ratio for the six months ended June 30, 2003, was 62.5% compared
             with 71.6% for the six months ended June 30, 2002. The improvement
             in the loss ratio was a result of the previously mentioned rate
             increases and the reserve strengthening recognized in the second
             quarter, 2002.

       -     There was no reinsurance net losses and loss adjustment expenses
             for the six months ended June 30, 2003, due to the non-renewal of
             this business, compared with $22.8 million for the six months ended
             June 30, 2002.

  Acquisition Costs and Other Underwriting Expenses

       Acquisition costs and other underwriting expenses were $20.7 million for
the six months ended June 30, 2003, compared with $12.3 million for the six
months ended June 30, 2002, an increase of $8.4 million or 68.3%. This increase
primarily can be attributed to a $7.3 million increase in acquisition costs and
$1.1 million increase in other underwriting expenses. A further analysis of
acquisition costs and other underwriting expenses is as follows:

       -     The $7.3 million increase in acquisition costs was primarily the
             result of a reduction in ceding commission of $19.3 million
             partially offset by a decrease in direct commission of $11.9
             million. The reduction in ceding commission was a result of both a
             decrease in gross premiums written combined with an increase in our
             level of retention. The reduction in direct commission was
             consistent with the reduction in gross premiums written. While
             increased retentions have the impact of increasing acquisition
             costs, our underwriting profit nonetheless increased based upon our
             loss experience.

                                        47
<PAGE>

       -     The $1.1 million increase in other underwriting expenses was
             primarily due to an increase in employee benefit costs. Pension
             expenses were $0.7 million for the six months ended June 30, 2003,
             compared with $0.1 million for the six months ended June 30, 2002.
             During 2002, we participated in a multi-employer defined benefit
             pension plan and a 401(k) plan. Subsequent to the acquisition of
             our U.S. Operations on September 5, 2003, our participation in the
             defined benefit plan was discontinued. We have enhanced our 401(k)
             plan by increasing the employer contribution from 50.0% of the
             first 6.0% contributed by the participant to 75.0% of the first
             6.0% contributed by the participant. In addition, we will make a
             contribution of 1.0% for all employees even if the employee elects
             not to contribute to the 401(k) plan. These changes are not
             expected to materially alter our total pension benefit expenses in
             the future.

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

         Expense and Combined Ratios

       Our expense ratio, which is calculated by dividing the sum of acquisition
costs and other underwriting expenses by premiums earned, was 23.8% for the six
months ended June 30, 2003, compared with 12.9% for the six months ended June
30, 2002 as a result of the above mentioned changes to commissions and other
underwriting expenses. However, as discussed above, our underwriting profit
increased due to the improved loss experience. Part of our strategy is to
continue to retain a high percentage of our premiums. To the extent that we are
able to accomplish this, we expect the net commission component of our expense
ratio to increase.

       Our combined ratio was 89.3% for the six months ended June 30, 2003,
compared with 91.6% for the six months ended June 30, 2002. This improvement was
primarily a result of an increase in our level of premium retention combined
with an improvement in the loss experience.

         Other Operating Expenses

       Other operating expenses were $0.4 million for the six months ended June
30, 2003, compared with $1.4 million for the six months ended June 30, 2002, a
decrease of $1.0 million or 71.4%. The decrease can be attributed to the
reduction of management fees paid to The AMC Group L.P. during January 1, 2003.

       On September 5, 2003, we paid management fees of $13.5 million in the
aggregate to Fox Paine & Company and The AMC Group L.P. Effective September 5,
2004, we will commence paying annual management fees in the aggregate of $1.5
million to Fox Paine & Company and The AMC Group L.P.

         Income Tax Expense

       Income tax expense was $5.0 million for the six months ended June 30,
2003, compared with $0.4 million for the six months ended June 30, 2002, an
increase of $4.6 million. Our effective tax rates for the six months ended June
30, 2003 and 2002 were 22.6% and 5.8%, respectively. The effective rates
differed from the 35.0% statutory rate principally due to investments in
tax-exempt securities. We earned $9.0 million and $7.2 million in tax-exempt
interest for the six months ended June 30, 2003 and 2002, respectively. In
addition, we achieved a higher level of taxable income in 2003 due to an
underwriting income increase to $10.1 million for the six months ended June
2003, from $8.0 million during the six months ended June 30, 2002.

       The factors described above resulted in net income before equity in net
earnings of partnerships of $17.1 million for the six months ended June 30,
2003, compared with $7.1 million for the six months ended June 30, 2002, an
increase of $10.0 million or 140.9%.

                                        48
<PAGE>

         Equity in Net Earnings of Partnerships

       Equity in net earnings of partnerships was $1.5 million for the six
months ended June 30, 2003, compared with a loss of $0.3 million for the six
months ended June 30, 2002. The gain is largely attributable to the performance
of our investment in a limited partnership.

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

         Premiums

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

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

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

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

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

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

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

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

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

       -     E&S net premiums earned were $101.5 million for 2002, compared with
             $59.0 million for 2001, an increase of $42.5 million or 72.0%.

                                        49
<PAGE>

       -     Specialty admitted net premiums earned were $53.0 million for 2002,
             compared with $36.6 million for 2001, an increase of $16.4 million
             or 44.8%.

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

  Net Investment Income

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

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

  Net Realized Investment Gain (Loss)

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

         Net Losses and Loss Adjustment Expenses

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

       -     E&S net losses and loss adjustment expenses were $128.6 million for
             2002, compared with $43.9 million for 2001. The loss ratio was
             126.8% for 2002 compared with 74.4% for 2001. The deterioration was
             the result of the adverse loss development discussed above.

       -     Specialty admitted net losses and loss adjustment expenses were
             $64.9 million for 2002, compared with $29.1 million for 2001. The
             loss ratio for 2002 was 122.3% compared with 79.5% for 2001. The
             deterioration was the result of the adverse development discussed
             above.

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

                                        50
<PAGE>

         Acquisition Costs and Other Underwriting Expenses

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

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

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

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

         Expense and Combined Ratios

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

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

         Other Operating Expenses

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

         Income Tax Expense

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

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

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

       Premiums

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

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

       -     Specialty admitted gross premiums written were $210.2 million for
             2001, compared with $130.7 million for 2000, an increase of $79.5
             million or 60.8%. The growth in specialty

                                        51
<PAGE>

             admitted gross premiums written was caused primarily by rate
             increases combined with several large new products written for the
             first time in 2001.

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

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

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

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

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

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

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

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

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

       Net Investment Income

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

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

  Net Realized Investment Gain (Loss)

       Net realized investment loss was $12.7 million for 2001, compared with a
$0.6 million realized investment gain for 2000. The net realized investment loss
for 2001 consisted of an $7.8 million loss relative to our equity portfolio,
$1.0 million realized gains from our fixed income investments offset by $2.9
million for other than temporary impairments for fixed income securities and
$2.9 million for other

                                        52
<PAGE>

than temporary impairments for limited partnerships. In 2000, we recorded a
realized investment gain of $1.0 million on our fixed income investments, a $1.9
million gain from the sale of a limited liability venture capital fund, and a
$2.3 million loss on our equity portfolio.

  Net Losses and Loss Adjustment Expenses

       Net losses and loss adjustment expenses were $128.3 million for 2001,
compared with $113.2 million for 2000. The loss ratio increased to 85.3% for
2001 from 82.6% for 2000. The 2001 operating results included strengthening of
prior year loss reserves of $6.2 million as well as a $5.0 million charge
resulting from a commutation with a reinsurer. The prior year reserve increase
related principally to the commercial automobile liability and animal mortality
lines of business. These factors added 7.5 percentage points to the 2001 loss
ratio. The September 11, 2001 terrorist attacks in New York, Washington D.C. and
Pennsylvania resulted in no significant property or casualty losses to us. A
further breakdown of losses incurred is as follows:

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

       -     Specialty admitted net losses and loss adjustment expenses were
             $29.1 million for 2001, compared with $18.4 million for 2000. The
             loss ratio was 79.5% for 2001 compared with 71.7% for 2000. The
             increase in the loss ratio for 2001 was primarily due to the loss
             experience of our animal mortality business.

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

  Acquisition Costs and Other Underwriting Expenses

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

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

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

  Expense and Combined Ratios

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

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

  Income Tax Expense

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

                                        53
<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES

  SOURCES OF FUNDS

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

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

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

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

  SURPLUS LEVELS

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

  CASH FLOWS

       Net cash provided by operating activities was $11.5 million for the six
months ended June 30, 2003, compared with net cash provided by operating
activities of $76.8 million for the six months ended June 30, 2002. This
decrease in net cash used by operations resulted principally from decreases in
premiums written and the purchase of trading securities.

       Net cash used by investing activities was $12.4 million for the six
months ended June 30, 2003, compared with $64.0 million used by investing
activities for the six months ended June 30, 2002. Cash generated from
operations is generally invested in longer-term investments. This decrease in
investing activity was primarily a result of less operational cash flow.

       Net cash provided by operating activities was $105.0 million for 2002,
compared with $18.0 million for 2001. This increase in net cash provided by
operations resulted principally from an increase in premiums written in 2002.

                                        54
<PAGE>

       Net cash used by investing activities was $109.1 million for 2002,
compared with $65.8 million for 2001.

       Net cash provided by operating activities was $18.0 million for 2001,
compared with $0.4 million used by operating activities for 2000.

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

  LIQUIDITY

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

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

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

  CAPITAL RESOURCES

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

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

                                        55
<PAGE>

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

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

INFLATION

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

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

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

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

  INTEREST RATE RISK

       Our primary market risk exposure is to changes in interest rates. Our
fixed income investments are exposed to interest rate risk. Fluctuations in
interest rates have a direct impact on the market valuation of these securities.
As interest rates rise, the market value of our fixed income investments fall,
and the converse is also true. We expect to manage interest rate risk through an
active portfolio management strategy that involves the selection, by our
managers, of investments with appropriate characteristics, such as duration,
yield, currency and liquidity, that are tailored to the anticipated cash outflow
characteristics of our liabilities. Our strategy for managing interest rate risk
also includes maintaining a high quality portfolio with a relatively short
duration to reduce the effect of interest rate changes on book value. A
significant portion of our investment portfolio matures each year, allowing for
reinvestment at current market rates. Our investment portfolio is actively
managed and trades are made to balance our exposure to interest rates. As of
June 30, 2003, assuming parallel shifts in interest rates, an immediate 100
basis point increase in market interest rates would have resulted in an
estimated decrease in market value of 4.1%, or approximately $19.9 million on
our fixed income securities of $483.4 million, and an immediate 100 basis point
decrease in market interest rates would have resulted in an estimated increase
in market value of 4.3% or approximately $20.8 million.

  CREDIT RISK

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

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

       With respect to our credit exposure to reinsurers, we seek to mitigate
and control our risk by ceding business to only those reinsurers having adequate
financial strength and sufficient capital to fund their obligation. In addition,
we seek to mitigate credit risk to reinsurers through the use of trusts for

                                        56
<PAGE>

collateral. As of June 30, 2003, $483.2 million of collateral was held in trust
to support the reinsurance receivables. On August 29, 2003, an additional $200.5
million was placed in trust by one of our reinsurers.

COMMITMENTS

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

<Table>
<Caption>
                                                         LESS THAN                           MORE THAN
                                                TOTAL     1 YEAR     1-3 YEARS   3-5 YEARS    5 YEARS
           (DOLLARS IN THOUSANDS)              -------   ---------   ---------   ---------   ---------
<S>                                            <C>       <C>         <C>         <C>         <C>
Operating leases(1)..........................  $10,870    $ 2,084     $3,876      $4,910       $  --
Commitments to fund limited
  partnerships(2)(3).........................   18,915     18,915         --          --          --
Discretionary demand line of credit(4).......      155         31         62          62          --
                                               -------    -------     ------      ------       -----
  Total......................................  $29,940    $21,030     $3,938      $4,972       $  --
                                               =======    =======     ======      ======       =====
</Table>

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

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

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

(3) Subsequent to June 30, 2003, our commitments to fund limited partnerships
    were reduced by $6.6 million due to our sale of certain limited partnership
    interests.

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

                                        57
<PAGE>

                         INDUSTRY BACKGROUND AND TRENDS

INDUSTRY CONDITION AND TRENDS

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

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

       We believe that these trends continued and accelerated in 2001 when the
property and casualty insurance industry experienced a severe dislocation as a
result of an unprecedented impairment of capital, causing a substantial
contraction in industry underwriting capacity. We believe that this reduction in
capacity is a result of, among other things:

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

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

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

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

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

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

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

       Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. In the six months ended June
30, 2003, our rate increases on renewal business approximated 29%, which rates
we will earn over the period of time for which the policies are in force,
generally the next 12 months. We cannot assure you, however, that these
favorable trends will continue or that these rate increases can be sustained.

                                        58
<PAGE>

SPECIALTY INSURANCE MARKET

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

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

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

       According to A.M. Best, over the 20-year period from 1982 to 2002, the
surplus lines market grew from an estimated $2.1 billion in direct premiums
written to $25.6 billion, representing a 13.3% compound annual growth rate and
aggregate growth of 1,119.1%. In contrast, the U.S. property and casualty
industry grew more moderately from $95.5 billion in direct premiums written to
$406.7 billion, representing a 7.5% compound annual growth rate and aggregate
growth of 325.9%. During this period, the surplus lines market as a percent of
the total property and casualty industry grew from approximately 2.4% to 4.2%.
Additionally, the growth in terms of commercial lines market share, which
comprises the majority of surplus lines premiums, increased from 3.6% to 8.8%
over this period.

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

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

                                        59
<PAGE>

                                    BUSINESS

OVERVIEW

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

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

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

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

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

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

ACQUISITION OF OUR U.S. OPERATIONS

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

       To effect this acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We then purchased the
remainder of the common stock of Wind River Investment Corporation
                                        60
<PAGE>

held by the Ball family trusts with consideration consisting of 2.5 million
Class A common shares, 3.5 million Series A preferred shares and senior notes
issued by Wind River Investment Corporation having an aggregate principal amount
of approximately $72.8 million.

       Of the remaining $140.0 million contributed to us, we then contributed
$80.0 million to our U.S. Operations, used $43.5 million to capitalize our
Non-U.S. Operations and used $16.5 million to fund fees and expenses incurred in
connection with the acquisition. See "Our Relationship with Fox Paine &
Company."

OUR COMPETITIVE STRENGTHS

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

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

       -     EXPERIENCED MANAGEMENT TEAM.  Our experienced management team has
             an average of over 23 years of experience in the insurance industry
             and has been with us for an average of 17 years. Each member of our
             senior management team participates in our stock incentive plan
             that is intended to align management compensation with the
             achievement of the goals of our shareholders.

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

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

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

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

                                        61
<PAGE>

OUR STRATEGY

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

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

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

       -     OPPORTUNISTICALLY MANAGING A DIVERSE PRODUCT PORTFOLIO.  We
             continue opportunistically to manage our product portfolio to grow
             premiums written in those areas experiencing strong price increases
             and improving underwriting terms and conditions. In order to
             achieve this growth, we are increasing our retention of our most
             profitable products. Across our top ten products, as ranked by net
             premiums written, we increased retention from 53.3% in 2002 to
             56.2% for the six months ended June 30, 2003.

       -     MAINTAINING A CONSERVATIVE BALANCE SHEET AND A STRONG A.M. BEST
             RATING.  We intend to remain conservative in our underwriting,
             reinsurance buying and investment practices and to use extensive
             modeling techniques to protect our current position with the rating
             agencies, particularly A.M. Best. Our investment philosophy will
             remain consistent with our current conservative investment
             portfolio, of which 87.3% is invested in fixed income securities
             and cash and cash equivalents as of June 30, 2003 with the fixed
             income securities having a 4.4-year duration and an average quality
             rating of AA.

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

BUSINESS SEGMENTS

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

<Table>
<Caption>
                                          FOR THE YEARS ENDED DECEMBER 31,
                            ------------------------------------------------------------    SIX MONTHS ENDED
                                   2000                 2001                 2002            JUNE 30, 2003
                            ------------------   ------------------   ------------------   ------------------
                             AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
  (DOLLARS IN THOUSANDS)    --------   -------   --------   -------   --------   -------   --------   -------
<S>                         <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
E&S.......................  $260,730     57.5%   $398,308     59.4%   $543,998     68.6%   $241,952     66.7%
Specialty admitted........   130,734     28.8     210,212     31.4     249,085     31.4     121,001     33.3
Reinsurance...............    62,000     13.7      62,000      9.2          --       --          --       --
                            --------    -----    --------    -----    --------    -----    --------    -----
Total gross premiums
  written.................  $453,464    100.0%   $670,520    100.0%   $793,083    100.0%   $362,953    100.0%
                            ========    =====    ========    =====    ========    =====    ========    =====
</Table>

  E&S

       Our E&S segment focuses on writing insurance for hard-to-place risks and
risks that standard admitted insurers specifically choose not to write. Our
eligibility as an E&S lines insurer allows us to underwrite unique risks with
more flexible policy forms and unregulated premium rates. This flexibility

                                        62
<PAGE>

typically results in coverages that are more restrictive and more expensive than
those offered in the standard admitted market. In 2002, the United States E&S
market as a whole represented approximately $25.6 billion in direct premiums
written according to A.M. Best, or approximately 6.3% of the $406.7 billion
United States property and casualty industry direct premiums written. According
to A.M. Best, the E&S market as a whole grew 61.7% from 2001 to 2002 on the
basis of direct premiums written. In 2002, we had $544.0 million of gross
premiums written in the E&S market.

  SPECIALTY ADMITTED

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

  REINSURANCE

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

PRODUCTS AND PRODUCT DEVELOPMENT

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

<Table>
<Caption>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                    ------------------------------------------------------------    SIX MONTHS ENDED
                                           2000                 2001                 2002            JUNE 30, 2003
                                    ------------------   ------------------   ------------------   ------------------
                                     AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
      (DOLLARS IN THOUSANDS)        --------   -------   --------   -------   --------   -------   --------   -------
<S>                                 <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Specific specialty................  $277,167     70.8%   $375,962     61.8%   $439,364     55.4%   $151,366     41.7%
Umbrella and excess...............    58,095     14.8     138,425     22.8     209,369     26.4     100,367     27.7
Property and general liability....    32,360      8.3      50,725      8.3      75,376      9.5      66,507     18.3
Non-medical professional
  liability.......................    23,842      6.1      43,408      7.1      68,974      8.7      44,713     12.3
                                    --------    -----    --------    -----    --------    -----    --------    -----
    Total.........................  $391,464    100.0%   $608,520    100.0%   $793,083    100.0%   $362,953    100.0%
                                    ========    =====    ========    =====    ========    =====    ========    =====
</Table>

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

                                        63
<PAGE>

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

<Table>
<Caption>
     PRODUCT CLASS                PRODUCT                   CUSTOMER             HYPOTHETICAL CLAIM
------------------------  ------------------------  ------------------------  ------------------------
<S>                       <C>                       <C>                       <C>
Specific Specialty        Equine mortality          Owner of pleasure or      Horse dies
                                                    show horse
                          Dealer open lot physical  Auto dealer distribution  Car on open lot damaged
                          damage                    center                    due to hail storm


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


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


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

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

                                        64
<PAGE>

GEOGRAPHIC CONCENTRATION

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

<Table>
<Caption>
                                                     YEARS ENDED DECEMBER 31,
                                   ------------------------------------------------------------    SIX MONTHS ENDED
                                          2000                 2001                 2002            JUNE 30, 2003
                                   ------------------   ------------------   ------------------   ------------------
                                    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
     (DOLLARS IN THOUSANDS)        --------   -------   --------   -------   --------   -------   --------   -------
<S>                                <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
New York.........................  $ 37,678      9.7%   $ 60,964     10.1%   $ 66,858      8.4%   $ 43,302     11.9%
California.......................    56,215     14.4      71,744     11.9      81,573     10.3      41,679     11.5
Florida..........................    35,532      9.1      57,600      9.5      88,990     11.2      31,552      8.7
Texas............................    43,091     11.1      71,276     11.8      76,498      9.7      24,938      6.9
New Jersey.......................    14,572      3.7      22,077      3.7      34,704      4.4      23,632      6.5
Pennsylvania.....................    21,600      5.5      31,783      5.3      51,220      6.5      18,488      5.1
Louisiana........................     8,912      2.3      16,718      2.8      27,449      3.5      16,872      4.7
Ohio.............................    16,669      4.3      22,590      3.7      31,711      4.0      15,707      4.3
Massachusetts....................     8,254      2.1      12,758      2.1      23,157      2.9      13,811      3.8
Illinois.........................    18,496      4.8      21,503      3.6      27,872      3.5      12,091      3.3
                                   --------    -----    --------    -----    --------    -----    --------    -----
    Subtotal.....................  $261,019     67.0%   $389,013     64.5%   $510,032     64.4%   $242,072     66.7%
All Others.......................   128,329     33.0     215,725     35.5     281,832     35.6     120,881     33.3
                                   --------    -----    --------    -----    --------    -----    --------    -----
    Total........................  $389,348    100.0%   $604,738    100.0%   $791,864    100.0%   $362,953    100.0%
                                   ========    =====    ========    =====    ========    =====    ========    =====
</Table>

UNDERWRITING

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

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

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

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

       -     daily updates of all insureds underwritten;

       -     individual policy reviews;

       -     monthly general agency and product profile reviews;

                                        65
<PAGE>

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

       -     internal annual actuarial and profitability reviews.

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

MARKETING AND DISTRIBUTION

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

       Of our professional general agencies, the top five, including J.H.
Ferguson, accounted for approximately 49% of our direct premiums written for the
six months ended June 30, 2003, with no one general agency accounting for more
than 12%. J.H. Ferguson accounted for approximately 9% of direct premiums
written during that period.

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

PRICING

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

       Recently, we have been successful in increasing our rates. For example,
during 2001 and 2002, our rate increases on renewal business, across all
segments, approximated 23% and 30%, respectively. Through June 30, 2003, our
rate increases on renewal business approximated 29%, which rates we will earn
over the period of time for which the policies are in force, generally the next
12 months. We cannot assure you, however, that these favorable trends will
continue or that these rate increases can be sustained.

REINSURANCE

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

                                        66
<PAGE>

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

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

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

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

<Table>
<Caption>
                             A.M.       GROSS        PREPAID        TOTAL                    CEDED
                             BEST    REINSURANCE   REINSURANCE   REINSURANCE   PERCENT OF   PREMIUMS   PERCENT OF
                            RATING   RECEIVABLES     PREMIUM       ASSETS        TOTAL      WRITTEN      TOTAL
  (DOLLARS IN MILLIONS)     ------   -----------   -----------   -----------   ----------   --------   ----------
<S>                         <C>      <C>           <C>           <C>           <C>          <C>        <C>
American Re-Insurance
  Co. ....................  A+        $  682.2       $ 68.5       $  750.7        37.3%     $  96.1       36.5%
Employers Reinsurance
  Corp. ..................  A            368.8         42.2          411.0        20.4         64.4       24.4
Hartford Fire Insurance
  Co. ....................  A+           115.4          8.4          123.8         6.2         20.8        7.9
Converium Re..............  A            106.6          4.6          111.2         5.5         13.1        5.0
GE Reinsurance Corp. .....  A             92.2          6.4           98.6         4.9         14.5        5.5
General Reinsurance
  Corp. ..................  A++           86.1          6.5           92.6         4.6         12.2        4.6
Generali -- Assicurazioni... A+           62.0           --           62.0         3.1          0.1        0.0
SCOR Reinsurance
  Company.................  B++           48.1          0.3           48.4         2.4          5.2        2.0
Swiss Reinsurance America
  Corp....................  A++           40.9          1.0           41.9         2.1          2.5        0.9
Odyssey Reinsurance
  Corp. ..................  A             31.0           --           31.0         1.5         (0.2)      (0.1)
                                      --------       ------       --------       -----      --------     -----
    Subtotal..............            $1,633.3        137.9        1,771.2        88.0%     $ 228.7       86.7%
All other reinsurers......               268.0         21.8          289.7        14.4         34.8       13.3
                                      --------       ------       --------       -----      --------     -----
    Allowance for doubtful
      reinsurance
      receivables.........            $  (49.1)                   $  (49.1)       (2.4)%
                                      --------
    Total receivables.....            $1,852.2       $159.7        2,011.8       100.0%     $ 263.5      100.0%
                                      ========       ======       ========       =====      ========     =====
Collateral held in trust
  from reinsurers(1)......              (483.2)                     (483.2)
                                      --------                    --------
    Net receivables.......            $1,369.0                    $1,528.6
                                      ========                    ========
</Table>

------------
(1) On August 29, 2003, an additional $200.5 million was placed in trust for our
    benefit by one of our reinsurers.

                                        67
<PAGE>

       As of June 30, 2003, we had $1,852.2 million of reinsurance receivables
net of an allowance of $49.1 million for doubtful reinsurance receivables. As of
June 30, 2003, $483.2 million of collateral was held in trust to support the
reinsurance receivables. Our reinsurance receivables, net of collateral held,
were $1,369.0 million at June 30, 2003. We also had $159.7 million of prepaid
reinsurance premiums as of June 30, 2003. On August 29, 2003, an additional
$200.5 million was placed in trust on our behalf by one of our reinsurers.

       As noted above, we have an allowance of $49.1 million, as of June 30,
2003, for doubtful reinsurance receivables, of which an aggregate $44.0 million
allowance was established in 2002. Historically, there have been insolvencies
following a period of competitive pricing in the industry. While we believe this
reserve is adequate based on currently available information, conditions may
change or additional information might be obtained that may result in a future
change in the allowance. We periodically review our financial exposure to the
reinsurance market and the level of our allowance and continue to take actions
in an attempt to mitigate our exposure to possible loss. For further information
on our reserves, including the establishment of our allowance for doubtful
reinsurance receivables and our relationship with our reinsurers, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Special Note Regarding 2002."

CLAIMS MANAGEMENT AND ADMINISTRATION

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

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

       As of June 30, 2003, we had approximately $634.6 million of outstanding
reserves on known claims. Claims relating to approximately 43.0% of those
reserves are handled by our in-house claims management professionals, while
approximately 37.0% of those reserves are handled by our TPAs, which send us
detailed financial and claims information on a monthly basis. We also
individually supervise in-house any significant or complicated TPA handled
claims, and conduct two to five day on-site audits of our TPAs at least twice a
year. Approximately 20.0% of our reserves are handled by our assuming
reinsurers. We diligently review and supervise the claims handed by our
reinsurers to protect our reputation and minimize exposure.

OUR NON-U.S. OPERATIONS

       Our Non-U.S. Operations consist of U.N. Barbados, which was recently
formed. To date, our Non-U.S. Operations have not commenced operations. In the
near future, we intend to begin writing third-party insurance policies through
our Non-U.S. Operations that are substantially identical to those that we have
historically offered through our U.S. Operations, potentially including
reinsurance, and that are subject to similar underwriting review. However, we
will not be permitted to offer third party insurance policies without the
approval of the Barbados Supervisor of Insurance. We intend to distribute these

                                        68
<PAGE>

insurance products through wholesale insurance brokers in the United States,
rather than through a network of professional general agencies.

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

RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

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

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

       -     our knowledge of the circumstances surrounding the claim;

       -     the severity of injury or damage;

       -     jurisdiction of the occurrence;

       -     the potential for ultimate exposure;

       -     the type of loss; and

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

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

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

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

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

                                        69
<PAGE>

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

       This loss development triangle shows development in loss reserves on a
net basis:
<Table>
<Caption>
                          1992       1993       1994       1995       1996       1997       1998       1999       2000       2001
(DOLLARS IN THOUSANDS)  --------   --------   --------   --------   --------   --------   --------   --------   --------   --------
<S>                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Balance sheet
  reserves:..........   $117,444   $140,993   $152,457   $155,030   $168,599   $180,651   $210,483   $167,868   $131,128   $156,784
Cumulative paid as of:
  One year later.....   $ 14,177   $ 22,355   $ 29,966   $ 15,886   $ 13,190   $  8,360   $ 85,004   $ 64,139   $ 26,163   $ 63,667
  Two years later....     24,023     39,305     38,623     25,120     13,543     64,079    110,073     82,119     72,579
  Three years later...    32,182     49,267     45,974     21,867     56,603     77,775    123,129    118,318
  Four years later...     39,603     55,573     39,537     47,023     66,083     85,923    152,915
  Five years later...     42,837     52,191     52,829     54,490     72,451    111,044
  Six years later....     44,316     56,090     58,647     58,064     93,652
  Seven years later...    45,668     59,312     61,160     77,962
  Eight years later...    46,874     60,112     79,835
  Nine years later...     46,390     65,748
  Ten years later....     48,205
Re-estimated liability
  as of:
  End of year........   $117,444   $140,993   $152,457   $155,030   $168,599   $180,651   $210,483   $167,868   $131,128   $156,784
  One year later.....    121,582    139,523    146,119    146,678    148,895    164,080    195,525    157,602    124,896    228,207
  Two years later....    120,984    131,504    138,304    127,939    137,056    146,959    185,421    155,324    180,044
  Three years later...   110,402    126,872    119,561    116,751    121,906    137,711    182,584    192,675
  Four years later...    105,113    109,751    114,905    105,368    118,144    136,307    211,544
  Five years later...     87,942    103,968    105,963    101,712    116,890    157,605
  Six years later....     79,266     95,141    101,982     98,847    132,663
  Seven years later...    72,295     92,563     98,445    111,484
  Eight years later...    70,964     88,877    111,444
  Nine years later...     67,457     80,558
  Ten years later....     58,257
Cumulative redundancy
  (deficiency).......   $ 59,187   $ 60,435   $ 41,013   $ 43,546   $ 35,936   $ 23,046   $ (1,061)  $(24,807)  $(48,916)  $(71,423)

<Caption>
                          2002
(DOLLARS IN THOUSANDS)  --------
<S>                     <C>
Balance sheet
  reserves:..........   $260,823
Cumulative paid as of:
  One year later.....
  Two years later....
  Three years later...
  Four years later...
  Five years later...
  Six years later....
  Seven years later...
  Eight years later...
  Nine years later...
  Ten years later....
Re-estimated liability
  as of:
  End of year........   $260,823
  One year later.....
  Two years later....
  Three years later...
  Four years later...
  Five years later...
  Six years later....
  Seven years later...
  Eight years later...
  Nine years later...
  Ten years later....
Cumulative redundancy
  (deficiency).......   $      0
</Table>

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

                                        70
<PAGE>

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

<Table>
<Caption>
                                                                2000       2001        2002
                   (DOLLARS IN THOUSANDS)                     --------   --------   ----------
<S>                                                           <C>        <C>        <C>
Reserves for unpaid losses and loss adjustment expenses at
  beginning of year.........................................  $805,717   $800,630   $  907,357
Less gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   637,850    669,504      750,573
                                                              --------   --------   ----------
Net reserves for losses and loss adjustment expenses at
  beginning of year.........................................   167,867    131,126      156,784
Incurred losses and loss adjustment expenses:
  Provision for losses and loss adjustment expenses for
     claims occurring in the current year...................   123,476    134,558      130,327
  (Decrease) increase in estimated losses and loss
     adjustment expenses for claims occurring in prior
     years(1)...............................................   (10,325)    (6,220)      71,423
                                                              --------   --------   ----------
Incurred losses and loss adjustment expenses................   113,151    128,338      201,750
Losses and loss adjustment expenses payments for claims
  occurring during:
  Current year..............................................    85,811     76,508       34,045
  Prior years...............................................    64,081     26,172       63,669
                                                              --------   --------   ----------
Losses and loss adjustment expenses payments................   149,892    102,680       97,714
                                                              --------   --------   ----------
Net reserves for losses and loss adjustment expenses at end
  of year...................................................   131,126    156,784      260,820
Plus gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   669,504    750,573    1,743,602
                                                              --------   --------   ----------
Reserves for unpaid losses and loss adjustment expenses at
  end of year...............................................  $800,630   $907,357   $2,004,422
                                                              ========   ========   ==========
</Table>

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

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

ENVIRONMENTAL AND ASBESTOS EXPOSURE

       Although we believe our exposure to be limited, we have exposure to
environmental and asbestos claims. Our environmental exposure arises from the
sale of general liability and commercial multi-peril insurance. Currently, our
policies continue to exclude classic environmental contamination claims. In some
states we are required, however, depending on the facts, to provide coverage for
such bodily injury claims as an individual's exposure to a release of chemicals.
We have also issued policies that were intended to provide limited pollution and
exposure coverage. These policies were specific to certain types of products
underwritten by us. We receive a number of asbestos related claims. The majority
are declined based on well-established exclusions. As of June 30, 2003, we had
$5.7 million of net loss reserves for asbestos related claims and $2.2 million
for pollution. We attempt to estimate the full impact of the environmental and
asbestos exposure by establishing full case reserves on all known losses. In
2001 and prior years, we did not provide specific amounts of IBNR reserves for
these coverages. In 2002, we identified that portion

                                        71
<PAGE>

of our IBNR reserves related to environmental and asbestos. The following table
shows asbestos and environmental losses, including disputed costs:

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                               2000     2001     2002
                   (DOLLARS IN THOUSANDS)                     ------   ------   -------
<S>                                                           <C>      <C>      <C>
Net reserve for A&E losses and loss adjustment expenses
  reserves -- beginning of period...........................  $3,291   $2,449   $ 2,104
Plus: Incurred losses and loss adjustment expenses -- case
  reserves..................................................    (177)      (8)      170
Plus: Incurred losses and loss adjustment
  expenses -- IBNR..........................................      --       --     6,370
Less: Payments..............................................     665      337       500
                                                              ------   ------   -------
Net reserve for A&E losses and loss adjustment
  expenses -- end of period.................................  $2,449   $2,104   $ 8,144
                                                              ======   ======   =======
</Table>

INVESTMENTS

       Insurance company investments must comply with applicable regulations
that prescribe the type, quality and concentration of investments. These
regulations permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
and preferred and common equity securities. As of June 30, 2003, we had $635.5
million of investment and cash and cash equivalents assets. The majority of our
invested assets are held by our U.S. Insurance Subsidiaries.

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

       Although we generally intend to hold fixed income securities to maturity,
we regularly reevaluate our position based upon market conditions. As of June
30, 2003, our fixed income securities had a weighted average maturity of 6.9
years and a weighted average duration of 4.4 years. Our financial statements
reflect an unrealized gain on fixed income securities available for sale as of
June 30, 2003, of $17.6 million on a pre-tax basis.

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

<Table>
<Caption>
                                                                            SIX MONTHS ENDED
                                             YEARS ENDED DECEMBER 31,           JUNE 30,
                                          ------------------------------   -------------------
                                            2000       2001       2002       2002       2003
         (DOLLARS IN THOUSANDS)           --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Average investments, at cost............  $280,039   $324,412   $407,194   $381,611   $472,212
Gross investment income(1)..............    17,991     19,307     20,868     10,342      9,656
Book yield..............................      6.42%      5.97%      5.12%      5.42%      4.09%
</Table>

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

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

                                        72
<PAGE>

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

<Table>
<Caption>
                                                  DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
<S>                                          <C>        <C>                <C>        <C>
Cash and cash equivalents..................  $ 72,942         11.9%        $ 71,709         11.3%

U.S. Treasury securities...................  $ 30,667          5.0%        $ 38,213          6.0%
Obligations of states, municipalities and
  political subdivisions...................    99,580         16.3          100,244         15.8
Special revenue fixed income securities....   303,500         49.7          322,861         50.7
Corporate fixed income securities..........    14,939          2.4           16,844          2.7
Asset-backed and mortgage-backed
  securities...............................     8,150          1.3            4,133          0.7
Other bonds................................     4,189          0.7            1,103          0.1
                                             --------        -----         --------        -----
  Total fixed income securities............  $461,025         75.4%        $483,398         76.0%

Marketable equity securities...............  $ 34,710          5.7%        $ 38,598          6.1%
Other investments(1).......................    42,452          7.0           41,842          6.6
                                             --------        -----         --------        -----
     Total investments and cash and cash
       equivalents.........................  $611,129        100.0%        $635,547        100.0%
                                             ========        =====         ========        =====
</Table>

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

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

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

<Table>
<Caption>
                                                  DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
<S>                                          <C>        <C>                <C>        <C>
AAA........................................  $353,286         76.6%        $375,788         77.8%
AA.........................................    70,759         15.3           74,908         15.5
A..........................................    22,968          5.0           19,085          3.9
BBB........................................     9,613          2.1           10,783          2.2
BB.........................................     1,616          0.4            1,991          0.4
B..........................................       522          0.1              843          0.2
CC.........................................     2,261          0.5                0          0.0
                                             --------        -----         --------        -----
     Total Fixed Income Securities.........  $461,025        100.0%        $483,398        100.0%
                                             ========        =====         ========        =====
</Table>

                                        73
<PAGE>

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

<Table>
<Caption>
                                                  DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
<S>                                          <C>        <C>                <C>        <C>
One year or less...........................  $ 29,596          6.4%        $ 26,644          5.5%
More than one year to five years...........   184,951         40.1          247,609         51.2
More than five years to ten years..........   177,882         38.6          134,935         27.9
More than ten years to fifteen years.......    23,738          5.1           17,095          3.5
More than fifteen years....................    36,708          8.0           52,982         11.0
                                             --------        -----         --------        -----
  Securities with fixed maturities.........   452,875         98.2          479,265         99.1
Asset-backed and mortgage-backed
  securities...............................     8,150          1.8            4,133          0.9
                                             --------        -----         --------        -----
     Total fixed income securities.........  $461,025        100.0%        $483,398        100.0%
                                             ========        =====         ========        =====
</Table>

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

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

COMPETITION

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

       -     American International Group;

       -     Berkshire Hathaway;

       -     Great American Insurance Group;

       -     HCC Insurance Holdings, Inc.;

       -     Markel Corporation;

       -     Nationwide Insurance;

       -     Penn-America Group;

       -     Philadelphia Consolidated Group;

       -     RLI Corporation; and

       -     W.R. Berkley Corporation.

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

                                        74
<PAGE>

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

RATINGS

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

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

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

                                        75
<PAGE>

CORPORATE STRUCTURE

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

                        (COMPANY ORGANIZATION STRUCTURE)

EMPLOYEES

       As of June 30, 2003, we had approximately 260 employees, six of whom were
executive officers. In addition, we have contracts with international insurance
service providers based in Barbados and in Bermuda to provide services to our
Non-U.S. Operations. We expect to hire individuals in the near future who will
operate out of our Barbados office, subject to approval of any required work
permits for non-

                                        76
<PAGE>

resident employees. None of our employees are covered by collective bargaining
agreements, and our management believes that our relationship with our employees
is excellent.

FACILITIES

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

LEGAL PROCEEDINGS

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

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

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

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

                                        77
<PAGE>

                                   REGULATION

GENERAL

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

CAYMAN ISLANDS

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

UNITED STATES

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

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

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

  CHANGES OF CONTROL

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

       These laws may discourage potential acquisition proposals and may delay,
deter or prevent a change of control of United National Group, including through
transactions, and in particular unsolicited transactions, that some or all of
the shareholders of United National Group might consider to be desirable.
                                        78
<PAGE>

  LEGISLATIVE CHANGES

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

  STATE INSURANCE REGULATION

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

  STATE DIVIDEND LIMITATIONS

  Indiana

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

                                        79
<PAGE>

  Pennsylvania

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

  Wisconsin

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

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

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

  INSURANCE REGULATORY INFORMATION SYSTEM RATIOS

       The NAIC Insurance Regulatory Information System, or "IRIS," was
developed by a committee of the state insurance regulators and is intended
primarily to assist state insurance departments in executing their statutory
mandates to oversee the financial condition of insurance companies operating in
their respective states. IRIS identifies 11 industry ratios and specifies "usual
values" for each ratio. Departure from the usual values of the ratios can lead
to inquiries from individual state insurance commissioners as to certain aspects
of an insurer's business. Insurers that report four or more ratios that fall
outside the range of usual values are generally targeted for regulatory review.

       For 2002, United National Insurance Company and United National Specialty
Insurance Company had four ratios that fell outside the range of usual values,
primarily as a result of the increase in loss reserves during 2002 and the
resulting reduction in statutory surplus. We have received inquiries from

                                        80
<PAGE>

state insurance departments and we have prepared an analysis for such state
insurance departments of the factors responsible for such values.

  RISK-BASED CAPITAL REGULATIONS

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

  STATUTORY ACCOUNTING PRINCIPLES

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

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

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

  GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS

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

  OPERATIONS OF U.N. BARBADOS

       The insurance laws of each of the United States and of many other
countries regulate or prohibit the sale of insurance and reinsurance within
their jurisdictions by non-U.S. insurers and reinsurers that are not admitted to
do business within such jurisdictions. U.N. Barbados is not admitted to do
business in the
                                        81
<PAGE>

United States. We do not intend that U.N. Barbados will maintain offices or
solicit, advertise, settle claims or conduct other insurance activities in any
jurisdiction in the United States where the conduct of such activities would
require U.N. Barbados to be admitted or authorized.

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

BARBADOS

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

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

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

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

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

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

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

                                        82
<PAGE>

                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

<Table>
<Caption>
NAME                             AGE                             POSITION
----                             ---                             --------
<S>                              <C>   <C>
Saul A. Fox....................   50   Chairman, Chief Executive Officer and Director, United
                                       National Group
Troy W. Thacker................   30   President and Director, United National Group
Kevin L. Tate..................   47   Chief Financial Officer, United National Group; Senior Vice
                                       President and Chief Financial Officer of U.S. Operations
Seth D. Freudberg..............   44   President and Chief Executive Officer of U.S. Operations
Richard S. March...............   62   Senior Vice President and General Counsel of U.S. Operations
Robert Cohen...................   54   Senior Vice President -- Marketing of U.S. Operations
William F. Schmidt.............   42   Senior Vice President and Chief Underwriting Officer of U.S.
                                       Operations
Jonathan P. Ritz...............   35   Senior Vice President -- Ceded Reinsurance of U.S.
                                       Operations
W. Dexter Paine, III...........   42   Director, United National Group
Robert N. Lowe, Jr.............   45   Director, United National Group
Angelos J. Dassios.............   29   Director, United National Group
Russell C. Ball, III...........   37   Director, United National Group
John Hendrickson...............   43   Director, United National Group
</Table>

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

       Troy W. Thacker, 30, has served as our President since September 5, 2003
and a Director at Fox Paine & Company since 2001. Prior to joining Fox Paine &
Company, Mr. Thacker was an investment professional at Gryphon Investors, Inc.,
a San Francisco, California based private equity firm, which he joined after
receiving his M.B.A. from Harvard Business School in 2000. From 1997 through
1998, Mr. Thacker was employed by SCF Partners, a private equity firm, and from
1995 through 1997, Mr. Thacker was an analyst at Morgan Stanley & Co. Mr.
Thacker received a B.S. in Chemical Engineering from Rice University in 1995.

                                        83
<PAGE>

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

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

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

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

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

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

       W. Dexter Paine, III, 42, has served as President of Fox Paine & Company
since he co-founded Fox Paine & Company in 1997. From 1994 through 1997, Mr.
Paine served as a senior partner of Kohlberg & Company. Prior to joining
Kohlberg & Company, Mr. Paine served as a general partner at Robertson Stephens
& Company. Mr. Paine received a B.A. in Economics from Williams College in 1983.
Mr. Paine is Chairman of the Board of Directors of WJ Communications, Inc. and a
director of Alaska Communications Systems Holdings, Inc. and of Maxxim Medical
Inc.

       Robert N. Lowe, Jr., 45, has served as Chief Operating Officer of Fox
Paine & Company since 2002. Prior to joining Fox Paine & Company, Mr. Lowe was
with Arthur Andersen LLP for 21 years, most recently as the firm's Managing
Partner, Expansions and Alliances. Mr. Lowe received a B.S. in

                                        84
<PAGE>

Accounting and Masters of Accounting (Tax) from the University of Florida in
1980 and 1981, respectively (both with High Honors). Mr. Lowe is a director of
WJ Communications, Inc. and of Maxxim Medical Inc.

       Angelos J. Dassios, 29, has served as a Vice President at Fox Paine &
Company since 2002. Prior to joining Fox Paine & Company, Mr. Dassios was an
associate in the Principal Investment Area from 1998 through 2002, and an
analyst in both the Principal Investment Area and the Investment Banking
Division from 1996 through 1998, of Goldman, Sachs & Co. Mr. Dassios received an
A.B. in Applied Mathematics from Dartmouth College in 1996 (summa cum laude, Phi
Beta Kappa).

       Russell C. Ball, III, 37, has served as the Chief Executive Officer of
The AMC Group, L.P. The AMC Group is a privately-owned limited partnership that
provides services under a management agreement to interests of the Ball family
trusts in manufacturing, franchising, insurance and real estate enterprises. Mr.
Ball received a B.A. in History from Harvard University in 1988 and an M.B.A.
from Pennsylvania State University in 1992.

       John Hendrickson, 43, has served as a Managing Director with Fox-Pitt
Kelton, a Swiss Re company and a research, brokerage and investment banking firm
that specializes in the insurance and financial services sector, since March
2003. From 1998 to March 2003, Mr. Hendrickson was a member of the Executive
Board of Swiss Re and head of Swiss Re's merchant banking division. Prior to
that, Mr. Hendrickson was responsible for Securitas Capital, a private equity
fund in which Swiss Re serves as the sponsor and lead investor. Prior to his
service with Securitas, Mr. Hendrickson was employed by Smith Barney for ten
years and held positions including Managing Director within the corporate
finance department. Mr. Hendrickson received a B.A. in History and an M.S. in
Industrial Engineering from Stanford University in 1983.

BOARD OF DIRECTORS

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

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

BOARD COMMITTEES

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

  EXECUTIVE COMMITTEE

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

                                        85
<PAGE>

  AUDIT COMMITTEE

       The audit committee is expected to consist of Messrs. Hendrickson, Lowe
and one additional independent director. The audit committee will:

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

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

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

       -     review our risk management processes.

  COMPENSATION COMMITTEE

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

  NOMINATING AND GOVERNANCE COMMITTEE

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

  OPERATING COMMITTEE

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

ELECTION OF EXECUTIVE OFFICERS

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

DIRECTOR COMPENSATION

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

                                        86
<PAGE>

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

EXECUTIVE COMPENSATION

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

                           SUMMARY COMPENSATION TABLE

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

EMPLOYMENT AGREEMENTS

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

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

                                        87
<PAGE>

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

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

       With respect to the executives' annual cash compensation, the agreements
provide as follows: (1) Mr. Freudberg is entitled to an annual salary of
$415,000; (2) Mr. March is entitled to an annual salary of $320,000; (3) Mr.
Cohen is entitled to an annual salary of $255,000; (4) Mr. Schmidt is entitled
to an annual salary of $245,000; (5) Mr. Tate is entitled to an annual salary of
$237,500; and (6) Mr. Ritz is entitled to a salary of $225,000. Each executive
is also eligible for an annual bonus conditioned on the achievement of
performance targets included in the bonus plan adopted by our Board of
Directors.

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

       The executives have been granted various options to purchase our Class A
common shares. Options denoted as the "Option-A Tranche" granted on September 5,
2003 have an exercise price of $6.50 per share and are fully vested at the time
of the grant; Messrs. Freudberg and March were granted 200,000 and 56,074
options, respectively, from the Option-A Tranche. The second set of options
granted to all named executive officers on September 5, 2003 have an exercise
price of $10 per share and vests over time in 20% increments over a five-year
period, with any unvested options forfeitable upon termination of the
executive's employment for any reason (including cause); Mr. Freudberg was
granted 75,000 of these options and the other named executive officers were each
granted 39,375 of these options. The final set of
                                        88
<PAGE>

options are performance-vesting options granted on September 5, 2003, having an
exercise price of $10 per share with vesting in 25% increments and conditioned
upon our achieving various operating targets or Fox Paine & Company achieving an
agreed upon rate of return on its investment in us; Mr. Freudberg was granted
125,000 of these options and the other named executive officers were each
granted 65,625 of these options.

MANAGEMENT SHAREHOLDERS AGREEMENT

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

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

SHARE INCENTIVE PLAN

  PURPOSE

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

                                        89
<PAGE>

  ADMINISTRATION

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

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

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

  ELIGIBILITY AND TYPES OF AWARDS

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

  AVAILABLE SHARES

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

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

  AMENDMENT AND TERMINATION

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

                                        90
<PAGE>

ACQUISITION-RELATED PAYMENTS

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

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

INDEMNIFICATION OF DIRECTORS AND OFFICERS

       Our articles of association provide for the indemnification of our
directors and officers against liabilities that they may incur while discharging
the duties of their offices. See "Description of Share
Capital -- Indemnification."

       In addition, we have entered into indemnification agreements with our
directors and officers, under which we agreed to indemnify our directors and
officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that the director or officer is or was our director, officer, employee or
agent, provided that the director or officer acted in good faith and in a manner
that the director or officer reasonably believed to be in, or not opposed to,
our best interest.

                                        91
<PAGE>

                             PRINCIPAL SHAREHOLDERS

       The following table sets forth certain information concerning the
beneficial ownership of our common shares as of September 16, 2003, including
the percentage of our total voting power such common shares represent on an
actual basis and as adjusted to give effect to this offering (assuming the
underwriters do not exercise their overallotment option), by:

       -     each of our executive officers;

       -     each of our directors;

       -     each holder known to us to hold beneficially more than 5% of either
             class of our common shares; and

       -     all of our executive officers and directors as a group.

       For more information concerning the selling shareholders, see "Selling
Shareholders."

       Except as otherwise set forth in the footnotes below, each beneficial
owner has the sole power to vote and dispose of all common shares held by that
beneficial owner.
<Table>
<Caption>
                               BENEFICIAL OWNERSHIP                                            BENEFICIAL OWNERSHIP
                            BEFORE THIS OFFERING(1)(2)                                     AFTER THIS OFFERING(1)(2)(3)
                       -------------------------------------                           -------------------------------------
                            CLASS A             CLASS B          %                          CLASS A             CLASS B
                         COMMON SHARES       COMMON SHARES     TOTAL         %           COMMON SHARES       COMMON SHARES
                       -----------------   -----------------   VOTING   AS-CONVERTED   -----------------   -----------------
NAME AND ADDRESS         SHARES      %       SHARES      %     POWER    OWNERSHIP(4)     SHARES      %       SHARES      %
----------------       ----------   ----   ----------   ----   ------   ------------   ----------   ----   ----------   ----
<S>                    <C>          <C>    <C>          <C>    <C>      <C>            <C>          <C>    <C>          <C>
Fox Paine &
  Company(5).........  24,809,882   91.3%  24,472,432   90.0%  88.2%       82.2%
Ball Family
  Trusts(6)..........   5,190,118   90.6    3,027,568   23.2    11.7        17.2
Saul A. Fox(7).......          --     --           --     --      --          --
Troy W. Thacker(7)...          --     --           --     --      --          --
Kevin L. Tate........      26,250    1.0           --     --       *           *
Seth D. Freudberg....     250,000    8.6           --     --       *           *
Richard S. March.....      82,324    3.0           --     --       *           *
Robert Cohen.........      26,250    1.0           --     --       *           *
William F. Schmidt...      26,250    1.0           --     --       *           *
Jonathan P. Ritz.....      26,250    1.0           --     --       *           *
W. Dexter Paine,
  III(7).............          --     --           --     --      --          --
Robert N. Lowe,
  Jr.(7).............          --     --           --     --      --          --
Angelos J.
  Dassios(7).........          --     --           --     --      --          --
Russell C. Ball,
  III(8).............   5,190,118   90.6    3,027,568   23.2    11.7        17.2
John Hendrickson.....          --     --           --     --      --          --
All directors and
  executive officers
  as a group (13
  persons)...........   5,627,442   94.1%   3,027,568   23.2%  11.8%       18.6%

<Caption>

                         %
                       TOTAL         %
                       VOTING   AS-CONVERTED
NAME AND ADDRESS       POWER    OWNERSHIP(4)
----------------       ------   ------------
<S>                    <C>      <C>
Fox Paine &
  Company(5).........
Ball Family
  Trusts(6)..........
Saul A. Fox(7).......
Troy W. Thacker(7)...
Kevin L. Tate........
Seth D. Freudberg....
Richard S. March.....
Robert Cohen.........
William F. Schmidt...
Jonathan P. Ritz.....
W. Dexter Paine,
  III(7).............
Robert N. Lowe,
  Jr.(7).............
Angelos J.
  Dassios(7).........
Russell C. Ball,
  III(8).............
John Hendrickson.....
All directors and
  executive officers
  as a group (13
  persons)...........
</Table>

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

 *  Less than 1.0%

**  Unless otherwise set forth above, the address for each beneficial owner is
    c/o United National Group, Ltd., Walker House, Mary Street, P.O. Box 9086T,
    George Town, Grand Cayman, Cayman Islands.

                                        92
<PAGE>

(1) These figures assume exercise by only the beneficial owner named in each row
    of all options and convertible securities held by such beneficial owner that
    are exercisable or convertible by such beneficial owner within 60 days of
    September 5, 2003.

(2) Percentages are based upon 2,698,750 Class A common shares, 10,000,000 Class
    B common shares and 17,500,000 Series A preferred shares outstanding as of
    September 5, 2003. Assuming full conversion of all Class B common shares and
    Series A preferred shares into Class A common shares and Class B common
    shares, respectively, and the further conversion of such Class B common
    shares into Class A common shares, as of September 5, 2003, there were
    30,198,750 Class A common shares outstanding.

(3) Assumes redemption of the Series A preferred shares as described under "Use
    of Proceeds," including the issuance of           Class A common shares in
    such redemption.

(4) Assumes full conversion of Class B common shares into Class A common shares
    and Series A preferred shares into Class B common shares and, in turn, into
    Class A common shares, and excludes options and warrants.

(5) The security holders are: U.N. Holdings (Cayman), Ltd.; U.N. Co-Investment
    Fund I (Cayman), L.P.; U.N. Co-Investment Fund II (Cayman), L.P.; U.N.
    Co-Investment Fund III (Cayman), L.P.; U.N. Co-Investment Fund IV (Cayman),
    L.P.; U.N. Co-Investment Fund V (Cayman), L.P.; U.N. Co-Investment Fund VI
    (Cayman), L.P.; U.N. Co-Investment Fund VIII (Cayman), L.P.; and U.N.
    Co-Investment Fund IX (Cayman), L.P. A majority of the outstanding share
    capital of U.N. Holdings (Cayman), Ltd. is held by Fox Paine Capital Fund II
    International, L.P. The principal general partner of Fox Paine Capital Fund
    II International, L.P. is Fox Paine Capital International Fund GP, L.P. The
    sole general partner of Fox Paine Capital International Fund GP, L.P. is Fox
    Paine International GP, Ltd. As a result, each of Fox Paine Capital Fund II
    International, L.P., Fox Paine Capital International Fund GP, L.P. and Fox
    Paine International GP, Ltd. may be deemed to control U.N. Holdings
    (Cayman), Ltd. The sole general partner of each of U.N. Co-Investment Fund I
    (Cayman), L.P., U.N. Co-Investment Fund II (Cayman), L.P., U.N.
    Co-Investment Fund III (Cayman), L.P., U.N. Co-Investment Fund IV (Cayman),
    L.P., U.N. Co-Investment Fund V (Cayman), L.P., U.N. Co-Investment Fund VI
    (Cayman), L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N.
    Co-Investment Fund IX (Cayman), L.P. is Fox Paine Capital International Fund
    GP, L.P., which may be deemed to control such funds.

(6) The security holders are the following trusts: Russell C. Ball, III, Andrew
    L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as appointed
    by Russell C. Ball, Jr., f/b/o Russell C. Ball, III; Russell C. Ball, III,
    Andrew L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as
    appointed by Russell C. Ball, Jr., f/b/o Andrew L. Ball; Russell C. Ball,
    III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of Ethel M. Ball, dated
    2/9/67, as appointed by Russell C. Ball, Jr., f/b/o Russell C. Ball, III;
    Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of
    Ethel M. Ball, dated 2/9/67, as appointed by Russell C. Ball, Jr., f/b/o
    Andrew L. Ball; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A.,
    trustees u/a/t of Russell C. Ball, Jr., dated 11/9/67; Russell C. Ball, III,
    Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated
    6/9/69; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t
    Russell C. Ball, Jr., dated 1/29/70; Russell C. Ball, III, Andrew L. Ball,
    PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated 1/24/73; Russell
    C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C.
    Ball, Jr., dated 12/22/76 f/b/o Russell C. Ball, III; and Russell C. Ball,
    III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr.,
    dated 12/22/76 f/b/o Andrew L. Ball. Russell C. Ball, III, Andrew L. Ball
    and PNC Bank, N.A. are the sole co-trustees of each trust and, therefore,
    share voting and dispositive power over all of the Class A common shares and
    Series A preferred shares held by the Ball family trusts. The address for
    each of the Ball family trusts is 555 Croton Road, Suite 300, King of
    Prussia, Pennsylvania 19406.

(7) Each of Messrs. Fox, Paine, Lowe, Thacker and Dassios is a shareholder of
    Fox Paine International GP, Ltd., which acts through its board of directors,
    which consists of Messrs. Fox and Paine. Each of Messrs. Fox, Paine, Lowe,
    Thacker and Dassios disclaims beneficial ownership of all shares held by
    U.N. Holdings (Cayman), Ltd., U.N. Co-Investment Fund I (Cayman), L.P., U.N.
    Co-Investment Fund II (Cayman), L.P., U.N. Co-Investment Fund III (Cayman),
    L.P., U.N. Co-Investment Fund IV (Cayman), L.P., U.N. Co-Investment Fund V
    (Cayman), L.P., U.N. Co-Investment Fund VI (Cayman),

                                        93
<PAGE>

    L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N. Co-Investment
    Fund IX (Cayman), L.P., except to the extent of his indirect pecuniary
    interest in such shares through ownership of such entities.

(8) Mr. Ball is a co-trustee of each of the Ball family trusts described in
    footnote 6, and, therefore, shares voting and dispositive power over all of
    the Class A common shares and Series A preferred shares held by the Ball
    family trusts.

                                        94
<PAGE>

                              SELLING SHAREHOLDERS

       The following table sets forth certain information regarding the
ownership, as of September 16, 2003, of our share capital by each selling
shareholder offering to sell Class A common shares in this offering if the
underwriters exercise the overallotment option. For more information concerning
the selling shareholders see "Principal Shareholders."
<Table>
<Caption>
                                                                                         NUMBER OF
                                         NUMBER OF SHARES HELD PRIOR TO OFFERING(1)       CLASS A
                                        --------------------------------------------      COMMON
                                          CLASS A         CLASS B        SERIES A        SHARES IN
SELLING                                    COMMON         COMMON         PREFERRED     OVERALLOTMENT
SHAREHOLDER                                SHARES         SHARES          SHARES          OPTION
-----------                             ------------   -------------   -------------   -------------
<S>                                     <C>            <C>             <C>             <C>
U.N. Holdings (Cayman), Ltd. .........          --       8,650,198      12,110,278
U.N. Co-Investment Fund I (Cayman),
  L.P. ...............................     159,932         639,731       1,119,529
U.N. Co-Investment Fund II (Cayman),
  L.P. ...............................     125,013         500,050         875,087
U.N. Co-Investment Fund III (Cayman),
  L.P. ...............................      41,671         166,683         291,696
U.N. Co-Investment Fund IV (Cayman),
  L.P. ...............................       4,167          16,668          29,170
U.N. Co-Investment Fund V (Cayman),
  L.P. ...............................       4,167          16,668          29,170
U.N. Co-Investment Fund VI (Cayman),
  L.P. ...............................         833           3,334           5,834
U.N. Co-Investment Fund VIII (Cayman),
  L.P. ...............................         417           1,667           2,917
U.N. Co-Investment Fund IX (Cayman),
  L.P. ...............................       1,250           5,001           8,751
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Russell C. Ball, III................     375,851              --         526,192
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Andrew L. Ball......................     375,851              --         526,192
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Russell C. Ball, III..........     281,781              --         394,492
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Andrew L. Ball................     281,781              --         394,491
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Russell C. Ball, Jr., dated
  11/9/67.............................     140,133              --         196,187
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball Jr., dated 6/9/69...     341,250              --         477,750
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/29/70.............................     206,308              --         288,830
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/24/73.............................     116,777              --         163,488
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Russell C. Ball, III..........      21,409              --          29,973
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Andrew L. Ball................      21,409              --          29,973
         Totals.......................   2,500,000      10,000,000      17,500,000

<Caption>
                                           NUMBER OF SHARES HELD AFTER OFFERING(2)
                                        ---------------------------------------------
                                                                              % OF
                                         CLASS A     CLASS B    SERIES A     CLASS A
SELLING                                  COMMON      COMMON     PREFERRED    COMMON
SHAREHOLDER                              SHARES      SHARES      SHARES      SHARES
-----------                             ---------   ---------   ---------   ---------
<S>                                     <C>         <C>         <C>         <C>
U.N. Holdings (Cayman), Ltd. .........
U.N. Co-Investment Fund I (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund II (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund III (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund IV (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund V (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund VI (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund VIII (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund IX (Cayman),
  L.P. ...............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Russell C. Ball, III................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Andrew L. Ball......................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Russell C. Ball, III..........
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Andrew L. Ball................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Russell C. Ball, Jr., dated
  11/9/67.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball Jr., dated 6/9/69...
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/29/70.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/24/73.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Russell C. Ball, III..........
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Andrew L. Ball................
         Totals.......................
</Table>

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

(1) Assumes no conversion of either Class B common shares or Series A preferred
    shares.

(2) Assumes use of proceeds of this offering as described under "Use of
    Proceeds," including the redemption of all Series A preferred shares and the
    issuance of         Class A common shares in such redemption.

                                        95
<PAGE>

                   OUR RELATIONSHIP WITH FOX PAINE & COMPANY

       The following summary of the material terms of the Amended and Restated
Investment Agreement, the Shareholders Agreement and the Management Agreement is
qualified in its entirety by reference to the Investment Agreement, the
Shareholders Agreement and the Management Agreement, each of which is filed as
an exhibit to the registration statement of which this prospectus forms a part.

INVESTMENT AGREEMENT

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

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

       Of the remaining $140.0 million contributed to us, we contributed $80.0
million to our U.S. Operations, used $43.5 million to capitalize our Non-U.S.
Operations and used $16.5 million to fund fees and expenses incurred in
connection with the transaction.

       The principal amount of the senior notes are subject to adjustment as a
result of the Ball family trusts' agreement to indemnify us for certain breaches
of representations, warranties and covenants in the Investment Agreement and as
result of the amount of recoveries by us from certain of our obligors. Any
indemnification payment due from the Ball family trusts to us is to be first
offset against the interest outstanding on the senior notes held by the Ball
family trusts and then against any principal outstanding on such senior notes.
If no principal is then outstanding, the Ball family trusts must instead make
the indemnification payment directly to us. In addition, if proceeds from
settlement arrangements that we enter into with certain of our obligors are
greater than a specified amount, the principal amount of the senior notes will
be increased by one-half of the excess, up to $7.5 million. Further, if we
receive proceeds from settlement arrangements when the senior notes are no
longer outstanding, the amount that would have increased the principal amount of
the senior notes will instead be paid in cash to the Ball family trusts.

       Wind River Investment Corporation wholly-owned two subsidiaries prior to
August 18, 2003. The subsidiaries included American Insurance Service, Inc. and
a real estate company. On August 18, 2003, the real estate subsidiary was spun
off to the former shareholders of Wind River Investment Corporation. The
historical financial data for United National Group has been adjusted to exclude
the activity related to the former real estate subsidiary because Wind River
Investment Corporation (through American Insurance Service, Inc. and its
subsidiaries) and the real estate subsidiary participated in dissimilar
businesses; they were operated and financed autonomously; and they had only
incidental common costs. Additionally, Wind River Investment Corporation and the
former subsidiary will be operated and financed autonomously following the spin
off and there are no material financial commitments, guarantees or contingent
liabilities between the companies.

SHAREHOLDERS AGREEMENT

       In connection with the acquisition, on September 5, 2003, United National
Group, Fox Paine & Company and the Ball family trusts entered into a
shareholders agreement. The material terms of the shareholders agreement are
described below.

                                        96
<PAGE>

  BOARD COMPOSITION

       The shareholders agreement provides that our Board of Directors consist
of five directors. Of these five directors, four are to be nominated by Fox
Paine & Company and, for so long as the Ball family trusts beneficially own at
least 5% of our outstanding shares, one is to be nominated by the Ball family
trusts. As of the completion of this offering, the shareholders agreement will
be amended to provide that our Board of Directors be comprised of eleven
directors. Of these eleven directors, six directors are to be nominated by Fox
Paine & Company and, for so long as the Ball family trusts beneficially own at
least 5% of our outstanding shares, one director is to be nominated by the Ball
family trusts. The agreement requires Fox Paine & Company and the Ball family
trusts to vote in favor of the election of the nominees. The remaining directors
will include three individuals who are considered "independent" for purposes of
the rules of the Nasdaq National Market.

  TRANSFERABILITY RIGHTS

       The shareholders agreement provides that the Ball family trusts cannot
generally transfer any Class A common shares or Series A preferred shares,
whether currently owned or subsequently acquired, without the approval of our
Board of Directors, except to another Ball family trust or their affiliates or
to a principal beneficiary of any Ball family trust.

       Fox Paine & Company agreed that, if it proposed to transfer any Class B
common shares or Series A preferred shares to an unaffiliated third party, it
would provide the Ball family trusts with customary "tag-along" rights. Namely,
in any such sale, the Ball family trusts would be permitted to participate in
such transfer by selling a number of shares that bears the same proportion to
the aggregate number of shares that they hold, as the number of shares proposed
to be sold by Fox Paine & Company bears to the aggregate number of shares held
by Fox Paine & Company. Similarly, the Ball family trusts have agreed that, if
Fox Paine & Company proposes to transfer Class B common shares or Series A
preferred shares in such amounts that following such transfer, Fox Paine &
Company will no longer have a majority of the outstanding shares, Fox Paine &
Company will have "drag-along" rights against the Ball family trusts.
Specifically, Fox Paine & Company will have the right to require the Ball family
trusts to transfer a number of shares that bears the same proportion to the
aggregate number of shares that they hold, as the number of shares proposed to
be sold by Fox Paine & Company bears to the aggregate number of shares held by
Fox Paine & Company.

       Each of United National Group and Fox Paine & Company further agreed to
provide the Ball family trusts with "piggyback" registration rights under the
Securities Act in connection with any registered offering of common shares by
United National Group in which Fox Paine & Company participates.

       Finally, United National Group agreed to provide the Ball family trusts
with rights of first refusal if United National Group or any of its subsidiaries
propose to issue additional equity interests or debt securities. However, these
rights of first refusal will not be applicable following completion of this
offering.

  TERMINATION

       Certain material terms of the shareholders agreement will terminate when
Fox Paine & Company ceases to hold at least 25.0% of our fully diluted
outstanding common shares. All terms of the agreement, except terms with respect
to tag-along and piggyback registration rights and indemnification, will
terminate upon any completion of any transaction that results in Fox Paine &
Company and the Ball family trusts owning in the aggregate less than a majority
of the voting power of the entity surviving such transaction. The Ball family
trusts' piggyback registration rights survive until the earlier of September 5,
2023 or the date that they no longer hold any securities outstanding that are
registrable under the Securities Act.

                                        97
<PAGE>

MANAGEMENT AGREEMENT

       On September 5, 2003, as part of the acquisition, we entered into a
management agreement with Fox Paine & Company and The AMC Group, L.P., an
affiliate of the Ball family trusts. In the management agreement, we agreed to
pay to Fox Paine & Company an initial management fee of $13.2 million for the
year beginning on September 5, 2003, which was paid on September 5, 2003, and
thereafter an annual management fee of $1.2 million subject to certain
adjustments. We likewise agreed to pay to The AMC Group an annual management fee
of $0.3 million subject to certain adjustments. We believe these fees represent
fair value for the services rendered to us by Fox Paine & Company and The AMC
Group. In exchange for their management fees, Fox Paine & Company and The AMC
Group assist us and our affiliates with strategic planning, budgets and
financial projections and assist us and our affiliates in identifying possible
strategic acquisitions and in recruiting qualified management personnel. In
addition, The AMC Group has agreed to provide us with transitional services
relating to the use of certain tax and accounting software for a limited period
of time. Fox Paine & Company and The AMC Group also consult with us and our
affiliates on various matters including tax planning, public relations
strategies, economic and industry trends and executive compensation.

       Fox Paine & Company and The AMC Group will continue to provide management
services under this agreement until either Fox Paine & Company or The AMC Group
no longer holds any equity investment in our company or we agree with Fox Paine
& Company and The AMC Group to terminate this management relationship. In
connection with this agreement, we agreed to indemnify Fox Paine & Company and
The AMC Group against various liabilities that may arise as a result of the
management services they will provide us. We also agreed to reimburse Fox Paine
& Company and The AMC Group for expenses incurred in providing management
services.

OUR INVESTMENT WITH FOX PAINE & COMPANY

       We are a limited partner in Fox Paine Capital Fund II, L.P. and Fox Paine
Capital Fund II International, L.P., investment funds managed by Fox Paine &
Company. Our interest in these partnerships is valued, as of June 30, 2003, at
$1.6 million, and we have a remaining capital commitment to these partnerships
of approximately $8 million.

                                        98
<PAGE>

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       During 2003, 2002, 2001 and 2000, we paid management and investment
advisory fees of approximately $0, $9.9 million, $7.1 million and $7.1 million,
respectively to The AMC Group, L.P., an affiliate of the Ball family trusts,
which at the time were our shareholders.

       As of December 31, 2002, 2001 and 2000, we had payable balances due to
affiliates of the Ball family trusts, which at the time were our shareholders,
totaling approximately $0.2 million, $0.1 million and $0.4 million,
respectively.

       As of January 1, 2000, Wind River Investment Corporation owed $3,526,390
to Wind River Investment, LLC, an affiliate of the Ball family trusts, which
included a note receivable of $3.5 million and interest receivable of $28,455
under a promissory note. The annual rate of interest on this note was 6.0%.
During 2001, United National Insurance Company purchased this promissory note
from Wind River Investments, LLC for $3,850,280, which included a note
receivable of $3,497,935 and interest receivable of $352,345. During 2002,
United National Insurance Company sold this promissory note to American
Manufacturing Corporation (Delaware), an affiliate of the Ball family trusts,
for $4.2 million, which included a note receivable of $3.9 million and interest
receivable of $0.4 million. No gain or loss was recognized on the sale to
American Manufacturing Corporation (Delaware). On August 18, 2003, in
anticipation of the sale of Wind River Investment Corporation, the Ball family
trusts assumed this debt owed to American Manufacturing Corporation (Delaware).
A total of $4.3 million was assumed, which included a note receivable of $3.9
million and interest receivable of $0.5 million.

       During 2001, we purchased a promissory note from Wind River Investments,
LLC for $1.4 million. The promissory note was a loan to The AMC Group, L.P. The
annual rate of interest on this note was 6.0%. Between 2001 and 2003 we received
principal payments of $0.7 million and interest payments of $0.1 million. In
April 2003, we sold this promissory note to American Manufacturing Corporation
(Delaware) for $0.6 million (the amortized value as of April 30, 2003). No gain
or loss was recognized on the sale to American Manufacturing Corporation
(Delaware).

       During 2001, we purchased a promissory note from Philadelphia Gear
Corporation, an affiliate of the Ball family trusts, for $2.4 million. The
promissory note was a loan to 181 Properties, LP, an affiliate of the Ball
family trusts. The annual rate of interest on this note was 6.3%. During 2001,
we received interest payments of $74,784. In April 2003, we sold this promissory
note to American Manufacturing Corporation (Delaware) for $2.6 million, which
included a note receivable of $2.4 million and interest receivable of $0.2
million. No gain or loss was recognized on the sale to American Manufacturing
Corporation (Delaware).

       During 2001, we purchased a mortgage from Wind River Investment, LLC for
$1.3 million. The annual rate of interest on this mortgage was 7.8%. During
2003, this mortgage loan was repaid in full.

       During 2000, we issued insurance policies to affiliates with premiums
totaling approximately $94,000. During 2003, 2002 and 2001, no such insurance
policies were issued to affiliates.

       During 2000, we assigned our interests in various limited liability
partnership funds and other venture capital funds to Wind River Investment, LLC.
In connection with this transaction, a gain of $2.0 million was included in
income. Also during 2000, we purchased interests in two limited liability
partnership funds from Wind River Investment, LLC for their then fair market
value of $3.4 million.

       During 2000, Little Round Top Inc., which at the time was a wholly-owned
subsidiary of Wind River Investment Corporation, but which was distributed to
the Ball family trusts prior to the sale of Wind River Investment Corporation,
established a demand promissory note with American Manufacturing Corporation
(Pennsylvania). Little Round Top participates in real estate related ventures
and was not included in the sale of Wind River Investment Corporation. The
interest rate on this promissory note was variable and was equal to the
applicable federal rate at the end of each month. Between 2000 and 2003, we
borrowed $0.6 million, made principal payments of $32,801 and made interest
payments of $81.

                                        99
<PAGE>

       During 2000, Robert Strouse, president of The AMC Group, L.P.,
established a promissory note with Little Round Top. The annual interest rate on
this promissory note was 6.39%. During 2000, we loaned Mr. Strouse $0.3 million.
During 2002 and 2003 we received interest payments of $32,642 and $20,577,
respectively.

       During 2000, we made a demand promissory note with Wind River Investment,
LLC. The annual rate of interest on this note was 6%. Between 2000 and 2003 we
borrowed $0.1 million, made principal payments of $20,000 and made interest
payments of $7,173. On August 28, 2003 we paid $96,113 to Wind River Investment,
LLC to satisfy this loan in full, which included principal of $92,436 and
interest of $3,677.

       During 2001, Little Round Top made a promissory note with American
Manufacturing Corporation (Delaware). The annual rate of interest on this note
was 10%. Between 2001 and 2003, we borrowed $1.6 million under this promissory
note.

       On August 18, 2002, Wind River Investment Corporation distributed its
investment in Little Round Top to the Ball family trusts. The distribution was
made in anticipation of the sale of Wind River Investment Corporation.

       On August 25, 2003, Wind River Investment Corporation sold a series of
limited partnership interests to Wind River Investments, LLC. Proceeds from the
sale of these investments totaled $6.0 million.

       During the time that Wind River Investment Corporation was owned by the
Ball family trusts, our employees were eligible for participation in the health
and welfare and retirement benefits packages offered by American Manufacturing
Company (Pennsylvania). In conjunction therewith, American Manufacturing Company
(Pennsylvania) provided services such as selection of vendors, maintenance of
plan documents, legal compliance, record keeping, coordination of actuarial
studies and plan audits and preparation of all required regulatory filings.

                                       100
<PAGE>

                          DESCRIPTION OF SHARE CAPITAL

       Our authorized share capital consists of $100,000, which is divided into
900,000,000 common shares and 100,000,000 preferred shares, each with a nominal
or par value of $0.0001 per share. As of the date of this prospectus, our common
shares are divided into two classes, Class A common shares and Class B common
shares. As of the date of this prospectus, we have issued one series of
preferred shares, which series has been designated as Series A preferred shares.

       We are a Cayman Islands company and our affairs are governed by our
memorandum and articles of association, the Companies Law (2003 Revision) and
the common law of the Cayman Islands. The following is a summary of material
provisions of our memorandum and articles of association as they will be amended
and restated immediately prior to completion of this offering and the Companies
Law, insofar as they relate to the material terms of our share capital. The
following summary is qualified in its entirety by reference to our memorandum
and articles of association, copies of which are filed as exhibits to the
registration statement of which this prospectus forms a part.

       For information concerning agreements relating to our share capital, see
"Our Relationship with Fox Paine & Company -- Shareholders Agreement" and
"Management -- Management Shareholders Agreement."

GENERAL

       All shares, whether common or preferred, will be issued fully paid as to
nominal or par value and any premium determined by the Board of Directors at the
time of issue and are non-assessable. All shares are to be issued in registered,
and not bearer, form, and are issued when registered in the register of
shareholders of United National Group. Each registered holder of shares is
entitled, without payment, to a certificate representing such holder's shares.
All unissued shares are under control of the Board of Directors and may be
redesignated, allotted or disposed of in such manner as the Board of Directors
may determine.

COMMON SHARES

  GENERAL

       As noted above, our common shares are divided into Class A common shares
and Class B common shares. Except as set forth under " -- Voting Rights" and
" -- Conversion," all Class A common shares and Class B common shares rank equal
in all respects and have identical rights. The common shares are not entitled to
any sinking fund or pre-emptive rights.

  VOTING RIGHTS AND GENERAL MEETINGS

       Subject to adjustment as described under " -- Voting Adjustments,"
holders of common shares are entitled to attend general meetings of United
National Group and each Class A common share is entitled to one vote and each
Class B common share is entitled to ten votes on all matters upon which the
common shares are entitled to vote at any general meeting, including the
election of directors. Voting at any general meeting of shareholders is by a
poll. Our articles of association provide that actions by written consent of
shareholders may only be taken if such action is executed by all holders of
shares entitled to receive notice of and vote at a general meeting.

       We will hold an annual general meeting of shareholders at such time and
place as the Board of Directors may determine. In addition, the Board of
Directors may convene a general meeting of shareholders at any time upon ten
days' notice. Further, general meetings may also be convened upon written
requisition of shareholders holding at least a majority of the votes entitled to
be voted at any general meeting, which requisition must state the objects for
the general meeting.

                                       101
<PAGE>

       The required quorum for a general meeting of our shareholders consists of
shareholders present in person or by proxy and entitled to vote that hold in the
aggregate at least a majority of the votes entitled to be cast at such general
meeting.

       Subject to the quorum requirements referred to in the previous paragraph,
any ordinary resolution requires the affirmative vote of a simple majority of
the votes cast in a general meeting of United National Group for shareholder
approval while a special resolution requires the affirmative vote of two-thirds
of the votes cast attaching to the common shares. A special resolution is
required for matters such as a change of name, amending our memorandum and
articles of association and placing us into voluntary liquidation. Holders of
shares entitled to vote at a general meeting have the power, among other things,
to elect directors, ratify appointment of auditors and make changes in the
amount of our authorized share capital.

  DIVIDENDS

       The holders of our common shares are entitled to receive such dividends,
which may consist of cash or other property, as may be declared by our Board of
Directors. Any such dividends will be paid equally on Class A common shares and
Class B common shares. Any such dividends to be paid in cash may be paid only
out of profits, which include net earnings and retained earnings undistributed
in prior years, and out of share premium, a concept analogous to paid-in surplus
in the United States, subject to a statutory solvency test.

  LIQUIDATION

       In the event of any liquidation, dissolution or winding up, holders of
common shares shall be entitled to receive distributions in proportion to the
number of common shares held by such holder, without regard to class. The
liquidator in any such liquidation may, upon approval of an ordinary resolution
of shareholders and subject to any preferences and priorities of issued share
capital, divide among the shareholders in cash or in kind the whole or any part
of our assets, determine how such division shall be carried out as between the
shareholders or different classes of shareholders and may vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the
shareholders as the liquidator, upon the approval of an ordinary resolution of
the shareholders, sees fit, provided that a shareholder shall not be compelled
to accept any shares or other assets that would subject the shareholder to
liability.

  CONVERSION

       Each Class B common share is convertible at any time at the option of the
holder thereof into one Class A common share. In addition, each Class B common
share shall be automatically converted into one Class A common share upon any
transfer by the registered holder of that share, whether or not for value,
except for transfers to a nominee or affiliate of such holder in a transfer that
will not result in a change of beneficial ownership as determined under Rule
13d-3 under the Exchange Act or to a person that already holds Class B common
shares.

  REDEMPTION

       Each common share may be redeemed upon the approval by both the Board of
Directors and an ordinary resolution of shareholders of any agreement entered
into by United National Group relating to a business combination transaction
involving United National Group. The terms of such redemption, including the
consideration to be received by the holders of common shares in such redemption,
which consideration may consist of cash or other property, shall be set forth in
the agreement pursuant to which such redemption is to be made and that is
approved as provided in the preceding sentence. Holders of common shares will
not have appraisal or similar rights in any such redemption.

  TRANSFER RESTRICTIONS

       Our Board of Directors may decline to register a transfer of any common
shares under certain circumstances, including if the Board of Directors has
reason to believe that as a result of such transfer,

                                       102
<PAGE>

any non-de minimis adverse tax, regulatory or legal consequences may occur to
us, to any of our subsidiaries or to any of our shareholders.

  ACQUISITION OF COMMON SHARES BY UNITED NATIONAL GROUP

       Under our articles of association and subject to Cayman Islands law, if
our Board of Directors determines that any shareholder's ownership of common
shares may result in non-de minimis adverse tax, legal or regulatory
consequences to us, to any of our subsidiaries or to any of our shareholders, we
have the option but not the obligation to require such shareholders to sell to
us, or to a third party to which we have assigned that right to repurchase
shares, at fair market value, as determined in the good faith discretion of the
minimum number of common shares that is necessary to avoid or cure any such
adverse consequences.

  MISCELLANEOUS

       Share certificates registered in the names of two or more persons are
deliverable to any one of them named in the share register, and if two or more
such persons tender a vote, the vote of the person whose name first appears in
the share register will be accepted to the exclusion of any other.

PREFERRED SHARES

       Under our articles of association, preferred shares may be issued from
time to time in one or more series as the Board of Directors may determine. The
Board of Directors has the power, without any vote or action on behalf of
shareholders, to fix by resolution the rights and preferences of each series of
preferred shares so issued, including:

       -     the distinctive designation of such series and the number of
             preferred shares that will be so designated;

       -     the dividend rate and preferences of such series, if any, the
             dividend payment dates, the periods in which dividends are payable,
             whether such dividends are to be cumulative and whether such
             dividends are to be payable in cash or in kind;

       -     whether such preferred shares are to be convertible into or
             exchangeable for common or other shares of United National Group
             and the conversion price or rate, including any adjustments
             thereto, at which such conversion or exchange will be effected;

       -     the preferences, and the amounts thereof, if any, such preferred
             shares are entitled to upon winding up, liquidation or dissolution
             of United National Group;

       -     the voting power, if any, of the preferred shares;

       -     the redemption terms, transfer restrictions and preemptive rights,
             if any, of the preferred shares; and

       -     such other terms, conditions, special rights and provisions as the
             Board of Directors may determine.

       Any or all of the rights and preferences of such preferred shares may be
greater than the rights of our common shares, and our Board of Directors,
without shareholder approval, may issue preferred shares with voting, conversion
or other rights that could adversely affect the voting power and other rights of
holders of our common shares. Subject to the general duty of the Board of
Directors to act in the best interest of United National Group, preferred shares
can be issued quickly with terms calculated to delay or prevent a change in
control of us or make removal of management more difficult. Additionally, the
issuance of preferred shares may have the effect of decreasing the market price
of the common shares, and may adversely affect the voting and other rights of
the holders of common shares. We have no current plan to issue additional
preferred shares.

                                       103
<PAGE>

  SERIES A PREFERRED SHARES

       On September 5, 2003, the Board of Directors designated a series of our
preferred shares as "Series A preferred shares." The rights and preferences of
the Series A preferred shares are described below:

  Ranking

       With respect to dividends rights and rights upon winding up, dissolution
and liquidation, the Series A preferred shares rank prior to our common shares
and equal to any shares that, pursuant to our articles of association or the
resolution designating such shares, are entitled to share ratably with the
Series A preferred shares in such regard.

  Dividends

       The holder of each Series A preferred share is entitled to receive
dividends at an annual rate of 15% of the liquidation preference of each Series
A preferred share plus all accrued but unpaid dividends beginning on the date of
issuance of the Series A preferred shares. Dividends on the Series A preferred
shares are payable semi-annually, beginning on March 1, 2004. Dividends with
respect to each entire semi-annual period accrue on the first day of such period
and are payable regardless of whether the Series A preferred shares remain
outstanding at the end of such semi-annual period. Dividends on the Series A
preferred shares are payable in cash, additional Series A preferred shares or
any combination thereof, at the discretion of the Board of Directors.

  Liquidation Preference

       Upon winding up, dissolution or liquidation, each Series A preferred
share is entitled to a liquidation preference of $10.00 plus all accrued but
unpaid dividends, before any distribution is made with respect to common shares
or other shares ranking junior to the Series A preferred shares. If upon a
winding up, dissolution or liquidation the liquidation preference on the Series
A preferred shares is not paid in full, the holders of Series A preferred shares
and other shares ranking equal to the Series A preferred shares, shall be
entitled to share equally and ratably in any distribution to shareholders in
proportion to the full liquidation preference and all accrued but unpaid
dividends to which such holders are otherwise entitled.

  Voting Rights

       Subject to adjustments as described under "-- Voting Adjustments,"
holders of Series A preferred shares are entitled to notice of and to vote at
general meetings of shareholders on all matters upon which the holders of common
shares are entitled to vote. The Series A preferred shares and common shares
shall vote together as a single class. Each Series A preferred share will have
the same number of votes as could be cast by the holder of the number of Class B
common shares into which each Series A preferred share could be converted as
described under "-- Conversion" on the record date for such general meeting.

       In addition, the affirmative vote of 90% of the outstanding Series A
preferred shares is required to amend in any manner that would adversely affect,
alter or change the powers, preferences or special rights of the Series A
preferred shares.

  Conversion

       Each Series A preferred share is convertible at any time at the option of
the holder thereof into one Class B common share, subject to adjustment in
certain circumstances, including in the event of share splits and combinations,
dividends of shares and other property, transactions in which the Class B common
shares are exchanged and issuances of common shares at values below market
value. In addition, on September 5, 2005, each Series A preferred share shall
automatically convert into one Class B common share, subject to similar
adjustments.

                                       104
<PAGE>

  Redemption

       Upon completion of an initial public offering of common shares resulting
in net proceeds of $50.0 million or more to United National Group, a number of
Series A preferred shares determined so that 110% of the aggregate liquidation
preference plus accrued but unpaid dividends is equal to the net proceeds to
United National Group from such initial public offering shall be redeemed. The
redemption price will be paid as follows:

       -     an amount equal to 100% of the liquidation preference shall be paid
             in cash; and

       -     the remainder of the redemption price shall be through delivery of
             Class A common shares having a value (based on the initial offering
             price to the public, gross of any underwriting discounts or
             commissions, in such initial public offering) equal to 10.0% of the
             liquidation preference plus all accrued but unpaid dividends.

VOTING ADJUSTMENTS

       In general, and except as provided below, shareholders have one vote for
each Class A common share and ten votes for each Class B common share or Series
A preferred share held by them and are entitled to vote, on a non-cumulative
basis, at all meetings of shareholders. However, pursuant to a mechanism
specified in our articles of association, the voting rights exercisable by a
shareholder may be limited. In any situation in which the "controlled shares"
(as defined below) of a U.S. Person would constitute 9.5% or more of the votes
conferred by the issued shares, the voting rights exercisable by a shareholder
with respect to such shares will be limited so that no U.S. Person is deemed to
hold 9.5% or more of the voting power conferred by our shares. The votes that
could be cast by a shareholder but for these restrictions will be allocated to
the other shareholders pro rata based on the voting power held by such
shareholders, provided that no allocation of any such voting rights may cause a
U.S. Person to exceed the 9.5% limitation as a result of such allocation. In
addition, our Board of Directors may limit a shareholder's voting rights where
it deems necessary to do so to avoid adverse tax, legal or regulatory
consequences. Our articles of association provide that shareholders will be
notified of the applicable voting power exercisable with respect to their shares
prior to any vote to be taken by the shareholders. "Controlled shares" include,
among other things, shares that a U.S. Person owns directly, indirectly or
constructively (within the meaning of Section 958 of the Code).

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

OUR BOARD OF DIRECTORS

       Our articles of association provide that the size of the Board of
Directors shall be determined from time to time by our Board of Directors, but
unless such number is so fixed, our Board of Directors will consist of eleven
directors. Any directors may be removed prior to the expiration of such
director's term by ordinary resolution of the shareholders. The appointment or
removal of a director requires the simple majority of votes cast, in person or
by proxy, at the general meeting at which the proposal is put forth.

       Generally, the affirmative vote of a majority of the directors present at
any meeting at which a quorum is present shall be required to authorize
corporate action. In the case of equality of votes, the Chairman of our Board of
Directors shall have the deciding vote. Corporate action may also be taken by a
unanimous written resolution of the Board of Directors without a meeting. Unless
otherwise fixed at a different number, a majority of the directors in office
shall constitute a quorum.

                                       105
<PAGE>

TAX LIABILITY RESULTING FROM ACTS OF SHAREHOLDERS

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

VOTING OF SUBSIDIARY SHARES

       Our articles of association provide that if we are required or entitled
to vote at a general meeting of U.N. Barbados, our directors shall refer the
subject matter of the vote to our shareholders and seek direction from such
shareholders as to how they should vote on the resolution proposed by U.N.
Barbados Substantially similar provisions are contained in the by-laws of U.N.
Barbados with respect to U.N. Holdings II, Inc. and any non-U.S. subsidiaries it
may have.

INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

       Many insurance regulatory laws intended primarily for the protection of
policyholders contain provisions that require advance approval by insurance
authorities of any proposed acquisition of an insurance company that is
domiciled or, in some cases, having such substantial business that it is deemed
to be commercially domiciled in that jurisdiction. See "Regulation -- United
States -- Changes of Control."

DIFFERENCES IN CORPORATE LAW

       The Companies Law is modeled after that of England but does not follow
recent United Kingdom statutory enactments and differs from laws applicable to
U.S. corporations and their shareholders. Set forth below is a summary of the
significant differences between the provisions of the Companies Law applicable
to us and the laws applicable to companies incorporated in the United States and
their shareholders.

  MERGERS AND SIMILAR ARRANGEMENTS

       Cayman Islands law does not provide for mergers as that expression is
understood under U.S. corporate law. While Cayman Islands law does have
statutory provisions that provide for the reconstruction and amalgamation of
companies commonly referred to in the Cayman Islands as a "scheme of
arrangement," the procedural and legal requirements necessary to consummate
these transactions are more rigorous and take longer to complete than the
procedures typically required to consummate a merger in the United States. Under
Cayman Islands law, a scheme of arrangement in relation to a solvent Cayman
Islands company must be approved at a shareholders meeting by each class of
shareholders, in each case, by a majority of the number of holders of each class
of a company's shares who are present and voting (either in person or by proxy)
at such a meeting, which holders must also represent 75% in value of such class
issued and outstanding. The convening of this meeting and the terms of the
amalgamation must also be sanctioned by the Grand Court of the Cayman Islands.
Although there is no requirement to seek the consent of the creditors of the
parties involved in the scheme of arrangement, the Grand Court typically seeks
to ensure that the creditors have consented to the transfer of their liabilities
to the surviving entity or that the scheme of arrangement does not otherwise
materially adversely affect the creditors' interests. Furthermore, the Grand
Court will only approve a scheme of arrangement if it is satisfied that:

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

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

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

                                       106
<PAGE>

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

       If the scheme of arrangement and reconstruction is approved, the
dissenting shareholder would have no rights comparable to appraisal rights,
which would otherwise ordinarily be available to dissenting shareholders of U.S.
corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.

       In addition, if a third party purchases at least 90.0% of our outstanding
shares within a four-month period, the purchaser may, during the following two
months, require the holders of the remaining shares to transfer their shares on
the same terms on which the purchaser acquired the first 90.0% of our
outstanding shares. An objection can be made to the Grand Court of the Cayman
Islands, but this is unlikely to succeed unless there is evidence of fraud, bad
faith, collusion or inequitable treatment of the shareholders.

  SHAREHOLDERS SUITS

       Our Cayman Islands counsel is not aware of any reported class action or
derivative action having been brought in a Cayman Islands court. In principle,
we would normally be the proper plaintiff in any action brought on behalf of the
Company, and a derivative action may not be brought by a minority shareholder.
However, based on English authorities, which would in all likelihood be of
persuasive authority in the Cayman Islands, exceptions to the foregoing
principle apply in circumstances in which:

       -     a company is acting or proposing to act illegally or outside the
             scope of its corporate authority;

       -     the act complained of, although not acting outside the scope of its
             corporate authority could be effected only if authorized by more
             than a simple majority vote;

       -     the individual rights of the plaintiff shareholder have been
             infringed or are about to be infringed; or

       -     those who control the company are perpetrating a "fraud on the
             minority."

  INDEMNIFICATION

       Cayman Islands law does not limit the extent to which a company may
indemnify its directors, officers, employees and agents, except to the extent
that any such provision maybe held by the Cayman Islands courts to be contrary
to public policy. For instance, a provision purporting to provide
indemnification against civil fraud or the consequences of committing a crime
may be deemed contrary to public policy. In addition, an officer or director may
not be indemnified for his own fraud or willful default. Our articles of
association make indemnification of directors and officers and advancement of
expenses to defend claims against directors and officers mandatory on the part
of United National Group to the fullest extent allowed by law.

  INSPECTION OF BOOKS AND RECORDS

       Holders of our shares will have no general right under Cayman Islands law
to inspect or obtain copies of our list of shareholders or our corporate
records. However, we will provide our shareholders with annual audited financial
statements.

PROHIBITED SALE OF SECURITIES UNDER CAYMAN ISLANDS LAW

       An exempted company such as us that is not listed on the Cayman Islands
Stock Exchange is prohibited from making any invitations to the public in the
Cayman Islands to subscribe for any of its securities.

                                       107
<PAGE>

LISTING

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

TRANSFER AGENT AND REGISTRAR

       The transfer agent and registrar for the common shares will be
               .

                                       108
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

       We can make no prediction as to the effect, if any, that market sales of
our Class A common shares or the availability of Class A common shares for sale
will have on the market price prevailing from time to time. The sale of
substantial amounts of our Class A common shares in the public market could
adversely affect the prevailing market price of our Class A common shares and
our ability to raise equity capital in the future. For information concerning
agreements between us and our existing shareholders, including restrictions on
transfer, registration rights and other matters, see "Our Relationship With Fox
Paine & Company" and "Management -- Management Shareholders Agreement."

SALE OF RESTRICTED SHARES

       As of September 5, 2003, we had an aggregate of 30,198,750 outstanding
Class A common shares (assuming full conversion of our Class B common shares and
Series A preferred shares into Class A common shares in accordance with their
terms), options to purchase an additional 1,138,574 Class A common shares and
warrants to purchase an additional 55,000 Class A common shares. We expect to
issue an additional      Class A common shares in this offering. Up to      % of
the Class A common shares for sale in this offering are reserved for purchase by
our directors, officers and employees through a reserved share program. All of
the Class A common shares to be sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any Class A common shares purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below. As defined in Rule
144, an affiliate of an issuer is a person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the issuer.

LOCK-UP AGREEMENTS

       United National Group, our directors and executive officers, all of our
current shareholders and those persons who purchase common shares through the
reserved share program have agreed with the underwriters not to, directly or
indirectly, dispose of or hedge any of their common shares or securities
convertible into or exchangeable for common shares, whether owned currently or
acquired later, for a period of 180 days from the date of this prospectus,
without the prior written consent of United National Group and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain exceptions (which
consent with respect to the reserved share program will not be granted for any
sales during the first 90 days of such lock-up). Immediately following this
offering, shareholders subject to lock-up agreements will own           Class A
common shares (assuming full conversion of Class B common shares and Series A
preferred shares in accordance with their terms), representing approximately
     % of the then outstanding Class A common shares, or approximately      % if
the underwriters' overallotment option is exercised in full.

       United National Group may, however, grant options to purchase Class A
common shares under its share incentive plan and may issue Class A common shares
upon the exercise of outstanding options under the share incentive plan as long
as the holder of such common shares agrees in writing to be bound by the
obligations and restrictions of the lock-up agreement.

RULE 144

       In general, under Rule 144 as currently in effect, a person that has
beneficially owned common shares for at least one year, including a person that
is an affiliate, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

       -     1% of the number of common shares then outstanding; or

       -     the average weekly trading volume of the common shares on the
             Nasdaq National Market during the four calendar weeks preceding the
             filing of a notice on Form 144 with respect to a sale, subject to
             restrictions specified in Rule 144.

                                       109
<PAGE>

Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.

RULE 144(k)

       Under Rule 144(k), a person that has not been one of our affiliates at
any time during the three months preceding a sale, and that has beneficially
owned the common shares proposed to be sold for at least two years, is entitled
to sell those common shares without regard to the volume, manner-of-sale or
other limitations contained in Rule 144.

STOCK OPTIONS

       We had granted options to purchase a total of 1,138,574 Class A common
shares as of September 5, 2003, of which 256,074 were fully vested.

       Following the consummation of this offering, we intend to file one or
more registration statements on Form S-8 under the Securities Act to register
the Class A common shares issued or reserved for issuance under our Stock
Incentive Plan. Any such Form S-8 registration statement will automatically
become effective upon filing. Accordingly, Class A common shares registered
under such registration statement will be available for sale in the open market,
unless such common shares are subject to vesting restrictions with us or the
lock-up restrictions described above, or unless such shares are held by persons
who are considered our "affiliates," as such term is defined under the
Securities Act.

                                       110
<PAGE>

                          MATERIAL TAX CONSIDERATIONS

       The following summary of our taxation, and the taxation of our
shareholders is based upon current law and does not purport to be a
comprehensive discussion of all the tax considerations that may be relevant to a
decision to purchase Class A common shares. Legislative, judicial or
administrative changes may be forthcoming that could affect this summary.

       The following legal discussion (including and subject to the matters and
qualifications set forth in such summary) of the material tax considerations
under (1) "Taxation of United National Group and Subsidiaries -- Cayman" and
"Taxation of Shareholders -- Cayman Taxation" is based upon the advice of
Walkers, special Cayman legal counsel, (2) "Taxation of United National Group
and Subsidiaries -- Barbados" is based upon the advice of David King & Co., and
(3) "Taxation of United National Group and Subsidiaries -- United States" and
"Taxation of Shareholders -- United States Taxation" is based upon the advice of
LeBoeuf, Lamb, Greene & MacRae, L.L.P., as special U.S. tax counsel. Each of
these firms has reviewed the relevant portion of this discussion (as set forth
above) and believes that such portion of the discussion constitutes, in all
material respects, a fair and accurate summary of the relevant income tax
considerations relating to United National Group and its subsidiaries and the
ownership of United National Group's Class A common shares by investors that are
U.S. Persons (as defined below) who acquire such shares in this offering. The
advice of such firms does not include any factual or accounting matters,
determinations or conclusions such as insurance accounting determinations or
RPII, amounts and computations and amounts or components thereof (for example,
amounts or computations of income or expense items or reserves entering into
RPII computations) or facts relating to the business, income, reserves or
activities of United National Group and its subsidiaries. The advice of these
firms relies upon and is premised on the accuracy of factual statements and
representations made by United National Group and its subsidiaries concerning
the business and properties, ownership, organization, source of income and
manner of operation of United National Group and its subsidiaries. The
discussion is based upon current law. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could be retroactive and
could affect the tax consequence to holders of Class A common shares. The tax
treatment of a holder of Class A common shares, or of a person treated as a
holder of Class A common shares for U.S. federal income, state, local or foreign
tax purposes, may vary depending on the holder's particular tax situation.
Statements contained herein as to the beliefs, expectations and conditions of
United National Group and its subsidiaries as to the application of such tax
laws or facts represent the view of management as to the application of such
laws and do not represent the opinions of counsel. PROSPECTIVE INVESTORS
(INCLUDING ALL NON-U.S. PERSONS AS DEFINED BELOW) SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF OWNING CLASS A COMMON SHARES UNDER THE LAWS OF THEIR COUNTRIES OF
CITIZENSHIP, RESIDENCE, ORDINARY RESIDENCE OR DOMICILE.

TAXATION OF UNITED NATIONAL GROUP AND SUBSIDIARIES

  CAYMAN ISLANDS

       We have been incorporated under the laws of the Cayman Islands as an
exempted company and, as such, obtained an undertaking on September 2, 2003 from
the Governor in Council of the Cayman Islands substantially that, for a period
of 20 years from the date of such undertaking, no law that is enacted in the
Cayman Islands imposing any tax to be levied on profit or income or gains or
appreciation shall apply to us and no such tax and no tax in the nature of
estate duty or inheritance tax will be payable, either directly or by way of
withholding, on our common shares.

  BARBADOS

       Under the Barbados Act, no income tax, capital gains tax or other direct
tax or impost is levied in Barbados on U.N. Barbados in respect of (1) its
profits or gains, (2) the transfer of its securities to any person who is not a
resident of Barbados, (3) its shareholders or transferees in respect of the
transfer of all

                                       111
<PAGE>

or any part of its securities or other assets to another licensee under the
Barbados Act or to any person who is not a resident of Barbados or (4) any
portion of any dividend, interest, or other return payable to any person in
respect of his or her holding any shares or other of its securities. U.N.
Barbados has applied for a guarantee from the Minister of Finance of Barbados
that such benefits and exemptions effectively will be available for thirty
years. U.N. Barbados will be required to pay an annual licensing fee that is
currently approximately $2,500, and will be subject to tax at a rate of 2% on
its taxable income after the first 15 financial years and thereafter the amount
of such tax will not exceed approximately $2,500 per annum.

  UNITED STATES

       The following discussion is a summary of all material U.S. federal income
tax considerations relating to our operations. Although we have not commenced
business operations outside the United States, we intend to manage our business
in a manner designed to mitigate the risk that United National Group and U.N.
Barbados will be treated as engaged in a U.S. trade or business for U.S. federal
income tax purposes. However, whether business is being conducted in the United
States is an inherently factual determination. Because the Code, regulations and
court decisions fail to identify definitively activities that constitute being
engaged in a trade or business in the United States, we cannot be certain that
the IRS will not contend successfully that United National Group or U.N.
Barbados are or will be engaged in a trade or business in the United States. A
non-U.S. corporation deemed to be so engaged would be subject to U.S. income tax
at regular corporate rates, as well as the branch profits tax, on its income
that is treated as effectively connected with the conduct of that trade or
business unless the corporation is entitled to relief under the permanent
establishment provision of an applicable tax treaty, as discussed below. Such
income tax, if imposed, would be based on effectively connected income computed
in a manner generally analogous to that applied to the income of a U.S.
corporation, except that a non-U.S. corporation is generally entitled to
deductions and credits only if it timely files a U.S. federal income tax return.
U.N. Barbados intends to file protective U.S. federal income tax returns on a
timely basis in order to preserve the right to claim income tax deductions and
credits if it is ever determined that they are subject to U.S. federal income
tax. The highest marginal federal income tax rates currently are 35% for a
corporation's effectively connected income and 30% for the "branch profits" tax.

       If U.N. Barbados is entitled to the benefits under the income tax treaty
between Barbados and the United States or, the "Barbados Treaty", U.N. Barbados
would not be subject to U.S. income tax on any income found to be effectively
connected with a U.S. trade or business unless that trade or business was
conducted through a permanent establishment in the United States. For purposes
of the Barbados Treaty, a permanent establishment in the United States is
defined to include a branch, office or place of management through which the
business of the enterprise is carried on, or an agent (other than an independent
agent acting in the ordinary course of its business) that has, and habitually
exercises in the United States, authority to conclude contracts in the name of
the corporation. No regulations interpreting the Barbados Treaty have been
issued. U.N. Barbados currently intends to conduct its activities to mitigate
the risk that it will have a permanent establishment in the United States,
although we cannot be certain that we will achieve this result.

       An insurance enterprise resident in Barbados generally will be entitled
to the benefits of the Barbados Treaty if: (1) more than 50% of its shares are
owned beneficially, directly or indirectly, by individual residents of the
United States or Barbados or U.S. citizens and its income is not used in
substantial part, directly or indirectly, to make disproportionate distributions
to, or to meet certain liabilities to, persons who are neither residents of
either the United States or Barbados nor U.S. citizens, or (2) if the insurance
company is a resident of Barbados engaged in a trade or business in Barbados and
the income derived by such insurance company from the United States is connected
to such insurance company's Barbados trade or business. We cannot be certain
that U.N. Barbados will be eligible for Barbados Treaty benefits immediately
following this offering or in the future because of factual and legal
uncertainties regarding the residency and citizenship of United National Group's
shareholders and further because of the factual and legal uncertainty regarding
whether the income, if any, that U.N. Barbados may

                                       112
<PAGE>

earn in the future will be sufficiently connected to the trade or business that
U.N. Barbados will conduct in Barbados.

       Foreign insurance companies carrying on an insurance business within the
United States have a certain minimum amount of effectively connected net
investment income, determined in accordance with a formula that depends, in
part, on the amount of U.S. risk insured or reinsured by such companies. If U.N.
Barbados is considered to be engaged in the conduct of an insurance business in
the United States and it is not entitled to the benefits of the Barbados Treaty
in general (because it fails to satisfy one of the limitations on treaty
benefits discussed above), the Code could subject a significant portion of U.N.
Barbados' investment income to U.S. income tax.

       Foreign corporations not engaged in a trade or business in the United
States are subject to U.S. income tax imposed by withholding on certain "fixed
or determinable annual or periodic gains, profits and income" derived from
sources within the United States (such as dividends and certain interest on
investments), subject to exemption under the Code or reduction by applicable
treaties. The United States also imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. If U.N. Barbados were writing or reinsuring
business with respect to U.S. risks, the rates of tax applicable to such
business are 4% for direct casualty insurance premiums and 1% for reinsurance
premiums.

       U.N. Holdings II, Inc, U.N. Holdings, Inc, American Insurance Services,
Inc., United National Insurance Company, American Insurance Adjustment Agency,
Inc., International Underwriters, Inc., Unity Risk Partner's Insurance Services,
Inc., Emerald Insurance Company, Diamond State Insurance Company, United
National Specialty Insurance Company and United National Casualty Insurance
Company are each subject to taxation in the United States at regular corporate
rates. Additionally, dividends and other types of passive income paid by U.N.
Holdings II, Inc. to U.N. Barbados. would be subject to a 30% U.S. withholding
tax, subject to reduction under the Barbados Treaty to 5% or 15% to the extent
such payments are eligible for the reduced withholding rate under the Barbados
Treaty.

       Recent comments made by the U.S. Treasury Department indicate that the
U.S. may renegotiate the Barbados Treaty. If and when the treaty is
renegotiated, no assurances can be given as to the availability of benefits
under the treaty in future years.

  Personal Holding Companies

       United National Group or any of its subsidiaries could be subject to U.S.
tax on a portion of its income if any of them is considered to be a personal
holding company, or "PHC," for U.S. federal income tax purposes. A corporation
generally will be classified as a PHC for U.S. federal income tax purposes in a
given taxable year if (1) at any time during the last half of such taxable year,
five or fewer individuals (without regard to their citizenship or residency and
including as individuals for this purpose certain entities such as certain
tax-exempt organizations and pension funds) own or are deemed to own (pursuant
to certain constructive ownership rules) more than 50% of the stock of the
corporation by value and (2) at least 60% of the corporation's gross income, as
determined for U.S. federal income tax purposes, for such taxable year consists
of "PHC income." PHC income includes, among other things, dividends, interest,
royalties, annuities and, under certain circumstances, rents. In the case of a
non-U.S. corporation, PHC income does not include foreign source income, except
to the extent such income is effectively connected with a U.S. trade or
business. Under the constructive ownership rules, among other things, a partner
will be treated as owning a proportionate amount of the stock owned by a
partnership and a partner who is an individual will be treated as owning the
stock owned by his or her partners. Also, stock treated as owned by such partner
proportionally through such partnership will be treated as owned by the partner
for purposes of reapplying the constructive ownership rules. The PHC rules
contain an exception for foreign corporations that are classified as Foreign
Personal Holding Companies (as discussed below).

       If United National Group or any subsidiary were a PHC in a given taxable
year, such corporation would be subject to a 15% PHC tax on its "undistributed
PHC income" (which, in the case of United National Group and U.N. Barbados,
would exclude PHC income that is from foreign sources, except to

                                       113
<PAGE>

the extent that such income is effectively connected with a trade or business in
the U.S.). Thus, the PHC income of United National Group and U.N. Barbados would
not include underwriting income or investment income derived from foreign
sources and should not include dividends received by United National Group from
U.N. Barbados (as long as U.N. Barbados is not engaged in a trade or business in
the U.S.). For taxable years beginning after December 31, 2008, the PHC tax rate
on "undistributed PHC income" will be equal to the highest marginal rate on
ordinary income applicable to individuals.

       We believe that five or fewer individuals or tax-exempt organizations
will be treated as owning more than 50% of the value of our shares.
Consequently, we or one or more of our subsidiaries could be or become PHCs,
depending on whether we or any of our subsidiaries satisfy the PHC gross income
test. We intend to manage our business to minimize the possibility that we will
meet the 60% income threshold.

       We cannot be certain, however, that United National Group and its
subsidiaries will not become PHCs following this offering or in the future
because of various factors including legal and factual uncertainties regarding
the application of the constructive ownership rules, the makeup of United
National Group's shareholder base, the gross income of United National Group or
any of its subsidiaries and other circumstances that could change the
application of the PHC rules to United National Group and its subsidiaries. If
we or any of our subsidiaries is or were to become a PHC in a given taxable
year, such company would be subject to PHC tax on its "undistributed PHC
income." In addition, if United National Group or any of its subsidiaries were
to become PHCs we cannot be certain that the amount of PHC income will be
immaterial.

TAXATION OF SHAREHOLDERS

  CAYMAN ISLANDS TAXATION

       The following summary sets forth the material Cayman Islands income tax
considerations related to the purchase, ownership and disposition of our Class A
common shares. The discussion is a general summary of present law, which is
subject to prospective and retroactive change. It is not intended as tax advice,
does not consider any investor's particular circumstances, and does not consider
tax consequences other than those arising under Cayman Islands law.

       You will not be subject to Cayman Islands taxation on payments of
dividends or upon the repurchase by us of your common shares. In addition, you
will not be subject to withholding tax on payments of dividends or
distributions, including upon a return of capital, nor will gains derived from
the disposal of common shares be subject to Cayman Islands income or corporation
tax. The Cayman Islands currently have no income, corporation or capital gains
tax and no estate duty, inheritance tax or gift tax.

       No Cayman Islands stamp duty will be payable by you in respect of the
issue or transfer of common shares. However, an instrument transferring title to
a common share, if brought to or executed in the Cayman Islands, would be
subject to Cayman Islands stamp duty.

       Prospective investors should consult their professional advisers on the
possible tax consequences of buying, holding or selling our common shares under
the laws of their country of citizenship, residence or domicile.

  UNITED STATES TAXATION

       The following summary sets forth the material United States federal
income tax considerations related to the purchase, ownership and disposition of
our Class A common shares. Unless otherwise stated, this summary deals only with
shareholders that are U.S. Persons (as defined below) who purchase their Class A
common shares in this offering, who did not own (directly or indirectly through
foreign entities or constructively) shares of United National Group prior to
this offering and who hold their Class A common shares as capital assets within
the meaning of section 1221 of the Code. The following discussion is only a
discussion of the material U.S. federal income tax matters as described herein
and does not purport to address all of the U.S. federal income tax consequences
that may be relevant to a particular shareholder in light of such shareholder's
specific circumstances. For example, if a partnership holds our Class A

                                       114
<PAGE>

common shares, the tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If you are a
partner of a partnership holding the Class A common shares, you should consult
your tax advisor. In addition, the following summary does not address the U.S.
federal income tax consequences that may be relevant to special classes of
shareholders, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, financial asset
securitization investment trusts, dealers or traders in securities, tax-exempt
organizations, expatriates, persons who are considered with respect to any of us
as "United States shareholders" for purposes of the "controlled foreign
corporation," or "CFC," rules of the Code (generally, a U.S. Person, as defined
below, who owns or is deemed to own 10% or more of the total combined voting
power of all classes of United National Group or of the stock of U.N. Barbados
entitled to vote (i.e., 10% U.S. Shareholders)), or persons who hold the Class A
common shares as part of a hedging or conversion transaction or as part of a
short-sale or straddle, who may be subject to special rules or treatment under
the Code. This discussion is based upon the Code, treasury regulations under the
Code and any relevant administrative rulings or pronouncements or judicial
decisions, all as in effect on the date hereof and as currently interpreted, and
does not take into account possible changes in such tax laws or interpretations
thereof, which may apply retroactively. This discussion does not include any
description of the tax laws of any state or local governments within the United
States.

       For purposes of this discussion, the term "U.S. Person" means: (1) a
citizen or resident of the United States, (2) a partnership or corporation, or
entity treated as a partnership or corporation, created or organized in or under
the laws of the United States, or any political subdivision thereof, (3) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, (4) a trust if either (a) a court within the United States is
able to exercise primary supervision over the administration of such trust and
one or more U.S. Persons have the authority to control all substantial decisions
of such trust or (b) the trust has a valid election in effect to be treated as a
U.S. Person for U.S. federal income tax purposes or (5) any other person or
entity that is treated for U.S. federal income tax purposes as if it were one of
the foregoing.

  Taxation of Dividends

       Subject to the discussions below relating to the potential application of
the CFC rules, related person insurance income, or "RPII," foreign personal
holding company, or "FPHC," and passive foreign investment company, or "PFIC,"
rules, cash distributions, if any, made with respect to the Class A common
shares will constitute dividends for U.S. federal income tax purposes to the
extent paid out of current or accumulated earnings and profits of United
National Group (as computed using U.S. tax principles). Under recently enacted
legislation, certain dividends paid to individual shareholders before 2009 are
eligible for reduced rates of tax. Dividends paid by us will not be eligible for
the dividends received deduction. To the extent such distributions exceed United
National Group's earnings and profits, they will be treated first as a return of
the shareholder's basis in the Class A common shares to the extent thereof, and
then as gain from the sale of a capital asset.

  Classification of United National Group or U.N. Barbados as Controlled Foreign
  Corporations

       Each 10% U.S. Shareholder (as defined below) of a foreign corporation
that is a CFC for an uninterrupted period of 30 days or more during a taxable
year, and who owns shares in the CFC, directly or indirectly through foreign
entities, on the last day of the CFC's taxable year, must include in its gross
income for U.S. federal income tax purposes its pro rata share of the CFC's
"subpart F income," even if the subpart F income is not distributed. A foreign
corporation is considered a CFC if 10% U.S. Shareholders own (directly,
indirectly through foreign entities or by attribution by application of the
constructive ownership rules of section 958(b) of the Code (i.e.,
"constructively")) more than 50% of the total combined voting power of all
classes of voting stock of such foreign corporation, or more than 50% of the
total value of all stock of such corporation. For purposes of taking into
account insurance income, a CFC also includes a foreign insurance company in
which more than 25% of the total combined voting power of all classes of stock
(or more than 25% of the total value of the stock) is owned by 10% U.S.

                                       115
<PAGE>

Shareholders, on any day during the taxable year of such corporation, if the
gross amount of premiums or other consideration for the reinsurance or the
issuing of insurance or annuity contracts exceeds 75% of the gross amount of all
premiums or other consideration in respect of all risks. A "10% U.S.
Shareholder" is a U.S. Person who owns (directly, indirectly through foreign
entities or constructively) at least 10% of the total combined voting power of
all classes of stock entitled to vote of the foreign corporation. As a result of
the attribution and constructive ownership rules described above, we believe
that United National Group and U.N. Barbados are CFCs. That status as a CFC does
not cause us or any of our subsidiaries to be subject to U.S. federal income
tax. Such status also has no adverse U.S. federal income tax consequences for
any U.S. Person that is not a 10% U.S. Shareholder.

       We believe that because of the anticipated dispersion of our share
ownership, provisions in our organizational documents that limit voting power
(these provisions are described in "Description of Share Capital") and other
factors, no U.S. Person who acquires shares of United National Group in this
offering directly or indirectly through foreign entities and that did not own
(directly or indirectly through foreign entities or constructively) shares of
United National Group prior to this offering should be treated as owning
(directly, indirectly through foreign entities, or constructively) 10% or more
of the total voting power of all classes of shares of United National Group or
U.N. Barbados. It is possible, however, that the IRS could challenge the
effectiveness of these provisions and that a court could sustain such a
challenge.

  The RPII CFC Provisions

       The following discussion generally is applicable only if the RPII of U.N.
Barbados determined on a gross basis, is 20% or more of U.N. Barbados' insurance
income for the taxable year and the 20% Ownership Exception (as defined below)
is not met. The following discussion generally would not apply for any fiscal
year in which U.N. Barbados' RPII falls below the 20% threshold. Although we
cannot be certain, United National Group believes that the gross RPII of U.N.
Barbados as a percentage of its gross insurance income will be for the
foreseeable future below the 20% threshold for each tax year. Additionally, as
United National Group is not licensed as an insurance company, we do not
anticipate that United National Group will have insurance income, including
RPII. RPII is any "insurance income" (as defined below) attributable to policies
of insurance or reinsurance with respect to which the person (directly or
indirectly) insured is a "RPII shareholder" (as defined below) or a "related
person" (as defined below) to such RPII shareholder. In general, and subject to
certain limitations, "insurance income" is income (including premium and
investment income) attributable to the issuing of any insurance or reinsurance
contract that would be taxed under the portions of the Code relating to
insurance companies if the income were the income of a domestic insurance
company. For purposes of inclusion of the RPII of U.N. Barbados in the income of
any shareholder of United National Group, unless an exception applies, the term
"RPII shareholder" means any U.S. Person who owns (directly or indirectly
through foreign entities) any amount of United National Group's shares.
Generally, the term "related person" for this purpose means someone who controls
or is controlled by the RPII shareholder or someone who is controlled by the
same person or persons that control the RPII shareholder. Control is measured by
either more than 50% in value or more than 50% in voting power of stock applying
certain constructive ownership principles. A corporation's pension plan is
ordinarily not a "related person" with respect to the corporation unless the
pension plan owns, directly or indirectly through the application of certain
constructive ownership rules, more than 50% measured by vote or value, of the
stock of the corporation. U.N. Barbados will be treated as a CFC under the RPII
provisions if RPII shareholders are treated as owning (directly, indirectly
through foreign entities or constructively) 25% or more of the shares of United
National Group by vote or value.

  RPII Exceptions

       The special RPII rules do not apply if (1) direct and indirect insureds
and persons related to such insureds, whether or not U.S. Persons, are treated
as owning (directly or indirectly through foreign entities) less than 20% of the
voting power and less than 20% of the value of the stock of United National
Group, which we refer to as the "20% Ownership Exception," (2) RPII, determined
on a gross basis, is

                                       116
<PAGE>

less than 20% of U.N. Barbados' gross insurance income for the taxable year,
which we refer to as the "20% Gross Income Exception," (3) U.N. Barbados elects
to be taxed on its RPII as if the RPII were effectively connected with the
conduct of a U.S. trade or business, and waives all treaty benefits with respect
to RPII and meets certain other requirements or (4) U.N. Barbados elects to be
treated as a U.S. corporations and waives all treaty benefits and meets certain
other requirements. Where none of these exceptions applies, each U.S. Person
owning or treated as owning any shares in United National Group (and therefore,
indirectly, in U.N. Barbados) on the last day of United National Group's taxable
year will be required to include in its gross income for U.S. federal income tax
purposes its share of the RPII for the portion of the taxable year during which
U.N. Barbados was a CFC under the RPII provisions, determined as if all such
RPII were distributed proportionately only to such U.S. Persons at that date,
but limited by each such U.S. Person's share of U.N. Barbados' current year
earnings and profits as reduced by the U.S. Person's share, if any, of certain
prior year deficits in earnings and profits. U.N. Barbados intends to operate in
a manner that is intended to ensure that each qualifies for the 20% Gross Income
Exception. Although we do not expect that the RPII of U.N. Barbados will equal
or exceed 20% of its gross insurance income, it is possible that we will not be
successful in qualifying under this exception.

  Computation of RPII

       In order to determine how much RPII U.N. Barbados has earned in each
taxable year, U.N. Barbados may obtain and rely upon information from its
insureds and reinsureds to determine whether any of the insureds, reinsureds or
persons related thereto owning (directly or indirectly through non-U.S.
entities) shares of United National Group are U.S. Persons. United National
Group may not be able to determine whether any of the underlying direct or
indirect insureds to which U.N. Barbados provides insurance or reinsurance are
shareholders or related persons to such shareholders. Consequently, United
National Group may not be able to determine accurately the gross amount of RPII
earned by U.N. Barbados in a given taxable year. For any year in which U.N.
Barbados' gross does not meet the 20% Gross Income Exception or the 20%
Ownership Exception, United National Group may also seek information from its
shareholders as to whether beneficial owners of shares at the end of the year
are U.S. Persons so that the RPII may be determined and apportioned among such
persons; to the extent United National Group is unable to determine whether a
beneficial owner of shares is a U.S. Person, United National Group may assume
that such owner is not a U.S. Person, thereby increasing the per share RPII
amount for all known RPII shareholders.

       If, as expected, RPII is less than 20% of gross insurance income, RPII
shareholders will not be required to include RPII in their taxable income. The
amount of RPII includable in the income of a RPII shareholder is based upon the
net RPII income for the year after deducting related expenses such as losses,
loss reserves and operating expenses.

  Apportionment of RPII to U.S. Holders

       Every RPII shareholder who owns shares on the last day of any fiscal year
of United National Group in which U.N. Barbados does not meet the 20% Gross
Income Exception or the 20% Ownership Exception should expect that for such year
it will be required to include in gross income its share of U.N. Barbados' RPII
for the portion of the taxable year during which U.N. Barbados was a CFC under
the RPII provisions, whether or not distributed, even though it may not have
owned the shares throughout such period. A RPII shareholder who owns shares
during such taxable year but not on the last day of the taxable year is not
required to include in gross income any part of U.N. Barbados' RPII.

  Basis Adjustments

       A RPII shareholder's tax basis in its shares will be increased by the
amount of any RPII that the shareholder includes in income. The RPII shareholder
may exclude from income the amount of any distributions by United National Group
out of previously taxed RPII income. The RPII shareholder's tax basis in its
shares will be reduced by the amount of such distributions that are excluded
from income.

                                       117
<PAGE>

  Uncertainty as to Application of RPII

       The RPII provisions have never been interpreted by the courts or the
Treasury Department in final regulations, and regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made in the proposed regulation or whether
any such changes, as well as any interpretation or application of RPII by the
IRS, the courts or otherwise, might have retroactive effect. These provisions
include the grant of authority to the Treasury Department to prescribe "such
regulations as may be necessary to carry out the purpose of this subsection
including . . . regulations preventing the avoidance of this subsection through
cross insurance arrangements or otherwise." Accordingly, the meaning of the RPII
provisions and their application to U.N. Barbados is uncertain. In addition, we
cannot be certain that the amount of RPII or the amounts of the RPII inclusions
for any particular RPII shareholder, if any, will not be subject to adjustment
based upon subsequent IRS examination. Any prospective investor considering an
investment in Class A common shares should consult his tax advisor as to the
effects of these uncertainties.

  Tax-Exempt Shareholders

       Tax-exempt entities will be required to treat certain subpart F insurance
income, including RPII, that is includible in income by the tax-exempt entity as
unrelated business taxable income. Prospective investors that are tax-exempt
entities are urged to consult their tax advisors as to the potential impact of
the unrelated business taxable income provisions of the Code. A tax-exempt
organization that is treated as a 10% U.S. Shareholder or a RPII Shareholder
also must file IRS Form 5471 in the circumstances described below in
"Information Reporting and Backup Withholding."

  Dispositions of Class A common shares

       Subject to the discussions below relating to the potential application of
the Code section 1248, PFIC and FPHC rules, holders of Class A common shares
generally should recognize capital gain or loss for U.S. federal income tax
purposes on the sale, exchange or other disposition of Class A common shares in
the same manner as on the sale, exchange or other disposition of any other
shares held as capital assets. If the holding period for these Class A common
shares exceeds one year, any gain will be subject to tax at a current maximum
marginal tax rate of 15% for individuals and 35% for corporations. Moreover,
gain, if any, generally will be U.S. source gain and generally will constitute
"passive income" for foreign tax credit limitation purposes.

       Code section 1248 provides that if a U.S. Person sells or exchanges stock
in a foreign corporation and such person owned, directly, indirectly through
certain foreign entities or constructively, 10% or more of the voting power of
the corporation at any time during the five-year period ending on the date of
disposition when the corporation was a CFC, any gain from the sale or exchange
of the shares will be treated as a dividend to the extent of the CFC's earnings
and profits (determined under U.S. federal income tax principles) during the
period that the shareholder held the shares and while the corporation was a CFC
(with certain adjustments). We believe, because of the anticipated dispersion of
our share ownership, provisions in our organizational documents that limit
voting power and other factors, that no U.S. shareholder of United National
Group that acquires shares in this offering and did not own (directly,
indirectly through foreign entities or constructively) shares of United National
Group prior to this offering) should be treated as owning (directly, indirectly
through foreign entities or constructively) 10% of more of the total voting
power of United National Group; to the extent this is the case, the application
of Code section 1248 under the regular CFC rules should not apply to
dispositions of our Class A common shares. It is possible, however, that the IRS
could challenge the effectiveness of these provisions and that a court could
sustain such a challenge. A 10% U.S. Shareholder may in certain circumstances be
required to report a disposition of shares of a CFC by attaching IRS Form 5471
to the U.S. federal income tax or information return that it would normally file
for the taxable year in which the disposition occurs. In the event this is
determined necessary, United National Group will provide a completed IRS Form
5471 or the relevant information necessary to complete the Form.

                                       118
<PAGE>

       Code section 1248 also applies to the sale or exchange of shares in a
foreign corporation if the foreign corporation would be treated as a CFC for
RPII purposes regardless of whether the shareholder is a 10% U.S. Shareholder or
whether the 20% Gross Income Exception or the 20% Ownership Exception applies.
Existing proposed regulations do not address whether Code section 1248 would
apply if a foreign corporation is not a CFC but the foreign corporation has a
subsidiary that is a CFC and that would be taxed as an insurance company if it
were a domestic corporation. We believe, however, that this application of Code
section 1248 under the RPII rules should not apply to dispositions of Class A
common shares because United National Group will not be directly engaged in the
insurance business. We cannot be certain, however, that the IRS will not
interpret the proposed regulations in a contrary manner or that the Treasury
Department will not amend the proposed regulations to provide that these rules
will apply to dispositions of Class A common shares. Prospective investors
should consult their tax advisors regarding the effects of these rules on a
disposition of Class A common shares.

  Passive Foreign Investment Companies

       In general, a foreign corporation will be a PFIC during a given year if
(1) 75% or more of its gross income constitutes "passive income" or (2) 50% or
more of its assets produce passive income.

       If United National Group were characterized as a PFIC during a given
year, U.S. Persons holding Class A common shares would be subject to a penalty
tax at the time of the sale at a gain of, or receipt of an "excess distribution"
with respect to, their shares, unless such persons made a "qualified electing
fund election" or "mark-to-market" election. It is uncertain that United
National Group would be able to provide its shareholders with the information
necessary for a U.S. Person to make a "qualified electing fund election." In
general, a shareholder receives an "excess distribution" if the amount of the
distribution is more than 125% of the average distribution with respect to the
shares during the three preceding taxable years (or shorter period during which
the taxpayer held the shares). In general, the penalty tax is equivalent to an
interest charge on taxes that are deemed due during the period the shareholder
owned the shares, computed by assuming that the excess distribution or gain (in
the case of a sale) with respect to the shares was taken in equal portion at the
highest applicable tax rate on ordinary income throughout the shareholder's
period of ownership. The interest charge is equal to the applicable rate imposed
on underpayments of U.S. federal income tax for such period. In addition, a
distribution paid by United National Group to U.S. shareholders that is
characterized as a dividend and is not characterized as an excess distribution
would not be eligible for a reduced rate of tax under recently enacted
legislation with respect to dividends paid before 2009. If we were considered a
PFIC, upon the death of any U.S. individual owning Class A common shares, such
individual's heirs or estate may not be entitled to a "step-up" in the tax basis
of the Class A common shares that might otherwise be available under U.S.
federal income tax laws.

       For the above purposes, passive income generally includes interest,
dividends, annuities and other investment income. The PFIC rules provide that
income "derived in the active conduct of an insurance business by a corporation
that is predominantly engaged in an insurance business . . . is not treated as
passive income." The PFIC provisions also contain a look-through rule under
which a foreign corporation shall be treated as if it "received directly its
proportionate share of the income" and as if it "held its proportionate share of
the assets" of any other corporation in which it owns at least 25% of the value
of the stock.

       This exception is intended to ensure that income derived by a bona fide
insurance company is not treated as passive income, except to the extent such
income is attributable to financial reserves in excess of the reasonable needs
of the insurance business. We expect for purposes of the PFIC rules that U.N.
Barbados will be predominantly engaged in an insurance business and is unlikely
to have financial reserves in excess of the reasonable needs of U.N. Barbados'
insurance business in each year of operations. Accordingly, none of the income
or assets of U.N. Barbados should be treated as passive. Additionally, we expect
that the passive income and assets (other than the stock of any indirect United
National Group subsidiary) of any other United National Group subsidiary will be
de minimis in each year of operations with respect to the overall income and
assets of United National Group. Also, under the look-through rule

                                       119
<PAGE>

United National Group should be deemed to own its proportionate share of the
assets and to have received its proportionate share of the income of its direct
and indirect subsidiaries for purposes of the 75% test and the 50% test. As a
result, we believe that United National Group should not be treated as a PFIC.
However, as there are currently no regulations regarding the application of the
PFIC provisions to an insurance company and new regulations or pronouncements
interpreting or clarifying these rules may be forthcoming, we can not be certain
that the IRS will not challenge this position and that a court will not sustain
such challenge. Prospective investors should consult their tax advisor as to the
effects of the PFIC rules.

  Foreign Personal Holding Companies

       A foreign corporation will be classified as an FPHC for U.S. federal
income tax purposes if (1) at any time during the taxable year at issue, five or
fewer individuals who are U.S. citizens or residents own or are deemed to own
(pursuant to certain constructive ownership rules) more than 50% of all classes
of the corporation's stock measured by voting power or value and (2) at least
60% (or 50% in taxable years subsequent to the characterization of the foreign
company as an FPHC) of its gross income for the year is "FPHC income." Under
these constructive ownership rules, among other things, a partner will be
treated as owning a proportionate amount of the stock owned by the partnership
and a partner who is an individual will be treated as owning the stock owned by
his partners. Also, stock treated as owned by such partner proportionally
through such partnership will be treated as owned by the partner for purposes of
reapplying the constructive ownership rules. If United National Group or U.N.
Barbados were or were to become FPHCs, a portion of the "undistributed foreign
personal holding company income" (as defined for U.S. federal income tax
purposes) of each such FPHC would be imputed to all of United National Group's
shareholders who are U.S. Persons. Such income would be taxable as a dividend
even if no distributions were made, and should not be eligible for a reduced
rate of tax under recently enacted legislation, with respect to dividends paid
before 2009. In such event, subsequent cash distributions will first be treated
as a tax-free return of any previously taxed and undistributed amounts. In
addition, a distribution paid by United National Group to a U.S. shareholder
that is not treated as a tax-free return of any previously taxed and
undistributed amount and is characterized as a dividend would not be eligible
for a reduced rate of tax under recently enacted legislation with respect to
dividends paid before 2009. If we were to become an FPHC in the year next
preceding the date of the death of any U.S. individual owning Class A common
shares, such individual's heirs or estate would not be entitled to a "step-up"
in the basis of the Class A common shares that might otherwise be available
under U.S. federal income tax laws. Moreover, each shareholder who owns,
directly or indirectly, 10% or more of the value of an FPHC is required to file
IRS Form 5471. We believe that five or fewer U.S. individuals will be treated as
owning more than 50% of the voting power or value of our shares. Consequently,
United National Group or U.N. Barbados could be or become an FPHC, depending on
whether either company satisfies the FPHC gross income test. We intend to
monitor the income of United National Group and U.N. Barbados to minimize the
possibility that either company will meet the 60% income threshold. We cannot be
certain, however, that United National Group or U.N. Barbados will not be
considered an FPHC, because of factors including legal and factual uncertainties
regarding the application of the constructive ownership rules, the makeup of
United National Group' shareholder base, the gross income of United National
Group or U.N. Barbados and other circumstances that could change the application
of the FPHC rules to United National Group and U.N. Barbados. If United National
Group or U.N. Barbados is or becomes an FPHC, there can be no assurance that the
amount of FPHC income would be immaterial.

  Foreign Tax Credit

       Because it is anticipated that U.S. Persons will own a majority of our
shares, only a portion of the current income inclusions, if any, under the CFC,
RPII, FPHC and PFIC rules and of dividends paid by us (including any gain from
the sale of Class A common shares that is treated as a dividend under section
1248 of the Code) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitations. We will consider
providing shareholders with information regarding the portion of such amounts
constituting foreign source income to the extent such information is

                                       120
<PAGE>

reasonably available. It is also likely that substantially all of the "subpart F
income," RPII and dividends that are foreign source income will constitute
either "passive" or "financial services" income for foreign tax credit
limitation purposes. Thus, it may not be possible for most shareholders to
utilize excess foreign tax credits to reduce U.S. tax on such income.

  Information Reporting and Backup Withholding

       Under certain circumstances, U.S. Persons owning stock in a foreign
corporation are required to file IRS Form 5471 with their U.S. federal income
tax returns. Generally, information reporting on IRS Form 5471 is required by
(1) a person who is treated as a RPII shareholder, (2) a 10% U.S. Shareholder of
a foreign corporation that is a CFC for an uninterrupted period of 30 days or
more during any tax year of the foreign corporation, and who owned the stock on
the last day of that year and (3) under certain circumstances, a U.S. Person who
acquires stock in a foreign corporation and as a result thereof owns 10% or more
of the voting power or value of such foreign corporation, whether or not such
foreign corporation is a CFC. For any taxable year in which United National
Group determines that gross RPII constitutes 20% or more of U.N. Barbados' gross
insurance income and the 20% Ownership Exception does not apply, United National
Group will provide to all U.S. Persons registered as shareholders of its Class A
common shares a completed IRS Form 5471 or the relevant information necessary to
complete the form. Failure to file IRS Form 5471 may result in penalties.

       Information returns may be filed with the IRS in connection with
distributions on the Class A common shares and the proceeds from a sale or other
disposition of the Class A common shares unless the holder of the Class A common
shares establishes an exemption from the information reporting rules. A holder
of Class A common shares that does not establish such an exemption may be
subject to U.S. backup withholding tax on these payments if the holder is not a
corporation or non-U.S. Person or fails to provide its taxpayer identification
number or otherwise comply with the backup withholding rules. The amount of any
backup withholding from a payment to a U.S. Person will be allowed as a credit
against the U.S. Person's U.S. federal income tax liability and may entitle the
U.S. Person to a refund, provided that the required information is furnished to
the IRS.

  Proposed U.S. Tax Legislation

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

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

                                       121
<PAGE>

                                  UNDERWRITING

       Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as
book-running manager of this offering and, together with Banc of America
Securities LLC and Dowling & Partners Securities, LLC, is acting as
representative of the underwriters named below. Subject to the terms and
conditions described in a purchase agreement among us, the selling shareholders
and the underwriters, we and the selling shareholders agreed to sell to the
underwriters, and the underwriters severally agreed to purchase from us the
number of Class A common shares listed opposite their names below.

<Table>
<Caption>
                                                                NUMBER OF
                                                                 CLASS A
                                                              COMMON SHARES
UNDERWRITER                                                   -------------
-----------
<S>                                                           <C>
Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...................................
Banc of America Securities LLC..............................
Dowling & Partners Securities, LLC..........................
                                                                 -------
             Total..........................................
                                                                 =======
</Table>

       The underwriters have agreed to purchase all of the Class A common shares
sold under the purchase agreement if any of these Class A common shares are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the non-defaulting underwriters may be increased or the
purchase agreement may be terminated.

       We and the selling shareholders agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect of
those liabilities.

       The underwriters are offering the Class A common shares, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the Class A common
shares, and other conditions contained in the purchase agreement, such as the
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

       The representatives advised us and the selling shareholders that the
underwriters propose initially to offer the Class A common shares to the public
at the initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $  .  per Class A
common share. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $  .  per Class A common share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.

       The following table shows the public offering price, underwriting
discount and proceeds before expenses to United National Group and the selling
shareholders. The information assumes either no exercise or full exercise by the
underwriters of their overallotment option.

<Table>
<Caption>
                                             PER SHARE   WITHOUT OPTION   WITH OPTION
                                             ---------   --------------   -----------
<S>                                          <C>         <C>              <C>
Public offering price......................      $             $               $
Underwriting discount......................      $             $               $
Proceeds, before expenses, to United
  National Group...........................      $             $               $
</Table>

       The expenses of the offering, not including the underwriting discount,
are estimated at $          and are payable by United National Group.

                                       122
<PAGE>

OVERALLOTMENT OPTION

       We have granted an option to the underwriters to purchase up to
          additional Class A common shares and the selling shareholders have
granted an option to the underwriters to purchase up to           additional
Class A common shares at the public offering price less the underwriting
discount. The underwriters may exercise this option for 30 days from the date of
this prospectus solely to cover any overallotments. If the underwriters exercise
this option, each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional Class A common shares
proportionate to that underwriter's initial amount reflected in the above table.

RESERVED SHARES

       At our request, the underwriters have reserved for sale, at the initial
public offering price, up to           Class A common shares offered by this
prospectus for sale to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. If these persons purchase
reserved Class A common shares, this will reduce the number of Class A common
shares available for sale to the general public. Any reserved common shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other Class A common shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

       We and our executive officers and directors and all existing shareholders
have agreed, with exceptions, not to sell or transfer any Class A common shares
for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly:

       -     offer, pledge, sell or contract to sell any Class A common shares;

       -     sell any option or contract to purchase any Class A common shares;

       -     purchase any option or contract to sell any Class A common shares;

       -     grant any option, right or warrant for the sale of any Class A
             common shares;

       -     lend or otherwise dispose of or transfer any Class A common shares;

       -     request or demand that we file a registration statement related to
             any sale of Class A common shares; or

       -     enter into any swap or any other agreement or any transaction that
             transfers, in whole or in part, the economic consequence of
             ownership of any Class A common shares whether any such swap or
             transaction is to be settled by delivery of Class A common shares
             or other securities, in cash or otherwise.

       This lockup provision applies to Class A common shares and to securities
convertible into or exchangeable or exercisable for or repayable with Class A
common shares, including our Class B common shares and our Series A preferred
shares but permits the redemption of the Series A preferred shares, but permits
redemption of Series A preferred shares. It also applies to common shares owned
now or acquired later by the person executing the agreement or for which the
person executing the agreement has or later acquires the power of disposition.

NASDAQ QUOTATION

       We intend to apply to have the Class A common shares approved for
quotation on the Nasdaq National Market, subject to notice of issuance, under
the symbol "UNGL."

       Prior to this offering, there has been no public market for our Class A
common shares. The initial public offering price will be determined through
negotiations among us, the selling shareholders and the

                                       123
<PAGE>

representatives. In addition to prevailing market conditions, the factors to be
considered in determining the initial public offering price include, among
others:

       -     the valuation multiples of publicly traded companies that the
             representatives believe to be comparable to us;

       -     our financial information;

       -     the history of, and the prospects for, our company and the industry
             in which we compete;

       -     an assessment of our management, its past and present operations,
             and the prospects for, and timing of, our future revenues;

       -     the present state of our development; and

       -     the above factors in relation to market values and various
             valuation measures of other companies engaged in activities similar
             to ours.

       An active trading market for the Class A common shares may not develop.
It is also possible that after the offering, the Class A common shares will not
trade in the public market at or above the initial public offering price.

       The underwriters do not expect to sell more than 5.0% of the Class A
common shares in the aggregate to accounts over which they exercise
discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

       Until the distribution of the Class A common shares is completed, SEC
rules may limit underwriters and selling group members from bidding for and
purchasing our Class A common shares. However, the representatives may engage in
transactions that stabilize the price of our Class A common shares, such as bids
or purchases to peg, fix or maintain that price.

       If the underwriters create a short position in our Class A common shares
in connection with the offering, i.e., if they sell more Class A common shares
than are listed on the cover of this prospectus, the representatives may reduce
that short position by purchasing Class A common shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the overallotment option described above. Purchases of our Class A
common shares to stabilize their price or to reduce a short position may cause
the price of our Class A common shares to be higher than it might be in the
absence of such purchases.

       The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase Class A
common shares in the open market to reduce the underwriters' short position or
to stabilize the price of such Class A common shares, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those Class A common shares. The imposition of a penalty bid may also
affect the price of our Class A common shares in that it discourages resales of
those Class A common shares.

       Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common shares. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

       Some of the underwriters or their affiliates have interests in investment
funds affiliated with Fox Paine & Company. Some of the underwriters or their
affiliates have engaged in, and in the future may engage in, investment banking
and other commercial dealings in the ordinary course of business with us or our
affiliates, including Fox Paine & Company. They have received customary fees and
commissions for

                                       124
<PAGE>

these transactions. We are involved in legal proceedings involving an affiliate
of one of the underwriters. See "Business -- Legal Proceedings."

                                 LEGAL MATTERS

       Each of Wachtell, Lipton, Rosen & Katz, New York, New York and LeBoeuf,
Lamb, Greene & MacRae, L.L.P., as special U.S. tax counsel, is representing us
in connection with this offering. Legal matters in connection with the offering
of the Class A common shares have been passed upon for United National Group by
its Cayman Islands counsel, Walkers, Cayman Islands. Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, acts as counsel for the underwriters.
The underwriters are being advised as to certain legal matters with respect to
Cayman Islands law by Maples and Calder, Cayman Islands.

                                    EXPERTS

       The financial statements as of December 31, 2002 and 2001 and for each of
the three years in the period ended December 31, 2002 included in this
prospectus are included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

       We have filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission or SEC regarding this offering. This prospectus, which
is part of the registration statement, does not contain all of the information
included in the registration statement, and you should refer to the registration
statement and its exhibits to read that information. References in this
prospectus to any of our contracts or other documents are not necessarily
complete, and you should refer to the exhibits attached to the registration
statement for copies of the actual contract or document. You may read and copy
the registration statement, the related exhibits and the reports and other
information we file with the SEC at the SEC's public reference facilities
maintained at Judiciary Plaza, 450 Fifth Street, N.W., in Washington, D.C.,
20549. You can also request copies of those documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference room. The SEC
also maintains an Internet website that contains reports, proxy and information
statements and other information regarding issuers that file with the SEC. The
website's Internet address is www.sec.gov.

       Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and will be required to file
reports, proxy statements and other information with the SEC. You will be able
to obtain copies of this material from the public reference room of the SEC as
described above, or inspect them without charge at the SEC's website. In
addition, you will be able to inspect such reports free of charge on our company
Internet website, www.unitednat.com.

            ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES
                   FEDERAL SECURITIES LAWS AND OTHER MATTERS

       United National Group is an exempted company incorporated with limited
liability under the laws of the Cayman Islands. In addition, some of its
directors and officers reside outside the United States, and all or a
substantial portion of their assets and United National Group's assets are or
may be located in jurisdictions outside the United States. Therefore, it may be
difficult for investors to effect service of process within the United States
upon our non-U.S. based directors and officers or to recover against United
National Group, or such directors and officers or obtain judgments of U.S.
courts, including judgments predicated upon the civil liability provisions of
the U.S. federal securities laws against them.

                                       125
<PAGE>

       However, United National Group may be served with process in the United
States with respect to actions against it arising out of or in connection with
violations of U.S. federal securities laws relating to offers and sales of Class
A common shares made hereby by serving National Registered Agents, Inc., 440
Ninth Avenue, Fifth Floor, New York, New York 10001, our U.S. agent irrevocably
appointed for that purpose.

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

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

                                       126
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<Table>
<S>                                                           <C>
WIND RIVER INVESTMENT CORPORATION:

  Report of Independent Auditors............................   F-2

  Consolidated Balance Sheets as of December 31, 2001 and
     2002...................................................   F-3

  Consolidated Statements of Operations For the Years Ended
     December 31, 2000, 2001 and 2002.......................   F-4

  Consolidated Statements of Comprehensive Income For the
     Years Ended December 31, 2000, 2001 and 2002...........   F-5

  Consolidated Statements of Changes in Shareholders' Equity
     For the Years Ended December 31, 2000, 2001 and 2002...   F-6

  Consolidated Statements of Cash Flows For the Years Ended
     December 31, 2000, 2001 and 2002.......................   F-7

  Notes to Consolidated Financial Statements................   F-8

  Consolidated Balance Sheets as of December 31, 2002 and
     June 30, 2003..........................................  F-26

  Consolidated Statements of Operations For the Six Months
     Ended June 30, 2002 and 2003 (Unaudited)...............  F-27

  Consolidated Statements of Comprehensive Income For the
     Six Months Ended June 30, 2002 and 2003 (Unaudited)....  F-28

  Consolidated Statements of Changes in Shareholders' Equity
     For the Six Months Ended June 30, 2002 and 2003
     (Unaudited)............................................  F-29

  Consolidated Statements of Cash Flows For the Six Months
     Ended June 30, 2002 and 2003 (Unaudited)...............  F-30

  Notes to Consolidated Financial Statements June 30, 2003
     and 2002 (Unaudited)...................................  F-31

UNITED NATIONAL GROUP:

  Note Concerning Financial Information of United National
     Group, Ltd. ...........................................  F-38
</Table>

                                       F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
  Wind River Investment Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Wind River Investment Corporation and its subsidiaries
at December 31, 2001 and 2002, and the results of their operations and their
cash flows for the three years ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP
Philadelphia, PA
June 25, 2003

                                       F-2
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                 2001         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
                           ASSETS
Bonds:
  Trading securities, at fair value (amortized cost:
     2001-$15,766; 2002-$14,913)............................  $   16,196   $   14,607
  Available for sale securities, at fair value (amortized
     cost: 2001-$334,250; 2002-$434,957)....................     337,167      446,418
Preferred stocks:
  Trading securities, at fair value.........................       1,893        3,106
  Available for sale securities, at fair value..............         865           --
Common stocks:
  Trading securities, at fair value.........................      49,006       31,604
Other invested assets.......................................      32,998       41,285
Mortgage loans..............................................       1,226        1,167
                                                              ----------   ----------
     Total investments......................................     439,351      538,187
Cash and cash equivalents...................................      77,057       72,942
Receivable for securities...................................         280           --
Agents' balances, net of allowance..........................      40,724       50,744
Reinsurance receivables, net of allowance...................     799,066    1,743,524
Funds held by reinsured companies...........................       8,250           --
Accrued investment income...................................       4,932        6,567
Federal income taxes receivable.............................       2,144       31,798
Deferred federal income taxes...............................      15,663       29,970
Deferred acquisition costs, net.............................         428        3,289
Prepaid reinsurance premiums................................     172,988      196,172
Other assets................................................      14,871       12,427
                                                              ----------   ----------
     Total assets...........................................  $1,575,754   $2,685,620
                                                              ==========   ==========
            LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses..................  $  907,357   $2,004,422
Unearned premiums...........................................     214,028      247,138
Amounts held for the account of others......................       5,794       13,766
Ceded balances payable......................................      53,853       61,787
Payable for securities......................................          --        6,250
Contingent commissions......................................       9,496        5,426
Due to affiliates...........................................         101          163
Other liabilities...........................................      60,281       78,031
                                                              ----------   ----------
     Total liabilities......................................   1,250,910    2,416,983
                                                              ----------   ----------
Commitments and Contingencies (Note 11).....................          --           --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100 shares authorized, issued
  and outstanding...........................................          --           --
Additional paid-in capital..................................      81,186       81,186
Accumulated other comprehensive income......................       1,873        7,329
Retained earnings...........................................     241,785      180,122
                                                              ----------   ----------
     Total shareholders' equity.............................     324,844      268,637
                                                              ----------   ----------
     Total liabilities and shareholders' equity.............  $1,575,754   $2,685,620
                                                              ==========   ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-3
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                2000       2001       2002
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
REVENUE:
Gross premiums written......................................  $453,464   $670,520   $ 793,083
                                                              ========   ========   =========
Net premiums written........................................  $127,572   $169,310   $ 172,689
                                                              ========   ========   =========
Net premium earned..........................................  $136,931   $150,336   $ 162,763
Net investment income.......................................    22,490     19,353      17,685
Net realized investment gains (losses)......................       593    (12,719)    (11,702)
                                                              --------   --------   ---------
     Total Revenue..........................................   160,014    156,970     168,746
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses.....................   113,151    128,338     201,750
Acquisition costs and other underwriting expenses...........    14,999     15,867      18,938
Provision for doubtful reinsurance receivables..............        --         --      44,000
Other operating expenses....................................     2,918      2,220       5,874
Interest expense............................................       322         77         115
                                                              --------   --------   ---------
     Income (loss) before income taxes......................    28,624     10,468    (101,931)
Income tax (benefit) expense................................     5,883        295     (40,520)
                                                              --------   --------   ---------
Net income (loss) before equity in net income (loss) of
  partnerships..............................................    22,741     10,173     (61,411)
Equity in net income (loss) of partnerships.................        --        664        (252)
                                                              --------   --------   ---------
     Net income (loss)......................................  $ 22,741   $ 10,837   $ (61,663)
                                                              ========   ========   =========
  Per average share data:
     Weighted-average common shares outstanding.............       100        100         100
     Weighted-average share equivalents outstanding.........        --         --          --
                                                              --------   --------   ---------
     Weighted-average share and share equivalents
       outstanding..........................................       100        100         100
                                                              ========   ========   =========
     Basic and diluted earnings per share...................  $    227   $    108   $    (617)
                                                              ========   ========   =========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-4
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                2000       2001       2002
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net income (loss)...........................................  $ 22,741   $ 10,837   $(61,663)
                                                              --------   --------   --------
Other comprehensive income (loss), before tax:
  Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) arising during
       period...............................................    12,190    (14,774)    (3,307)
     Less:
       Reclassification adjustment for (losses) gains
          included in net income (loss).....................      (593)    12,719     11,702
                                                              --------   --------   --------
  Other comprehensive income (loss), before tax.............    11,597     (2,055)     8,395
  Income tax (expense) benefit related to items of other
     comprehensive loss.....................................    (4,059)       719     (2,939)
                                                              --------   --------   --------
  Other comprehensive income (loss), net of tax.............     7,538     (1,336)     5,456
                                                              --------   --------   --------
Comprehensive income (loss), net of tax.....................  $ 30,279   $  9,501   $(56,207)
                                                              ========   ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-5
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED DECEMBER 2000, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                2000       2001       2002
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Common shares:
  Balance at beginning and end of year......................       100        100        100
                                                              --------   --------   --------
Common stock:
  Balance at beginning and end of year......................  $     --   $     --   $     --
                                                              --------   --------   --------
Additional paid in capital
  Balance at beginning and end of year......................    81,186     81,186     81,186
                                                              --------   --------   --------
Accumulated other comprehensive income
  Net of deferred income taxes:
     Balance at beginning of year...........................    (4,329)     3,209      1,873
     Other comprehensive income (loss), net of taxes........     7,538     (1,336)     5,456
                                                              --------   --------   --------
       Balance at end of year...............................     3,209      1,873      7,329
                                                              --------   --------   --------
Retained earnings
     Balance at beginning of year...........................   208,207    230,948    241,785
     Net income (loss)......................................    22,741     10,837    (61,663)
                                                              --------   --------   --------
       Balance at end of year...............................   230,948    241,785    180,122
                                                              --------   --------   --------
Total shareholders' equity..................................  $315,343   $324,844   $268,637
                                                              ========   ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                2000       2001         2002
                                                              --------   ---------   ----------
<S>                                                           <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $ 22,741   $  10,837   $  (61,663)
  Adjustments to reconcile net income (loss) to net cash
    from operating activities:
    Deferred federal income taxes...........................     1,986      (4,533)     (17,104)
    Amortization of bond premium and discount, net..........    (1,178)        (81)         853
    (Loss) gain on sale of investments......................    (2,917)      7,961       12,275
    Unrealized loss (gain) on trading securities............     2,324       4,758         (573)
    Equity in net income or loss of partnerships............        --        (664)         252
    Proceeds from sale or maturity of trading securities....     2,142      20,855       33,598
    Purchase of trading securities..........................   (49,281)    (49,471)     (27,896)
    Provision for doubtful agent's balances.................        --          --        2,500
    Provision for doubtful reinsurance receivables..........        --          --       44,000
  CHANGES IN:
    Agents' balances........................................    19,467      (3,280)     (12,520)
    Reinsurance receivables.................................   (46,578)   (104,300)    (988,458)
    Unpaid losses and loss adjustment expenses..............    (5,087)    106,727    1,097,065
    Unearned premiums.......................................     4,668      63,950       33,110
    Ceded balances payable..................................    (2,121)     15,855        7,934
    Other liabilities.......................................    19,170       4,232       17,750
    Amounts held for the account of others..................    (2,144)      2,961        7,972
    Funds held by reinsured companies.......................    45,381      (7,250)       8,250
    Contingent commissions..................................     1,961         444       (4,070)
    Federal income tax receivable...........................     3,559         255      (29,655)
    Prepaid reinsurance premiums............................   (14,027)    (44,981)     (23,184)
    Receivable for securities...............................     4,566        (400)       6,530
    Other -- net............................................    (5,080)     (5,829)      (1,993)
                                                              --------   ---------   ----------
       Net cash from operating activities...................      (448)     18,046      104,973
                                                              --------   ---------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of bonds and preferred stocks..........    36,264      95,255      187,391
  Proceeds from maturity of bonds...........................       675       3,075        6,000
  Proceeds from sale of other invested assets...............     1,977         196        4,347
  Purchase of bonds and preferred stocks....................   (54,855)   (142,105)    (292,410)
  Proceeds from sale or repayment of mortgage principal.....        --          51           59
  Purchase of mortgages.....................................        --      (1,277)          --
  Purchase of other invested assets, including promissory
    notes...................................................   (10,321)    (20,962)     (14,475)
                                                              --------   ---------   ----------
       Net cash from investing activities...................   (26,260)    (65,767)    (109,088)
                                                              --------   ---------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility............................        --          --       17,600
Repayments of credit facility...............................        --          --      (17,600)
                                                              --------   ---------   ----------
       Net cash from financing activities...................        --          --           --
                                                              --------   ---------   ----------
Net decrease in cash and cash equivalents...................   (26,708)    (47,721)      (4,115)
Cash and cash equivalents at beginning of year..............   151,486     124,778       77,057
                                                              --------   ---------   ----------
Cash and cash equivalents at end of year....................  $124,778   $  77,057   $   72,942
                                                              ========   =========   ==========
  Supplemental disclosure of cash flows information:
  Income taxes paid.........................................  $  4,650   $   4,470   $    6,147
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-7
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 2001 AND 2002

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

       The consolidated financial statements include the accounts of Wind River
Investment Corporation ("Wind River") and its wholly-owned subsidiary, American
Insurance Service, Inc. ("AIS")(collectively, the "Company"). AIS owns all of
the outstanding shares of American Insurance Adjustment Agency, Inc.,
International Underwriters, Inc., Unity Risk Partners Insurance Services, Inc.
and United National Insurance Company ("UNIC"). UNIC owns all of the outstanding
shares of Diamond State Insurance Company ("DSIC"). DSIC owns all of the
outstanding shares of United National Specialty Insurance Company ("UNSIC"),
United National Casualty Insurance Company ("UNCIC") and J.H. Ferguson and
Associates, L.L.C. All significant intercompany balances and transactions have
been eliminated in consolidation.

       The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"), which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

  FORMATION OF UNITED NATIONAL CASUALTY INSURANCE COMPANY

       During 2002, UNIC and its subsidiaries formed UNCIC. On May 9, 2002, DSIC
purchased $5,000,000 of UNCIC common stock. UNIC subsequently contributed
$40,242,830 to DSIC. DSIC contributed $20,000,000 of capital to UNSIC and
$15,000,000 to UNCIC. The formation of a new insurance carrier and capital
contributions to DSIC and UNSIC were completed to increase the admitted writing
capabilities of the group.

  DESCRIPTION OF BUSINESS

       The Company writes property and casualty insurance lines on both a
surplus lines and admitted basis. These coverages include general liability
(consisting of owners, landlords and tenants, manufacturers and contractors,
products, comprehensive personal, liquor law and umbrella liability forms),
commercial multiple peril, commercial and private passenger auto, fire coverages
and miscellaneous errors and omissions. Facilities are also available for
writing of unique and unusual risks. Collectively, Wind River's insurance
subsidiaries are licensed in all 50 states and the District of Columbia.

  CASH AND CASH EQUIVALENTS

       For the purpose of the statements of cash flows, the Company considers
all liquid instruments with maturities, at date of acquisition, of three months
or less to be cash equivalents. The Company has a cash management program that
provides for the investment of excess cash balances primarily in short-term
money market instruments. Generally, bank balances exceed federally insured
limits. The carrying amount of cash and cash equivalents approximates fair
value.

  INVESTMENTS

       The Company's investments in bonds classified as available for sale and
trading are carried at their fair value. The difference between book value and
fair value of bonds classified as available for sale, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in

                                       F-8
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. The current year change in
the difference between book value and fair value of bonds classified as trading
is included in income.

       Preferred stocks are carried at fair value. The difference between book
and fair value of preferred stocks classified as available for sale, net of the
effect of deferred income taxes, is reflected in accumulated other comprehensive
income in shareholders' equity and, accordingly, has no effect on net income
other than for impairments deemed to be other than temporary. The current year
change in the difference between book value and fair value of preferred stocks
classified as trading is included in income.

       Common stocks are carried at fair value. All of the Company's investments
in common stock are classified as trading as of December 31, 2001 and 2002. The
current year change in the difference between book value and fair value of
common stocks is included in income.

       Other invested assets are comprised primarily of limited liability
partnerships interests and uncollateralized commercial loans. Partnership
interests of three percent ownership or greater are accounted for under the
equity method. Partnership interests of less than three percent ownership are
carried at their fair value. The difference between book value and fair value of
partnership interests of less than three percent ownership, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. Uncollateralized commercial
loans are stated at unpaid principal balance, net of allowances.

       Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

       The Company's investments are regularly evaluated to determine if
declines in market value below amortized cost are other than temporary. If
market value declines are determined to be other than temporary, the security's
cost basis is adjusted to the market value of the security, with the loss
recognized in the current period.

       The Company measures the fair value of investments in fixed income and
equity portfolios based upon quoted market prices. The Company also holds
investments in several limited partnerships, which were valued at $24.5 million
and $37.7 million as of December 31, 2001 and 2002, respectively. Several of
these partnerships invest solely in securities that are publicly traded and are
valued at the net asset value as reported by the investment manager. As of
December 31, 2001 and 2002, respectively, the limited partnership portfolio
includes $9.2 and $16.8 million in securities for which there is no readily
available independent market price. The estimated fair value of such securities
is determined by the general partner of each limited partnership based on
comparisons to transactions involving similar investments. Material assumptions
and factors utilized in pricing these securities include future cash flows,
constant default rates, recovery rates and any market clearing activity that may
have occurred since the prior month-end pricing period.

       The provisions of Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities"
require, among other things, that all derivatives be recognized in the
consolidated balance sheets as either assets or liabilities and measured at fair
value. The corresponding derivative gains and losses should be reported based
upon the hedge relationship, if such a relationship exists. Changes in the fair
value of derivatives that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS 133 are required to be reported in income. The
Company held no derivative financial instruments, nor embedded financial
derivatives, as of December 31, 2001 or 2002.

                                       F-9
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  AGENTS' BALANCES

       In the normal course of business, the Company has various receivables due
from agents or insureds. However, cash received prior to the processing of the
related policies is recorded as a credit to agents' balances. During 2002, the
Company established a $2,500,000 allowance for uncollectible receivables due
from agents or insureds. The expense associated with the establishment of this
reserve has been reflected in the Company's results of operation in 2002. The
five largest general agencies accounted for approximately 37.5% of the net
premiums written for the year ended December 31, 2002.

  DEFERRED ACQUISITION COSTS/FUTURE SERVICING COSTS

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

  UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       The liability for unpaid losses and loss adjustment expenses represents
the Company's best estimate of future amounts needed to pay losses and related
settlement expenses with respect to insured events. This liability is based upon
the accumulation of individual case estimates for losses reported prior to the
close of the accounting period with respect to direct business, estimates
received from ceding reinsurers with respect to assumed reinsurance and
estimates of unreported losses established by management.

       The process of establishing the liability for property and casualty
unpaid losses and loss adjustment expenses is a complex process, requiring the
use of informed estimates and judgments. In some cases, significant periods of
time, up to several years or more, may elapse between the occurrence of an
insured loss and the reporting of the loss to the Company. To establish this
liability, the Company reviews past loss experience and considers a variety of
other factors such as legal, social and economic developments. The Company
regularly reviews and updates the methods of making such estimates and
establishing the resulting liabilities. Any resulting adjustments are recorded
in income during the period in which the determination is made.

  PREMIUMS

       Premiums are recognized as revenue ratably over the term of the
respective policies. Unearned premiums are computed to the day of expiration.
Premium suspense is recorded in Other Liabilities in the accompanying balance
sheets.

  INCOME TAXES

       The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement

                                       F-10
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

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

  CONTINGENT COMMISSIONS

       Certain managing general agencies receive special incentives when certain
premium thresholds are met or when loss results of programs are more favorable
than predetermined thresholds. These costs are estimated and charged to other
underwriting expenses when incurred.

  REINSURANCE

       In the normal course of business, the Company seeks to reduce the loss
that may arise from events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with reinsurers.
Amounts receivable from reinsurers are estimated in a manner consistent with the
reinsured policy. The Company regularly reviews the collectibility of
reinsurance receivables. Any allowances resulting from this review are included
in income during the period in which the determination is made. During 2002, the
Company recorded an allowance for doubtful reinsurance receivables of $44.0
million.

  EARNINGS PER SHARE

       Basic earnings per share has been calculated by dividing net income
available to common shareholders by the weighted-average common shares
outstanding. Diluted earnings per share has been calculated by dividing net
income available to common shareholders by the weighted-average common shares
outstanding and the weighted-average share equivalents outstanding.

(2)  INVESTMENTS

       Bonds, included in the available for sale category, with an amortized
cost of approximately $84,088,000 and $136,342,000, and an estimated fair market
value of approximately $86,611,000 and $141,443,000, were deposited with various
governmental authorities in accordance with statutory requirements at December
31, 2001 and 2002, respectively.

                                       F-11
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       The cost and estimated fair value of investments classified as available
for sale are as follows as of December 31, 2001 and 2002:

<Table>
<Caption>
                                              COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
2001                                           COST        GAINS        LOSSES     FAIR VALUE
----                                         ---------   ----------   ----------   ----------
          (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>          <C>          <C>
Bonds:
  Obligations of states and political
     subdivisions..........................  $253,550      $5,212       $2,479      $256,283
  Mortgage-backed securities...............    48,450       1,225          552        49,123
  U.S. treasury and agency obligations.....    18,847         400            8        19,239
  Corporate notes..........................    13,403         192        1,073        12,522
                                             --------      ------       ------      --------
Total bonds................................   334,250       7,029        4,112       337,167
Preferred stock............................       900          --           35           865
                                             --------      ------       ------      --------
  Total....................................  $335,150      $7,029       $4,147      $338,032
                                             ========      ======       ======      ========
</Table>

<Table>
<Caption>
                                              COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
2002                                           COST        GAINS        LOSSES     FAIR VALUE
----                                         ---------   ----------   ----------   ----------
          (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>          <C>          <C>
Bonds:
  Obligations of states and political
     subdivisions..........................  $391,706     $13,446       $2,072      $403,080
  Mortgage-backed securities...............     8,566          35          451         8,150
  U.S. treasury and agency obligations.....    29,364       1,303           --        30,667
  Corporate notes..........................     5,321          --          800         4,521
                                             --------     -------       ------      --------
  Total....................................  $434,957     $14,784       $3,323      $446,418
                                             ========     =======       ======      ========
</Table>

       The Company held no debt or equity investments in a single issuer
totaling in excess of 10% of shareholders' equity at December 31, 2001 or 2002.

       The amortized cost and estimated fair value of debt securities classified
as available for sale at December 31, 2002, by contractual maturity, are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

<Table>
<Caption>
                                                              AMORTIZED   ESTIMATED
                                                                COST      FAIR VALUE
                   (DOLLARS IN THOUSANDS)                     ---------   ----------
<S>                                                           <C>         <C>
Due in one year or less.....................................  $ 27,071     $ 28,319
Due after one year through five years.......................   141,163      145,104
Due after five years through ten years......................   203,264      207,968
Due after ten years.........................................    54,893       56,877
Mortgage-backed securities..................................     8,566        8,150
                                                              --------     --------
                                                              $434,957     $446,418
                                                              ========     ========
</Table>

       Proceeds from sales of investments in debt and preferred stocks
classified as available for sale were $36,264,000, $95,255,000 and $187,391,000
during 2000, 2001 and 2002, respectively. Gross gains of $1,419,000, $1,199,000
and $3,200,000 and gross losses of $343,000, $3,612,000 and $1,604,000 were
realized on those sales during 2000, 2001 and 2002, respectively. During 2001,
the Company recorded

                                       F-12
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

realized losses, net of tax, of $2,923,456 for bonds that experienced other than
temporary declines in their estimated market value. During 2000, 2001, and 2002,
the Company recorded realized losses, net of tax, of $0, $1,575,126, and
$823,607 for other invested assets that experienced other than temporary
declines in their estimated market value.

       Investments in debt securities classified as trading securities at
December 31, 2001 and 2002, had a fair value of $16,196,000 and $14,607,000,
respectively. In addition, common stocks with a fair value of $49,006,000 and
$31,604,000 at December 31, 2001 and 2002, respectively, were classified as
trading securities.

       A loss of $1,509,000, net of tax benefit of $813,000 in 2000, a loss of
$3,093,000, net of tax benefit of $1,665,000 in 2001, and a gain of $373,000,
net of tax expense of $200,000 in 2002, on debt and equity securities classified
as trading securities were included in earnings in 2000, 2001 and 2002,
respectively.

The sources of net investment income for the years ended December 31, 2000, 2001
and 2002 are as follows:

<Table>
<Caption>
                                                   2000             2001         2002
           (DOLLARS IN THOUSANDS)             ---------------   -------------   -------
<S>                                           <C>               <C>             <C>
Fixed maturities............................  $        17,991   $      19,307   $20,868
Equity securities...........................              271             976       872
Cash and cash equivalents...................            2,119           3,665     1,411
Short term investments......................            8,197              66        --
Other.......................................               --             477     1,444
                                              ---------------   -------------   -------
Total investment income.....................           28,578          24,491    24,595
Investment expense..........................           (6,088)         (5,138)   (6,910)
                                              ---------------   -------------   -------
Net investment income.......................  $        22,490   $      19,353   $17,685
                                              ===============   =============   =======
</Table>

There were no material investments in fixed maturity securities that were
non-income producing for the years ended December 31, 2000, 2001 or 2002.

(3)  FEDERAL INCOME TAXES

       The effective tax rate for the years ended December 31, 2000, 2001 and
2002 differs from the United States statutory rate principally due to tax-exempt
investment income.

       For income tax purposes, property and casualty insurance companies are
required to recalculate the liability for unpaid losses and loss adjustment
expenses on a discounted basis and to recalculate unearned premium.

       The Company incurred a net operating loss and realized losses in 2002 and
will carry those losses back to prior years to recover federal income taxes. The
current tax receivable represents the expected refund claim for the carryback
along with the refund request for estimated payments and similar payments

                                       F-13
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

made for the 2002 federal income tax return. The tax effects of temporary
differences that give rise to significant portions of the deferred tax asset at
December 31, 2001 and 2002 are presented below:

<Table>
<Caption>
                                                               2001      2002
                   (DOLLARS IN THOUSANDS)                     -------   -------
<S>                                                           <C>       <C>
Deferred tax assets:
  Losses on trading securities..............................  $ 1,986   $ 2,004
  Losses on other securities................................    2,400     2,279
  Discounted unpaid losses and loss adjustment expenses.....    9,190    15,808
  Unearned premiums.........................................    2,873     3,568
  Alternative minimum tax credit carryover..................       --     7,301
  Other.....................................................      781     4,760
                                                              -------   -------
  Total deferred tax assets.................................   17,230    35,720
                                                              -------   -------
Deferred tax liabilities:
  Unrealized gain on securities available for sale..........    1,366     4,011
  Deferred acquisition costs................................      150     1,151
  Other.....................................................       51       588
                                                              -------   -------
  Total deferred tax liabilities............................    1,567     5,750
                                                              -------   -------
  Total net deferred tax asset..............................  $15,663   $29,970
                                                              =======   =======
</Table>

       The alternative minimum tax credit carryover is available for future
years and does not expire.

       Management believes it is more likely than not that the deferred tax
asset will be completely utilized in future years.

       Cash paid for federal income taxes was $4,650,000, $4,470,000 and
$6,147,000 in 2000, 2001 and 2002, respectively.

(4)  REINSURANCE

       The Company cedes insurance to unrelated insurers in the ordinary course
of business to limit its net loss exposure. In addition, there are excess of
loss contracts that protect against losses over stipulated amounts. Reinsurance
ceded arrangements do not discharge the Company of primary liability as the
originating insurer.

                                       F-14
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       As of December 31, 2002, the Company had reinsurance receivables
(including prepaid reinsurance premiums) due from the following reinsurers that
exceeded 3% of shareholders' equity:

<Table>
<Caption>
                                                              REINSURANCE   A.M. BEST
                                                              RECEIVABLES    RATINGS
                   (DOLLARS IN MILLIONS)                      -----------   ---------
<S>                                                           <C>           <C>
Berkshire Hathaway..........................................   $   84.7     A++
CNA Insurance Group.........................................       10.9     A
Converium Re (North America)................................      103.9     A
Everest Reinsurance Company.................................       23.4     A+
Fairfax Financial...........................................       29.8     A
GE Global Group.............................................      424.5     A+
Gerling Global Re Group.....................................       29.9     NR-5/NR-3
Hartford Fire Insurance Co. ................................      111.1     A+
Insurance Corp of Hannover..................................       12.1     A+
Lumbermans Mutual Casualty Co. .............................       19.0     D
Motors Insurance Corporation................................       15.1     A
Munich Group................................................      708.3     A+
Penn Mfr Asn Ins............................................        8.9     A-
Riunione Adriatica Di Sicurta...............................       23.5     A+
SCOR Reinsurance Company....................................       49.0     A-
St. Paul Group..............................................       24.5     A
Swiss Re Group..............................................       64.8     A++\A+
Trenwick America Reins Corp. ...............................       29.7     NR-4
White Mountains Group.......................................        8.2     A-
XL Reinsurance Company......................................       28.9     A+
                                                               --------
                                                               $1,810.2
                                                               ========
</Table>

       During 2000, the Company commuted several assumed reinsurance treaties.
These commutations release the Company from all future obligations under the
agreement. No gain or loss was recognized on the transactions. Losses and loss
adjustment expenses paid in connection with these commutations, totaling $36.5
million in 2000, were offset by funds held by the reinsured companies relative
to these treaties.

       On April 6, 2001, the Company commuted all of its reinsurance
arrangements with Reliance Insurance Company. As a result of this commutation,
the Company has reported in its operations in 2001, losses and loss adjustment
expenses incurred of $5.0 million.

       During 2002, the Company established a $44.0 million allowance for
potentially uncollectible reinsurance. The Company believes its reinsurance
receivables are collectible net of the allowance.

       On April 16, 2002, the Company commuted an assumed aggregate stop loss
retrocession agreement. The commutation released the Company from all future
obligations under the agreement. Losses paid in connection with this
commutation, totaling $82.9 million, were offset by funds held by the reinsurer
relative to this treaty. Losses and loss adjustment expenses incurred during
2001 were $49.9 million and $5.4 million, respectively. Premiums earned were
$52.0 million for the year ended December 31, 2001 in connection with this
assumed agreement. No gain or loss was recognized as a result of this
commutation.

                                       F-15
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       At December 31, 2001 and 2002, the Company had letters of credit totaling
$159,183,752 and $104,496,852, respectively, collateralizing reinsurance
receivables.

       During 2002, the Company was involved in arbitration proceedings with one
of its reinsurers, Riunione Adriatica Di Sicurta ("RAS"). RAS was seeking to
rescind the reinsurance agreement, prohibit the Company from drawing down on
available lines of credit, and demanding repayment of funds drawn from the line
of credit. On October 1, 2002 the arbitration panel issued an Order and Award
holding RAS liable for a portion of the total amount in dispute. RAS was also
ordered to pay interest at a rate of 4% compounded annually with respect to
balances currently due. The panel further ordered a portion of the reinsurance
agreement between RAS and the Company to be rescinded from inception. RAS was
released from all future liabilities or responsibilities to the Company with
respect to the rescinded portion of the reinsurance agreement. This rescission
had a $20.6 million detrimental impact on the underwriting results of the
Company during 2002.

       In connection with this rescission, the Company reported the following
amounts in its operations for the year ended December 31, 2002:

<Table>
<Caption>
                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>
Losses and loss adjustment expense incurred.................         $(23,610)
Premium earned..............................................            3,968
Reversal of ceding commission income........................             (938)
                                                                     --------
Total -- underwriting income effect.........................         $(20,580)
                                                                     ========
</Table>

The effect of reinsurance on premiums written and earned is as follows:

<Table>
<Caption>
                                                              WRITTEN     EARNED
                   (DOLLARS IN THOUSANDS)                     --------   --------
<S>                                                           <C>        <C>
For the year ended December 31, 2000
  Direct business...........................................  $389,348   $374,179
  Reinsurance assumed.......................................    64,116     74,627
  Reinsurance ceded.........................................   325,892    311,875
                                                              --------   --------
Net premiums................................................  $127,572   $136,931
                                                              --------   --------
Percentage assumed of net...................................                 54.5%
                                                                         --------
For the year ended December 31, 2001
  Direct business...........................................  $604,738   $547,963
  Reinsurance assumed.......................................    65,782     58,599
  Reinsurance ceded.........................................   501,210    456,226
                                                              --------   --------
Net premiums................................................  $169,310   $150,336
                                                              --------   --------
Percentage assumed of net...................................                 39.0%
                                                                         --------
For the year ended December 31, 2002
  Direct business...........................................  $791,864   $750,426
  Reinsurance assumed.......................................     1,220      9,538
  Reinsurance ceded.........................................   620,395    597,201
                                                              --------   --------
Net premiums................................................  $172,689   $162,763
                                                              --------   --------
Percentage assumed of net...................................                  5.9%
                                                                         --------
</Table>

                                       F-16
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5)  PENSION AND DEFERRED COMPENSATION PLANS

       UNIC participates in a non-contributory pension plan with the American
Manufacturing Corporation (an affiliate) covering all employees. The plan
provides pension benefits that are based on length of service and a percentage
of average qualifying compensation for the highest five consecutive years of
employment. The funding policy is to contribute the requirements set forth in
the Employee Retirement Income Security Act ("ERISA") plus such additional
amounts that the Company may determine to be appropriate. Total plan assets
exceeded the projected benefit obligations at December 31, 2001 and 2002. The
Company recorded prepaid pension assets of $1,305,000 and $765,000, as of
December 31, 2001 and 2002, respectively. The Company recorded pension income of
$535,000 for 2000, and pension expense of $73,000 and $541,000 in 2001 and 2002,
respectively.

       The Company has a qualified 401(k) defined contribution plan that covers
substantially all of its full-time employees. Eligible employees may elect to
defer up to 15% of their salary. The Company matches 50% of employees'
contributions up to 6% of their salary. Eligible employees are vested in the
Company's contribution and related investment income after five years of
service. Expense for the plan in 2000, 2001 and 2002 was $216,000, $225,000 and
$279,000, respectively.

       The Company also has a qualified deferred compensation plan for certain
key executives. At December 31, 2000, 2001 and 2002, the Company accrued
$3,530,000, $4,667,000 and $3,867,000, respectively, in other liabilities
related to this plan, and the Company recorded expense (income) of $1,352,000,
$1,137,000 and ($800,000) for the years ended December 31, 2000, 2001 and 2002,
respectively, for this plan.

(6)  STATUTORY FINANCIAL INFORMATION

       These consolidated financial statements vary in certain respects from
those prepared using statutory accounting practices prescribed or permitted by
the applicable state Departments of Insurance ("Insurance Departments").
Prescribed Statutory Accounting Practices ("SAP") include state laws,
regulations and general administrative rules, as well as a variety of National
Association of Insurance Commissioners ("NAIC") publications. Permitted SAP
encompasses all accounting practices that are not prescribed. In 1998, the NAIC
adopted the Codification of Statutory Accounting Principles ("Codification")
guidance that replaced the previous version of the Accounting Practices and
Procedures manual as the NAIC's primary guidance on statutory accounting
beginning in 2001. Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in some
areas, such as deferred income taxes, which are recorded under the Codification.
The effect of the adoption on the Company's statutory surplus as of January 1,
2001 was an increase of $4,247,697, primarily as a result of the recording of a
deferred tax asset.

       GAAP differs in certain respects from SAP prescribed or permitted by the
Insurance Departments. The principal differences between SAP and GAAP are as
follows:

       -     Under SAP, investments in debt securities are carried at amortized
             cost, while under GAAP, the Company records its debt securities at
             estimated fair value.

       -     Under SAP, policy acquisition costs, such as commissions, premium
             taxes, fees and other costs of underwriting policies are charged to
             current operations as incurred, while under GAAP, such costs are
             deferred and amortized on a pro rata basis over the period covered
             by the policy.

       -     Under SAP, certain assets, designated as "Non-admitted Assets"
             (such as prepaid expenses) are charged against surplus.

                                       F-17
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       -     Under SAP, net deferred income tax assets are admitted following
             the application of certain criteria, with the resulting admitted
             deferred tax amount being credited directly to surplus.

       -     Under SAP, receivables are non-admitted based upon aging criteria.

       -     Under SAP, the costs and related recoverables for guaranty funds
             and other assessments are recorded based on management's estimate
             of the ultimate liability and related recoverable settlement, while
             under GAAP, such costs are accrued when the liability is probable
             and reasonably estimable and the related recoverable amount is
             based on future premium collections or policy surcharges from
             in-force policies.

       The NAIC issues model laws and regulations, many of which have been
adopted by state insurance regulators, relating to: (a) risk-based capital
("RBC") standards; (b) codification of insurance accounting principles; (c)
investment restrictions; and (d) restrictions on the ability of insurance
companies to pay dividends.

       Wind River's subsidiaries are required by law to maintain certain minimum
surplus on a statutory basis, and are subject to regulations under which payment
of a dividend from statutory surplus is restricted and may require prior
approval of regulatory authorities. Applying the current regulatory restrictions
as of December 31, 2002, approximately $22,875,000 is available for distribution
during 2003. The Company paid no dividends during the three years ended December
31, 2003.

       The NAIC's risk-based capital model provides a tool for insurance
regulators to determine the levels of statutory capital and surplus an insurer
must maintain in relation to its insurance and investment risks, as well as its
reinsurance exposures, to assess the potential need for regulatory attention.
The model provides four levels of regulatory attention, varying with the ratio
of the insurance company's total adjusted capital to its authorized control
level RBC ("ACLRBC"): (a) if a company's total adjusted capital is less than or
equal to 200 percent, but greater than 150 percent of its ACLRBC (the "Company
Action Level"), the company must submit a comprehensive plan to the regulatory
authority proposing corrective actions aimed at improving its capital position;
(b) if a company's total adjusted capital is less than or equal to 150 percent,
but greater than 100 percent of its ACLRBC (the "Regulatory Action Level"), the
regulatory authority will perform a special examination of the company and issue
an order specifying the corrective actions that must be followed; (c) if a
company's total adjusted capital is less than or equal to 100 percent, but
greater than 70 percent of its ACLRBC (the "Authorized Control Level"), the
regulatory authority may take any action it deems necessary, including placing
the company under regulatory control; and (d) if a company's total adjusted
capital is less than or equal to 70 percent of its ACLRBC (the "Mandatory
Control Level"), the regulatory authority must place the company under its
control.

       The following is selected information for Wind River's domestic insurance
subsidiaries, net of intercompany eliminations, where applicable, as determined
in accordance with SAP:

<Table>
<Caption>
                                                         2000       2001       2002
               (DOLLARS IN THOUSANDS)                  --------   --------   --------
<S>                                                    <C>        <C>        <C>
Statutory capital and surplus........................  $299,198   $304,266   $228,751
                                                       ========   ========   ========
Statutory net income (loss)..........................  $ 33,025   $ 11,651   ($78,015)
                                                       ========   ========   ========
</Table>

       As of December 31, 2002, the total adjusted capital of UNIC, DSIC, UNSIC,
and UNCIC exceeds the levels that would result in regulatory action under these
standards. However, UNIC's ACLRBC ratio has declined significantly during the
past year and is near the level that would require it to submit a comprehensive
plan aimed at improving its capital position.

                                       F-18
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7)  LEASE COMMITMENTS

       Total rental expense under operating leases for the years ended December
31, 2000, 2001 and 2002 aggregated $1,331,483, $1,577,471 and $1,833,273,
respectively. Future minimum payments under non-cancelable operating leases are
as follows:

<Table>
<Caption>
                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>
2003........................................................         $ 2,084
2004........................................................           1,953
2005........................................................           1,923
2006........................................................           1,953
2007 and thereafter.........................................           3,999
                                                                     -------
Total.......................................................         $11,912
                                                                     =======
</Table>

(8)  LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       Activity in the liability for unpaid losses and loss adjustment expenses
is summarized as follows:

<Table>
<Caption>
                                                                2000       2001        2002
                   (DOLLARS IN THOUSANDS)                     --------   --------   ----------
<S>                                                           <C>        <C>        <C>
Unpaid losses and loss adjustment expenses at January 1.....  $805,717   $800,630   $  907,357
Less gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   637,850    669,504      750,573
                                                              --------   --------   ----------
Net balance at January 1....................................   167,867    131,126      156,784
                                                              --------   --------   ----------
Incurred losses and losses adjustment expenses related to:
  Current year..............................................   123,476    134,558      130,327
  Prior years...............................................   (10,325)    (6,220)      71,423
                                                              --------   --------   ----------
Total incurred losses and loss adjustment expenses..........   113,151    128,338      201,750
                                                              --------   --------   ----------
Paid losses and losses adjustment expenses related to:
  Current year..............................................    85,811     76,508       34,045
  Prior years(1)............................................    64,081     26,172       63,669
                                                              --------   --------   ----------
Total paid losses and loss adjustment expenses..............   149,892    102,680       97,714
                                                              --------   --------   ----------
Net balance at December 31..................................   131,126    156,784      260,820
Plus gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   669,504    750,573    1,743,602
                                                              --------   --------   ----------
Unpaid losses and loss adjustment expenses at December 31...  $800,630   $907,357   $2,004,422
                                                              ========   ========   ==========
</Table>

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

(1) Paid losses and loss adjustment expenses in 2001, related to prior years,
    included the commutation with Reliance Insurance Company in the amount of
    $9.9 million.

       The increase in losses and loss adjustment expenses incurred relating to
prior years, which totaled $71.4 million in 2002, is primarily attributable to
higher than anticipated losses in the multi-peril and other liability lines of
business for prior accident years. Prior to 2002, management used its
traditional methods of examining reserves for losses and loss adjustment expense
relative to these accident years. In 2002, management determined that it was
necessary to increase the projected ultimate loss ratios, relative to these
accident years, due to the fact that losses relative to these accident years
were emerging at a rate

                                       F-19
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that was greater than originally expected. In addition, during the past year,
the Company was involved in an arbitration proceeding that resulted in the
rescission of a reinsurance agreement. This rescission caused an $23,610,000
increase in losses and loss adjustment expense incurred for prior years. See
note 4 for further details.

       In the past, the Company underwrote a product of multi-peril business
insuring general contractors and developers that has resulted in significant
exposure to construction defect claims. Management believes its reserves for
this product ($36,804,701 as of December 31, 2002, net of reinsurance) are
appropriately established based upon known facts, existing case law and
generally accepted actuarial methodologies. However, due to the inherent
uncertainty concerning this type of business, the ultimate exposure for these
claims may vary significantly from the amounts currently recorded.

       The Company has 37 direct claims related to the September 11th terrorist
attacks as of December 31, 2002. The majority of these claims are first party
property claims while a few stem from event interruption. Estimated direct
indemnity exposure as of December 31, 2002, was $4,957,989 with ceded exposure
to non-affiliates totaling $4,585,060, leaving net indemnity exposure of
$372,929. The Company does not anticipate any additional material impact to its
financial statements, nor does it expect any future obligations related to this
tragedy.

       The Company has exposure to environmental and asbestos claims. The
environmental exposure arises from the sale of general liability and commercial
multi-peril insurance and the asbestos exposure primarily arises from the sale
of product liability insurance. In establishing the liability for unpaid losses
and loss adjustment expenses related to asbestos and environmental exposures,
management considers facts currently known and the current state of the law and
coverage litigation. Liabilities are recognized for known claims (including the
cost of related litigation) when sufficient information has been developed to
indicate the involvement of a specific insurance policy, and management can
reasonably estimate its liability. In addition, liabilities have been
established to cover additional exposures on both known and unasserted claims.
Estimates of the liabilities are reviewed and updated continually. Developed
case law and adequate claim history do not exist for such claims, especially
because significant uncertainty exists about the outcome of coverage litigation
and whether past claim experience will be representative of future claim
experience. In 2001 and prior years, the Company did not provide specific
amounts of IBNR for environmental and asbestos claims. In 2002, the Company
identified that portion of its IBNR reserves that is related to such claims.
Included in net unpaid losses and loss adjustment expenses as of December 31,
2002, were IBNR reserves of $6,370,000 and case reserves of approximately
$1,774,000 for known asbestos and environmental-related claims. As of December
31, 2001 the Company held case reserves of $2,103,000 for known asbestos and
environmental-related claims. Net incurred losses and loss adjustment expenses
for asbestos and environmental-related claims were $(177,000), $(8,000), and
$6,540,000 for the years ended December 31, 2000, 2001 and 2002, respectively.

(9)  SEGMENT INFORMATION

       The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expense experience. Investments and investment performance
including investment income and net realized investment gains and losses;
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level by the corporate accounting function in conjunction with other
corporate departments and are included in "Corporate."

                                       F-20
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reinsurance segment was de-emphasized in 2002 and the Company did not write
any business in this segment in 2002.

       Gross premiums written, excluding the reinsurance segment, by product
class for the years ended December 31, 2000, 2001, and 2002 are as follows:

<Table>
<Caption>
                                                                2000       2001       2002
                                                              --------   --------   --------
                                                               AMOUNT     AMOUNT     AMOUNT
                   (DOLLARS IN THOUSANDS)                     --------   --------   --------
<S>                                                           <C>        <C>        <C>
Specific specialty..........................................  $277,167   $375,962   $439,364
Umbrella and excess.........................................    58,095    138,425    209,369
Property and general liability..............................    32,360     50,725     75,376
Non-medical professional liability..........................    23,842     43,408     68,974
                                                              --------   --------   --------
    Total...................................................  $391,464   $608,520   $793,083
                                                              ========   ========   ========
</Table>

       The gross premiums written information above is not segregated by
business segment because product lines cross segments.

       Following is a tabulation of business segment information for each of the
past three years. Corporate information is included to reconcile segment data to
the consolidated financial statements:

<Table>
<Caption>
                                      EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
<S>                                   <C>          <C>         <C>           <C>          <C>
2000:
Revenue:
Gross premiums written..............   $260,730    $130,734      $62,000     $       --   $  453,464
Net premiums written................     40,663      24,909       62,000             --      127,572
Net premiums earned.................     40,504      25,677       70,750             --      136,931
Net investment income...............         --          --           --         22,490       22,490
Net realized investment gains.......         --          --           --            593          593
                                       --------    --------      -------     ----------   ----------
     Total revenue..................     40,504      25,677       70,750         23,083      160,014
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................     24,613      18,408       70,130             --      113,151
Acquisition costs and other
  underwriting expenses.............         --          --           --         14,999       14,999
Other operating expenses............         --          --           --          2,918        2,918
Interest expense....................         --          --           --            322          322
                                       --------    --------      -------     ----------   ----------
Income (loss) before income taxes...     15,891       7,269          620          4,844       28,624
Income tax (benefit) expense........         --          --           --          5,883        5,883
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................     15,891       7,269          620         (1,039)      22,741
Equity in net income (loss) of
  partnerships......................         --          --           --             --           --
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................     15,891       7,269          620         (1,039)      22,741
                                       ========    ========      =======     ==========   ==========
     Total assets...................                                         $1,376,528   $1,376,528
                                                                             ==========   ==========
</Table>

                                       F-21
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                      EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
<S>                                   <C>          <C>         <C>           <C>          <C>
2001
Revenue:
Gross premiums written..............   $398,308    $210,212      $62,000             --   $  670,520
Net premiums written................     68,226      39,084       62,000             --      169,310
Net premiums earned.................     59,004      36,582       54,750             --      150,336
Net investment income...............         --          --           --         19,353       19,353
Net realized and unrealized gains
  (loss)............................         --          --           --        (12,719)     (12,719)
                                       --------    --------      -------     ----------   ----------
     Total Revenue..................     59,004      36,582       54,750          6,634   $  156,970
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................     43,880      29,075       55,383             --      128,338
Acquisition costs and other
  underwriting expenses.............         --          --           --         15,867       15,867
Other operating expenses............         --          --           --          2,220        2,220
Interest expense....................         --          --           --             77           77
                                       --------    --------      -------     ----------   ----------
Income (loss) before income taxes...     15,124       7,507         (633)       (11,530)      10,468
Income tax (benefit) expense........         --          --           --            295          295
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................     15,124       7,507         (633)       (11,825)      10,173
Equity in net income (loss) of
  partnerships......................         --          --           --            664          664
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................     15,124       7,507         (633)       (11,161)      10,837
                                       ========    ========      =======     ==========   ==========
Total assets........................                                         $1,575,754   $1,575,754
                                                                             ==========   ==========
Revenue:
2002
Gross premiums written..............   $543,998    $249,085      $    --     $       --   $  793,083
Net premiums written................    112,110      60,579           --             --      172,689
Net premiums earned.................    101,474      53,039        8,250             --      162,763
Net investment income...............         --          --           --         17,685       17,685
Net realized and unrealized gains
  (loss)............................         --          --           --        (11,702)     (11,702)
                                       --------    --------      -------     ----------   ----------
Total Revenue.......................    101,474      53,039        8,250          5,983      168,746
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................    128,642      64,857        8,251                     201,750
Acquisition costs and other
  underwriting expenses.............         --          --           --         62,938       62,938
Other operating expenses............         --          --           --          5,874        5,874
Interest expense....................         --          --           --            115          115
                                       --------    --------      -------     ----------   ----------
</Table>

                                       F-22
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                      EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
<S>                                   <C>          <C>         <C>           <C>          <C>
Income (loss) before income taxes...    (27,168)    (11,818)          (1)       (62,944)    (101,931)
Income tax (benefit) expense........         --          --           --        (40,520)     (40,520)
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................    (27,168)    (11,818)          (1)       (22,424)     (61,411)
Equity in net income (loss) of
  partnerships......................         --          --           --           (252)        (252)
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................    (27,168)    (11,818)          (1)       (22,676)     (61,663)
                                       ========    ========      =======     ==========   ==========
Total assets........................                                         $2,685,620   $2,685,620
                                                                             ==========   ==========
</Table>

(10)  RELATED PARTY TRANSACTIONS

       During 2000, 2001 and 2002, the Company paid management and investment
advisory fees of approximately $7,146,000, $7,104,000 and $9,931,000,
respectively, to affiliates.

       As of December 31, 2001 and 2002, the Company had payable balances due to
affiliates totaling approximately $101,000 and $163,000, respectively.

       During 2001, the Company purchased a promissory note from Wind River
Investments, LLC, an affiliate, for $3,850,280, which included a note receivable
of $3,497,935 and interest receivable of $352,345. The annual rate of interest
on this note was 6%. During 2002, this note was sold for $4,188,261 (the sum of
book value plus accrued interest) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       During 2001, the Company issued a promissory note for $1,362,855 to AMC
Group, LLC, an affiliate. The annual rate of interest on this note is 6%. This
note, which was carried at amortized cost of $1,167,286 and $758,147, was
included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $616,234 (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       During 2001, the Company purchased a promissory note from Philadelphia
Gear Corporation, an affiliate, for $2,354,733. The annual rate of interest on
this note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2,354,733, was
included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $2,354,733 (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       For the year ended December 31, 2000, the Company issued insurance
policies with premium totaling approximately $94,000 to affiliates.

(11)  COMMITMENTS AND CONTINGENCIES

       The Company has committed to investing $62,151,000 over a period of time
into several limited liability partnership funds. As of December 31, 2002,
$41,199,000 has been invested. During the period of January 1st to May 31st,
2003, an additional $2,877,144 has been invested. The timing and funding of the

                                       F-23
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

remaining commitment of $18,074,856 has not been determined. As investment
opportunities are identified by the partnerships, capital calls will be made.

       Various lawsuits against the Company have arisen in the ordinary course
of business, including defending coverage claims brought against the Company by
its policyholders or others. The Company's litigation, including coverage claims
matters, is subject to many uncertainties, and given their complexity and scope,
the outcomes cannot be predicted with certainty. It is possible that the results
of operations in a particular quarterly or annual period, could be materially
affected by an ultimate unfavorable outcome of litigation or coverage claim
matters. Management believes, however, that the ultimate outcome of all
litigation and coverage claim matters after consideration of applicable reserves
should not have a material adverse effect on the Company's financial condition.

       On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29
million, plus interest in excess of $10 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc. purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

       In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance Company Ltd. and Partner
Reinsurance Company of the U.S. seeking recovery under a reinsurance agreement
covering the business produced by Worldwide Weather Insurance Agency on a 100%
quota share basis. In addition, if it were held liable to Bank of America on the
grounds DSIC was negligent in appointing the Worldwide Weather Insurance Agency,
DSIC is claiming indemnification and contribution from Partner Reinsurance
Company of the U.S. because of its role in the appointment of the agency's
principal and the Worldwide Weather Insurance Agency. The arbitration has been
consolidated into the Bank of America litigation for discovery purposes, and is
not likely to proceed to a hearing until the Bank of America litigation is
resolved.

       During 2002, the Company established a $25,000,000 Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate (LIBOR) plus 65 basis points or the
Prime Rate. As of December 31, 2002, there were no balances due in connection
with this credit facility. The Revolving Credit Facility was converted to a
Demand Discretionary Facility in February 2003.

(12)  SUBSEQUENT EVENTS

       On May 1, 2003, affiliates of Fox Paine and Company, LLC, a San
Francisco, California based private equity firm, entered into an Investment
Agreement in which they agreed to acquire a controlling interest in the Company.

                                       F-24
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       In March 2003, the Company resolved a claim by one of its producers that
his agency sustained damages in loss of business and in the value of his agency
as a result of the alleged delay in DSIC obtaining regulatory approval of rates
and forms necessary to support the producer's business. The Company paid the
agent $350,000 in connection with this resolution.

       On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries will file a consolidated
federal income tax return and AIS and its other subsidiaries, AIAA, IUI and URP,
will each file a separate, stand-alone federal income tax return.

(13)  NEW ACCOUNTING PRONOUNCEMENTS

       In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

       In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS NO. 148") which amends
SFAS Statement No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). The objective of SFAS No. 148 is to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 does not change the
provisions of SFAS No. 123 that permit entities to continue to apply the
intrinsic value method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Management has determined that this interpretation will have no effect
on the Company's consolidated financial statements.

       FASB Interpretation 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" became effective December 15, 2002. This interpretation elaborates on
the disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Management has
determined that this interpretation will have no effect on the Company's
consolidated financial statements.

       FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. This interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.

                                       F-25
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                   AS OF DECEMBER 31, 2002 AND JUNE 30, 2003
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                        AS OF
                                                              -------------------------
                                                              DECEMBER 31,    JUNE 30,
                                                                  2002          2003
                                                              ------------   ----------
<S>                                                           <C>            <C>
                                        ASSETS
Bonds:
  Trading securities, at fair value (amortized cost:
     2002 -- $14,913; 2003 -- $15,134)......................   $   14,607    $   16,128
  Available for sale securities, at fair value (amortized
     cost: 2002 -- $434,957; 2003 -- $449,707)..............      446,418       467,270
Preferred stocks:
  Trading securities, at fair value.........................        3,106         3,409
Common stocks:
  Trading securities, at fair value.........................       31,604        35,189
Other invested assets.......................................       41,285        41,842
Mortgage loans..............................................        1,167            --
                                                               ----------    ----------
     Total investments......................................      538,187       563,838
Cash and cash equivalents...................................       72,942        71,709
Agents' balances, net of allowance..........................       50,744        62,453
Reinsurance receivables, net of allowance...................    1,743,524     1,852,205
Accrued investment income...................................        6,567         6,266
Federal income taxes receivable.............................       31,798        21,434
Deferred federal income taxes...............................       29,970        27,881
Deferred acquisition costs, net.............................        3,289         5,096
Prepaid reinsurance premiums................................      196,172       159,653
Other assets................................................       12,427        12,120
                                                               ----------    ----------
     Total assets...........................................   $2,685,620    $2,782,655
                                                               ==========    ==========
                         LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses..................   $2,004,422    $2,133,728
Unearned premiums...........................................      247,138       215,683
Amounts held for the account of others......................       13,766        14,834
Ceded balances payable......................................       61,787        72,195
Payable for securities......................................        6,250         2,362
Contingent commissions......................................        5,426         6,861
Due to affiliates...........................................          163           101
Other liabilities...........................................       78,031        45,039
                                                               ----------    ----------
     Total liabilities......................................   $2,416,983    $2,490,803
                                                               ----------    ----------
Commitments and Contingencies...............................           --            --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 100 shares
  authorized, issued and outstanding........................           --            --
Additional paid-in capital..................................       81,186        81,186
Accumulated other comprehensive income......................        7,329        11,935
Retained earnings...........................................      180,122       198,731
                                                               ----------    ----------
     Total shareholders' equity.............................      268,637       291,852
                                                               ----------    ----------
     Total liabilities and shareholders' equity.............   $2,685,620    $2,782,655
                                                               ==========    ==========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-26
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<Table>
<Caption>
                                                              FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
<S>                                                           <C>        <C>
REVENUE:
Gross premium written.......................................  $435,082   $362,953
                                                              --------   --------
Net premium written.........................................   110,095     99,461
                                                              --------   --------
Net premiums earned.........................................    95,096     94,397
Net investment income.......................................     8,879      9,329
Net realized investment (losses) gains......................    (7,914)     3,116
                                                              --------   --------
     Total revenue..........................................    96,061    106,842
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses.....................    74,826     61,846
Acquisition costs and other underwriting expenses...........    12,286     20,733
Provision for doubtful reinsurance receivables..............        --      1,750
Other operating expenses....................................     1,423        367
Interest expense............................................        28         12
                                                              --------   --------
  Income before income taxes................................     7,498     22,134
Income tax expense..........................................       431      5,012
                                                              --------   --------
Net income before equity in net (loss) income of
  partnerships..............................................     7,067     17,122
Equity in net (loss) income of partnerships.................      (283)     1,487
                                                              --------   --------
  Net income................................................  $  6,784   $ 18,609
                                                              ========   ========
  Per average share data:
     Weighted-average common shares outstanding.............       100        100
     Weighted-average share equivalents outstanding.........        --         --
                                                              --------   --------
     Weighted-average share and share equivalents
      outstanding...........................................       100        100
                                                              ========   ========
     Basic and diluted earnings per share...................  $     68   $    186
                                                              ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-27
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                              FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
<S>                                                           <C>        <C>
Net income..................................................  $  6,784   $ 18,609
                                                              --------   --------
  Other comprehensive income, before tax:
     Unrealized gains (losses) on securities:
       Unrealized holding gains (losses) arising during
        period..............................................     6,730       (825)
       Less:
          Reclassification adjustment for (losses) gains
           included in net income...........................    (3,116)     7,914
                                                              --------   --------
  Other comprehensive income, before tax....................     3,614      7,089
  Income tax expense related to items of other comprehensive
     loss...................................................    (1,265)    (2,483)
                                                              --------   --------
  Other comprehensive income, net of tax....................     2,349      4,606
                                                              --------   --------
Comprehensive income, net of tax............................  $  9,133   $ 23,215
                                                              ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-28
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                              FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
<S>                                                           <C>        <C>
Common shares:
  Balance at beginning and end of year......................       100        100
                                                              --------   --------
Common stock:
  Balance at beginning and end of year......................  $     --   $     --
                                                              --------   --------
Additional paid in capital
  Balance at beginning and end of year......................    81,186     81,186
                                                              --------   --------
Accumulated other comprehensive income
  Net of deferred income taxes:
     Balance at beginning of year...........................     1,873      7,329
     Other comprehensive income, net of taxes...............     2,349      4,606
                                                              --------   --------
       Balance at end of year...............................     4,222     11,935
                                                              --------   --------
Retained earnings:
     Balance at beginning of year...........................   241,785    180,122
     Net income.............................................     6,784     18,609
                                                              --------   --------
       Balance at end of year...............................   248,569    198,731
                                                              --------   --------
Total shareholders' equity..................................  $333,977   $291,852
                                                              ========   ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-29
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                               FOR THE SIX     FOR THE SIX
                                                              MONTHS ENDED    MONTHS ENDED
                                                              JUNE 30, 2002   JUNE 30, 2003
                                                              -------------   -------------
<S>                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................   $     6,784      $  18,609
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Deferred federal income taxes..........................        (4,046)        (1,188)
     Amortization of bond premium and discount, net.........           234          1,181
     Gain on sale of investments............................         3,501          2,453
     Equity in loss (income) of partnerships................           283         (1,487)
     Unrealized loss (gain) on trading securities...........         4,411         (5,568)
     Provision for doubtful reinsurance receivables.........            --          1,750
     Proceeds from sale or maturity of trading securities...        17,125          6,825
     Purchase of trading securities.........................        (9,693)        (8,197)
CHANGES IN:
     Agents' balances.......................................       (21,759)       (11,709)
     Reinsurance receivables................................       (35,751)      (110,431)
     Unpaid losses and loss adjustment expenses.............        55,585        129,306
     Unearned premiums......................................        35,296        (31,455)
     Ceded balances payable.................................        34,345         10,408
     Other liabilities......................................       (18,015)       (32,992)
     Amounts held for the account of others.................          (647)         1,068
     Funds held by reinsured companies......................          (250)            --
     Contingent commissions.................................          (528)         1,435
     Federal income tax receivable..........................        (2,459)        10,364
     Prepaid reinsurance premiums...........................       (20,296)        36,519
     Payable for securities.................................        24,101         (3,888)
     Other -- net...........................................         8,543         (1,467)
                                                               -----------      ---------
       Net cash from operating activities...................        76,764         11,536
                                                               -----------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of bonds and preferred stocks..........        97,525         63,772
  Proceeds from maturity of bonds...........................         4,500          2,500
  Proceeds from sale of other invested assets...............           382          4,973
  Purchase of bonds and preferred stocks....................      (157,433)       (82,932)
  Proceeds from sale or repayment of mortgage principal.....            29              8
  Proceeds from sale of mortgage............................            --          1,166
  Purchase of other invested assets.........................        (8,995)        (2,260)
  Other -- net..............................................            --              4
                                                               -----------      ---------
       Net cash from investing activities...................       (63,992)       (12,769)
CASH FLOWS FROM FINANCING ACTIVITIES:.......................            --             --
                                                               -----------      ---------
Borrowings under credit facility............................        10,500          4,650
Repayments of credit facility...............................       (10,500)        (4,650)
                                                               -----------      ---------
       Net cash from financing activities...................            --             --
                                                               -----------      ---------
  Net decrease in cash and cash equivalents.................        12,772         (1,233)
  Cash and cash equivalents at beginning of year............        77,057         72,942
                                                               -----------      ---------
  Cash and cash equivalents at end of year..................   $    89,829      $  71,709
                                                               ===========      =========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-30
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

       The consolidated financial statements as of and for the six months ended
June 30, 2002 and 2003 are unaudited, but in the opinion of management, have
been prepared on the same basis as the annual audited consolidated financial
statements and reflect all adjustments, consisting of only normal recurring
accruals, necessary for a fair statement of the information set forth therein.
The results of operations for the six months ended June 30, 2003, are not
necessarily indicative of the operating results to be expected for the full year
or any other period.

       The consolidated financial statements include the accounts of Wind River
Investment Corporation ("Wind River") and its wholly-owned subsidiary, American
Insurance Service, Inc. ("AIS")(collectively, the "Company"). AIS owns all of
the outstanding shares of American Insurance Adjustment Agency, International
Underwriters, Inc., Unity Risk Partners Insurance Services, Inc. and United
National Insurance Company ("UNIC"). UNIC owns all of the outstanding shares of
Diamond State Insurance Company ("DSIC"). DSIC owns all of the outstanding
shares of United National Specialty Insurance Company ("UNSIC"), United National
Casualty Insurance Company ("UNCIC") and J.H. Ferguson and Associates L.L.C. All
significant intercompany balances and transactions have been eliminated in
consolidation.

       The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"), which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

       These financial statements should be read in conjunction with the
financial statements and notes included in the Company's annual audited
consolidated financial statements as of and for the year ended December 31,
2002.

  INVESTMENTS

       The Company's investments in bonds classified as available for sale and
trading are carried at their fair value. The difference between book value and
fair value of bonds classified as available for sale, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
stockholders equity and, accordingly, has no effect on net income other than for
impairments deemed to be other than temporary. The current year change in the
difference between book value and fair value of bonds classified as trading is
included in income.

       Preferred stocks are carried at fair value. The difference between book
and fair value of preferred stocks classified as available for sale, net of the
effect of deferred income taxes, is reflected in accumulated other comprehensive
income in stockholders' equity and, accordingly, has no effect on net income
other than for impairments deemed to be other than temporary. The current year
change in the difference between book value and fair value of preferred stocks
classified as trading is included in income.

       Common stocks are carried at fair value. All of the Company's investments
in common stocks are classified as trading at June 30, 2003 and 2002. The
current year change in the difference between book value and fair value of
common stocks is included in income.

                                       F-31
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

       During the six months ended June 30, 2003, the Company recorded other
than temporary impairment losses of $1.9 million on its fixed income portfolio
and $0.7 million on its investments in limited partnerships. No such losses were
incurred during the six months ended June 30, 2002.

       Other invested assets are comprised primarily of limited liability
partnerships interests and uncollateralized commercial loans. Partnership
interests of three percent ownership or greater are accounted for under the
equity method. Partnership interests of less than three percent ownership are
carried at their fair value. The difference between book value and fair value of
partnership interests of less than three percent ownership, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
stockholders equity and, accordingly, has no effect on net income other than for
impairments deemed to be other than temporary. Uncollateralized commercial loans
are stated at unpaid principal balances, net of allowances.

       Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

       The Company's investments are regularly evaluated to determine if
declines in market value below amortized cost are other than temporary. If
market value declines are determined to be other than temporary, the security's
cost basis is adjusted to the market value of the security, with the loss
recognized in the current period.

       Realized losses recorded, as a result of other than temporary impairment
evaluations, for the six months ended June 30, 2002 and 2003 were $0 and
$2,617,000, respectively.

       Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction with willing parties. The fair values of the
Company's investments in bonds and stocks are determined on the basis of quoted
market prices.

  OTHER UNDERWRITING EXPENSES

       In March 2003, the Company resolved a claim by one of its producers. The
Company paid the agent $350,000 in connection with this resolution. This
$350,000 charge is included in the Company's results of operations in 2003 as an
other underwriting expense.

       During 2003, the Company increased its allowance for doubtful
uncollectible reinsurance receivables by $1,750,000.

  INCOME TAXES

       The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

       A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining defined tax
assets.

       On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries

                                       F-32
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

will file a consolidated federal income tax return and AIS and its other
subsidiaries, AIAA, IUI and URP, will each file a separate, stand-alone federal
income tax return.

(2)  SEGMENT INFORMATION

       The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S Lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expense experience. Investments and investment performance
including investment income and net realized investment gains and losses;
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level by the corporate accounting function in conjunction with other
corporate departments and are included in "Corporate." The reinsurance segment
was de-emphasized in 2002. Subsequent to June 30, 2002, the Company amended the
treaty with the reinsurer to reduce the net premiums written and earned for 2002
to $0; subsequent to that the treaty was commuted.

       Gross premiums written, excluding the reinsurance segment, by product
class for the six months ended June 30, 2002 and 2003 are as follows:

<Table>
<Caption>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2002       2003
                   (DOLLARS IN THOUSANDS)                     --------   --------
<S>                                                           <C>        <C>
Specific specialty..........................................  $236,142   $151,366
Umbrella and excess.........................................   106,295    100,367
Property and general liability..............................    38,598     66,507
Non-medical professional liability..........................    31,047     44,713
                                                              --------   --------
    Total...................................................  $412,082   $362,953
                                                              ========   ========
</Table>

The gross premiums written information above is not segregated by business
segment because product lines cross segments.

                                       F-33
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

       Following is a tabulation of business segment information for the six
months ended June 30, 2002 and 2003. Corporate information is included to
reconcile segment data to the consolidated financial statements:

<Table>
<Caption>
                                     EXCESS AND     SPECIALTY
                                    SURPLUS LINES   ADMITTED    REINSURANCE   CORPORATE      TOTAL
      (DOLLARS IN THOUSANDS)        -------------   ---------   -----------   ----------   ----------
<S>                                 <C>             <C>         <C>           <C>          <C>
SIX MONTHS ENDED JUNE 30, 2002:
Revenue:
Gross premiums written............    $278,991      $133,091      $23,000     $       --   $  435,082
Net premiums written..............      54,277        32,818       23,000             --      110,095
Net premiums earned...............      46,899        25,447       22,750             --       95,096
Net investment income.............          --            --           --          8,879        8,879
Net realized investment losses....          --            --           --         (7,914)      (7,914)
                                      --------      --------      -------     ----------   ----------
  Total revenue...................      46,899        25,447       22,750            965       96,061
Losses and expenses:
Net losses and loss adjustment
  expenses........................      33,868        18,208       22,750             --       74,826
Acquisition costs and other
  underwriting expenses...........                                                12,286       12,286
Provision for doubtful reinsurance
  receivables.....................          --            --           --             --           --
Other operating expenses..........          --            --           --          1,423        1,423
Interest and other investment
  expense.........................          --            --           --             28           28
                                      --------      --------      -------     ----------   ----------
Income (loss) before income
  taxes...........................      13,031         7,239           --        (12,772)       7,498
Income tax expense................          --            --           --            431          431
                                      --------      --------      -------     ----------   ----------
Net income (loss) before equity in
  net loss of partnerships........      13,031         7,239           --        (13,203)       7,067
Equity in net loss of
  partnerships....................          --            --           --           (283)        (283)
                                      --------      --------      -------     ----------   ----------
  Net income (loss)...............    $ 13,031      $  7,239      $    --     $  (13,486)  $    6,784
                                      ========      ========      =======     ==========   ==========
  Total assets....................                                            $1,757,877   $1,757,877
                                                                              ==========   ==========
</Table>

                                       F-34
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

<Table>
<Caption>
                                     EXCESS AND     SPECIALTY
                                    SURPLUS LINES   ADMITTED    REINSURANCE   CORPORATE      TOTAL
      (DOLLARS IN THOUSANDS)        -------------   ---------   -----------   ----------   ----------
<S>                                 <C>             <C>         <C>           <C>          <C>
SIX MONTHS ENDED JUNE 30, 2003:
Revenue:
Gross premiums written............    $241,952      $121,001      $    --     $       --   $  362,953
Net premiums written..............      57,493        41,968           --             --       99,461
Net premiums earned...............      56,240        38,157           --             --       94,397
Net investment income.............          --            --           --          9,329        9,329
Net realized investment gains.....          --            --           --          3,116        3,116
                                      --------      --------      -------     ----------   ----------
  Total revenue...................      56,240        38,157           --         12,445      106,842
Losses and Expenses:
Net losses and loss adjustment
  expenses........................      38,007        23,839           --             --       61,846
Acquisition costs and other
  underwriting expenses...........          --            --           --         20,733       20,733
Provision for doubtful reinsurance
  receivables.....................          --            --           --          1,750        1,750
Other operating expenses..........          --            --           --            367          367
Interest and expense..............          --            --           --             12           12
                                      --------      --------      -------     ----------   ----------
Income (loss) before income
  taxes...........................      18,233        14,318           --        (10,417)      22,134
Income tax expense................          --            --           --          5,012        5,012
                                      --------      --------      -------     ----------   ----------
Net income (loss) before equity in
  net income of partnerships......      18,233        14,318           --        (15,429)      17,122
Equity in net income of
  partnerships....................          --            --           --          1,487        1,487
                                      --------      --------      -------     ----------   ----------
  Net income (loss)...............    $ 18,233      $ 14,318      $    --     $  (13,942)  $   18,609
                                      ========      ========      =======     ==========   ==========
  Total assets....................                                            $2,782,655   $2,782,655
                                                                              ==========   ==========
</Table>

(3)  RELATED PARTY TRANSACTIONS

       As of December 31, 2002 and June 30, 2003, the Company had balances
payable due to affiliates totaling approximately $163,000 and $101,000,
respectively.

       During 2001, the Company made a loan to AMC Group, LLC (an affiliate).
This note, which was carried at amortized cost of $758,147, was included in
other invested assets as of December 31, 2002. In April 2003, this note was sold
for $616,234 (the amortized value as of April 30, 2003) to American
Manufacturing Corporation (an affiliate). No gain or loss was realized on the
sale to American Manufacturing Corporation.

       During 2001, AIS purchased a promissory note from Philadelphia Gear
Corporation, an affiliate, for $2,354,733. The annual rate of interest on this
note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2,354,733, was
included in other invested assets as of December 31, 2002. In April 2003, this
note was sold for $2,354,733 to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

                                       F-35
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(4)  COMMITMENTS AND CONTINGENCIES

       The Company has committed to investing $62,151,000 over a period of time
into several limited liability partnership funds. As of June 30, 2003,
$43,236,000 has been invested. During July and August of 2003, an additional
$2,663,000 was invested. On August 25, 2003, the Company sold its interest in
six limited liability partnership funds to AMC, an affiliate, for $5,978,586.
AMC also assumed the Company's future investment commitments, totaling
$6,599,000, with respect to the six limited liability funds purchased. Excluding
the investment commitments transferred to American Manufacturing Corporation,
the Company has a remaining commitment of $9,653,000. The timing and funding of
this remaining commitment has not been determined. As investment opportunities
are identified by the partnerships, capital calls will be made.

       Various lawsuits against the Company have arisen in the ordinary course
of the Company's business, including defending coverage claims brought against
the Company by its policyholders or others. The Company's litigation, including
coverage claims matters, is subject to many uncertainties, and given their
complexity and scope, the outcomes cannot be predicted with certainty. It is
possible that the results of operations in a particular quarterly or annual
period could be materially affected by an ultimate unfavorable outcome of
litigation and /or coverage claim matters. Management believes, however, that
the ultimate outcome of all litigation and coverage claim matters after
consideration of applicable reserves should not have a material adverse effect
on the Company's financial condition.

       On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29
million, plus interest in excess of $10 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc. purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

       In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance Company Ltd. and Partner
Reinsurance Company of the U.S. seeking recovery under a reinsurance agreement
covering the business produced by Worldwide Weather Insurance Agency on a 100%
quota share basis. In addition, if it were held liable to Bank of America on the
grounds DSIC was negligent in appointing the Worldwide Weather Insurance Agency,
DSIC is claiming indemnification and contribution from Partner Reinsurance
Company of the U.S. because of its role in the appointment of the agency's
principal and the Worldwide Weather Insurance Agency. The arbitration has been
consolidated into the Bank of America litigation for discovery purposes, and is
not likely to proceed to a hearing until the Bank of America litigation is
resolved.

       During 2002, the Company established a $25,000,000 Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate
                                       F-36
<PAGE>
                       WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(LIBOR) plus 65 basis points or the Prime Rate. The Revolving Credit Facility
was converted to a Demand Discretionary Facility in February 2003. As of June
30, 2003, there were no balances due in connection with this credit facility.

(5)  SUBSEQUENT EVENTS

       On May 1, 2003, affiliates of Fox Paine and Company, LLC, a San
Francisco, California based private equity firm, entered into an Investment
Agreement in which they agreed to acquire a controlling interest in the Wind
River Investment Corporation, the Company's direct parent, from a group of
family trusts affiliated with the Ball family of Philadelphia, Pennsylvania,
which trusts then held 100% of the issued and outstanding shares of Wind River
Investment Corporation. The transactions contemplated by the Investment
Agreement, as it had been subsequently amended, were completed on September 5,
2003.

       On August 25, 2003, the Company sold its interest in six limited
liability partnership funds to American Manufacturing Corporation, an affiliate,
for $5,978,586, the sum of carrying value per UNIC's March 31, 2003 statutory
financial statement plus any capital calls and less any distributions between
July 1, 2003 and August 25, 2003. The fair value of these investments as of June
30, 2003 was $5,447,693. The Company will record a capital loss of $112,155 in
connection with this transaction.

(6)  NEW ACCOUNTING PRONOUNCEMENTS

       In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

       In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure ("SFAS No. 148"), which amends SFAS Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). The objective of SFAS No. 148 is to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148 does not change the provisions of SFAS No. 123 that permit entities to
continue to apply the intrinsic value method of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Management has determined that
this interpretation will have no effect on the Company's consolidated financial
statements.

       FASB Interpretation 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" became effective December 15, 2002. This interpretation elaborates on
the disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Management has
determined that this interpretation will have no effect on the Company's
consolidated financial statements.

       FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. The interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.
                                       F-37
<PAGE>

      NOTE CONCERNING FINANCIAL INFORMATION OF UNITED NATIONAL GROUP, LTD.

     United National Group, Ltd. was organized by Fox Paine & Company on August
27, 2003, for the purpose of acquiring Wind River Investment Corporation and its
subsidiaries, which acquisition was completed on September 5, 2003. United
National Group, Ltd. did not have any material assets or operations prior to
September 5, 2003. As a result, we have not included any financial information
for United National Group, Ltd.

                                       F-38
<PAGE>

                      GLOSSARY OF SELECTED INSURANCE TERMS

Admitted Company..............   An insurer that is authorized and licensed to
                                 do business in a given jurisdiction.

Broker........................   An intermediary that negotiates contracts of
                                 insurance or reinsurance on behalf of an
                                 insured party, receiving a commission from the
                                 insurer or reinsurer for placement and other
                                 services rendered.

Capacity......................   The percentage of surplus, or the dollar amount
                                 of exposure, that an insurer or reinsurer is
                                 willing or able to place at risk. Capacity may
                                 apply to a single risk, a program, a line of
                                 business or an entire book of business.
                                 Capacity may be constrained by legal
                                 restrictions, corporate restrictions or
                                 indirect restrictions.

Casualty Insurance or
Reinsurance...................   Insurance or reinsurance that is primarily
                                 concerned with the losses caused by injuries to
                                 third persons, i.e., not the insured, or to
                                 property owned by third persons and the legal
                                 liability imposed on the insured resulting
                                 therefrom. It includes, but is not limited to,
                                 employers' liability, workers' compensation,
                                 public liability, automobile liability,
                                 personal liability and aviation liability
                                 insurance. It excludes certain types of losses
                                 that by law or custom are considered as being
                                 exclusively within the scope of other types of
                                 insurance or reinsurance, such as fire or
                                 marine.

Catastrophe...................   A severe loss, typically involving multiple
                                 claimants. Common perils include earthquakes,
                                 hurricanes, hailstorms, severe winter weather,
                                 floods, fires, tornadoes, explosions and other
                                 natural or man-made disasters. Catastrophe
                                 losses may also arise from acts of war, acts of
                                 terrorism and political instability.

Cede; Ceding Company..........   When an insurer reinsures some or all of its
                                 liability with another insurer, it "cedes"
                                 business and is referred to as the "ceding
                                 company."

Claim.........................   Request by an insured or reinsured for
                                 indemnification by an insurance company or a
                                 reinsurance company for loss incurred from an
                                 insured peril or event.

Clash.........................   Exposure to a larger single loss than intended
                                 due to losses incurred under two or more
                                 coverages or policies for the same event.

Combined Ratio................   The sum of the expense ratio and the losses and
                                 loss adjustment expense ratio.

Development...................   The difference between the amount of reserves
                                 for losses and loss adjustment expenses
                                 initially estimated by an insurer and the
                                 amount reestimated in an evaluation on a later
                                 date.

Direct Insurance..............   Insurance sold by an insurer that contracts
                                 with the insured, as distinguished from
                                 reinsurance.

Directors and Officers
Liability.....................   Insurance that covers liability for corporate
                                 directors and officers for wrongful acts,
                                 subject to applicable exclusions, terms and
                                 conditions of the policy.

                                       G-1
<PAGE>

Premiums Earned...............   That portion of property and casualty premiums
                                 written that applies to the expired portion of
                                 the policy term. Earned premiums are recognized
                                 as revenues under both SAP and U.S. GAAP.

Excess and Surplus Lines......   Lines of insurance that admitted companies
                                 generally are not providing in a given
                                 jurisdiction and which are placed through
                                 excess and surplus line brokers with companies
                                 not admitted in the jurisdiction. Excess and
                                 surplus lines policies generally are not
                                 subject to regulations governing premium rates
                                 or policy language. Excess and surplus lines
                                 coverage may be provided for specialty products
                                 or for standard coverages that at such time are
                                 not being offered by admitted companies in the
                                 particular jurisdiction.

Excess of Loss................   Reinsurance or insurance that indemnifies the
                                 reinsured or insured against all or a specified
                                 portion of losses over a specified currency
                                 amount or "retention."

Exclusions....................   Provisions in an insurance or reinsurance
                                 policy excluding certain risks or otherwise
                                 limiting the scope of coverage.

Expense Ratio.................   Under SAP, the ratio of underwriting expenses
                                 to net premiums written. Under generally
                                 accepted accounting principles, the ratio of
                                 acquisition costs and underwriting expenses to
                                 net premiums earned.

Exposure......................   The possibility of loss. A unit of measure of
                                 the amount of risk a company assumes.

Frequency.....................   The number of claims occurring during a given
                                 coverage period.

General Agency................   An independent agency that represents one or
                                 more insurers and has the authority to appoint
                                 sub-agents who write their business through the
                                 general agency. A general agency places
                                 insurance with an insurance company in
                                 accordance with underwriting criteria, terms
                                 and rates established by the insurance company.

Gross Premiums Written and
Acquired......................   Total premiums for insurance written and
                                 assumed reinsurance during a given period.

Incurred but Not Reported, or
"IBNR"........................   The liability for future payments on losses
                                 which have occurred but have not yet been
                                 reported in the insurer's records. This may
                                 include expected future development on reported
                                 claims.

Liability Insurance...........   Same as casualty insurance.

Loss; Losses..................   An occurrence that is the basis for submission
                                 or payment of a claim. Losses may be covered,
                                 limited or excluded from coverage, depending on
                                 the terms of the policy.

Loss Adjustment Expense.......   The expenses of settling claims, including
                                 legal and other fees.

Loss Expenses.................   The expenses of settling claims, including
                                 legal and other fees and the portion of general
                                 expenses allocated to claim settlement costs.

                                       G-2
<PAGE>

Losses and Loss Adjustment
Expense Ratio.................   The ratio of incurred losses and loss
                                 adjustment expenses to premiums earned.
                                 Incurred losses include an estimated provision
                                 for incurred but not reported claims.

Loss Reserves.................   Liabilities established by insurers and
                                 reinsurers to reflect the estimated cost of
                                 claims incurred that the insurer or reinsurer
                                 will ultimately be required to pay in respect
                                 of insurance or reinsurance it has written.
                                 Reserves are established for losses and for
                                 loss expenses, and consist of case reserves and
                                 IBNR reserves. As the term is used in this
                                 prospectus, "loss reserves" is meant to include
                                 reserves for both losses and for loss expenses.

Losses Incurred...............   The total losses sustained by an insurer or
                                 reinsurer under a policy or policies, whether
                                 paid or unpaid. Incurred losses include a
                                 provision for IBNR.

National Association of
Insurance Commissioners, or
"NAIC"........................   An organization of the insurance commissioners
                                 or directors of all 50 states and the District
                                 of Columbia organized to promote consistency of
                                 regulatory practice and statutory accounting
                                 standards throughout the United States.

Net Premiums Earned...........   The portion of net premiums written during or
                                 prior to a given period that was actually
                                 recognized as income during such period.

Net Premiums Written..........   Premiums retained by an insurer after deducting
                                 premiums on business ceded to others.

Non-Admitted Company..........   An insurer not licensed in a given
                                 jurisdiction, but writing insurance in that
                                 jurisdiction on an unregulated basis with the
                                 permission of the insurance regulatory
                                 authorities of that jurisdiction. In some
                                 jurisdictions, non-admitted companies appear on
                                 a list of approved, non-admitted companies.

Policyholders Surplus.........   The amount remaining after all liabilities of
                                 an insurance company are subtracted from all of
                                 its assets, applying statutory accounting
                                 principles. This amount is regarded as
                                 financial protection to policyholders in the
                                 event an insurer suffers unexpected or
                                 unreserved losses.

Premiums......................   The amount charged during the term on policies
                                 and contracts issued, renewed or reinsured by
                                 an insurance company or reinsurance company.

Professional Liability........   Insurance that provides coverage for attorneys,
                                 doctors, accountants and other professionals.

Rates.........................   Amounts charged per unit of insurance and
                                 reinsurance.

Reinsurance...................   A procedure whereby an insurer remits or cedes
                                 a portion of the premium to a reinsurer as
                                 payment to the reinsurer for assuming a portion
                                 of the related risk.

Reported Losses...............   Claims or potential claims that have been
                                 identified to a reinsurer by a ceding company
                                 or to an insurer by an insured.

                                       G-3
<PAGE>

Reserves......................   Estimates at a given point in time of amounts
                                 that an insurance carrier expects to pay on
                                 losses based on facts and circumstances then
                                 known.

Retention.....................   The amount of exposure a policyholder company
                                 retains on any one risk or group of risks. The
                                 term may apply to an insurance policy, where
                                 the policyholder is an individual, family or
                                 business, or a reinsurance policy, where the
                                 policyholder is an insurance company.

Risk-Based Capital, or
"RBC".........................   A measure adopted by the NAIC and enacted by
                                 states for determining the minimum statutory
                                 capital and surplus requirements of insurers
                                 with required regulatory and company actions
                                 that apply when an insurer's capital and
                                 surplus is below these minimums.

Specialty Lines...............   Lines of insurance for risks that are unique,
                                 unusual or otherwise difficult to find insurers
                                 willing to insure.

Statutory Accounting
Principles, or "SAP"..........   Those principles required by state law that
                                 must be followed by insurers in submitting
                                 their financial statements to state insurance
                                 departments.

Statutory Policyholders
Surplus or Surplus............   As determined under SAP, the amount remaining
                                 after all liabilities, including loss reserves,
                                 are subtracted from all admitted assets.
                                 Admitted assets are assets of an insurer
                                 prescribed or permitted by a state to be
                                 recognized on the statutory balance sheet.
                                 Statutory surplus is also referred to as
                                 "surplus" or "surplus as regards policyholders"
                                 for statutory accounting purposes.

TPAs..........................   Third party administrators that are used to
                                 assist in the processing of claims.

Underwriting..................   The process of reviewing applications submitted
                                 for insurance coverage and determining whether
                                 to accept all or part of the coverage being
                                 requested and what the applicable premiums,
                                 terms and conditions should be.

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

U.S. GAAP.....................   United States generally accepted accounting
                                 principles as defined by the American Institute
                                 of Certified Public Accountants or statements
                                 of the Financial Accounting Standards Board.
                                 U.S. GAAP is the method of accounting to be
                                 used by the Company for reporting to
                                 shareholders.

Umbrella Liability............   A form of insurance protection against losses
                                 in excess of amounts covered by other liability
                                 insurance policies or amounts not covered by
                                 the usual liability policies.

Underwriter...................   An employee of an insurance or reinsurance
                                 company who examines, accepts or rejects risks
                                 and classifies accepted risks in

                                       G-4
<PAGE>

                                 order to charge an appropriate premium for each
                                 accepted risk. The underwriter is expected to
                                 select business that will produce an average
                                 risk of loss no greater than that anticipated
                                 for the class of business.

Unearned Premium..............   The portion of premiums written that is
                                 allocable to the unexpired portion of the
                                 policy term.

                                       G-5
<PAGE>

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

     Through and including           , 2003, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

                                     SHARES

                          [UNITED NATIONAL GROUP LOGO]

                          UNITED NATIONAL GROUP, LTD.

                             CLASS A COMMON SHARES

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

                                   PROSPECTUS
                             ----------------------

                              MERRILL LYNCH & CO.
                         BANC OF AMERICA SECURITIES LLC
                       DOWLING & PARTNERS SECURITIES, LLC

                                           , 2003

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

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

       The following table sets forth the estimated expenses expected to be
incurred by the registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions.

<Table>
<S>                                                            <C>
Securities and Exchange Commission registration fee.........   $18,607
National Association of Securities Dealers, Inc. filing
  fee.......................................................         *
Nasdaq National Market listing fee..........................         *
Legal fees and expenses.....................................         *
Accounting fees and expenses................................         *
Blue sky fees and expenses..................................         *
Printing and engraving expenses.............................         *
Registrar and transfer agent fees and expenses..............         *
Miscellaneous fees and expenses.............................         *
                                                               -------
     Total..................................................   $     *
                                                               -------
</Table>

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

* To be filed by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

       The articles of association of the registrant provide for the
indemnification of its directors and officers. Specifically, under the
indemnification provisions, the registrant will indemnify its directors and
officers to the fullest extent permitted by law against liabilities that are
incurred by the directors or officers while executing the duties of their
respective offices. The directors and officers, however, will not be entitled to
the indemnification if they incurred the liabilities through their own willful
default or fraud.

       The board resolutions of the registrant provide for the indemnification
of its directors and officers against any claims arising out of or relating to
the preparation, filing and distribution of this registration statement or the
prospectus contained in this registration statement. The resolutions expressly
authorize the registrant to indemnify its directors and officers to the fullest
extent permitted by law.

       The registrant is an exempted company with limited liability incorporated
in the Cayman Islands. As such, it is subject to and governed by the laws of the
Cayman Islands with respect to the indemnification provisions. Although The
Companies Law (2003 Revision) of the Cayman Islands does not specifically
restrict a Cayman Islands company's ability to indemnify its directors or
officers, it does not expressly provide for such indemnification either. Certain
English case law (which is likely to be persuasive in the Cayman Islands),
however, indicate that the indemnification is generally permissible, unless
there had been fraud, willful default or reckless disregard on the part of the
director or officer in question.

       The registrant has entered into indemnification agreements with its
directors and officers, whereby the registrant agreed to indemnify its directors
and officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that such director or officer is or was a director, officer, employee or
agent of the registrant, provided that such director or officer acted in good
faith and in a manner that the director or officer reasonably believed to be in,
or not opposed to, the best interest of the registrant. At present, there is no
pending litigation or proceeding involving a director or officer of the
registrant regarding which indemnification is sought, nor is the registrant
aware of any threatened litigation that may result in claims for
indemnification.

                                       II-1
<PAGE>

       The registrant maintains insurance policies that indemnify its directors
and officers against various liabilities arising under the Securities Act of
1933 and the Securities Exchange Act of 1934 that might be incurred by any
director or officer in his capacity as such.

       The underwriters are obligated, under certain circumstances, pursuant to
the underwriting agreement to be filed as Exhibit 1.1 hereto, to indemnify the
registrant, the selling shareholder, the directors, certain officers and
controlling persons of the registrant against liabilities under the Securities
Act of 1933, as amended.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

       In the three years prior to the filing of this registration statement,
the registrant issued the following unregistered securities:

       1.  Upon the incorporation of the registrant on August 26, 2003, One
           subscriber share was issued to the incorporator, Roderick Palmer,
           which share was repurchased by the registrant on September 5, 2003.
           Such sale was deemed to be exempt from registration under the
           Securities Act in reliance on Section 4(2) of the Securities Act as a
           transaction not involving any public offering.

       2.  On August 29, 2003, the registrant issued 15,000 Class B Common
           Shares, par value $0.0001 per share (the "Class B Shares") to U.N.
           Holdings (Cayman) Ltd. in exchange for consideration of $150,000 in
           cash. Such sale was deemed to be exempt from registration under the
           Securities Act in reliance on Section 4(2) of the Securities Act as a
           transaction not involving any public offering.

       3.  On September 5, 2003, the registrant issued an aggregate of 2,500,000
           Class A Common Shares, par value $0.0001 per share (the "Class A
           Shares"), 9,985,000 Class B Shares, and 17,500,000 Series A Preferred
           Shares, par value $0.0001 per share (the "Preferred Shares"), in
           connection as described under "Our Relationship with Fox Paine &
           Company." Such sales were deemed to be exempt from registration under
           the Securities Act in reliance on Section 4(2) of the Securities Act
           as a transaction not involving any public offering. The Amended and
           Restated Investment Agreement pursuant to which such issuances were
           effected is filed as an exhibit to this registration statement.

       4.  On September 5, 2003, the registrant issued an aggregate of 198,750
           Class A Shares to Seth A. Freudberg, Richard S. March, Kevin L. Tate,
           Robert Cohen, William F. Schmidt and Jonathan Ritz, each of whom is
           an officer of subsidiaries of the registrant, in exchange for an
           aggregate of $2 million in cash. Such sales were deemed to be exempt
           from registration under the Securities Act in reliance on Section
           4(2) of the Securities Act as a transaction not involving any public
           offering.

       5.  On September 5, 2003, options to purchase an aggregate of 1,138,574
           Class A Shares were granted under the registrant's Stock Incentive
           Plan at a weighted average exercise price of $9.21 per share. The
           issuance of the Class A Shares under such plan was deemed to be
           exempt from registration under the Securities Act by virtue of Rule
           701 promulgated under Section 3(b) of the Securities Act as
           transactions pursuant to compensation benefit plans and contracts
           relating to compensation.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

       The following exhibits are being filed with this registration statement
pursuant to Item 601 of Regulation S-K.

                                       II-2
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  1.1*    Form of Underwriting Agreement
  2.1*    Amended and Restated Investment Agreement, dated as of
          September 5, 2003, by and among U.N. Holdings (Cayman),
          Ltd., United National Group Ltd., U.N. Holdings II, Inc.,
          U.N. Holdings Inc., Wind River Investment Corporation and
          certain Trusts Listed on Schedule A thereof.
  3.1*    Amended and Restated Memorandum and Articles of Association
          of United National Group Ltd.
  3.2*    Written Resolutions of the Board of Directors Designating
          the Rights and Preferences of the Series A Preferred Shares
          of United National Group Ltd., dated September 5, 2003
  4.1*    Form of 5.0% Senior Note, due September 5, 2015, of Wind
          River Investment Corporation
  4.2*    Deed of Guaranty, dated September 5, 2003, by United
          National Group Ltd. in favor of the holders of the 5.0%
          Senior Notes, due September 5, 2015, of Wind River
          Investment Corporation
  5.1*    Legal Opinion of Walkers
 10.1*    Shareholders Agreement, dated as of September 5, 2003, by
          and among United National Group Ltd., U.N. Holdings (Cayman)
          Ltd. and those trusts signatory thereto.
 10.2*    Management Shareholders Agreement, dated as of September 5,
          2003, by and among United National Group Ltd. and those
          management shareholder signatory thereto.
 10.3*    Management Agreement, dated as of September 5, 2003, by and
          among United National Group Ltd., Fox Paine & Company, LLC
          and The AMC Group, L.P., with related Indemnity Letter.
 10.4.*   United National Group Ltd. Stock Incentive Plan.
 10.5*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Seth A.
          Freudberg.
 10.6*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Richard S.
          March.
 10.7*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Kevin L. Tate.
 10.8*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Robert Cohen.
 10.9*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and William F.
          Schmidt.
 10.10*   Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Jonathan Ritz.
 11.1*    Statement Regarding Computation of Per Share Earnings.
 21.1*    List of Subsidiaries
 23.1     Consent of PricewaterhouseCoopers LLP
 23.2*    Consent of Walkers (included in Exhibit 5)
 24.1*    Powers of Attorney (included on the signature pages hereto)
 27.1*    Financial Data Schedule
 99.1*    Form F-N
</Table>

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

* To be filed by amendment.

ITEM 17.  UNDERTAKINGS

       Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant

                                       II-3
<PAGE>

of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

       The undersigned registrant hereby undertakes that:

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

                2.  For the purpose of determining any liability under the
       Securities Act of 1933, each post-effective amendment that contains a
       form of prospectus shall be deemed to be a new registration statement
       relating to the securities offered therein, and the offering of such
       securities at that time shall be deemed to be the initial bona fide
       offering thereof.

                                       II-4
<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on September 16, 2003.

                                          UNITED NATIONAL GROUP, LTD.

                                          By:        /s/ SAUL A. FOX
                                            ------------------------------------
                                          Name:  Saul A. Fox
                                          Title:   Chairman and Chief Executive
                                          Officer

                               POWER OF ATTORNEY

       KNOW ALL PERSONS BY THESE PRESENTS:  that each person whose signature
appears below hereby constitutes and appoints Saul A. Fox, Troy W. Thacker and
Kevin L. Tate, and each of them, that person's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for that person
and in that person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to the registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as full to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute, may lawfully do or cause to be done
by virtue hereof.

       Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on September 16, 2003.

<Table>
<Caption>
SIGNATURE                                                 TITLE
---------                                                 -----
<C>                                                       <S>



                    /s/ SAUL A. FOX                       Chairman and Chief Executive Officer
--------------------------------------------------------
                      Saul A. Fox




                  /s/ TROY W. THACKER                     President and Director
--------------------------------------------------------
                    Troy W. Thacker




                   /s/ KEVIN L. TATE                      Principal Financial Officer
--------------------------------------------------------
                     Kevin L. Tate




                /s/ W. DEXTER PAINE, III                  Director
--------------------------------------------------------
                  W. Dexter Paine, III




                 /s/ ANGELOS J. DASSIOS                   Director
--------------------------------------------------------
                   Angelos J. Dassios




                /s/ RUSSELL C. BALL, III                  Director
--------------------------------------------------------
                  Russell C. Ball, III
</Table>

                                       II-5
<PAGE>

                       REPORT OF INDEPENDENT AUDITORS ON
                         FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of
  Wind River Investment Corporation:

Our audits of the consolidated financial statements referred to in our report
dated June 25, 2003 appearing in this Registration Statement on Form S-1 also
included an audit of the financial statement schedules listed in Item 16(a)(2)
of this Registration Statement. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP
Philadelphia, PA
June 25, 2003

                                       S-1
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

         SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS
                   IN RELATED PARTIES AS OF DECEMBER 31, 2002

<Table>
<Caption>
                                                                                     AMOUNT AT
                                                                                       WHICH
                                                                                   SHOWN IN THE
                                                        COST*          VALUE       BALANCE SHEET
                                                     ------------   ------------   -------------
<S>                                                  <C>            <C>            <C>
TYPE OF INVESTMENT:
BONDS
  United States Government and government agencies
     and authorities...............................  $ 29,364,450   $ 30,667,363   $ 30,667,363
  States, municipalities, and political
     subdivisions..................................   395,938,043    407,297,598    407,297,598
  Foreign Governments..............................            --             --             --
  Public Utilities.................................       823,049        748,125        748,125
  Convertibles and bonds with warrants attached....    14,090,269     13,859,313     13,859,313
  All other corporate bonds........................     9,654,972      8,452,673      8,452,673
Certificates of deposit............................            --             --             --
Redeemable preferred stock.........................       825,404        653,600        653,600
                                                     ------------   ------------   ------------
       Total fixed maturities......................   450,696,187    461,678,672    461,678,672
                                                     ============   ============   ============
EQUITY SECURITIES
Common Stocks......................................       669,740        542,327        542,327
  Public Utilities.................................     4,437,379      3,863,048      3,863,048
  Banks, trusts and insurance companies............    32,038,313     27,198,250     27,198,250
Non-redeemable preferred stock.....................     2,159,780      2,452,888      2,452,888
                                                     ------------   ------------   ------------
       Total equity securities.....................    39,305,212     34,056,513     34,056,513
                                                     ============   ============   ============
Mortgage loans on real estate......................     1,277,098             --      1,166,556
Real estate........................................            --             --             --
Policy loans.......................................            --             --             --
Other long-term investments........................    41,199,230             --     41,285,106
Short-term investments.............................            --             --             --
                                                     ------------   ------------   ------------
       Total Investments...........................  $532,477,727   $495,735,185   $538,186,847
                                                     ============   ============   ============
</Table>

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

* Original cost of equity securities; original cost of fixed maturities adjusted
  for amortization of premiums and accretion of discounts. All amounts are shown
  net of impairment losses.

                                       S-2
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

              SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
         AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
<Table>
<Caption>
                                     FUTURE POLICY                    OTHER                                   BENEFITS,
                        DEFERRED       BENEFITS,                      POLICY                                   CLAIMS,
                         POLICY      LOSSES, CLAIMS                    AND                         NET        LOSSES AND
                       ACQUISITION      AND LOSS        UNEARNED     BENEFITS     PREMIUM      INVESTMENT     SETTLEMENT
       SEGMENT            COSTS         EXPENSES        PREMIUMS     PAYABLE      REVENUE        INCOME        EXPENSES
       -------         -----------   --------------   ------------   --------   ------------   -----------   ------------
<S>                    <C>           <C>              <C>            <C>        <C>            <C>           <C>
2000:
Excess and Surplus
  Lines..............          --                --             --       --       40,504,000            --     24,613,000
Specialty Admitted...          --                --             --       --       25,677,000            --     18,408,000
Reinsurance..........          --                --             --       --       70,750,000            --     70,130,000
Corporate............      (8,000)      800,630,000    150,078,000       --               --    22,490,000             --
Total................  $   (8,000)   $  800,630,000   $150,078,000       --     $136,931,000   $22,490,000   $113,151,000

2001:
Excess and Surplus
  Lines..............          --                --             --       --       59,004,000            --     43,880,000
Specialty Admitted...          --                --             --       --       36,582,000            --     29,075,000
Reinsurance..........          --                --             --       --       54,750,000            --     55,383,000
Corporate............     428,000       907,357,000    214,028,000       --               --    19,353,000             --
Total................     428,000       907,357,000    214,028,000       --      150,336,000    19,353,000    128,338,000

2002:
Excess and Surplus
  Lines..............  $       --    $           --   $         --       --     $101,474,000   $        --   $128,642,000
Specialty Admitted...          --                --             --       --       53,039,000            --     64,857,000
Reinsurance..........          --                --             --       --        8,250,000            --      8,251,000
Corporate............   3,289,000     2,004,422,000    247,138,000       --               --    17,685,000             --
Total................   3,289,000     2,004,422,000    247,138,000       --      162,763,000    17,685,000    201,750,000

<Caption>
                       AMORTIZATION
                       OF DEFERRED
                          POLICY         OTHER
                       ACQUISITION     OPERATING      PREMIUMS
       SEGMENT            COSTS        EXPENSES       WRITTEN
       -------         ------------   -----------   ------------
<S>                    <C>            <C>           <C>
2000:
Excess and Surplus
  Lines..............           --                    40,663,000
Specialty Admitted...           --             --     24,909,000
Reinsurance..........           --             --     62,000,000
Corporate............      280,000      2,918,000             --
Total................  $   280,000    $ 2,918,000   $127,572,000

2001:
Excess and Surplus
  Lines..............           --             --     68,226,000
Specialty Admitted...           --             --     39,084,000
Reinsurance..........           --             --     62,000,000
Corporate............     (436,000)     2,220,000             --
Total................     (436,000)     2,220,000    169,310,000

2002:
Excess and Surplus
  Lines..............  $        --    $        --   $112,110,000
Specialty Admitted...           --             --     60,579,000
Reinsurance..........           --             --             --
Corporate............    2,861,000      5,874,000             --
Total................    2,861,000      5,874,000    172,689,000
</Table>

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

                                       S-3
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION

                           SCHEDULE IV -- REINSURANCE
                                EARNED PREMIUMS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<Table>
<Caption>
                                                                                         PERCENTAGE
                                                 CEDED TO    ASSUMED FROM                OF AMOUNT
                                       GROSS       OTHER        OTHER                    ASSUMED TO
                                       AMOUNT    COMPANIES    COMPANIES     NET AMOUNT      NET
       (DOLLARS IN THOUSANDS)         --------   ---------   ------------   ----------   ----------
<S>                                   <C>        <C>         <C>            <C>          <C>
2000
Property and Liability Insurance....  $374,179   $311,875      $74,627       $136,931        54%
2001
Property and Liability Insurance....  $547,963   $456,226      $58,599       $150,336        39%
2002
Property & Liability Insurance......  $750,426   $597,201      $ 9,538       $162,763         6%
</Table>

                                       S-4
<PAGE>

                       WIND RIVER INVESTMENT CORPORATION
  SCHEDULE VI -- SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY UNDERWRITERS
          AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, 2000
                             (DOLLARS IN THOUSANDS)
<Table>
<Caption>
                                     RESERVES FOR
                        DEFERRED     UNPAID CLAIMS
                         POLICY        AND CLAIM     DISCOUNT IF ANY
                       ACQUISITION    ADJUSTMENT       DEDUCTED IN     UNEARNED    EARNED    NET INVESTMENT
                          COSTS        EXPENSES         COLUMN C       PREMIUMS   PREMIUMS       INCOME
                       -----------   -------------   ---------------   --------   --------   --------------
<S>                    <C>           <C>             <C>               <C>        <C>        <C>
Consolidated Property
  Casualty Entities
  2002...............    $3,289       $2,004,422                       $247,138   $162,763      $17,685
  2001...............       428          907,357                       214,028    150,336        19,353
  2000...............        (8)         800,630                       150,078    136,931        22,490
Unconsolidated
  property Casualty
  Entities(1)
  2002...............
  2001...............
  2000...............
Proportionate share
  of UNG and its
  subsidiaries
  50-percent-or-less-
  owned property
  casualty
  investees(1)
  2002...............
  2001...............
  2000...............

<Caption>
                           CLAIMS AND CLAIM
                          ADJUSTMENT EXPENSE       AMORTIZATION OF   PAID CLAIMS
                          INCURRED RELATED TO      DEFERRED POLICY    AND CLAIM
                       -------------------------     ACQUISITION     ADJUSTMENT    PREMIUMS
                       CURRENT YEAR   PRIOR YEAR        COSTS         EXPENSES     WRITTEN
                       ------------   ----------   ---------------   -----------   --------
<S>                    <C>            <C>          <C>               <C>           <C>
Consolidated Property
  Casualty Entities
  2002...............    $130,327      $ 71,423        $(2,861)       $ 97,714     $172,689
  2001...............     134,558        (6,220)          (436)        102,680      169,310
  2000...............     123,476       (10,325)           280         149,892      127,572
Unconsolidated
  property Casualty
  Entities(1)
  2002...............
  2001...............
  2000...............
Proportionate share
  of UNG and its
  subsidiaries
  50-percent-or-less-
  owned property
  casualty
  investees(1)
  2002...............
  2001...............
  2000...............
</Table>

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

(1) All of the Companies entities are 100% owned and consolidated.

                                       S-5
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  1.1*    Form of Underwriting Agreement
  2.1*    Amended and Restated Investment Agreement, dated as of
          September 5, 2003, by and among U.N. Holdings (Cayman),
          Ltd., United National Group, Ltd., U.N. Holdings II, Inc.,
          U.N. Holdings LLC, U.N. Holdings Inc., Wind River Investment
          Corporation and certain Trusts Listed on Schedule A thereof.
  3.1*    Amended and Restated Memorandum and Articles of Association
          of United National Group Ltd.
  3.2*    Written Resolutions of the Board of Directors Designating
          the Rights and Preferences of the Series A Preferred Shares
          of United National Group, Ltd., dated September 5, 2003
  4.1*    Form of 5.0% Senior Note, due September 5, 2015, of Wind
          River Investment Corporation
  4.2*    Deed of Guaranty, dated September 5, 2003, by United
          National Group, Ltd. in favor of the holders of the 5.0%
          Senior Notes, due September 5, 2015, of Wind River
          Investment Corporation
  5.1*    Legal Opinion of Walkers
 10.1*    Shareholders Agreement, dated as of September 5, 2003, by
          and among United National Group Ltd., U.N. Holdings (Cayman)
          Ltd. and those trusts signatory thereto.
 10.2*    Management Shareholders Agreement, dated as of September 5,
          2003, by and among United National Group, Ltd. and those
          management shareholder signatory thereto.
 10.3*    Management Agreement, dated as of September 5, 2003, by and
          among United National Group, Ltd., Fox Paine & Company, LLC
          and The AMC Group, L.P., with related Indemnity Letter.
 10.4.*   United National Group, Ltd. Stock Incentive Plan.
 10.5*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Seth A.
          Freudberg.
 10.6*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Richard S.
          March.
 10.7*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Kevin L. Tate.
 10.8*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Robert Cohen.
 10.9*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and William F.
          Schmidt.
 10.10*   Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Jonathan Ritz.
 11.1*    Statement Regarding Computation of Per Share Earnings.
 21.1*    List of Subsidiaries
 23.1     Consent of PricewaterhouseCoopers LLP
 23.2*    Consent of Walkers (included in Exhibit 5)
 24.1*    Powers of Attorney (included on the signature pages hereto)
 27.1*    Financial Data Schedule
 99.1*    Form F-N
</Table>

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

* To be filed by amendment.
[{"type": "S-1", "sequence": "1", "filename": "y89782sv1.txt", "description": "FORM S-1", "secsgml_size_bytes": 709990}]
{"company-data": {"conformed-name": "UNITED NATIONAL GROUP LTD", "cik": "0001263813", "state-of-incorporation": "E9", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-108857", "film-number": "03898572"}, "mail-address": {"street1": "PO BOX 9086GT", "city": "GEORGETOWN GRAND CAYMAN ISLAND", "state": "E9", "zip": "999999999"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 2003

                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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

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

                          UNITED NATIONAL GROUP, LTD.
             (Exact name of registrant as specified in its charter)
CAYMAN ISLANDS                                6399                                 APPLIED FOR
    (State or other jurisdiction of            (Primary Standard Industrial                   (I.R.S. Employer
     incorporation or organization)                Classification Code)                     Identification No.)
---------------------
                          WALKER HOUSE, 87 MARY STREET
                                P.O. BOX 9086GT
                           GEORGE TOWN, GRAND CAYMAN
                                 CAYMAN ISLANDS
                                 (345) 949-0100
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                             ---------------------
                        NATIONAL REGISTERED AGENTS, INC.
                         440 NINTH AVENUE, FIFTH FLOOR
                            NEW YORK, NEW YORK 10001
                                 (800) 767-1553
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                             ---------------------
                                   COPIES TO:
ELLIOTT V. STEIN                                             PHYLLIS G. KORFF
               WACHTELL, LIPTON, ROSEN & KATZ                                   SKADDEN, ARPS, SLATE,
                    51 WEST 52ND STREET                                           MEAGHER & FLOM LLP
                     NEW YORK, NY 10019                                           FOUR TIMES SQUARE
                       (212) 403-1000                                             NEW YORK, NY 10036
                 FACSIMILE: (212) 403-2000                                          (212) 735-3000
                                                                              FACSIMILE: (212) 735-2000
---------------------
       APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
                             ---------------------
       If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 the Securities Act of
1933, check the following box:  [ ]

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

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

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

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

                        CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
                                                                 PROPOSED MAXIMUM
                   TITLE OF EACH CLASS OF                       AGGREGATE OFFERING             AMOUNT OF
                SECURITIES TO BE REGISTERED                         PRICE(1)(2)            REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------
Class A common shares, $0.0001 par value per share..........       $230,000,000                 $18,607
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
(1) Includes Class A common shares, if any, that may be sold pursuant to the
    underwriters' overallotment option.

(2) Estimated solely for the purposes of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
                             ---------------------
       THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

                             SUBJECT TO COMPLETION

                 PRELIMINARY PROSPECTUS DATED           , 2003

PROSPECTUS

                                           SHARES

                          [UNITED NATIONAL GROUP LOGO]
                          UNITED NATIONAL GROUP, LTD.
                             CLASS A COMMON SHARES
                             ----------------------
     This offering is the initial public offering of Class A common shares of
United National Group. Prior to this offering there has been no public market
for our Class A common shares. All of the Class A common shares are being sold
by United National Group.

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

     INVESTING IN OUR CLASS A COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
                             ----------------------
PER SHARE              TOTAL
                                                              ---------              -----
Public offering price.......................................      $                    $
Underwriting discount.......................................      $                    $
Proceeds, before expenses, to United National Group.........      $                    $
The underwriters may also purchase up to an additional           Class A
common shares from us and an additional      Class A common shares from the
selling shareholders at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
overallotments. United National Group will not receive any proceeds from the
sale of Class A common shares by the selling shareholders.

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

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

                              MERRILL LYNCH & CO.
                             ----------------------
BANC OF AMERICA SECURITIES LLC                DOWLING & PARTNERS SECURITIES, LLC
                             ----------------------
                The date of this prospectus is           , 2003.
TABLE OF CONTENTS
PAGE
                                                              ----
Summary.....................................................    1
Risk Factors................................................    8
Cautionary Note Regarding Forward-Looking Statements........   27
Use of Proceeds.............................................   28
Dividend Policy.............................................   28
Capitalization..............................................   29
Dilution....................................................   30
Pro Forma Financial Information.............................   31
Selected Historical Financial Data..........................   39
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   41
Industry Background and Trends..............................   58
Business....................................................   60
Regulation..................................................   78
Management..................................................   83
Principal Shareholders......................................   92
Selling Shareholders........................................   95
Our Relationship with Fox Paine & Company...................   96
Certain Relationships and Related Transactions..............   99
Description of Share Capital................................  101
Shares Eligible for Future Sale.............................  109
Material Tax Considerations.................................  111
Underwriting................................................  122
Legal Matters...............................................  125
Experts.....................................................  125
Where You Can Find More Information.........................  125
Enforceability of Civil Liabilities Under United States
  Federal Securities Laws and Other Matters.................  125
Index to Financial Statements...............................  F-1
Glossary of Selected Insurance Terms........................  G-1
---------------------
       You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information that is different from, or in addition to, that contained in this
prospectus. We are offering to sell and seeking offers to buy our Class A common
shares only in states and jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our Class A common shares.
                             ---------------------
       In this prospectus, unless the context requires otherwise, (1) references
to "United National Group" refer to United National Group, Ltd., an exempted
company incorporated with limited liability under the laws of the Cayman
Islands, (2) references to "we," "us" and "our" refer to United National Group
and its subsidiaries as a whole, (3) references to our "U.S. Operations" refer
to the insurance and related operations conducted by American Insurance Service,
Inc., and its subsidiaries, including American Insurance Adjustment Agency,
Inc., Diamond State Insurance Company, J.H. Ferguson & Associates, LLC, United
National Casualty Insurance Company, United National Insurance Company and
United National Specialty Insurance Company, (4) references to our "U.S.
Insurance Subsidiaries" refer to Diamond State Insurance Company, United
National Casualty Insurance Company, United National Insurance Company, and
United National Specialty Insurance Company, (5) references to "U.N. Barbados"
refer to Wind River Insurance Company (Barbados), Ltd., (6) our "Non-U.S.
Operations" refer to the insurance and reinsurance and related operations of
U.N. Barbados, (7) references to "Fox Paine & Company" refer to Fox Paine &
Company, LLC and affiliated investment funds, (8) references to our articles of
association are to our articles of association as they will be amended and
restated immediately prior to completion of this offering and (9) references to
"$" or "dollars" refer to U.S. dollars.
SUMMARY

       This summary highlights only selected information contained elsewhere in
this prospectus. This summary does not contain all of the information you should
consider before investing in our Class A common shares. You should read this
entire prospectus carefully, including "Risk Factors," "Cautionary Statement
Regarding Forward-Looking Statements" and the consolidated financial statements
and accompanying notes of Wind River Investment Corporation beginning on page
F-1 before investing in our Class A common shares. We have included a glossary
of insurance terms that are used in this prospectus beginning on page G-1.

                                  OUR BUSINESS

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

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

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

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

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

                       ACQUISITION OF OUR U.S. OPERATIONS

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

       To effect this acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We purchased the
remainder with consideration consisting of 2.5 million Class A common shares,
3.5 million Series A preferred shares and senior notes issued by Wind River
Investment Corporation having an aggregate principal amount of approximately
$72.8 million. Of the remaining $140.0 million contributed to us, we contributed
$80.0 million to our U.S. Operations, used $43.5 million to capitalize our

                                        1
Non-U.S. Operations and used $16.5 million to fund fees and expenses incurred in
connection with the acquisition. See "Our Relationship with Fox Paine &
Company."

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

OUR COMPETITIVE STRENGTHS

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

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

       -     EXPERIENCED MANAGEMENT TEAM.  Our experienced management team has
             an average of over 23 years of experience in the insurance industry
             and has been with us for an average of 17 years.

       -     EXTENSIVE SPECIALIZED NICHE UNDERWRITING CAPABILITIES.  We have an
             experienced, focused underwriting organization of 63 dedicated
             underwriting professionals, which has contributed to a 95.4% simple
             average statutory combined ratio over the past 20 years.

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

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

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

OUR STRATEGY

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

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

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

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

       -     MAINTAINING A CONSERVATIVE BALANCE SHEET AND A STRONG A.M. BEST
             RATING.  We intend to remain conservative in our underwriting,
             reinsurance buying and investment practices and to use extensive
             modeling techniques to protect our current position with the rating
             agencies, particularly A.M. Best.

       -     BUILDING SHAREHOLDER VALUE.  By growing underwriting profits
             through our disciplined approach and conservatively managing our
             investment portfolio, we intend to grow shareholders' equity over
             the long term.
                                        2
RECENT TRENDS IN OUR INDUSTRY

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

       We believe that these trends continued and accelerated in 2001 when the
property and casualty insurance industry experienced a severe dislocation as a
result of an unprecedented impairment of capital, causing a substantial
contraction in industry underwriting capacity. These factors have resulted in a
general environment of rate increases and conservative risk selection. In this
environment, rates tend to increase, coverage terms become more restrictive and
a significant volume of premium moves from the standard property and casualty
insurance market into the specialty insurance market. Growth in direct premiums
written for the E&S market has increased from 9.3% in 2000 to 35.7% in 2001 and
61.7% in 2002, according to data from A.M. Best.

       Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. Through June 30, 2003, our rate
increases on renewal business approximated 29%, which rates we will earn over
the period of time in which the policies are in force, generally the next 12
months. We cannot assure you, however, that these favorable trends will continue
or that these rate increases can be sustained.

          RISKS RELATING TO AN INVESTMENT IN OUR CLASS A COMMON SHARES

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

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

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

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

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

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

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

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

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

                                        3
For more information on these or other risks that we face, including
risks related to our controlling shareholder, establishment of our Non-U.S.
Operations, performance by our general agencies, fluctuation in our results,
competitive pressures, terrorism and political unrest, regulation and our
potential need for additional capital, see "Risk Factors" beginning on page 8 of
this prospectus. You should carefully consider those risks, together with the
other information in this prospectus, before investing in our Class A common
shares.
                             ---------------------

       Our principal executive offices are located at Walker House, 87 Mary
Street, P.O. Box 9086GT, George Town, Grand Cayman, Cayman Islands, and our
telephone number is (345) 949-0100.

                                        4
THIS OFFERING

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

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

Overallotment option offered
by the selling shareholders...             shares

Common shares to be
outstanding after this
  offering:

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

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

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

Use of proceeds...............   We intend to use up to $175.0 million of the
                                 net proceeds from this offering to redeem all
                                 of our outstanding Series A preferred shares,
                                 which are currently held by Fox Paine & Company
                                 and the Ball family trusts. We intend to use
                                 any remaining net proceeds for general
                                 corporate purposes, including to capitalize our
                                 Non-U.S. Operations. See "Use of Proceeds."

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

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

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

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

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

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

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

                                        5
SUMMARY HISTORICAL FINANCIAL DATA

       United National Group, Ltd. was formed on August 27, 2003 and did not
have any material assets or operations prior to September 5, 2003. As a result,
we have not included any historical financial information for United National
Group, Ltd.

       The following table sets forth summary historical financial data for our
U.S. Operations for the periods ended or as of the dates indicated. This summary
historical financial data is derived from the consolidated financial statements
and accompanying notes of Wind River Investment Corporation included elsewhere
in this prospectus. You should read this summary historical financial
information together with the consolidated financial statements and accompanying
notes of Wind River Investment Corporation and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
FOR THE SIX MONTHS
                                                     FOR THE YEARS ENDED DECEMBER 31,               ENDED JUNE 30,
                                           ----------------------------------------------------   -------------------
                                             1998       1999       2000       2001       2002       2002       2003
                                           --------   --------   --------   --------   --------   --------   --------
         (DOLLARS IN THOUSANDS)                                                                       (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
  DATA:
Gross premiums written...................  $296,426   $357,605   $453,464   $670,520   $793,083   $435,082   $362,953
                                           ========   ========   ========   ========   ========   ========   ========
Net premiums written.....................  $ 94,547   $117,883   $127,572   $169,310   $172,689   $110,095   $ 99,461
                                           ========   ========   ========   ========   ========   ========   ========
Net premiums earned......................  $ 95,740   $103,455   $136,931   $150,336   $162,763   $ 95,096   $ 94,397
Investment income........................    22,628     24,637     28,578     24,491     24,595     12,256     11,481
Investment expenses......................    (4,778)    (4,969)    (6,088)    (5,138)    (6,910)    (3,377)    (2,152)
                                           --------   --------   --------   --------   --------   --------   --------
Investment income, net...................    17,850     19,668     22,490     19,353     17,685      8,879      9,329
Net realized investment gains (losses)...     3,556     (5,210)       593    (12,719)   (11,702)    (7,914)     3,116
                                           --------   --------   --------   --------   --------   --------   --------
  Total revenue..........................   117,146    117,913    160,014    156,970    168,746     96,061    106,842
Net losses and loss adjustment
  expenses(1)............................    67,002     76,257    113,151    128,338    201,750     74,826     61,846
Acquisition costs and other underwriting
  expenses...............................    15,584     11,913     14,999     15,867     18,938     12,286     20,733
Provision for doubtful reinsurance
  receivables(2).........................        --         --         --         --     44,000         --      1,750
Other operating expenses.................     2,399      2,112      2,918      2,220      5,874      1,423        367
Interest expense.........................       922        589        322         77        115         28         12
                                           --------   --------   --------   --------   --------   --------   --------
  Income (loss) before income taxes......    31,239     27,042     28,624     10,468   (101,931)     7,498     22,134
Income tax expense (benefit).............     6,751      6,252      5,883        295    (40,520)       431      5,012
                                           --------   --------   --------   --------   --------   --------   --------
Net income (loss) before equity in net
  income (loss) of partnerships..........    24,488     20,790     22,741     10,173    (61,411)     7,067     17,122
Equity in net earnings of partnerships...        --         --         --        664       (252)      (283)     1,487
                                           --------   --------   --------   --------   --------   --------   --------
  Net income (loss)......................  $ 24,488   $ 20,790   $ 22,741   $ 10,837   $(61,663)  $  6,784   $ 18,609
                                           ========   ========   ========   ========   ========   ========   ========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment expenses
  ratio(1)...............................      70.0%      73.7%      82.6%      85.3%     124.0%      78.7%      65.5%
Underwriting expense ratio(2)............      16.3       11.5       11.0       10.6       38.6       12.9       23.8
                                           --------   --------   --------   --------   --------   --------   --------
Combined ratio(3)........................      86.3%      85.2%      93.6%      95.9%     162.6%      91.6%      89.3%
                                           ========   ========   ========   ========   ========   ========   ========
Net/gross premiums written...............      31.9%      33.0%      28.1%      25.3%      21.8%      25.3%      27.4%
                                           ========   ========   ========   ========   ========   ========   ========
6
AS OF JUNE 30, 2003
                                                            AS OF       ---------------------------
                                                         DECEMBER 31,                  PRO FORMA
                                                             2002         ACTUAL     AS ADJUSTED(4)
                                                         ------------   ----------   --------------
                (DOLLARS IN THOUSANDS)                                          (UNAUDITED)
BALANCE SHEET DATA:
Total investments and cash and cash equivalents........   $  611,129    $  635,547      $
Reinsurance receivables, net of allowance..............    1,743,524     1,852,205
Total assets...........................................    2,685,620     2,782,655
Unpaid losses and loss adjustment expenses.............    2,004,422     2,133,728
Total shareholders' equity.............................   $  268,637    $  291,852      $
---------------

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

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

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

(4) The pro forma as adjusted financial data reflects our acquisition of the
    group of companies that form our U.S. Operations, as described under "Our
    Relationship with Fox Paine & Company," as if such acquisition had been
    completed on June 30, 2003, and is further adjusted to reflect the sale of
    Class A common shares in this offering at an initial public offering price
    of $     per Class A common share (the midpoint of the estimated range set
    forth on the cover page of this prospectus) and the application of the net
    proceeds from this offering as described under "Use of Proceeds," including
    the redemption of the Series A preferred shares in accordance with their
    terms.

                                        7
RISK FACTORS

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

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

                  RISKS RELATING TO OUR BUSINESS AND INDUSTRY

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

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

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

       -     the amounts of claims payments;

       -     the expenses that we incur in resolving claims;

       -     legislative and judicial developments; and

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

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

                                        8
Actual losses and loss adjustment expenses we incur under insurance
policies that we write may be different from the amount of reserves we
establish, and to the extent that actual losses and loss adjustment expenses
exceed our expectations and the reserves reflected on our financial statements,
we will be required to immediately reflect those changes by increasing our
reserves. In addition, government regulators could require that we increase our
reserves if they determine that our reserves were understated in the past. When
we increase reserves, our pre-tax income for the period in which we do so will
decrease by a corresponding amount. For example, during 2002, we increased our
net loss reserves relative to accident years 2001 and prior by $47.8 million
primarily due to higher than anticipated losses in the multi-peril and other
liability lines of business and by $23.6 million due to the conclusion of an
arbitration proceeding with a reinsurer regarding losses incurred in 1993 and
1994. In addition to having an effect on reserves and pre-tax income, increasing
or "strengthening" reserves causes a reduction in our insurance companies'
surplus and could cause a downgrading of the rating of our insurance company
subsidiaries. Such a downgrade could, in turn, adversely affect our ability to
sell insurance policies.

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

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

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

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

       We cede significant amounts of gross premiums written to reinsurers under
reinsurance contracts. Although reinsurance makes the reinsurer liable to us to
the extent the risk is transferred, it does not relieve us of our liability to
our policyholders. Upon payment of claims, we will bill our reinsurers for their
share of such claims. Our reinsurers may not pay the reinsurance receivables
that they owe to us or they may not pay such receivables on a timely basis. If
our reinsurers fail to pay us or fail to pay us on a timely basis, our financial
results would be adversely affected. Lack of reinsurer liquidity, perceived
improper underwriting or claim handling by us, and other factors could cause a
reinsurer not to pay. As of June 30, 2003, we had $1,852.2 million of
reinsurance receivables, net of an allowance of $49.1 million for doubtful
reinsurance receivables. As of June 30, 2003, $483.2 million of collateral was
held in trust to support our reinsurance receivables. Our reinsurance
receivables, net of collateral held, were $1,369.0 million as of

                                        9
June 30, 2003. We also had $159.7 million of prepaid reinsurance premiums as of
June 30, 2003. On August 29, 2003, an additional $200.5 million was placed in
trust on our behalf by one of our reinsurers.

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

       We derive a significant portion of our income from our invested assets.
As a result, our operating results depend in part on the performance of our
investment portfolio. For the six months ended June 30, 2003, our income derived
from invested assets, including net realized gains of $3.1 million, was $12.4
million, or 56.1% of our pre-tax income. For 2002, our income derived from
invested assets was $6.0 million, including net realized losses of $11.7
million, and we had a pre-tax loss of $101.9 million. Our operating results are
subject to a variety of investment risks, including risks relating to general
economic conditions, market volatility, interest rate fluctuations, liquidity
risk and credit and default risk. The fair value of fixed income investments can
fluctuate depending on changes in interest rates. Generally, the fair market
value of these investments has an inverse relationship with changes in interest
rates, while net investment income earned by us from future investments in fixed
income securities will generally increase or decrease with interest rates.
Additionally, with respect to certain of our investments, we are subject to
pre-payment or reinvestment risk.

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

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

       We also have an equity portfolio that represented approximately 6.1% of
our total investments and cash and cash equivalents portfolio, as of June 30,
2003. The performance of our equity portfolio is dependent upon a number of
factors, including many of the same factors that affect the performance of our
fixed income investments, although those factors sometimes have the opposite
effect on performance as to the equity portfolio. The equity markets as a whole
have performed negatively in recent years, and if such performance continues,
the value of our equity portfolio could decline.

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

       Our success substantially depends upon our ability to attract and retain
qualified employees and upon the ability of our senior management and other key
employees to implement our business strategy. We believe there are only a
limited number of available qualified executives in the business lines in which
we compete. Although we are not aware of any planned departures, we rely
substantially upon the services of Seth D. Freudberg, President and Chief
Executive Officer of our U.S. Operations, Richard S. March, Senior Vice
President and General Counsel of our U.S. Operations, Kevin L. Tate, our Chief
Financial Officer and Senior Vice President and Chief Financial Officer of our
U.S. Operations, Robert Cohen,

                                        10
Senior Vice President -- Marketing of our U.S. Operations, William F. Schmidt,
Senior Vice President and Chief Underwriting Officer of our U.S. Operations and
Jonathan P. Ritz, Senior Vice President -- Ceded Reinsurance of our U.S.
Operations. Each of Messrs. Freudberg, March, Tate, Cohen, Schmidt and Ritz has
an employment agreement with us. The loss of any of their services or the
services of other members of our management team or the inability to attract and
retain other talented personnel could impede the further implementation of our
business strategy, which could have a material adverse effect on our business.
We do not currently maintain key man life insurance policies with respect to any
of our employees.

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

       We distribute the insurance products of our U.S. Operations through our
wholly-owned subsidiary, J.H. Ferguson, and a group of 51 professional general
agencies that have limited quoting and binding authority. For the six months
ended June 30, 2003, our top five agencies, including J.H. Ferguson, four of
which market more than one specific product, represent approximately 49% of our
net premiums written. Excluding the net premiums written attributable to J.H.
Ferguson, the remaining top four general agencies accounted for approximately
40% of our net premiums written. No one general agency accounted for more than
12% of our net premiums written. A loss of all or substantially all the business
produced by one or more of these general agencies could have an adverse effect
on our business and results of operations.

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

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

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

       U.N. Barbados was formed on August 18, 2003. U.N. Barbados has no
operating or financial history, and we have yet to begin conducting operations
through U.N. Barbados. While we intend to begin offering insurance and
reinsurance products to third parties that are substantially similar to those
products offered by our U.S. Operations and providing reinsurance to our U.S.
Operations in the near term, we may be unsuccessful in executing our business
plan. U.N. Barbados is not permitted to offer insurance products to third
parties without the approval of the Barbados Supervisor of Insurance. Barbados
has limited insurance industry infrastructure, and there is a limited number of
qualified personnel available to hire. As a result, it may be difficult for us
to locate a sufficient number of insurance professionals, including
underwriting, claims, sales and marketing and management personnel, to execute
our business plan for U.N. Barbados. It also may be difficult for U.N. Barbados
to establish the necessary market relationships, procedures and controls that
are necessary to operate effectively and profitably. If we fail to execute on
our business plan for U.N. Barbados or if the business written by U.N. Barbados
generates losses, it would prevent us from realizing the tax efficiencies that
our Non-U.S. Operations might otherwise provide.

       U.N. Barbados is currently not rated by A.M. Best. While we intend to
apply for a rating from A.M. Best for U.N. Barbados, we may not receive a
satisfactory rating. If we fail to receive a satisfactory rating from A.M. Best,
it would be difficult for U.N. Barbados to effectively sell insurance policies
to third parties.

                                        11
OUR RESULTS MAY FLUCTUATE AS A RESULT OF MANY FACTORS, INCLUDING CYCLICAL
CHANGES IN THE INSURANCE INDUSTRY.

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

       -     competition;

       -     capital capacity;

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

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

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

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

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

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

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

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

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

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

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

       These developments could make the property and casualty insurance
marketplace more competitive by increasing the supply of insurance capacity. In
that event, recent favorable industry trends
                                        12
that have reduced insurance and reinsurance supply and increased demand could be
reversed and may negatively influence our ability to maintain or increase rates.
Accordingly, these developments could have an adverse effect on our earnings.

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

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

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

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

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

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

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

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

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

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

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

       -     restrictions on the nature, quality and concentration of
             investments;
                                        13
-     restrictions on the types of terms that we can include in the
             insurance policies we offer;

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

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

       -     certain required methods of accounting;

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

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

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

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

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

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

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

                                        14
RISKS RELATED TO THIS OFFERING AND
                     OWNERSHIP OF OUR CLASS A COMMON SHARES

OUR HOLDING COMPANY STRUCTURE, AS WELL AS REGULATORY AND OTHER CONSTRAINTS,
LIMIT OUR ABILITY TO PAY DIVIDENDS AND MAKE OTHER PAYMENTS.

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

       United National Group is subject to Cayman Islands regulatory constraints
that will affect its ability to pay dividends on its common shares and make
other payments. In addition, there are provisions in the senior notes issued by
one of our subsidiaries, which notes we have guaranteed, that prevent us from
paying dividends on or redeeming any of our common shares prior to repayment of
these senior notes.

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

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

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

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

       The dividend limitations imposed by the state laws are based on the
statutory financial results of our respective U.S. Insurance Subsidiaries
determined by using statutory accounting practices that differ in certain
respects from accounting principles used in financial statements prepared in
conformity with U.S.

                                        15
GAAP. These differences include, among other items, deferred acquisition costs,
deferred income taxes, required investment reserves and surplus notes.

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

       Fox Paine & Company beneficially owns 82.2% of our outstanding Class A
common shares (assuming conversion of all outstanding Class B common shares and
Series A preferred shares), representing 88.2% of our total voting power and
82.7% of our outstanding Series A preferred shares. After this offering, Fox
Paine & Company will beneficially own      % of our outstanding Class A common
shares (assuming conversion of all outstanding Class B common shares and Series
A preferred shares), representing      % of our total voting power. Based on the
ownership structure of the affiliates of Fox Paine & Company that own these
shares, it is not expected that these affiliates will be subject to the voting
restriction contained in our articles of association following completion of
this offering. As a result, Fox Paine & Company has and will continue to have
control over the outcome of certain matters requiring shareholder approval,
including the power to, among other things:

       -     amend our memorandum or articles of association;

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

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

       In addition, under the terms of a shareholders agreement among us, Fox
Paine & Company and the Ball family trusts, Fox Paine & Company has the right to
appoint a majority of the members of our Board of Directors.

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

       In addition, we have agreed to pay Fox Paine & Company and an affiliate
of the Ball family trusts annual management fees totaling $1.5 million, in
addition to an initial management fee of $12.0 million already paid only to Fox
Paine & Company. See "Our Relationship with Fox Paine & Company." Fox Paine &
Company may in the future make significant investments in other insurance or
reinsurance companies. Some of these companies may compete with us or with our
subsidiaries. Fox Paine & Company is not obligated to advise us of any
investment or business opportunities of which they are aware, and they are not
prohibited or restricted from competing with us or our subsidiaries.

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

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

                                        16
price of our Class A common shares may decline for many reasons, some of which
are beyond our control, including among others:

       -     quarterly variations in our results of operations;

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

       -     announcements by third parties of claims against us;

       -     changes in law and regulation;

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

       -     future sales of Class A common shares.

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

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

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

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

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

       We have never declared or paid any cash dividends on our common shares.
We intend to retain our earnings, if any, to finance the development and
expansion of our business, and, therefore, we do not
                                        17
expect to pay any cash dividends on any of our common shares in the foreseeable
future. As a result, capital appreciation, if any, on our common shares will be
your sole source of gain for the foreseeable future. In addition, there are
regulatory and other constraints that could prevent us from paying dividends in
any event. See "-- Our holding company structure, as well as regulations and
other constraints, limit our ability to pay dividends and make our payments."

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

       The initial public offering price per Class A common share may be higher
than our net book value per share. In connection with redemption of the Series A
preferred shares, we will also issue up to an additional           Class A
common shares. See "Description of Share Capital -- Preferred Shares -- Series A
Preferred Shares -- Redemption." Accordingly, if you purchase Class A common
shares in this offering, you will suffer immediate and substantial dilution of
your investment. Based upon the issuance and sale of           Class A common
shares, you will incur immediate dilution of approximately $          in the net
book value per Class A common share if you purchase Class A common shares in
this offering. In addition, if funds sufficient to repurchase all of our
outstanding Series A preferred shares are not raised in this offering, the
remaining outstanding Series A preferred shares not repurchased may be converted
into Class A common shares, thereby further diluting your investment.

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

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

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

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

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

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

       Our Board of Directors may decline to register a transfer of any common
shares (1) if it appears to our Board of Directors, in their sole and reasonable
discretion, that as a result of such transfer, after taking account of the
limitations on voting rights in our articles of association, that any non-de
minimis
                                        18
adverse tax, regulatory or legal consequences may occur to us, to any of our
subsidiaries or to any of our shareholders, or (2) if, subject to any applicable
requirements of the Nasdaq National Market, a written opinion has not been
provided by counsel supporting the legality of the transaction under the U.S.
securities laws or if any required governmental approvals have not been
obtained.

       Our articles of association also provide that if our Board of Directors
determines that share ownership by a person may result in non-de minimis adverse
tax, legal or regulatory consequences to us, to any of our subsidiaries or to
any of our shareholders, we have the option but not the obligation to require
such shareholders to sell for fair market value to us, or to a third party to
whom we have assigned that right to repurchase shares, the minimum number of
common shares that is necessary to eliminate the non-de minimis adverse tax,
legal or regulatory consequence. See "Description of Share Capital -- Articles
of Association -- Acquisition of Class A Common Shares by United National
Group."

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

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

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

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

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

       Following this offering, our corporate affairs will be governed by our
amended and restated memorandum and articles of association, by the Companies
Law (2003 Revision) and the common law of the Cayman Islands.

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

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

                                        19
Subject to limited exceptions, under Cayman Islands law, a minority
shareholder may not bring a derivative action against the Board of Directors.

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

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

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

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

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

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

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

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

YOUR SHARES OF CLASS A COMMON STOCK MAY BE REDEEMED IN CONNECTION WITH A
BUSINESS COMBINATION TRANSACTION.

       Our articles of association provide that we may redeem Class A common
shares upon the approval by our Board of Directors of, and adoption by our
shareholders of an ordinary resolution approving, an agreement relating to a
business combination transaction involving us. We have included this provision
in our articles of association because Cayman Islands law does not provide for
any statutory merger.

       Our articles of association do not specify the type or amount of
consideration that you would receive in such a redemption, and you will not have
any appraisal or similar rights in such an event. Because Fox Paine & Company
has the right to appoint a majority of our Board of Directors and holds a
majority of our total outstanding voting power, Fox Paine & Company could cause
your shares to be redeemed without any action from any other shareholder. As a
result, you could be forced to redeem your Class A common stock at a time when
you have not elected to sell or for consideration that you deem inadequate.

                                        20
AS A HOLDER OF THE CLASS A COMMON SHARES, YOU MAY HAVE DIFFICULTY OBTAINING OR
ENFORCING A JUDGMENT AGAINST US BECAUSE WE ARE INCORPORATED UNDER THE LAWS OF
THE CAYMAN ISLANDS.

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

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

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

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

                           RISKS RELATED TO TAXATION

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

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

       U.N. Barbados was incorporated under the laws of Barbados on August 18,
2003. We have applied for a guarantee from the Barbados Ministry of Finance to
the effect that, for a period of 15 years from the date of such guarantee, U.N.
Barbados will be entitled to benefits and exemptions from taxation as set forth
in current law. In addition, under such a guarantee, if at any time during such
15-year period, the laws are amended to provide tax rates or exemptions that are
more favorable than under current law, U.N. Barbados would be entitled to those
rates or exemptions for the remainder of such 15-year period. See "Material Tax
Considerations -- Taxation of United National Group and
Subsidiaries -- Barbados."

                                        21
Following the expiration of the periods described above, we may become
subject to taxes in the Cayman Islands and Barbados, which may have a material
adverse effect on our results of operations and your investment.

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

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

       United National Group or a subsidiary might be subject to U.S. tax on a
portion of its income (which in the case of a non-U.S. subsidiary would only
include income from U.S. sources) if United National Group or such subsidiary is
considered a personal holding company, "PHC," for U.S. federal income tax
purposes. This status will depend on whether more than 50% of the value of our
shares could be deemed to be owned (pursuant to certain constructive ownership
rules) by five or fewer individuals (including as individuals for this purpose
certain entities such as certain tax-exempt organizations and pension funds) and
whether 60% or more of United National Group's income, or the income of any of
its subsidiaries, as determined for U.S. federal income tax purposes, consists
of "personal holding company income." We believe that five or fewer individuals
or tax-exempt organizations will be treated as owning more than 50% of the value
of our shares. Consequently, United National Group or one or more of its
subsidiaries could become PHCs, depending on whether we or any of our
subsidiaries satisfy the PHC gross income test. As a result, we intend to manage
our business to minimize the possibility that we will meet the 60% income
threshold. If we or any of our subsidiaries is or were to become a PHC in a
given taxable year, such company would be subject to PHC tax on the portion of
its "undistributed personal holding company income" that is earned from U.S.
sources. There can be no assurance that we and each of our subsidiaries are not
or will not become a PHC immediately following this offering or in the future
because of various factors including factual uncertainties regarding the
application of the PHC rules, the makeup of our shareholder base and other
circumstances that affect the application of the PHC rules to us and our
subsidiaries. Additionally, we cannot be certain that the amount of U.S. tax
that would be imposed if United National Group or any of our subsidiaries were a
PHC would be immaterial. See "Material Tax Considerations -- Taxation of United
National Group and Subsidiaries -- United States -- Personal Holding Companies."

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

       Each "10% U.S. Shareholder" of a foreign corporation that is a CFC for an
uninterrupted period of 30 days or more during a taxable year, and who owns
shares in the CFC directly or indirectly through foreign entities on the last
day of the CFC's taxable year, must include in its gross income for U.S. federal
income tax purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. A foreign corporation is considered a
CFC if "10% U.S. Shareholders" own (directly, indirectly through foreign
entities or by attribution by application of the constructive ownership rules
(i.e., "constructively") of section 958(b) of the U.S. Internal Revenue Code of
1986, as amended, which we refer to as the "Code") more than 50% of the total
combined voting power of all classes of voting stock of

                                        22
such foreign corporation or the total value of all stock of such corporation. A
"10% U.S. Shareholder" is a U.S. Person (as defined in "Material Tax
Considerations-Taxation of Shareholders -- United States Taxation") who owns
(directly, indirectly through foreign entities or constructively) at least 10%
of the total combined voting power of all classes of stock entitled to vote of
the foreign corporation. For purposes of taking into account insurance income, a
CFC also includes a foreign insurance company in which more than 25% of the
total combined voting power of all classes of stock (or more than 25% of the
total value of the stock) is owned by 10% U.S. Shareholders, on any day during
the taxable year of such corporation, if the gross amount of premiums or other
consideration for the reinsurance or the issuing of insurance or annuity
contracts exceeds 75% of the gross amount of all premiums or other consideration
in respect of all risks.

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

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

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

       The RPII rules provide that if a U.S. Person disposes of shares in a
foreign insurance corporation in which U.S. Persons own 25% or more of the
shares (even if the amount of RPII is less than 20% of the corporation's gross
insurance income and the ownership of its shares by direct or indirect insureds
and related persons is less than the 20% threshold), any gain from the
disposition will generally be treated as

                                        23
ordinary income to the extent of the holder's share of the corporation's
undistributed earnings and profits that were accumulated during the period that
the holder owned the shares (whether or not such earnings and profits are
attributable to RPII). In addition, such a holder will be required to comply
with certain reporting requirements, regardless of the amount of shares owned by
the holder. These RPII rules should not apply to dispositions of Class A common
shares in United National Group because United National Group will not itself be
directly engaged in the insurance business. The RPII provisions, however, have
never been interpreted by the courts or the U.S. Treasury Department in final
regulations, and regulations interpreting the RPII provisions of the Code exist
only in proposed form. It is not certain whether these regulations will be
adopted in their proposed form or what changes or clarifications might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of RPII by the IRS, the courts, or otherwise,
might have retroactive effect. The U.S. Treasury Department has authority to
impose, among other things, additional reporting requirements with respect to
RPII. Accordingly, the meaning of the RPII provisions and the application
thereof to us and U.N. Barbados is uncertain. See "Material Tax
Considerations -- Taxation of Shareholders -- United States Taxation -- The RPII
CFC Provisions."

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

       We believe that United National Group is not, has not been, and we
currently do not expect United National Group to become, a PFIC for U.S. federal
income tax purposes. We cannot assure you, however, that United National Group
will not be deemed a PFIC by the IRS. If United National Group were considered a
PFIC, it could have material adverse tax consequences for an investor that is
subject to U.S. federal income taxation, including subjecting the investor to a
greater tax liability than might otherwise apply and subjecting the investor to
tax on amounts in advance of when tax would otherwise be imposed. There are
currently no regulations regarding the application of the PFIC provisions to an
insurance company. New regulations or pronouncements interpreting or clarifying
these rules may be forthcoming. We cannot predict what impact, if any, such
guidance would have on an investor that is subject to U.S. federal income
taxation. See "Material Tax Considerations -- Taxation of Shareholders -- United
States Taxation -- Passive Foreign Investment Companies."

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

       United National Group or U.N. Barbados could be considered to be an FPHC
for U.S. federal income tax purposes if more than 50% of our shares could be
deemed to be owned by five or fewer individuals who are citizens or residents of
the United States, and 60% or more of United National Group's income, or of U.N.
Barbados' income, consists of "foreign personal holding company income," as
determined for U.S. federal income tax purposes. We believe that five or fewer
individuals will be treated as owning more than 50% of the voting power or the
value of our shares. Consequently, United National Group or U.N. Barbados could
be or become an FPHC, depending on whether either company satisfies the FPHC
gross income test. As a result, we intend to monitor the income of U.N. Barbados
and United National Group to minimize the possibility that either company will
meet the 60% income threshold. However, because of unknown factors including
factual uncertainties regarding the application of the FPHC rules, the makeup of
our shareholder base and other circumstances that affect the application of the
FPHC rules to us and our subsidiaries, we cannot be certain that United National
Group or U.N. Barbados will not be considered a FPHC. If we were considered an
FPHC it could have material adverse tax consequences for an investor that is
subject to U.S. federal income taxation, including subjecting the investor to a
greater tax liability than might otherwise apply and subjecting the investor to
tax on amounts in advance of when tax would otherwise be imposed. In addition,
if we were considered an FPHC in the tax year next preceding the date of death
of any U.S. individual owning Class A common shares, such individual's heirs or
estate would not be entitled to a "step-up" in the basis of the Class A common
shares
                                        24
that might otherwise be available under U.S. federal income tax laws. See
"Material Tax Considerations -- Taxation of Shareholders -- United States
Taxation-Foreign Personal Holding Companies."

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

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

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

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

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

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

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

                                        25
THERE IS A RISK THAT DIVIDENDS AND INTEREST PAID TO U.N. BARBADOS BY OUR U.S.
SUBSIDIARIES MAY NOT BE ELIGIBLE FOR BENEFITS UNDER THE U.S.-BARBADOS INCOME TAX
TREATY.

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

THE UNITED STATES COULD TERMINATE THE INCOME TAX TREATY BETWEEN THE UNITED
STATES AND BARBADOS.

       Recent comments made by the U.S. Treasury Department indicate that the
U.S. may renegotiate the income tax treaty between the United States and
Barbados. If and when this treaty is renegotiated, no assurances can be given as
to the availability of benefits under the treaty in future years.

                                        26
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

       -     judicial decisions;

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

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

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

       -     the effect of acts of terrorism;

       -     the effects of terrorist related insurance legislation and laws;

       -     loss of key personnel;

       -     political stability of the Cayman Islands;

       -     changes in accounting policies or practices; and

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

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

                                        27
USE OF PROCEEDS

       We estimate the net proceeds from this offering will be approximately
$     million, based on an assumed initial public offering price of $     , the
midpoint of the estimated range set forth on the cover page of this prospectus,
and after deducting the underwriting discount and our estimated offering
expenses of $   million. If the underwriters exercise their overallotment option
in full, we estimate our net proceeds will be approximately $       million. We
will not receive any proceeds from sales of Class A common shares by the selling
shareholders.

       We intend to use up to $175.0 million of these net proceeds to redeem all
of our outstanding Series A preferred shares, which are currently held by Fox
Paine & Company and the Ball family trusts. We will use any remaining proceeds
for general corporate purposes, including to capitalize our Non-U.S. Operations.

                                DIVIDEND POLICY

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

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

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

                                        28
CAPITALIZATION

       The following table sets forth our capitalization as of September 5,
2003:

       -     on an actual basis reflecting United National Group's
             capitalization prior to the acquisition;

       -     on a pro forma basis to reflect the acquisition of our U.S.
             Operations as described under "Our Relationship with Fox Paine &
             Company," and as if such acquisition had been completed on
             September 5, 2003; and

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

       You should read this table together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and accompanying notes included elsewhere in this
prospectus.
PRO FORMA
                                                              ACTUAL   PRO FORMA   AS ADJUSTED
                   (DOLLARS IN THOUSANDS)                     ------   ---------   -----------
Debt outstanding:
  Senior notes(1)...........................................      --
Shareholders' equity:
  Share capital (authorized 100,000,000 preferred shares,
     par value $0.0001; issued and outstanding: 0 actual;
     17,500,000 Series A preferred shares pro forma; and 0
     pro forma as adjusted)(2)..............................      --
  Share capital (authorized 900,000,000 common shares, par
     value $0.0001; issued and outstanding: 0 Class A common
     shares and 15,000 Class B common shares actual;
     2,698,750 Class A common shares and 10,000,000 Class B
     common shares pro forma; and          Class A common
     shares and 10,000,000 Class B common shares pro forma
     as adjusted)(2)........................................       0   $            $
  Additional paid in capital................................   150.0
  Retained earnings.........................................      --
                                                              ------   --------     --------
Total shareholders' equity..................................  $150.0
                                                              ------   --------     --------
Total capitalization........................................  $150.0   $            $
                                                              ======   ========     ========
------------

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

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

                                        29
DILUTION

       As of June 30, 2003, our net tangible book value on a pro forma basis,
giving effect to the acquisition of our U.S. Operations, was $     million, or
$     per Class A common share, based on
Class A common shares outstanding (assuming full conversion of the Class B
common shares and Series A preferred shares). As used below, "net tangible book
value" per Class A common share represents the excess of our total consolidated
tangible assets over our total consolidated liabilities, divided by the number
of Class A common shares outstanding (assuming full conversion of the Class B
common shares and Series A preferred shares) and without giving effect to this
offering. After giving effect to the sale and issuance of      Class A common
shares in this offering at an initial public offering price of $     per share
(the mid-point of the estimated range set forth on the cover page of this
prospectus), after deducting the underwriting discount and our estimated
offering expenses and the application of the net proceeds of this offering as
described under "Use of Proceeds" and together with the issuance of
Class A common shares in connection with the redemption of the Series A
preferred shares, our net tangible book value as of June 30, 2003 would have
been approximately $     million or $     per Class A common share. This amount
represents an immediate increase of $     per Class A common share to the
existing shareholders and an immediate dilution of $     per Class A common
share to investors purchasing Class A common shares in this offering. The
following table illustrates this dilution:
Assumed initial public offering price per Class A
      common share..........................................   $
       Net tangible book value per Class A common share as
        of June 30, 2003....................................
       Increase in net tangible book value per Class A
        common share attributable to this offering..........
     Net tangible book value per Class A common share after
      this offering.........................................
     Dilution per Class A common share to new investors.....   $
If the underwriters exercise their overallotment option in full, dilution
per Class A common share to new investors will be $     per Class A common
share.

       The following table summarizes, as of June 30, 2003, the difference
between the number of our Class A common shares purchased prior to this offering
(assuming full conversion of our Class B common shares and our Series A
preferred shares), the total consideration paid and the average price per common
share paid by our existing shareholders and new investors, after giving effect
to the issuance of   Class A common shares in this offering and after the
application of the net proceeds from this offering as described under "Use of
Proceeds":
CLASS A COMMON
                                                SHARES PURCHASED    TOTAL CONSIDERATION
                                                -----------------   -------------------   AVERAGE PRICE
                                                 NUMBER      %       NUMBER        %        PER SHARE
                                                --------   ------   ---------   -------   -------------
Existing shareholders....................                  %                     %      $
     New investors............................
                                                -------    -----     -------     -----       ------
          Total...............................             100.0%                100.0%      $
                                                =======    =====     =======     =====       ======
30
PRO FORMA FINANCIAL INFORMATION

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

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

     The unaudited pro forma information gives effect to:

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

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

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

in each case, as if such transactions were completed as of June 30, 2003 for
balance sheet purposes and at the beginning of the applicable period for other
purposes.

                                        31
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

                              AS OF JUNE 30, 2003

                             (DOLLARS IN THOUSANDS)
INITIAL
                                                  PURCHASE          PRO FORMA         PUBLIC        PRO FORMA
                                  HISTORICAL     ACCOUNTING      POST-ACQUISITION    OFFERING     POST OFFERING
                                 JUNE 30, 2003   ADJUSTMENTS      JUNE 30, 2003     ADJUSTMENTS   JUNE 30, 2003
                                 -------------   -----------     ----------------   -----------   -------------
ASSETS
Total investments..............   $  563,838      $      --         $  563,838
Cash and cash equivalents......       71,709        240,000(a)         202,835
                                                      5,638(b)
                                                   (100,000)(b)
                                                    (16,500)(b)
                                                      1,988(d)
Agents' balances, net of
  allowance....................       62,453             --             62,453
Reinsurance receivables, net of
  allowance....................    1,852,205          7,500(b)       1,811,904
                                                    (47,801)(c)
Accrued investment income......        6,266             --              6,266
Federal income taxes
  receivable...................       21,434             --             21,434
Deferred federal income
  taxes........................       27,881        (35,411)(c)         27,493
                                                     35,023(e)
Deferred acquisition costs,
  net..........................        5,096         (5,096)(c)             --
Prepaid reinsurance premiums...      159,653        (56,209)(c)        103,444
Intangible assets..............           --         96,604(c)              --
                                                    (96,604)(e)
Negative goodwill..............           --       (113,852)(b)             --
                                                     65,043(e)
                                                     48,809(f)
Other assets...................       12,120         (3,461)(e)          8,659
                                  ----------      ---------         ----------       --------       --------
  Total assets.................   $2,782,655      $  25,671         $2,808,326
                                  ==========      =========         ==========       ========       ========
 LIABILITIES AND SHAREHOLDERS'
             EQUITY
LIABILITIES:
Unpaid losses and loss
  adjustment expenses..........   $2,133,728      $ (47,801)(c)     $2,085,927
Unearned premiums..............      215,683        (65,873)(c)        149,810
Note payable...................           --         72,848(b)          72,848
Amounts held for the account of
  others.......................       14,834             --             14,834
Ceded balances payable.........       72,195             --             72,195
Payable for securities.........        2,362             --              2,362
Contingent commissions.........        6,861             --              6,861
Due to affiliates..............          101             --                101
Other liabilities..............       45,039          7,500(b)          52,539
                                  ----------      ---------         ----------       --------       --------
  Total liabilities............    2,490,803        (33,326)         2,457,477
                                  ----------      ---------         ----------       --------       --------
SHAREHOLDERS' EQUITY...........      291,852         58,997(g)         350,849
                                  ----------      ---------         ----------       --------       --------
  Total liabilities and
     shareholders' equity......   $2,782,655      $  25,671         $2,808,326
                                  ==========      =========         ==========       ========       ========
See accompanying notes to pro forma financial statements.
                                        32
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

       The unaudited pro forma condensed consolidated balance sheet reflects
amounts contained in the unaudited historical financial statements of Wind River
Investment Corporation, United National Group's predecessor, as of June 30,
2003. In connection with the capitalization of United National Group and its
acquisition of Wind River Investment Corporation, the following adjustments are
reflected in the unaudited pro forma condensed consolidated balance sheet, as if
the acquisition was completed on June 30, 2003:

       (a) On September 5, 2003, United National Group issued 14.0 million
           Series A preferred shares and 10.0 million Class B common shares to
           Fox Paine & Company in exchange for $240.0 million in cash. This
           capital contribution is reflected as an increase to cash and
           shareholders' equity.

       (b) On September 5, 2003, United National Group acquired 100% of the
           outstanding common stock of Wind River Investment Corporation from
           the Ball family trusts. The adjustments to reflect the acquisition of
           Wind River Investment Corporation as if it was completed on June 30,
           2003 address the following facts:

          -     The Ball family trusts contributed $5.6 million to Wind River
                Investment Corporation immediately prior to completion of the
                acquisition in connection with certain retention payments to be
                made by Wind River Investment Corporation.

          -     The $249.3 million purchase price for Wind River Investment
                Corporation consisted of $100.0 million in cash, $72.8 million
                of senior notes issued by Wind River Investment Corporation,
                $16.5 million of acquisition fees and expenses, which includes a
                $12.0 million management fee paid to Fox Paine & Company, and
                $60.0 million, consisting of 2.5 million Class A common shares
                and 3.5 million Series A preferred shares of United National
                Group. The purchase price is reflected in the unaudited pro
                forma condensed consolidated balance sheet as a reduction of
                cash, an increase to notes payable and an increase to
                shareholders' equity.

          -     The Ball family trusts are entitled to receive contingent
                consideration of up to $7.5 million in a future period if the
                allowance for doubtful reinsurance receivables develops
                favorably. Because negative goodwill was recorded in connection
                with the acquisition, the maximum amount of such contingent
                consideration is reflected as an increase in contingent
                consideration payable with a corresponding reduction of the
                allowance for doubtful reinsurance receivables.

          -     Because the fair value of Wind River Investment Corporation
                exceeded the $249.3 million purchase price, negative goodwill of
                $113.9 million as of June 30, 2003 was calculated prior to
                reduction of long-term non-financial assets (see note e).

       (c) Upon its acquisition by United National Group, Wind River Investment
           Corporation adjusted its assets and liabilities to fair value. The
           following adjust the historical June 30, 2003 balances to fair value
           for the purpose of the unaudited pro forma condensed consolidated
           balance sheet:

          -     Wind River Investment Corporation applied a risk premium factor
                and a risk-free interest rate to its gross reserves for unpaid
                losses and loss adjustment expenses and its gross reinsurance
                receivables. As a result of this calculation, the fair value of
                the net reserves for unpaid losses and loss adjustment expenses
                approximated net carried reserves as of June 30, 2003. Gross
                reserves for unpaid losses and loss adjustment expenses
                decreased by $47.8 million as of June 30, 2003. Due to the
                method in which Wind River Investment Corporation calculates its
                gross reserves, its reinsurance receivables also decreased by
                $47.8 million.

                                        33
-     The $35.4 million net reduction of deferred federal income taxes
                represents the tax effect of the Wind River Investment
                Corporation's purchase accounting adjustments prior to
                adjustments related to negative goodwill.

          -     The $5.1 million reduction of deferred acquisition costs
                represents the write-off of all such deferred costs as of June
                30, 2003.

          -     Wind River Investment Corporation computed the fair value of its
                gross unearned premium reserves using a methodology similar to
                that used to calculate the fair value of its reserves. As a
                result of this calculation, Wind River Investment Corporation
                reduced its gross unearned premium reserves by $65.9 million and
                its prepaid reinsurance premiums by $56.2 million.

          -     Wind River Investment Corporation completed an assessment to
                determine the existence of any intangible assets not recognized
                in its historical financial statements as of June 30, 2003. As a
                result of this assessment, its agency relationships and
                insurance licenses were recorded as intangible assets. Based on
                a valuation performed as of June 30, 2003, the fair value of the
                agency relationships and insurance licenses were $87.3 million
                and $9.3 million, respectively.

       (d) Upon the acquisition of Wind River Investment Corporation on
           September 5, 2003, United National Group issued 198,750 Class A
           common shares to the management of United National Group's U.S.
           Operations for $2.0 million in exchange for cash.

       (e) Because the acquisition resulted in the recognition of negative
           goodwill, Wind River Investment Corporation reduced certain long-term
           non-financial assets prior to the recognition of any extraordinary
           gain. The resulting $65.0 million reduction of negative goodwill was
           due primarily to the elimination of intangible assets, furniture and
           equipment and certain other prepaid and deferred expenses, net of
           deferred income taxes of $35.0 million.

       (f) Following all other purchase accounting adjustments, Wind River
           Investment Corporation eliminated the residual $48.8 million negative
           goodwill balance as of June 30, 2003.

       (g) The following table summarizes the components of the $59.0 million
           increase to shareholders' equity as a result of the Wind River
           Investment Corporation's purchase accounting entries:
(DOLLARS IN MILLIONS)
Capitalization by Fox Paine & Company.......................    $240.0
Issuance of Class A common stock to U.S. Operations
  management................................................       2.0
Issuance of Class A common stock and Series A preferred
  shares to the Ball family trusts..........................      60.0
Extraordinary gain due to write-off of negative goodwill....      48.9
                                                                ------
                                                                 350.9
Wind River shareholders' equity, June 30, 2003..............     291.9
                                                                ------
Increase in shareholders' equity............................    $ 59.0
                                                                ======
34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                            STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2002
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
PRO FORMA
                                                                     POST-                          PRO FORMA
                                    HISTORICAL                    ACQUISITION                     POST-OFFERING
                                    YEAR ENDED     PURCHASE        YEAR ENDED    INITIAL PUBLIC    YEAR ENDED
                                   DECEMBER 31,   ACCOUNTING      DECEMBER 31,      OFFERING      DECEMBER 31,
                                       2002       ADJUSTMENTS         2002        ADJUSTMENTS         2002
                                   ------------   -----------     ------------   --------------   -------------
REVENUE
Gross premiums written...........   $ 793,083       $    --        $ 793,083
                                    =========       =======        =========        ========        ========
Net premiums written.............     172,689            --          172,689
                                    =========       =======        =========        ========        ========
Net premium earned...............     162,763        (9,664)(h)      153,099
Net investment income............      17,685        (2,292)(i)       15,393
Net realized investment losses...     (11,702)           --          (11,702)
                                    ---------       -------        ---------        --------        --------
  Total revenue..................     168,746       (11,956)         156,790
LOSSES AND EXPENSES
Net losses and loss adjustment
  expenses.......................     201,750            --          201,750
Acquisition costs and other
  underwriting expenses..........      18,938        (5,096)(j)       11,668
                                                     (2,174)(k)
Provision for doubtful
  reinsurance receivables........      44,000            --           44,000
Other operating expenses.........       5,874            --            5,874
Interest expense.................         115         3,640(l)         3,755
                                    ---------       -------        ---------        --------        --------
Income before income taxes.......    (101,931)       (8,326)        (110,257)
Income tax benefit...............     (40,520)       (2,214)(m)      (42,734)
                                    ---------       -------        ---------        --------        --------
Net loss before equity in net
  loss of partnerships...........     (61,411)       (6,112)         (67,523)
Equity in net loss of
  partnerships...................        (252)           --             (252)
                                    ---------       -------        ---------        --------        --------
Net loss.........................   $ (61,663)      $(6,112)       $ (67,775)
                                    =========       =======        =========        ========        ========
PER AVERAGE SHARE DATA:
  Weighted-average common shares
     outstanding.................         100
  Weighted-average share
     equivalents outstanding.....          --
                                    ---------                                                       --------
  Weighted average share and
     share equivalents
     outstanding.................         100
                                    ---------                                                       --------
  Basic and diluted earnings per
     share.......................   $    (617)
                                    =========                                                       ========
See accompanying notes to unaudited pro forma condensed consolidated financial
                                  statements.
                                        35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
PRO FORMA                            PRO FORMA
                          HISTORICAL        PURCHASE       POST-ACQUISITION       INITIAL        POST-OFFERING
                       SIX MONTHS ENDED    ACCOUNTING      SIX MONTHS ENDED   PUBLIC OFFERING   SIX MONTHS ENDED
                         JUNE 30, 2003     ADJUSTMENTS      JUNE 30, 2003       ADJUSTMENTS      JUNE 30, 2003
                       -----------------   -----------     ----------------   ---------------   ----------------
REVENUE
Gross premiums
  written............      $362,953          $    --           $362,953
                           ========          =======           ========          =========         =========
Net premiums
  written............        99,461               --             99,461
                           ========          =======           ========          =========         =========
Net premium earned...        94,397           (4,832)(h)         89,565
Net investment
  income.............         9,329           (1,146)(i)          8,183
Net realized
  investment gains...         3,116               --              3,116
                           --------          -------           --------          ---------         ---------
  Total revenue......       106,842           (5,978)           100,864
LOSSES AND EXPENSES
Net losses and loss
  adjustment
  expenses...........        61,846               --             61,846
Acquisition costs and
  other underwriting
  expenses...........        20,733           (2,547)(j)         17,099
                                              (1,087)(k)
Provision for
  doubtful
  reinsurance
  receivables........         1,750               --              1,750
Other operating
  expenses...........           367               --                367
Interest expense.....            12            1,820 (l)          1,832
                           --------          -------           --------          ---------         ---------
Income before income
  taxes..............        22,134           (4,164)            17,970
Income tax expense...         5,012           (1,720)             3,292
                           --------          -------           --------          ---------         ---------
Net income before
  equity in net
  income of
  partnerships.......        17,122           (2,444)            14,678
Equity in net income
  of partnerships....         1,487               --              1,487
                           --------          -------           --------          ---------         ---------
Net income...........        18,609           (2,444)            16,165
                           ========          =======           ========          =========         =========
PER AVERAGE SHARE
  DATA:
  Weighted-average
     common shares
     outstanding.....           100
  Weighted-average
     share
     equivalents
     outstanding.....            --
                           --------
  Weighted-average
     shares and share
     equivalents
     outstanding.....           100
                           --------
  Basic and diluted
     earnings per
     share...........      $    186
                           ========
See accompanying notes to unaudited pro forma condensed consolidated financial
                                  statements.
                                        36
NOTES TO UNAUDITED PRO FORMA CONDENSED
                     CONSOLIDATED STATEMENTS OF OPERATIONS

       The unaudited pro forma condensed consolidated statements of operations
reflect amounts contained in the unaudited historical financial statements of
Wind River Investment Corporation, United National Group's predecessor, for the
year ended December 31, 2002 and for the six months ended June 30, 2003. In
connection with the capitalization of United National Group and its subsequent
acquisition of Wind River Investment Corporation, the following adjustments have
been reflected in the unaudited pro forma condensed consolidated statements of
operations as if the purchase occurred at the beginning of each period:

       (h)  For the year ended December 31, 2002 and the six months ended June
            30, 2003, Wind River Investment Corporation reduced gross premium
            earned by $65.9 million and $32.9 million and ceded premium earned
            by $56.2 million and $26.1 million, respectively, to reflect the
            proportionate reduction of unearned premium on the unaudited
            condensed consolidated balance sheet. This resulted in a decrease to
            net premium earned of $9.7 million and $4.8 million for the year
            ended December 31, 2002 and the six months ended June 30, 2003,
            respectively.

       (i)  Wind River Investment Corporation recalculated the net
            amortization/accretion of the premium/discount on its fixed maturity
            investments as if the cost basis of the securities had been adjusted
            to the estimated fair values of the securities at the beginning of
            each period. For the purpose of this calculation, the change in the
            market yield was estimated based on the amount of net unrealized
            gains on fixed maturity investments at the date of acquisition,
            amortized over the estimated average life of the portfolio (5
            years). This adjustment resulted in a decrease in net investment
            income of $2.3 million and $1.1 million, for the year ended December
            31, 2002 and the six months ended June 30, 2003, respectively.

       (j)  Acquisition costs and other underwriting expenses were adjusted to
            exclude amortization of deferred acquisition costs written off on
            the unaudited pro forma condensed consolidated balance sheet as of
            June 30, 2003. For the year ended December 31, 2002 and the six
            months ended June 30, 2003, acquisition costs and other underwriting
            expenses were reduced by $5.1 million and $2.5 million,
            respectively, as a result of this adjustment.

       (k)  Acquisition costs and other underwriting expenses were adjusted to
            exclude depreciation and amortization of certain assets, such as
            furniture and equipment and prepaid expenses, that were eliminated
            on the unaudited pro forma condensed consolidated balance sheet as
            of June 30, 2003. For the year ended December 31, 2002 and the six
            months ended June 30, 2003, acquisition costs and other underwriting
            expenses were reduced by $2.2 million and $1.1 million,
            respectively, as a result of this adjustment.

       (l)  The $72.8 million note issued by Wind River Investment Corporation
            to the Ball family trusts in connection with the acquisition bears
            interest at an annual rate of 5.0%. For the year ended December 31,
            2002 and the six months ended June 30, 2003, respectively, the
            unaudited pro forma condensed consolidated statements of operations
            have been adjusted to reflect additional interest expense of $3.6
            million and $1.8 million, respectively.

       (m)  The $4.3 million increase to the income tax benefit for the year
            ended December 31, 2002 and the $4.5 million reduction of income tax
            expense for the six months ended June 30, 2003 represents the tax
            effect of the adjustments reflected in the unaudited pro forma
            condensed consolidated statements of operations.

                                        37
OTHER ITEMS

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

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

                                        38
SELECTED HISTORICAL FINANCIAL DATA

       United National Group, Ltd. was formed on August 27, 2003 and did not
have any material assets or operations prior to September 5, 2003. As a result,
we have not included any historical financial information for United National
Group, Ltd.

       The following table sets forth selected historical financial data for our
U.S. Operations for the periods ended or as of the dates indicated. This
selected historical financial data is derived from the consolidated financial
statements and accompanying notes of Wind River Investment Corporation included
elsewhere in this prospectus. You should read this selected historical financial
information together with the consolidated financial statements and accompanying
notes of Wind River Investment Corporation and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
FOR THE SIX MONTHS ENDED
                                                FOR THE YEARS ENDED DECEMBER 31,                          JUNE 30,
                                 --------------------------------------------------------------   -------------------------
                                    1998         1999         2000         2001         2002         2002          2003
                                 ----------   ----------   ----------   ----------   ----------   -----------   -----------
    (DOLLARS IN THOUSANDS)                                                                               (UNAUDITED)
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Gross premiums written.........  $  296,426   $  357,605   $  453,464   $  670,520   $  793,083   $  435,082    $  362,953
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net premiums written...........  $   94,547   $  117,883   $  127,572   $  169,310   $  172,689   $  110,095    $   99,461
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net premiums earned............  $   95,740   $  103,455   $  136,931   $  150,336   $  162,763   $   95,096    $   94,397
Investment income..............      22,628       24,637       28,578       24,491       24,595       12,256        11,481
Investment expenses............      (4,778)      (4,969)      (6,088)      (5,138)      (6,910)      (3,377)       (2,152)
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Investment income, net.........      17,850       19,668       22,490       19,353       17,685        8,879         9,329
Net realized investment gains
  (losses).....................       3,556       (5,210)         593      (12,719)     (11,702)      (7,914)        3,116
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Total revenue..............     117,146      117,913      160,014      156,970      168,746       96,061       106,842
Net losses and loss adjustment
  expenses(1)..................      67,002       76,257      113,151      128,338      201,750       74,826        61,846
Acquisition costs and other
  underwriting expenses........      15,584       11,913       14,999       15,867       18,938       12,286        20,733
Provision for doubtful
  reinsurance receivables(2)...          --           --           --           --       44,000           --         1,750
Other operating expenses.......       2,399        2,112        2,918        2,220        5,874        1,423           367
Interest expense...............         922          589          322           77          115           28            12
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Income (loss) before income
      taxes....................      31,239       27,042       28,624       10,468     (101,931)       7,498        22,134
Income tax expense (benefit)...       6,751        6,252        5,883          295      (40,520)         431         5,012
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Net income (loss) before equity
  in net income (loss) of
  partnerships.................      24,488       20,790       22,741       10,173      (61,411)       7,067        17,122
Equity in net income (loss) of
  partnerships.................          --           --           --          664         (252)        (283)        1,487
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
    Net income (loss)..........  $   24,488   $   20,790   $   22,741   $   10,837   $  (61,663)  $    6,784    $   18,609
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
INSURANCE OPERATING RATIOS:
Net losses and loss adjustment
  expenses ratio(1)............        70.0%        73.7%        82.6%        85.3%       124.0%        78.7%         65.5%
Underwriting expense
  ratio(2).....................        16.3         11.5         11.0         10.6         38.6         12.9          23.8
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Combined ratio(3)..............        86.3%        85.2%        93.6%        95.9%       162.6%        91.6%         89.3%
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net/gross premiums written.....        31.9%        33.0%        28.1%        25.3%        21.8%        25.3%         27.4%
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
FINANCIAL POSITION AS OF LAST
  DAY OF PERIOD:
Total investments and cash and
  cash equivalents.............  $  444,417   $  423,397   $  483,435   $  516,408   $  611,129   $  580,772    $  635,547
Reinsurance receivables, net of
  allowance....................     598,086      648,189      694,766      799,066    1,743,524      841,991     1,852,205
Total assets...................   1,234,549    1,365,754    1,376,528    1,575,754    2,685,620    1,757,877     2,782,655
Unpaid losses and loss
  adjustment expenses..........     802,692      805,717      800,630      907,357    2,004,422      962,942     2,133,728
Total shareholders' equity.....  $  277,733   $  285,064   $  315,343   $  324,844   $  268,637   $  333,977    $  291,852
39
---------------

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

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

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

                                        40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

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

  REVENUES

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

  EXPENSES

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

CRITICAL ACCOUNTING POLICIES

  INVESTMENTS

  Fair values

       The carrying amount for our investments approximates their estimated fair
value. We measure the fair value of investments in our fixed income and equity
portfolios based upon quoted market prices. We also hold investments in several
limited partnerships, which were valued at $41.8 million as of June 30, 2003.
Several of these partnerships invest solely in securities that are publicly
traded and are valued at the net asset value as reported by the investment
manager. As of June 30, 2003, the limited partnership portfolio included $17.6
million in securities for which there is no readily available independent market
price. The estimated fair value of such securities is determined by the general
partner of each limited partnership based on comparisons to transactions
involving similar investments. Material assumptions and factors utilized in
pricing these securities include future cash flows, constant default rates,
recovery rates and any market clearing activity that may have occurred since the
prior month-end pricing period.

                                        41
Classification of Investments

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

  Other Than Temporary Impairment

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

  LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       The liability for unpaid losses and loss adjustment expenses ($2,004.4
million and $2,133.7 million, gross of reinsurance; $260.8 million and $277.9
million, net of reinsurance, as of December 31, 2002 and June 30, 2003,
respectively) reflects our best estimate for future amounts needed to pay losses
and related adjustment expenses and the impact of our reinsurance coverages with
respect to insured events. The process of establishing the liability for
property and casualty unpaid losses and loss adjustment expenses is a complex
process, requiring the use of informed estimates and judgments. This liability
includes an amount determined on the basis of claim adjusters' evaluations with
respect to insured events that occurred and an amount for losses incurred that
have not been reported to us. In some cases significant periods of time, up to
several years or more, may elapse between the occurrence of an insured loss and
the reporting of such to us. The method for determining our liability for unpaid
losses and loss adjustment expenses includes among other things, reviewing past
loss experience and considering other factors such as legal, social and economic
developments. We regularly review and update the methods of making such
estimates and establishing the resulting liabilities and we make any resulting
adjustment in the accounting period in which the adjustment arose.

       During 2002 we increased the liability for unpaid losses and loss
adjustment expenses by $71.4 million. See "-- Year ended December 31, 2002
compared with Year ended December 31, 2001."

  RECOVERABILITY OF REINSURANCE RECEIVABLES

       We regularly review the collectibility of our reinsurance receivables and
we include adjustments resulting from this review in earnings in the period in
which the adjustment arises. As of December 31, 2002, we had $1,743.5 million of
reinsurance receivables, net of an allowance of $47.4 million for doubtful
reinsurance receivables, and $196.2 million of prepaid reinsurance premiums. As
of June 30, 2003, we had $1,852.2 million of reinsurance receivables, net of an
allowance of $49.1 million for doubtful reinsurance receivables, and $159.7
million of prepaid reinsurance premiums.

                                        42
DEFERRED ACQUISITION COSTS AND FUTURE SERVICING COSTS

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

  REALIZABILITY OF DEFERRED TAX ASSETS

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

SPECIAL NOTE REGARDING 2002

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

       -     We perform annual underwriting reviews on all our products. During
             2002, as part of the annual review process, we terminated a number
             of products as a result of factors such as unsatisfactory
             underwriting results and the absence of reinsurance capacity at
             pricing levels acceptable to us. During the first six months of
             2002, we terminated nine products within our four product classes,
             of which eight were excess and surplus, or "E&S," lines and one was
             specialty admitted. During the six months ended December 31, 2002,
             we terminated an additional five products, of which four were E&S
             lines and one was specialty admitted. While the following had no
             impact on 2002 net income, 13 additional products were terminated
             during the first six months of 2003, of which nine were E&S lines
             and four were specialty admitted. Gross premiums written relative
             to those terminated products were $320.4 million in 2002 and $95.1
             million for the six months ended June 30, 2003 and net premiums
             written relative to those terminated products were $37.1 million in
             2002 and $11.4 million for the six months ended June 30, 2003.

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

       -     We were involved in an arbitration proceeding with Riunione
             Adriatica Di Sicurta or "RAS", which acted as our reinsurer
             relative to certain of our products written in 1993 and 1994. RAS
             was seeking to rescind the reinsurance agreement, prohibit us from
             drawing down on available lines of credit and demanding repayment
             of funds drawn from the lines of credit. On October 1, 2002, the
             arbitration panel issued an order holding RAS liable for a majority
             of the total amount in dispute. RAS was also ordered to pay
             interest at a rate of
                                        43
4.0% compounded annually with respect to balances due. The panel
             further ordered a portion of the reinsurance agreement with RAS to
             be rescinded. RAS was released from all future liabilities or
             responsibilities to us with respect to the rescinded portion of the
             reinsurance agreement. This rescission, in total, had a $20.6
             million detrimental effect on pre-tax net income. We increased
             losses and loss adjustment expenses by $23.6 million as a result of
             the rescission.

       -     In the fourth quarter of 2002, we recorded a $44.0 million pre-tax
             charge for an allowance for doubtful reinsurance receivables.

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

OUR BUSINESS SEGMENTS

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

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

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

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

       We evaluate segment performance based on gross and net premiums written,
net premiums earned and net losses and loss adjustment expenses. The following
table sets forth an analysis of financial data for our segments during the
periods indicated:
FOR THE SIX MONTHS
                                          FOR THE YEARS ENDED DECEMBER 31,      ENDED JUNE 30,
                                          ---------------------------------   -------------------
                                            2000        2001        2002        2002       2003
                                          ---------   ---------   ---------   --------   --------
         (DOLLARS IN THOUSANDS)                                                   (UNAUDITED)
Gross premiums written:
  Excess and surplus lines..............  $260,730    $398,308    $543,998    $278,991   $241,952
  Specialty admitted....................   130,734     210,212     249,085     133,091    121,001
  Reinsurance(1)........................    62,000      62,000          --      23,000         --
                                          --------    --------    --------    --------   --------
Gross premiums written..................  $453,464    $670,520    $793,083    $435,082   $362,953
                                          ========    ========    ========    ========   ========
Net premiums written:
  Excess and surplus lines..............  $ 40,663    $ 68,226    $112,110    $ 54,277   $ 57,493
  Specialty admitted....................    24,909      39,084      60,579      32,818     41,968
  Reinsurance...........................    62,000      62,000          --      23,000         --
                                          --------    --------    --------    --------   --------
Net premiums written....................  $127,572    $169,310    $172,689    $110,095   $ 99,461
                                          ========    ========    ========    ========   ========
Net premiums earned:
  Excess and surplus lines..............  $ 40,504    $ 59,004    $101,474    $ 46,899   $ 56,240
  Specialty admitted....................    25,677      36,582      53,039      25,447     38,157
  Reinsurance...........................    70,750      54,750       8,250      22,750         --
                                          --------    --------    --------    --------   --------
Net premiums earned.....................  $136,931    $150,336    $162,763    $ 95,096   $ 94,397
                                          ========    ========    ========    ========   ========
44
FOR THE SIX MONTHS
                                          FOR THE YEARS ENDED DECEMBER 31,      ENDED JUNE 30,
                                          ---------------------------------   -------------------
                                            2000        2001        2002        2002       2003
                                          ---------   ---------   ---------   --------   --------
         (DOLLARS IN THOUSANDS)                                                   (UNAUDITED)
Net losses and loss adjustment expenses:
  Excess and surplus lines..............  $ 24,613    $ 43,880    $128,642    $ 33,868   $ 38,007
  Specialty admitted....................    18,408      29,075      64,857      18,208     23,839
  Reinsurance...........................    70,130      55,383       8,251      22,750         --
                                          --------    --------    --------    --------   --------
Total net losses and loss adjustment
  expenses..............................  $113,151    $128,338    $201,750    $ 74,826   $ 61,846
                                          ========    ========    ========    ========   ========
Total net losses and loss adjustment
  expense ratios:
  Excess and surplus lines..............      60.8%       74.4%      126.8%       72.2%      67.6%
  Specialty admitted....................      71.7        79.5       122.3        71.6       62.5
  Reinsurance...........................      99.1       101.2       100.0       100.0         --
                                          --------    --------    --------    --------   --------
Total net losses and loss adjustment
  expense ratio.........................      82.6%       85.3%      124.0%       78.7%      65.5%
                                          ========    ========    ========    ========   ========
---------------

(1) For the six months ended June 30, 2002, we recorded $23.0 million of
    reinsurance gross premiums written. Our treaty subsequently was amended to
    reduce the amount of premiums written in 2002 to zero.

RESULTS OF OPERATIONS

  SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
  2002

       Premiums

       Gross premiums written, which represent the amount received or to be
received for insurance policies written without reduction for acquisition costs,
reinsurance costs or other deductions, were $363.0 million for the six months
ended June 30, 2003, compared with $435.1 million for the six months ended June
30, 2002, a decrease of $72.1 million or 16.6%. A further breakdown of gross
premiums written is as follows:

       -     E&S gross premiums written were $242.0 million for the six months
             ended June 30, 2003, compared with $279.0 million for the six
             months ended June 30, 2002, a decrease of $37.0 million or 13.3%.
             This decrease primarily resulted from the termination of 12
             products within our four product classes during 2002 and nine
             products during the six months ended June 30, 2003, offset by rate
             increases on other products. E&S gross premiums written relative to
             the terminated products were $54.9 million for the six months ended
             June 30, 2003.

       -     Specialty admitted gross premiums written were $121.0 million for
             the six months ended June 30, 2003, compared with $133.1 million
             for the six months ended June 30, 2002, a decrease of $12.1 million
             or 9.1%. The decrease in specialty admitted gross premiums written
             was primarily the result of the termination of two products during
             2002 and four products during the first six months ended June 30,
             2003, offset by rate increases on other products. Speciality
             admitted gross premiums written relative to the terminated products
             were $40.2 million for the six months ended June 30, 2003.

       -     There were no reinsurance gross premiums written for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002, a decrease of $23.0 million. The decrease in
             reinsurance gross premiums written was the result of the non-
             renewal of our reinsurance treaty in 2002.

                                        45
Net premiums written, which equal gross premiums written less ceded
premiums written, were $99.5 million for the six months ended June 30, 2003,
compared with $110.1 million for the six months ended June 30, 2002, a decrease
of $10.6 million or 9.6%. The ratio of net premiums written to gross premiums
written increased to 27.4% for the six months ended June 30, 2003, from 25.3%
for the six months ended June 30, 2002. A further breakdown of net premiums
written is as follows:

       -     E&S net premiums written were $57.5 million for the six months
             ended June 30, 2003, compared with $54.3 million for the six months
             ended June 30, 2002, an increase of $3.2 million or 5.9%. The ratio
             of net premiums written to gross premiums written was 23.8% for the
             six months ended June 30, 2003, compared with 19.5% for the six
             months ended June 30, 2002. The increase in net premiums written
             was primarily due to rate increases relative to products where our
             retention is relatively high, offset slightly by net premiums
             written associated with the terminated products previously
             mentioned. E&S net premiums written relative to products terminated
             in 2002 and subsequently were $5.4 million for the six months ended
             June 30, 2003.

       -     Specialty admitted net premiums written were $42.0 million for the
             six months ended June 30, 2003, compared with $32.8 million for the
             six months ended June 30, 2002, an increase of $9.2 million or
             28.0%. The ratio of net premiums written to gross premiums written
             was 34.7% for the six months ended June 30, 2003, compared with
             24.7% for the six months ended June 30, 2002. The increase in net
             premiums written relates to products within our specific specialty
             and property and general liability product classes. Specialty
             admitted net premiums written relative to products terminated in
             2002 and subsequently were $6.0 million for the six months ended
             June 30, 2003.

       -     There were no reinsurance net premiums written for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002. The decrease in reinsurance net premiums
             earned is consistent with the decrease in gross premiums written.

       Net premiums earned were $94.4 million for the six months ended June 30,
2003, compared with $95.1 million for the six months ended June 30, 2002, a
decrease of $0.7 million or 0.7%. A further breakdown of net premiums earned is
as follows:

       -     E&S net premiums earned were $56.2 million for the six months ended
             June 30, 2003, compared with $46.9 million for the six months ended
             June 30, 2002, an increase of $9.3 million or 19.8%. The increase
             in net premiums earned was greater than the increase in net
             premiums written due to the impact of the product terminations
             previously mentioned.

       -     Specialty admitted net premiums earned were $38.2 million for the
             six months ended June 30, 2003, compared with $25.4 million for the
             six months ended June 30, 2002, an increase of $12.8 million or
             50.4%.

       -     There were no reinsurance net premiums earned for the six months
             ended June 30, 2003, compared with $23.0 million for the six months
             ended June 30, 2002. The decrease in net premiums earned for
             reinsurance was consistent with the decrease in net premiums
             written.

  Net Investment Income

       Gross investment income, excluding realized gains and losses, was $11.5
million for the six months ended June 30, 2003, compared with $12.3 million for
the six months ended June 30, 2002, a decrease of $0.8 million or 6.5%. The
decrease was primarily due to a decrease in the average yield on fixed income
investments and lower interest rates on overnight cash balances, partially
offset by growth in cash and invested assets. Cash and invested assets grew to
$635.5 million as of June 30, 2003, from $580.8 million as of June 30, 2002, an
increase of $54.7 million or 9.4%. The growth in the investment portfolio was
due to net cash flows provided from operating activities. The average duration
of our fixed income investments approximated 4.4 years as of June 30, 2003,
compared with 6.6 years as of June 30, 2002. Our book yield on our fixed income
investments was 4.09% at June 30, 2003, compared with 5.42% at June 30, 2002.
                                        46
Investment expenses were $2.2 million for the six months ended June 30,
2003, compared with $3.4 million for the six months ended June 30, 2002, a
decrease of $1.2 million or 35.3%. The decrease was due to a reduction in
investment management fees paid.

  Net Realized Investment Gain (Loss)

       Net realized investment gains were $3.1 million for the six months ended
June 30, 2003, compared with a $7.9 million net realized investment loss for the
six months ended June 30, 2002. The net investment gain for the current period
consists of net gains of $4.1 million relative to our equity portfolio, a net
loss on fixed income investments of $0.8 million and $0.2 million of net losses
relative to other invested assets. The six months ended June 30, 2002 included a
$8.1 million loss on our equity portfolio and a $0.2 million gain on our fixed
income investments.

  Net Losses and Loss Adjustment Expenses

       Net losses and loss adjustment expenses were $61.8 million for the six
months ended June 30, 2003, compared with $74.8 million for the six months ended
June 30, 2002, a decrease of $13.0 million or 17.4%. The loss ratio for the six
months ended June 30, 2003, was 65.5% compared with 78.7% for the six months
ended June 30, 2002. The loss ratio is calculated by dividing net losses and
loss adjustment expenses by net premiums earned. This improvement was
attributable to continuing rate increases and the termination of several
unprofitable products in 2002 and 2003. A further breakdown of losses incurred
is as follows:

       -     E&S net losses and loss adjustment expenses were $38.0 million for
             the six months ended June 30, 2003, compared with $33.9 million for
             the six months ended June 30, 2002. The loss ratio was 67.6% for
             the six months ended in June 30, 2003, compared with 72.2% for the
             six months ended June 30, 2002. The improvement in the loss ratio
             is a result of the previously mentioned rate increases.

       -     Specialty admitted net losses and loss adjustment expenses were
             $23.8 million for the six months ended June 30, 2003, compared with
             $18.2 million for the six months ended June 30, 2002. The loss
             ratio for the six months ended June 30, 2003, was 62.5% compared
             with 71.6% for the six months ended June 30, 2002. The improvement
             in the loss ratio was a result of the previously mentioned rate
             increases and the reserve strengthening recognized in the second
             quarter, 2002.

       -     There was no reinsurance net losses and loss adjustment expenses
             for the six months ended June 30, 2003, due to the non-renewal of
             this business, compared with $22.8 million for the six months ended
             June 30, 2002.

  Acquisition Costs and Other Underwriting Expenses

       Acquisition costs and other underwriting expenses were $20.7 million for
the six months ended June 30, 2003, compared with $12.3 million for the six
months ended June 30, 2002, an increase of $8.4 million or 68.3%. This increase
primarily can be attributed to a $7.3 million increase in acquisition costs and
$1.1 million increase in other underwriting expenses. A further analysis of
acquisition costs and other underwriting expenses is as follows:

       -     The $7.3 million increase in acquisition costs was primarily the
             result of a reduction in ceding commission of $19.3 million
             partially offset by a decrease in direct commission of $11.9
             million. The reduction in ceding commission was a result of both a
             decrease in gross premiums written combined with an increase in our
             level of retention. The reduction in direct commission was
             consistent with the reduction in gross premiums written. While
             increased retentions have the impact of increasing acquisition
             costs, our underwriting profit nonetheless increased based upon our
             loss experience.

                                        47
-     The $1.1 million increase in other underwriting expenses was
             primarily due to an increase in employee benefit costs. Pension
             expenses were $0.7 million for the six months ended June 30, 2003,
             compared with $0.1 million for the six months ended June 30, 2002.
             During 2002, we participated in a multi-employer defined benefit
             pension plan and a 401(k) plan. Subsequent to the acquisition of
             our U.S. Operations on September 5, 2003, our participation in the
             defined benefit plan was discontinued. We have enhanced our 401(k)
             plan by increasing the employer contribution from 50.0% of the
             first 6.0% contributed by the participant to 75.0% of the first
             6.0% contributed by the participant. In addition, we will make a
             contribution of 1.0% for all employees even if the employee elects
             not to contribute to the 401(k) plan. These changes are not
             expected to materially alter our total pension benefit expenses in
             the future.

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

         Expense and Combined Ratios

       Our expense ratio, which is calculated by dividing the sum of acquisition
costs and other underwriting expenses by premiums earned, was 23.8% for the six
months ended June 30, 2003, compared with 12.9% for the six months ended June
30, 2002 as a result of the above mentioned changes to commissions and other
underwriting expenses. However, as discussed above, our underwriting profit
increased due to the improved loss experience. Part of our strategy is to
continue to retain a high percentage of our premiums. To the extent that we are
able to accomplish this, we expect the net commission component of our expense
ratio to increase.

       Our combined ratio was 89.3% for the six months ended June 30, 2003,
compared with 91.6% for the six months ended June 30, 2002. This improvement was
primarily a result of an increase in our level of premium retention combined
with an improvement in the loss experience.

         Other Operating Expenses

       Other operating expenses were $0.4 million for the six months ended June
30, 2003, compared with $1.4 million for the six months ended June 30, 2002, a
decrease of $1.0 million or 71.4%. The decrease can be attributed to the
reduction of management fees paid to The AMC Group L.P. during January 1, 2003.

       On September 5, 2003, we paid management fees of $13.5 million in the
aggregate to Fox Paine & Company and The AMC Group L.P. Effective September 5,
2004, we will commence paying annual management fees in the aggregate of $1.5
million to Fox Paine & Company and The AMC Group L.P.

         Income Tax Expense

       Income tax expense was $5.0 million for the six months ended June 30,
2003, compared with $0.4 million for the six months ended June 30, 2002, an
increase of $4.6 million. Our effective tax rates for the six months ended June
30, 2003 and 2002 were 22.6% and 5.8%, respectively. The effective rates
differed from the 35.0% statutory rate principally due to investments in
tax-exempt securities. We earned $9.0 million and $7.2 million in tax-exempt
interest for the six months ended June 30, 2003 and 2002, respectively. In
addition, we achieved a higher level of taxable income in 2003 due to an
underwriting income increase to $10.1 million for the six months ended June
2003, from $8.0 million during the six months ended June 30, 2002.

       The factors described above resulted in net income before equity in net
earnings of partnerships of $17.1 million for the six months ended June 30,
2003, compared with $7.1 million for the six months ended June 30, 2002, an
increase of $10.0 million or 140.9%.

                                        48
Equity in Net Earnings of Partnerships

       Equity in net earnings of partnerships was $1.5 million for the six
months ended June 30, 2003, compared with a loss of $0.3 million for the six
months ended June 30, 2002. The gain is largely attributable to the performance
of our investment in a limited partnership.

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

         Premiums

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

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

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

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

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

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

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

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

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

       -     E&S net premiums earned were $101.5 million for 2002, compared with
             $59.0 million for 2001, an increase of $42.5 million or 72.0%.

                                        49
-     Specialty admitted net premiums earned were $53.0 million for 2002,
             compared with $36.6 million for 2001, an increase of $16.4 million
             or 44.8%.

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

  Net Investment Income

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

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

  Net Realized Investment Gain (Loss)

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

         Net Losses and Loss Adjustment Expenses

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

       -     E&S net losses and loss adjustment expenses were $128.6 million for
             2002, compared with $43.9 million for 2001. The loss ratio was
             126.8% for 2002 compared with 74.4% for 2001. The deterioration was
             the result of the adverse loss development discussed above.

       -     Specialty admitted net losses and loss adjustment expenses were
             $64.9 million for 2002, compared with $29.1 million for 2001. The
             loss ratio for 2002 was 122.3% compared with 79.5% for 2001. The
             deterioration was the result of the adverse development discussed
             above.

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

                                        50
Acquisition Costs and Other Underwriting Expenses

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

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

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

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

         Expense and Combined Ratios

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

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

         Other Operating Expenses

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

         Income Tax Expense

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

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

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

       Premiums

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

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

       -     Specialty admitted gross premiums written were $210.2 million for
             2001, compared with $130.7 million for 2000, an increase of $79.5
             million or 60.8%. The growth in specialty

                                        51
admitted gross premiums written was caused primarily by rate
             increases combined with several large new products written for the
             first time in 2001.

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

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

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

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

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

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

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

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

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

       Net Investment Income

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

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

  Net Realized Investment Gain (Loss)

       Net realized investment loss was $12.7 million for 2001, compared with a
$0.6 million realized investment gain for 2000. The net realized investment loss
for 2001 consisted of an $7.8 million loss relative to our equity portfolio,
$1.0 million realized gains from our fixed income investments offset by $2.9
million for other than temporary impairments for fixed income securities and
$2.9 million for other

                                        52
than temporary impairments for limited partnerships. In 2000, we recorded a
realized investment gain of $1.0 million on our fixed income investments, a $1.9
million gain from the sale of a limited liability venture capital fund, and a
$2.3 million loss on our equity portfolio.

  Net Losses and Loss Adjustment Expenses

       Net losses and loss adjustment expenses were $128.3 million for 2001,
compared with $113.2 million for 2000. The loss ratio increased to 85.3% for
2001 from 82.6% for 2000. The 2001 operating results included strengthening of
prior year loss reserves of $6.2 million as well as a $5.0 million charge
resulting from a commutation with a reinsurer. The prior year reserve increase
related principally to the commercial automobile liability and animal mortality
lines of business. These factors added 7.5 percentage points to the 2001 loss
ratio. The September 11, 2001 terrorist attacks in New York, Washington D.C. and
Pennsylvania resulted in no significant property or casualty losses to us. A
further breakdown of losses incurred is as follows:

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

       -     Specialty admitted net losses and loss adjustment expenses were
             $29.1 million for 2001, compared with $18.4 million for 2000. The
             loss ratio was 79.5% for 2001 compared with 71.7% for 2000. The
             increase in the loss ratio for 2001 was primarily due to the loss
             experience of our animal mortality business.

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

  Acquisition Costs and Other Underwriting Expenses

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

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

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

  Expense and Combined Ratios

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

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

  Income Tax Expense

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

                                        53
The factors described above resulted in net income for 2001 of $10.8
million, compared with net income of $22.7 million for 2000.

LIQUIDITY AND CAPITAL RESOURCES

  SOURCES OF FUNDS

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

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

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

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

  SURPLUS LEVELS

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

  CASH FLOWS

       Net cash provided by operating activities was $11.5 million for the six
months ended June 30, 2003, compared with net cash provided by operating
activities of $76.8 million for the six months ended June 30, 2002. This
decrease in net cash used by operations resulted principally from decreases in
premiums written and the purchase of trading securities.

       Net cash used by investing activities was $12.4 million for the six
months ended June 30, 2003, compared with $64.0 million used by investing
activities for the six months ended June 30, 2002. Cash generated from
operations is generally invested in longer-term investments. This decrease in
investing activity was primarily a result of less operational cash flow.

       Net cash provided by operating activities was $105.0 million for 2002,
compared with $18.0 million for 2001. This increase in net cash provided by
operations resulted principally from an increase in premiums written in 2002.

                                        54
Net cash used by investing activities was $109.1 million for 2002,
compared with $65.8 million for 2001.

       Net cash provided by operating activities was $18.0 million for 2001,
compared with $0.4 million used by operating activities for 2000.

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

  LIQUIDITY

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

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

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

  CAPITAL RESOURCES

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

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

                                        55
For 2003, United National Insurance Company can pay a dividend of $22.9
million without regulatory approval.

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

INFLATION

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

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

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

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

  INTEREST RATE RISK

       Our primary market risk exposure is to changes in interest rates. Our
fixed income investments are exposed to interest rate risk. Fluctuations in
interest rates have a direct impact on the market valuation of these securities.
As interest rates rise, the market value of our fixed income investments fall,
and the converse is also true. We expect to manage interest rate risk through an
active portfolio management strategy that involves the selection, by our
managers, of investments with appropriate characteristics, such as duration,
yield, currency and liquidity, that are tailored to the anticipated cash outflow
characteristics of our liabilities. Our strategy for managing interest rate risk
also includes maintaining a high quality portfolio with a relatively short
duration to reduce the effect of interest rate changes on book value. A
significant portion of our investment portfolio matures each year, allowing for
reinvestment at current market rates. Our investment portfolio is actively
managed and trades are made to balance our exposure to interest rates. As of
June 30, 2003, assuming parallel shifts in interest rates, an immediate 100
basis point increase in market interest rates would have resulted in an
estimated decrease in market value of 4.1%, or approximately $19.9 million on
our fixed income securities of $483.4 million, and an immediate 100 basis point
decrease in market interest rates would have resulted in an estimated increase
in market value of 4.3% or approximately $20.8 million.

  CREDIT RISK

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

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

       With respect to our credit exposure to reinsurers, we seek to mitigate
and control our risk by ceding business to only those reinsurers having adequate
financial strength and sufficient capital to fund their obligation. In addition,
we seek to mitigate credit risk to reinsurers through the use of trusts for

                                        56
collateral. As of June 30, 2003, $483.2 million of collateral was held in trust
to support the reinsurance receivables. On August 29, 2003, an additional $200.5
million was placed in trust by one of our reinsurers.

COMMITMENTS

     We have commitments in the form of operating leases, commitments to fund
limited partnerships and a revolving line of credit. As of June 30, 2003,
contractual obligations related to these commitments were as follows:
LESS THAN                           MORE THAN
                                                TOTAL     1 YEAR     1-3 YEARS   3-5 YEARS    5 YEARS
           (DOLLARS IN THOUSANDS)              -------   ---------   ---------   ---------   ---------
Operating leases(1)..........................  $10,870    $ 2,084     $3,876      $4,910       $  --
Commitments to fund limited
  partnerships(2)(3).........................   18,915     18,915         --          --          --
Discretionary demand line of credit(4).......      155         31         62          62          --
                                               -------    -------     ------      ------       -----
  Total......................................  $29,940    $21,030     $3,938      $4,972       $  --
                                               =======    =======     ======      ======       =====
------------

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

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

(3) Subsequent to June 30, 2003, our commitments to fund limited partnerships
    were reduced by $6.6 million due to our sale of certain limited partnership
    interests.

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

                                        57
INDUSTRY BACKGROUND AND TRENDS

INDUSTRY CONDITION AND TRENDS

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

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

       We believe that these trends continued and accelerated in 2001 when the
property and casualty insurance industry experienced a severe dislocation as a
result of an unprecedented impairment of capital, causing a substantial
contraction in industry underwriting capacity. We believe that this reduction in
capacity is a result of, among other things:

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

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

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

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

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

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

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

       Consistent with the trends witnessed in the broader property and casualty
market, during 2001 and 2002, our rate increases on renewal business across all
segments approximated 23% and 30%, respectively. In the six months ended June
30, 2003, our rate increases on renewal business approximated 29%, which rates
we will earn over the period of time for which the policies are in force,
generally the next 12 months. We cannot assure you, however, that these
favorable trends will continue or that these rate increases can be sustained.

                                        58
SPECIALTY INSURANCE MARKET

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

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

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

       According to A.M. Best, over the 20-year period from 1982 to 2002, the
surplus lines market grew from an estimated $2.1 billion in direct premiums
written to $25.6 billion, representing a 13.3% compound annual growth rate and
aggregate growth of 1,119.1%. In contrast, the U.S. property and casualty
industry grew more moderately from $95.5 billion in direct premiums written to
$406.7 billion, representing a 7.5% compound annual growth rate and aggregate
growth of 325.9%. During this period, the surplus lines market as a percent of
the total property and casualty industry grew from approximately 2.4% to 4.2%.
Additionally, the growth in terms of commercial lines market share, which
comprises the majority of surplus lines premiums, increased from 3.6% to 8.8%
over this period.

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

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

                                        59
BUSINESS

OVERVIEW

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

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

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

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

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

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

ACQUISITION OF OUR U.S. OPERATIONS

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

       To effect this acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We then purchased the
remainder of the common stock of Wind River Investment Corporation
                                        60
held by the Ball family trusts with consideration consisting of 2.5 million
Class A common shares, 3.5 million Series A preferred shares and senior notes
issued by Wind River Investment Corporation having an aggregate principal amount
of approximately $72.8 million.

       Of the remaining $140.0 million contributed to us, we then contributed
$80.0 million to our U.S. Operations, used $43.5 million to capitalize our
Non-U.S. Operations and used $16.5 million to fund fees and expenses incurred in
connection with the acquisition. See "Our Relationship with Fox Paine &
Company."

OUR COMPETITIVE STRENGTHS

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

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

       -     EXPERIENCED MANAGEMENT TEAM.  Our experienced management team has
             an average of over 23 years of experience in the insurance industry
             and has been with us for an average of 17 years. Each member of our
             senior management team participates in our stock incentive plan
             that is intended to align management compensation with the
             achievement of the goals of our shareholders.

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

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

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

       -     BALANCE SHEET STRENGTH.  We believe our conservative underwriting
             and investment policies have enabled us to maintain at least an "A"
             (Excellent) rating or better from A.M. Best for 17 consecutive
             years. Our rating enables us to compete with the highest rated
             insurers in the industry.

                                        61
OUR STRATEGY

       Our financial goal is to produce a superior return to our shareholders by
achieving underwriting profits and by steadily increasing our shareholders'
equity over the long term. We intend to reach our goal by:

       -     MAINTAINING A LEADERSHIP ROLE IN THE E&S AND SPECIALTY ADMITTED
             MARKETS.  We intend to continue to focus on the needs of the E&S
             and specialty admitted markets by developing customized insurance
             products for our insureds, using sophisticated underwriting
             solutions and providing predictable and helpful customer service.

       -     FOCUSING ON SPECIFIC NICHE MARKETS IN WHICH WE HAVE DEMONSTRATED
             UNDERWRITING EXPERTISE.  We believe our depth of experience across
             a diverse set of niche markets provides us a competitive advantage
             that enables us to identify opportunities and generate superior
             profitability. We intend to utilize our disciplined, systematic
             underwriting and quality control processes to obtain the
             appropriate rates and selection of insureds. Our approach has
             generated a statutory underwriting profit in 19 of the last 20
             years.

       -     OPPORTUNISTICALLY MANAGING A DIVERSE PRODUCT PORTFOLIO.  We
             continue opportunistically to manage our product portfolio to grow
             premiums written in those areas experiencing strong price increases
             and improving underwriting terms and conditions. In order to
             achieve this growth, we are increasing our retention of our most
             profitable products. Across our top ten products, as ranked by net
             premiums written, we increased retention from 53.3% in 2002 to
             56.2% for the six months ended June 30, 2003.

       -     MAINTAINING A CONSERVATIVE BALANCE SHEET AND A STRONG A.M. BEST
             RATING.  We intend to remain conservative in our underwriting,
             reinsurance buying and investment practices and to use extensive
             modeling techniques to protect our current position with the rating
             agencies, particularly A.M. Best. Our investment philosophy will
             remain consistent with our current conservative investment
             portfolio, of which 87.3% is invested in fixed income securities
             and cash and cash equivalents as of June 30, 2003 with the fixed
             income securities having a 4.4-year duration and an average quality
             rating of AA.

       -     BUILDING SHAREHOLDER VALUE.  By growing underwriting profits
             through our disciplined approach and conservatively managing a
             large investment portfolio, we intend to grow shareholders' equity
             over the long term.

BUSINESS SEGMENTS

       We operate our business through three business segments: E&S, specialty
admitted, and reinsurance. The following table sets forth an analysis of gross
premiums written by segment during the periods indicated:
FOR THE YEARS ENDED DECEMBER 31,
                            ------------------------------------------------------------    SIX MONTHS ENDED
                                   2000                 2001                 2002            JUNE 30, 2003
                            ------------------   ------------------   ------------------   ------------------
                             AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
  (DOLLARS IN THOUSANDS)    --------   -------   --------   -------   --------   -------   --------   -------
E&S.......................  $260,730     57.5%   $398,308     59.4%   $543,998     68.6%   $241,952     66.7%
Specialty admitted........   130,734     28.8     210,212     31.4     249,085     31.4     121,001     33.3
Reinsurance...............    62,000     13.7      62,000      9.2          --       --          --       --
                            --------    -----    --------    -----    --------    -----    --------    -----
Total gross premiums
  written.................  $453,464    100.0%   $670,520    100.0%   $793,083    100.0%   $362,953    100.0%
                            ========    =====    ========    =====    ========    =====    ========    =====
E&S

       Our E&S segment focuses on writing insurance for hard-to-place risks and
risks that standard admitted insurers specifically choose not to write. Our
eligibility as an E&S lines insurer allows us to underwrite unique risks with
more flexible policy forms and unregulated premium rates. This flexibility

                                        62
typically results in coverages that are more restrictive and more expensive than
those offered in the standard admitted market. In 2002, the United States E&S
market as a whole represented approximately $25.6 billion in direct premiums
written according to A.M. Best, or approximately 6.3% of the $406.7 billion
United States property and casualty industry direct premiums written. According
to A.M. Best, the E&S market as a whole grew 61.7% from 2001 to 2002 on the
basis of direct premiums written. In 2002, we had $544.0 million of gross
premiums written in the E&S market.

  SPECIALTY ADMITTED

       Our specialty admitted segment focuses on writing insurance for risks
that are unique and hard to place in the standard market for insureds that are
required, for marketing and regulatory reasons, to purchase insurance from an
admitted insurance company. We estimate that the specialty admitted market as a
whole is comparable in size to the E&S market. The specialty admitted market is
subject to more state regulation than the E&S market, particularly with regard
to rate and form filing requirements, restrictions on the ability to exit lines
of business, premium tax payments and membership in various state associations,
such as state guaranty funds and assigned risk plans. In 2002, we had $249.1
million of gross premiums written in the specialty admitted market.

  REINSURANCE

       Our reinsurance segment includes assumed business written in support of a
select group of direct writing reinsurers. Any underwriting exposure under this
segment has been commuted at no loss to us. This segment was de-emphasized in
2002, but we may write this type of business in the future through our Non-U.S.
Operations.

PRODUCTS AND PRODUCT DEVELOPMENT

       We offer four general classes of insurance products across both our E&S
and specialty admitted business segments. These four classes of products are
specific specialty insurance products, umbrella and excess insurance products,
property and general liability insurance products and non-medical professional
liability insurance products. The following table sets forth an analysis of
gross premiums written by product class during the periods indicated:
FOR THE YEARS ENDED DECEMBER 31,
                                    ------------------------------------------------------------    SIX MONTHS ENDED
                                           2000                 2001                 2002            JUNE 30, 2003
                                    ------------------   ------------------   ------------------   ------------------
                                     AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
      (DOLLARS IN THOUSANDS)        --------   -------   --------   -------   --------   -------   --------   -------
Specific specialty................  $277,167     70.8%   $375,962     61.8%   $439,364     55.4%   $151,366     41.7%
Umbrella and excess...............    58,095     14.8     138,425     22.8     209,369     26.4     100,367     27.7
Property and general liability....    32,360      8.3      50,725      8.3      75,376      9.5      66,507     18.3
Non-medical professional
  liability.......................    23,842      6.1      43,408      7.1      68,974      8.7      44,713     12.3
                                    --------    -----    --------    -----    --------    -----    --------    -----
    Total.........................  $391,464    100.0%   $608,520    100.0%   $793,083    100.0%   $362,953    100.0%
                                    ========    =====    ========    =====    ========    =====    ========    =====
Our insurance products target very specific, defined, homogenous groups
of insureds with customized coverages to meet their needs. Our products include
customized guidelines, rates and forms tailored to our risk and underwriting
philosophy.

                                        63
The following chart provides representative examples of certain products
we offer by product class for specific types of customers:
PRODUCT CLASS                PRODUCT                   CUSTOMER             HYPOTHETICAL CLAIM
------------------------  ------------------------  ------------------------  ------------------------
Specific Specialty        Equine mortality          Owner of pleasure or      Horse dies
                                                    show horse
                          Dealer open lot physical  Auto dealer distribution  Car on open lot damaged
                          damage                    center                    due to hail storm

Umbrella and Excess       Umbrella liability        Small to medium size      Employee car accident,
                          coverage over multiple    businesses, such as       trip and fall or
                          $1 million liability      warehouses, retail        products claim
                          coverages                 stores, commercial
                                                    contractors and
                                                    apartment buildings
                          Excess liability          Small to medium size      Trip and fall or
                          coverage over $1 million  businesses seeking to     products claim
                          primary general           purchase more than $1
                          liability policy          million general
                                                    liability limit policies

Property and General      Commercial packages       Small businesses, such    Trip and fall or
  Liability                                         as warehouses, retail     premises claim
                                                    stores and restaurants
                          Bicycle manufacturing     Retail bicycle store and  Trip and fall or product
                                                    bicycle warehouse         malfunction claim
                          Vacant dwellings          Home of an individual     Fire damage
                                                    that recently entered a
                                                    nursing home

Non-Medical Professional  Social service agency     Rehabilitation centers    Case worker does not
  Liability                                         and counseling centers    properly supervise
                                                                              charge
                          Educators legal           School boards             Teacher sues for
                          liability                                           discrimination if
                                                                              released prior to tenure
We utilize a product development process that incorporates disciplined
underwriting and due diligence followed by comprehensive home office controls
that are intended to maximize underwriting profitability. For example, in 2002,
we evaluated approximately 300 products or appointments, of which approximately
50 met our criteria for consideration and ultimately six led to new products or
appointments. We believe that direct contacts between our field and home office
personnel and our customers have enabled us to identify high quality and
profitable products to underwrite. We conduct extensive product due diligence
and have strict underwriting guidelines that include in-house actuarial loss
analysis and profit calculations based on activity-based costing models. We
purchase tailored reinsurance structures for each product and have a formal
reinsurance placement process governed by our reinsurance security committee,
which consists of six senior executives. Our documentation and underwriting
controls include general agency contracts and reinsurance treaties that are
specifically tailored for each relationship, daily monitoring, monthly reviews
of all products by our senior management and regular on-site general agency
audits.

                                        64
GEOGRAPHIC CONCENTRATION

       The following table sets forth the geographic distribution of our direct
premiums written for the periods indicated:
YEARS ENDED DECEMBER 31,
                                   ------------------------------------------------------------    SIX MONTHS ENDED
                                          2000                 2001                 2002            JUNE 30, 2003
                                   ------------------   ------------------   ------------------   ------------------
                                    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
     (DOLLARS IN THOUSANDS)        --------   -------   --------   -------   --------   -------   --------   -------
New York.........................  $ 37,678      9.7%   $ 60,964     10.1%   $ 66,858      8.4%   $ 43,302     11.9%
California.......................    56,215     14.4      71,744     11.9      81,573     10.3      41,679     11.5
Florida..........................    35,532      9.1      57,600      9.5      88,990     11.2      31,552      8.7
Texas............................    43,091     11.1      71,276     11.8      76,498      9.7      24,938      6.9
New Jersey.......................    14,572      3.7      22,077      3.7      34,704      4.4      23,632      6.5
Pennsylvania.....................    21,600      5.5      31,783      5.3      51,220      6.5      18,488      5.1
Louisiana........................     8,912      2.3      16,718      2.8      27,449      3.5      16,872      4.7
Ohio.............................    16,669      4.3      22,590      3.7      31,711      4.0      15,707      4.3
Massachusetts....................     8,254      2.1      12,758      2.1      23,157      2.9      13,811      3.8
Illinois.........................    18,496      4.8      21,503      3.6      27,872      3.5      12,091      3.3
                                   --------    -----    --------    -----    --------    -----    --------    -----
    Subtotal.....................  $261,019     67.0%   $389,013     64.5%   $510,032     64.4%   $242,072     66.7%
All Others.......................   128,329     33.0     215,725     35.5     281,832     35.6     120,881     33.3
                                   --------    -----    --------    -----    --------    -----    --------    -----
    Total........................  $389,348    100.0%   $604,738    100.0%   $791,864    100.0%   $362,953    100.0%
                                   ========    =====    ========    =====    ========    =====    ========    =====
UNDERWRITING

       We utilize a three-step underwriting process that is intended to ensure
appropriate selection of risk.

       First, we carefully and thoroughly review the expected exposure, policy
terms, premium rates, conditions and exclusions to determine whether a risk
appropriately fits our overall strategic objectives. Risks that meet this
criteria are outlined within pre-approved comprehensive underwriting manuals. We
also develop specific administrative and policy issuance processes and
procedures that are provided to our underwriting personnel and our professional
general agencies.

       Second, our professional general agencies, including our wholly-owned
subsidiary, J.H. Ferguson, and our direct underwriting personnel further
underwrite and assist in the selection of the specific insureds. Our
professional general agencies utilize the underwriting manuals and processes and
procedures that we provide to generate an insurance quote for the particular
insured. In certain cases, a professional general agency may have a potential
insured that requires insurance for a risk that lies outside of the scope of our
pre-approved underwriting guidelines. For these risks, we also provide a process
to enable the delivery of an insurance quote directly from us, after specific
review by our underwriters. We regularly update our underwriting manuals to
ensure that they clearly outline risk eligibility, pricing, second-step
underwriting guidelines and processes, approved policy forms and policy issuance
and administrative procedures.

       Third, we monitor the quality of our underwriting on an ongoing basis.
Our underwriting staff closely monitors the underwriting quality of our business
through a very disciplined control system developed for all products and
appointments. Our control system consists of five independent steps that we
believe ensure the integrity of our underwriting guidelines and processes,
including:

       -     daily updates of all insureds underwritten;

       -     individual policy reviews;

       -     monthly general agency and product profile reviews;

                                        65
-     on-site general agency audits for profitability, processes and
             controls that provide for removal of general agencies not producing
             satisfactory underwriting results or complying with established
             guidelines; and

       -     internal annual actuarial and profitability reviews.

       We provide strong incentives to our professional general agencies to
produce profitable business through contingent profit commission structures that
are tied directly to the achievement of loss ratio and profitability targets.

MARKETING AND DISTRIBUTION

       We primarily market the insurance products of our U.S. Operations through
our wholly-owned subsidiary J.H. Ferguson, and through a group of 51
professional general agencies that have limited quoting and binding authority
that in turn sell our insurance products to insureds through retail insurance
brokers. Some of our professional general agencies have limited quoting and
binding authority with respect to a single insurance product and others have
limited quoting and binding authority with respect to multiple products. Our
distribution strategy is to maintain strong relationships with a limited number
of high-quality professional general agencies. Professional general agencies
typically work exclusively with us on our products. We carefully select our
professional general agencies based on their experience and reputation.

       Of our professional general agencies, the top five, including J.H.
Ferguson, accounted for approximately 49% of our direct premiums written for the
six months ended June 30, 2003, with no one general agency accounting for more
than 12%. J.H. Ferguson accounted for approximately 9% of direct premiums
written during that period.

       We believe that our distribution strategy enables us effectively to
access numerous small markets at a relatively low fixed-cost through the
marketing, underwriting and administrative support of our professional general
agencies. These professional general agencies and their retail insurance brokers
have local market knowledge and expertise that enables us to access these
markets more effectively.

PRICING

       We generally use the actuarial loss costs promulgated by the Insurance
Services Office as a benchmark in the development of pricing for our products.
We further develop our pricing through the use of our pricing actuary to
ultimately establish pricing tailored to each specific product we underwrite,
taking into account historical loss experience and individual risk and coverage
characteristics.

       Recently, we have been successful in increasing our rates. For example,
during 2001 and 2002, our rate increases on renewal business, across all
segments, approximated 23% and 30%, respectively. Through June 30, 2003, our
rate increases on renewal business approximated 29%, which rates we will earn
over the period of time for which the policies are in force, generally the next
12 months. We cannot assure you, however, that these favorable trends will
continue or that these rate increases can be sustained.

REINSURANCE

       We purchase reinsurance to reduce our net liability on individual risks
and to protect against catastrophe losses. Reinsurance allows us to control
exposure to losses, stabilize earnings and protect capital resources. We
purchase reinsurance on both a proportional and excess of loss basis. The type,
cost and limits of reinsurance we purchase can vary from year to year based upon
our desired retention levels and the availability of quality reinsurance at an
acceptable price. Although reinsurance does not legally discharge an insurer
from its primary liability for the full amount of the policies it has written,
it does make the assuming reinsurer liable to the insurer to the extent of the
insurance ceded. Our reinsurance contracts renew throughout the year, and all of
our reinsurance is purchased following review by our reinsurance security
committee.

                                        66
We purchase specific types and structures of reinsurance depending upon
the specific characteristics of the lines of business we underwrite. We will
typically seek to place proportional reinsurance in many of our specific
specialty products, umbrella and excess products or in the development stages of
a new product. We believe that this approach allows us more cost effectively to
control our net exposure in these product areas. In our proportional reinsurance
contracts, we generally receive a ceding commission on the premium ceded to
reinsurers. This commission compensates us for the direct costs associated with
the production and underwriting of the business. In addition, many of our
proportional reinsurance contracts allow us to share in any excess profits
generated under such contracts.

       We purchase reinsurance on an excess of loss basis to cover individual
risk severity. These structures are utilized to protect our primary positions on
property and general liability products and non-medical professional liability
products. These structures allow us to maximize our underwriting profits by
retaining a greater portion of the risk in these well defined and seasoned
products, while protecting against the possibility of unforeseen volatility.
Additionally, we purchase facultative risk protection on single risks when we
deem necessary.

       Our property writings are generally not catastrophe exposed, and our
casualty focus does not typically generate a clash exposure. To protect us from
the certain exposures that do exist, we purchase $5.0 million property
catastrophe and $1.0 million casualty clash coverages, both of which are on a
per occurrence basis.

       We purchase reinsurance from a number of financially strong reinsurers
with which we have long-standing relationships. In addition, in certain
circumstances, we hold collateral, including escrow funds and letters of credit,
under reinsurance agreements. The following table sets forth our largest
reinsurers, with which we have an average relationship of 17 years, in terms of
amounts receivable, net of reinsurance payables to these reinsurers as of June
30, 2003. Also shown are the amounts of premiums written ceded by us to these
reinsurers during the six months ended June 30, 2003.
A.M.       GROSS        PREPAID        TOTAL                    CEDED
                             BEST    REINSURANCE   REINSURANCE   REINSURANCE   PERCENT OF   PREMIUMS   PERCENT OF
                            RATING   RECEIVABLES     PREMIUM       ASSETS        TOTAL      WRITTEN      TOTAL
  (DOLLARS IN MILLIONS)     ------   -----------   -----------   -----------   ----------   --------   ----------
American Re-Insurance
  Co. ....................  A+        $  682.2       $ 68.5       $  750.7        37.3%     $  96.1       36.5%
Employers Reinsurance
  Corp. ..................  A            368.8         42.2          411.0        20.4         64.4       24.4
Hartford Fire Insurance
  Co. ....................  A+           115.4          8.4          123.8         6.2         20.8        7.9
Converium Re..............  A            106.6          4.6          111.2         5.5         13.1        5.0
GE Reinsurance Corp. .....  A             92.2          6.4           98.6         4.9         14.5        5.5
General Reinsurance
  Corp. ..................  A++           86.1          6.5           92.6         4.6         12.2        4.6
Generali -- Assicurazioni... A+           62.0           --           62.0         3.1          0.1        0.0
SCOR Reinsurance
  Company.................  B++           48.1          0.3           48.4         2.4          5.2        2.0
Swiss Reinsurance America
  Corp....................  A++           40.9          1.0           41.9         2.1          2.5        0.9
Odyssey Reinsurance
  Corp. ..................  A             31.0           --           31.0         1.5         (0.2)      (0.1)
                                      --------       ------       --------       -----      --------     -----
    Subtotal..............            $1,633.3        137.9        1,771.2        88.0%     $ 228.7       86.7%
All other reinsurers......               268.0         21.8          289.7        14.4         34.8       13.3
                                      --------       ------       --------       -----      --------     -----
    Allowance for doubtful
      reinsurance
      receivables.........            $  (49.1)                   $  (49.1)       (2.4)%
                                      --------
    Total receivables.....            $1,852.2       $159.7        2,011.8       100.0%     $ 263.5      100.0%
                                      ========       ======       ========       =====      ========     =====
Collateral held in trust
  from reinsurers(1)......              (483.2)                     (483.2)
                                      --------                    --------
    Net receivables.......            $1,369.0                    $1,528.6
                                      ========                    ========
------------
(1) On August 29, 2003, an additional $200.5 million was placed in trust for our
    benefit by one of our reinsurers.

                                        67
As of June 30, 2003, we had $1,852.2 million of reinsurance receivables
net of an allowance of $49.1 million for doubtful reinsurance receivables. As of
June 30, 2003, $483.2 million of collateral was held in trust to support the
reinsurance receivables. Our reinsurance receivables, net of collateral held,
were $1,369.0 million at June 30, 2003. We also had $159.7 million of prepaid
reinsurance premiums as of June 30, 2003. On August 29, 2003, an additional
$200.5 million was placed in trust on our behalf by one of our reinsurers.

       As noted above, we have an allowance of $49.1 million, as of June 30,
2003, for doubtful reinsurance receivables, of which an aggregate $44.0 million
allowance was established in 2002. Historically, there have been insolvencies
following a period of competitive pricing in the industry. While we believe this
reserve is adequate based on currently available information, conditions may
change or additional information might be obtained that may result in a future
change in the allowance. We periodically review our financial exposure to the
reinsurance market and the level of our allowance and continue to take actions
in an attempt to mitigate our exposure to possible loss. For further information
on our reserves, including the establishment of our allowance for doubtful
reinsurance receivables and our relationship with our reinsurers, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Special Note Regarding 2002."

CLAIMS MANAGEMENT AND ADMINISTRATION

       Our approach to claims management is designed to investigate reported
incidents at the earliest juncture, to select, manage and supervise all legal
and adjustment aspects of claims, including settlement, for the mutual benefit
of us, our general agencies, reinsurers and insureds. Our general agencies
generally have no authority to settle claims or otherwise exercise control over
the claims process. Our claims management staff supervises or processes all
claims. We have a formal claims review process, and all claims greater than
$100,000 are reviewed by our senior claims management and certain of our senior
executives.

       To handle claims, we utilize our own in-house claims department as well
as third party claims administrators, or "TPAs," and assuming reinsurers, to
whom we delegate limited claims handling authority. Our experienced in-house
staff of approximately 50 claims management professionals are assigned to one of
five dedicated claim units: casualty claims, latent exposure claims, property
claims, TPA oversight and a wholly-owned TPA that administers claims mostly on
the west coast of the United States. Each of these units receives supervisory
direction and updates on industry, legislative and product developments from the
unit director. Our claims management personnel have an average of approximately
19 years of experience in the industry. The dedicated claims units meet
regularly to communicate changes that may occur within their assigned specialty.

       As of June 30, 2003, we had approximately $634.6 million of outstanding
reserves on known claims. Claims relating to approximately 43.0% of those
reserves are handled by our in-house claims management professionals, while
approximately 37.0% of those reserves are handled by our TPAs, which send us
detailed financial and claims information on a monthly basis. We also
individually supervise in-house any significant or complicated TPA handled
claims, and conduct two to five day on-site audits of our TPAs at least twice a
year. Approximately 20.0% of our reserves are handled by our assuming
reinsurers. We diligently review and supervise the claims handed by our
reinsurers to protect our reputation and minimize exposure.

OUR NON-U.S. OPERATIONS

       Our Non-U.S. Operations consist of U.N. Barbados, which was recently
formed. To date, our Non-U.S. Operations have not commenced operations. In the
near future, we intend to begin writing third-party insurance policies through
our Non-U.S. Operations that are substantially identical to those that we have
historically offered through our U.S. Operations, potentially including
reinsurance, and that are subject to similar underwriting review. However, we
will not be permitted to offer third party insurance policies without the
approval of the Barbados Supervisor of Insurance. We intend to distribute these

                                        68
insurance products through wholesale insurance brokers in the United States,
rather than through a network of professional general agencies.

       We also intend to use our Non-U.S. Operations to provide reinsurance to
our U.S. Operations, largely on a proportional basis.

RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       Applicable insurance laws require us to maintain reserves to cover our
estimated ultimate losses under insurance policies that we write and for loss
adjustment expenses relating to the investigation and settlement of policy
claims.

       We establish losses and loss adjustment expenses reserves for individual
claims by evaluating reported claims on the basis of:

       -     our knowledge of the circumstances surrounding the claim;

       -     the severity of injury or damage;

       -     jurisdiction of the occurrence;

       -     the potential for ultimate exposure;

       -     the type of loss; and

       -     our experience with the insured and the line of business and policy
             provisions relating to the particular type of claim.

       In most cases, we estimate such losses and claims costs through an
evaluation of individual claims. However, for some types of claims, we initially
use an average reserving method until more information becomes available to
permit an evaluation of individual claims. We also establish loss reserves for
incurred but not reported, or "IBNR," losses based in part on statistical
information and in part on industry experience with respect to the probable
number and nature of claims arising from occurrences that have not been
reported. We also establish our reserves based on our estimates of future trends
in claims severity and other subjective factors. Insurance companies are not
permitted to reserve for a catastrophe until it has occurred. Reserves are
recorded on an undiscounted basis. The reserves of each of our U.S. Insurance
Subsidiaries are established in conjunction with and reviewed by our in-house
actuarial staff and are certified annually by our independent actuaries.

       With respect to some classes of risks, the period of time between the
occurrence of an insured event and the final resolution of a claim may be many
years, and during this period it often becomes necessary to adjust the claim
estimates either upward or downward. Certain classes of umbrella and excess
liability that we underwrite have historically had longer intervals between the
occurrence of an insured event, reporting of the claim and final resolution. In
such cases, we are forced to estimate reserves over long periods of time with
the possibility of several adjustments to reserves. Other classes of insurance
that we underwrite, such as most property insurance, historically have shorter
intervals between the occurrence of an insured event, reporting of the claim and
final resolution. Reserves with respect to these classes are therefore less
likely to be adjusted.

       The reserving process is intended to reflect the impact of inflation and
other factors affecting loss payments by taking into account changes in
historical payment patterns and perceived trends. However, there is no precise
method for the subsequent evaluation of the adequacy of the consideration given
to inflation, or to any other specific factor, or to the way one factor may
affect another.

       The loss development triangles below show changes in our reserves in
subsequent years from the prior loss estimates based on experience as of the end
of each succeeding year on the basis of U.S. GAAP. The estimate is increased or
decreased as more information becomes known about the frequency and severity of
losses for individual years. A redundancy means the original estimate was higher
than the current estimate; a deficiency means that the current estimate is
higher than the original estimate.

                                        69
The first line of the loss development triangle shows, for the years
indicated, our net reserve liability including the reserve for incurred but not
reported losses. The first section of the table shows, by year, the cumulative
amounts of losses and loss adjustment expenses paid as of the end of each
succeeding year. The second section sets forth the re-estimates in later years
of incurred losses, including payments, for the years indicated. The "cumulative
redundancy (deficiency)" represents, as of the date indicated, the difference
between the latest re-estimated liability and the reserves as originally
estimated.

       This loss development triangle shows development in loss reserves on a
net basis:
1992       1993       1994       1995       1996       1997       1998       1999       2000       2001
(DOLLARS IN THOUSANDS)  --------   --------   --------   --------   --------   --------   --------   --------   --------   --------
Balance sheet
  reserves:..........   $117,444   $140,993   $152,457   $155,030   $168,599   $180,651   $210,483   $167,868   $131,128   $156,784
Cumulative paid as of:
  One year later.....   $ 14,177   $ 22,355   $ 29,966   $ 15,886   $ 13,190   $  8,360   $ 85,004   $ 64,139   $ 26,163   $ 63,667
  Two years later....     24,023     39,305     38,623     25,120     13,543     64,079    110,073     82,119     72,579
  Three years later...    32,182     49,267     45,974     21,867     56,603     77,775    123,129    118,318
  Four years later...     39,603     55,573     39,537     47,023     66,083     85,923    152,915
  Five years later...     42,837     52,191     52,829     54,490     72,451    111,044
  Six years later....     44,316     56,090     58,647     58,064     93,652
  Seven years later...    45,668     59,312     61,160     77,962
  Eight years later...    46,874     60,112     79,835
  Nine years later...     46,390     65,748
  Ten years later....     48,205
Re-estimated liability
  as of:
  End of year........   $117,444   $140,993   $152,457   $155,030   $168,599   $180,651   $210,483   $167,868   $131,128   $156,784
  One year later.....    121,582    139,523    146,119    146,678    148,895    164,080    195,525    157,602    124,896    228,207
  Two years later....    120,984    131,504    138,304    127,939    137,056    146,959    185,421    155,324    180,044
  Three years later...   110,402    126,872    119,561    116,751    121,906    137,711    182,584    192,675
  Four years later...    105,113    109,751    114,905    105,368    118,144    136,307    211,544
  Five years later...     87,942    103,968    105,963    101,712    116,890    157,605
  Six years later....     79,266     95,141    101,982     98,847    132,663
  Seven years later...    72,295     92,563     98,445    111,484
  Eight years later...    70,964     88,877    111,444
  Nine years later...     67,457     80,558
  Ten years later....     58,257
Cumulative redundancy
  (deficiency).......   $ 59,187   $ 60,435   $ 41,013   $ 43,546   $ 35,936   $ 23,046   $ (1,061)  $(24,807)  $(48,916)  $(71,423)
2002
(DOLLARS IN THOUSANDS)  --------
Balance sheet
  reserves:..........   $260,823
Cumulative paid as of:
  One year later.....
  Two years later....
  Three years later...
  Four years later...
  Five years later...
  Six years later....
  Seven years later...
  Eight years later...
  Nine years later...
  Ten years later....
Re-estimated liability
  as of:
  End of year........   $260,823
  One year later.....
  Two years later....
  Three years later...
  Four years later...
  Five years later...
  Six years later....
  Seven years later...
  Eight years later...
  Nine years later...
  Ten years later....
Cumulative redundancy
  (deficiency).......   $      0
The net deficiency for 1998 through 2001 primarily resulted from the
factors described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Special Note Regarding 2002."

                                        70
The following table provides a reconciliation of the liability for losses
and loss adjustment expenses, net of reinsurance ceded:
2000       2001        2002
                   (DOLLARS IN THOUSANDS)                     --------   --------   ----------
Reserves for unpaid losses and loss adjustment expenses at
  beginning of year.........................................  $805,717   $800,630   $  907,357
Less gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   637,850    669,504      750,573
                                                              --------   --------   ----------
Net reserves for losses and loss adjustment expenses at
  beginning of year.........................................   167,867    131,126      156,784
Incurred losses and loss adjustment expenses:
  Provision for losses and loss adjustment expenses for
     claims occurring in the current year...................   123,476    134,558      130,327
  (Decrease) increase in estimated losses and loss
     adjustment expenses for claims occurring in prior
     years(1)...............................................   (10,325)    (6,220)      71,423
                                                              --------   --------   ----------
Incurred losses and loss adjustment expenses................   113,151    128,338      201,750
Losses and loss adjustment expenses payments for claims
  occurring during:
  Current year..............................................    85,811     76,508       34,045
  Prior years...............................................    64,081     26,172       63,669
                                                              --------   --------   ----------
Losses and loss adjustment expenses payments................   149,892    102,680       97,714
                                                              --------   --------   ----------
Net reserves for losses and loss adjustment expenses at end
  of year...................................................   131,126    156,784      260,820
Plus gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   669,504    750,573    1,743,602
                                                              --------   --------   ----------
Reserves for unpaid losses and loss adjustment expenses at
  end of year...............................................  $800,630   $907,357   $2,004,422
                                                              ========   ========   ==========
---------------

(1) In 2002, we increased our net loss reserves relative to accident years 2001
    and prior by $47.8 million primarily due to higher than anticipated losses
    in the multi-peril and other liability lines of business and by $23.6
    million due to the conclusion of an arbitration proceeding. Net losses and
    loss adjustment expense ratio increased by 43.9 percentage points in 2002
    due to this $71.4 million increase in net loss reserves.

ENVIRONMENTAL AND ASBESTOS EXPOSURE

       Although we believe our exposure to be limited, we have exposure to
environmental and asbestos claims. Our environmental exposure arises from the
sale of general liability and commercial multi-peril insurance. Currently, our
policies continue to exclude classic environmental contamination claims. In some
states we are required, however, depending on the facts, to provide coverage for
such bodily injury claims as an individual's exposure to a release of chemicals.
We have also issued policies that were intended to provide limited pollution and
exposure coverage. These policies were specific to certain types of products
underwritten by us. We receive a number of asbestos related claims. The majority
are declined based on well-established exclusions. As of June 30, 2003, we had
$5.7 million of net loss reserves for asbestos related claims and $2.2 million
for pollution. We attempt to estimate the full impact of the environmental and
asbestos exposure by establishing full case reserves on all known losses. In
2001 and prior years, we did not provide specific amounts of IBNR reserves for
these coverages. In 2002, we identified that portion

                                        71
of our IBNR reserves related to environmental and asbestos. The following table
shows asbestos and environmental losses, including disputed costs:
YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                               2000     2001     2002
                   (DOLLARS IN THOUSANDS)                     ------   ------   -------
Net reserve for A&E losses and loss adjustment expenses
  reserves -- beginning of period...........................  $3,291   $2,449   $ 2,104
Plus: Incurred losses and loss adjustment expenses -- case
  reserves..................................................    (177)      (8)      170
Plus: Incurred losses and loss adjustment
  expenses -- IBNR..........................................      --       --     6,370
Less: Payments..............................................     665      337       500
                                                              ------   ------   -------
Net reserve for A&E losses and loss adjustment
  expenses -- end of period.................................  $2,449   $2,104   $ 8,144
                                                              ======   ======   =======
INVESTMENTS

       Insurance company investments must comply with applicable regulations
that prescribe the type, quality and concentration of investments. These
regulations permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
and preferred and common equity securities. As of June 30, 2003, we had $635.5
million of investment and cash and cash equivalents assets. The majority of our
invested assets are held by our U.S. Insurance Subsidiaries.

       Our investment policy is determined by our Board of Directors and is
reviewed on a regular basis. We will engage third-party investment advisors to
oversee our investments and to make recommendations to our Board of Directors.
Our investment policy allows us to invest in taxable and tax-exempt fixed income
investments as well as publicly traded and private equity investments. With
respect to fixed income securities, the maximum exposure per issuer varies as a
function of the credit quality of the security. The allocation between taxable
and tax-exempt fixed income securities is determined based on market conditions
and tax considerations, including the applicability of the alternative minimum
tax. The maximum allowable investment in equity securities is based on a
percentage of our capital and surplus.

       Although we generally intend to hold fixed income securities to maturity,
we regularly reevaluate our position based upon market conditions. As of June
30, 2003, our fixed income securities had a weighted average maturity of 6.9
years and a weighted average duration of 4.4 years. Our financial statements
reflect an unrealized gain on fixed income securities available for sale as of
June 30, 2003, of $17.6 million on a pre-tax basis.

       The following table shows a profile of our fixed income investments. The
table shows the average amount of investments, income earned and the book yield
thereon for the periods indicated:
SIX MONTHS ENDED
                                             YEARS ENDED DECEMBER 31,           JUNE 30,
                                          ------------------------------   -------------------
                                            2000       2001       2002       2002       2003
         (DOLLARS IN THOUSANDS)           --------   --------   --------   --------   --------
Average investments, at cost............  $280,039   $324,412   $407,194   $381,611   $472,212
Gross investment income(1)..............    17,991     19,307     20,868     10,342      9,656
Book yield..............................      6.42%      5.97%      5.12%      5.42%      4.09%
------------

(1) Represents investment income, gross of investment expenses and excluding
    realized gains and losses.

                                        72
The following table summarizes by type the estimated market value of our
investments and cash and cash equivalents as of December 31, 2002 and June 30,
2003:
DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
Cash and cash equivalents..................  $ 72,942         11.9%        $ 71,709         11.3%

U.S. Treasury securities...................  $ 30,667          5.0%        $ 38,213          6.0%
Obligations of states, municipalities and
  political subdivisions...................    99,580         16.3          100,244         15.8
Special revenue fixed income securities....   303,500         49.7          322,861         50.7
Corporate fixed income securities..........    14,939          2.4           16,844          2.7
Asset-backed and mortgage-backed
  securities...............................     8,150          1.3            4,133          0.7
Other bonds................................     4,189          0.7            1,103          0.1
                                             --------        -----         --------        -----
  Total fixed income securities............  $461,025         75.4%        $483,398         76.0%

Marketable equity securities...............  $ 34,710          5.7%        $ 38,598          6.1%
Other investments(1).......................    42,452          7.0           41,842          6.6
                                             --------        -----         --------        -----
     Total investments and cash and cash
       equivalents.........................  $611,129        100.0%        $635,547        100.0%
                                             ========        =====         ========        =====
------------

(1) Includes $5.4 million of investments that were sold for $6.0 million on
    August 25, 2003 to an affiliate of the Ball family trusts.

       The following table summarizes, by Standard & Poor's rating
classifications, the market value of our investments in fixed income securities,
as of December 31, 2002 and June 30, 2003:
DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
AAA........................................  $353,286         76.6%        $375,788         77.8%
AA.........................................    70,759         15.3           74,908         15.5
A..........................................    22,968          5.0           19,085          3.9
BBB........................................     9,613          2.1           10,783          2.2
BB.........................................     1,616          0.4            1,991          0.4
B..........................................       522          0.1              843          0.2
CC.........................................     2,261          0.5                0          0.0
                                             --------        -----         --------        -----
     Total Fixed Income Securities.........  $461,025        100.0%        $483,398        100.0%
                                             ========        =====         ========        =====
73
The following table sets forth the expected maturity distribution of the
fixed income securities at their estimated market value as of December 31, 2002
and June 30, 2003:
DECEMBER 31, 2002               JUNE 30, 2003
                                             ---------------------------   ---------------------------
                                              AMOUNT    PERCENT OF TOTAL    AMOUNT    PERCENT OF TOTAL
          (DOLLARS IN THOUSANDS)             --------   ----------------   --------   ----------------
One year or less...........................  $ 29,596          6.4%        $ 26,644          5.5%
More than one year to five years...........   184,951         40.1          247,609         51.2
More than five years to ten years..........   177,882         38.6          134,935         27.9
More than ten years to fifteen years.......    23,738          5.1           17,095          3.5
More than fifteen years....................    36,708          8.0           52,982         11.0
                                             --------        -----         --------        -----
  Securities with fixed maturities.........   452,875         98.2          479,265         99.1
Asset-backed and mortgage-backed
  securities...............................     8,150          1.8            4,133          0.9
                                             --------        -----         --------        -----
     Total fixed income securities.........  $461,025        100.0%        $483,398        100.0%
                                             ========        =====         ========        =====
The weighted average life of our asset-backed and mortgage-backed
securities is 6.9 years. The value of our portfolio of fixed income securities
is inversely correlated to changes in market interest rates. In addition, some
of our fixed income securities have call or prepayment options. This could
subject us to reinvestment risk should interest rates fall or issuers call their
securities and we are forced to invest the proceeds at lower interest rates. We
mitigate this risk by investing in securities with varied maturity dates, so
that only a portion of the portfolio will mature at any point in time.

       Our equity portfolio consists primarily of mutual funds and equity
securities traded on national stock exchanges.

COMPETITION

       We compete with numerous domestic and international insurance companies
and reinsurers, Lloyd's syndicates, risk retention groups, insurance buying
groups, risk securitization products and alternative self-insurance mechanisms.
In particular, in the specialty insurance market we compete against, among
others:

       -     American International Group;

       -     Berkshire Hathaway;

       -     Great American Insurance Group;

       -     HCC Insurance Holdings, Inc.;

       -     Markel Corporation;

       -     Nationwide Insurance;

       -     Penn-America Group;

       -     Philadelphia Consolidated Group;

       -     RLI Corporation; and

       -     W.R. Berkley Corporation.

       Competition may take the form of lower prices, broader coverages, greater
product flexibility, higher quality services, reputation and financial strength
or higher ratings by independent rating agencies. In all of our markets, we
compete by developing specialty products to satisfy well-defined market needs
and by maintaining relationships with brokers and insureds who rely on our
expertise. This expertise, and our reputation for offering and underwriting
products that are not readily available, is our principal means of
differentiating us from our competition. Each of our products has its own
distinct competitive

                                        74
environment. We seek to compete through innovative ideas, appropriate pricing,
expense control and quality service to policyholders, general agencies and
brokers.

RATINGS

       A.M. Best ratings for the industry range from "A++" (Superior) to "F" (In
Liquidation) with some companies not being rated. Each of our U.S. insurance
subsidiaries is currently rated "A" (Excellent) by A.M. Best, and has been rated
"A" (Excellent) or higher for 17 consecutive years. Publications of A.M. Best
indicate that "A" (Excellent) ratings are assigned to those companies that, in
their opinion, have achieved excellent overall performance when compared with
the standards established by these firms and have a strong ability to meet their
obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews its
profitability, leverage and liquidity, as well as its spread of risk, the
quality and appropriateness of its reinsurance, the quality and diversification
of its assets, the adequacy of its policy and loss reserves, the adequacy of its
surplus, its capital structure and the experience and objectives of its
management. These ratings are based on factors relevant to policyholders,
general agencies, insurance brokers and intermediaries and are not directed to
the protection of investors.

       In June 2003, each of our U.S. Insurance Subsidiaries was downgraded from
"A+" (Superior) to "A" (Excellent) by A.M. Best. This downgrade followed a
decrease in our policyholders surplus during 2002, due primarily to reserve
strengthening that we recorded in 2002 relating to accident years 2001 and
prior, and to the results of an arbitration proceeding. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Special Note Regarding 2002."

       We intend to apply for an A.M. Best rating for U.N. Barbados in the near
future.

                                        75
CORPORATE STRUCTURE

       The following chart shows the structure of our organization, following
our acquisition of our U.S. Operations:

                        (COMPANY ORGANIZATION STRUCTURE)

EMPLOYEES

       As of June 30, 2003, we had approximately 260 employees, six of whom were
executive officers. In addition, we have contracts with international insurance
service providers based in Barbados and in Bermuda to provide services to our
Non-U.S. Operations. We expect to hire individuals in the near future who will
operate out of our Barbados office, subject to approval of any required work
permits for non-

                                        76
resident employees. None of our employees are covered by collective bargaining
agreements, and our management believes that our relationship with our employees
is excellent.

FACILITIES

       We lease approximately 61,525 square feet of office space in Bala Cynwyd,
Pennsylvania, which serves as the headquarters location for our U.S. Operations,
pursuant to a lease that expires on December 31, 2008. In addition, we lease
office space in: Bridge Town, Barbados; Evanston, Illinois; Grand Rapids,
Michigan; and Glendale, California. We believe this office space is sufficient
for us to conduct our business.

LEGAL PROCEEDINGS

       Other than as described below, we are not currently involved in any
material litigation or arbitration proceeding. We anticipate that, similar to
the rest of the insurance and reinsurance industry, we may be subject to
litigation and arbitration proceedings in the ordinary course of business.

       On January 26, 2001, our subsidiary Diamond State Insurance Company was
named a defendant in a lawsuit filed in the United States District Court for the
Southern District of New York by Bank of America N.A. and Platinum Indemnity
Limited for breach of contract, negligent selection and supervision of a general
agency, and related claims for relief. Bank of America and Platinum seek
indemnification of approximately $29.0 million, plus interest in excess of $10.0
million and fees and costs, under alleged "facultative reinsurance policies"
issued by Worldwide Weather Insurance Agency, Inc. purportedly on behalf of
Diamond State. The complaint alleges the "facultative reinsurance policies"
reinsure Platinum for losses paid under Weather Risk Mitigation Insurance
Policies issued by Platinum to Palladium Insurance Limited covering specific
weather derivative trades entered into by Palladium. Bank of America is the
issuing bank for a letter of credit in favor of Palladium, and is allegedly the
assignee of Platinum's rights against Diamond State. Diamond State denies the
allegations in the complaint, and takes the position, among other things, that
even if the "facultative reinsurance policies" were issued in its name, they are
unenforceable because Worldwide Weather Insurance Agency and its principal,
Harold Mollin, exceeded any authority, either actual or apparent, to issue such
"facultative reinsurance policies." The parties are currently engaged in
discovery, and a trial date has not been set.

       In related proceedings, Diamond State has preserved its potential avenues
of recovery in the event it is found liable to Bank of America and Platinum.
Diamond State is in arbitration against Partner Reinsurance Company Ltd. and
Partner Reinsurance Company of the U.S. seeking recovery under a reinsurance
agreement covering business produced by Worldwide Weather Insurance Agency on a
100% basis with regard to the type of risk involved. In addition, if Diamond
State were held liable to Bank of America on the ground that Diamond State was
negligent in appointing Mr. Mollin and Worldwide Weather Insurance Agency,
Diamond State is seeking indemnification and contribution from Partner
Reinsurance Company of the U.S. because of its role in the appointment of Mr.
Mollin and the Worldwide Weather Insurance Agency. The arbitration is not likely
to proceed to a hearing until the Bank of America litigation is resolved.

       We cannot assure you that lawsuits, arbitrations or other litigation will
not have a material adverse impact on our business, financial condition or
results of operations.

                                        77
REGULATION

GENERAL

       The business of insurance is regulated in most countries, although the
degree and type of regulation varies significantly from one jurisdiction to
another. In the Cayman Islands and Barbados, we operate under a relatively less
intensive regulatory regime than that exists in the United States. We are
subject to extensive regulation in the United States.

CAYMAN ISLANDS

       As a holding company, United National Group is not subject to any
insurance regulation by any authority in the Cayman Islands.

UNITED STATES

       United National Group has four operating insurance subsidiaries domiciled
in the United States; United National Insurance Company, which is domiciled in
Pennsylvania; Diamond State Insurance Company and United National Casualty
Insurance Company, which are domiciled in Indiana; and United National Specialty
Insurance Company, which is domiciled in Wisconsin. We refer to these companies
collectively as our U.S. Insurance Subsidiaries.

  U.S. INSURANCE HOLDING COMPANY REGULATION OF UNITED NATIONAL GROUP

       United National Group, as the indirect parent of our U.S. Insurance
Subsidiaries, is subject to the insurance holding company laws of Indiana,
Pennsylvania and Wisconsin. These laws generally require each of our U.S.
Insurance Subsidiaries to register with its respective domestic state insurance
department and to furnish annually financial and other information about the
operations of the companies within the United National Group insurance holding
company system. Generally, all material transactions among affiliated companies
in the holding company system to which any of our U.S. Insurance Subsidiaries is
a party, including sales, loans, reinsurance agreements and service agreements
with the non-insurance companies within the United National Group of insurance
companies or any other U.S. Insurance Subsidiary must be fair and, if material
or of a specified category, require prior notice and approval or non-
disapproval by the insurance department where the subsidiary is domiciled.

  CHANGES OF CONTROL

       Before a person can acquire control of a U.S. insurance company, prior
written approval must be obtained from the insurance commissioner of the state
where the domestic insurer is domiciled. Prior to granting approval of an
application to acquire control of a domestic insurer, the state insurance
commissioner will consider factors such as the financial strength of the
applicant, the integrity and management of the applicant's board of directors
and executive officers, the acquiror's plans for the management of the
applicant's board of directors and executive officers, the acquiror's plans for
the future operations of the domestic insurer and any anti-competitive results
that may arise from the consummation of the acquisition of control. Generally,
state statutes provide that control over a domestic insurer is presumed to exist
if any person, directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing, 10% or more of the voting securities of the
domestic insurer. Because a person acquiring 10% or more of our common shares
would indirectly control the same percentage of the stock of our U.S. Insurance
Subsidiaries, the insurance change of control laws of Indiana, Pennsylvania and
Wisconsin would likely apply to such a transaction. While our articles of
association limit the voting power of any shareholder to less than 9.5%, there
can be no assurance that the applicable state insurance regulator would agree
that such shareholder did not control the applicable U.S. Insurance Subsidiary.

       These laws may discourage potential acquisition proposals and may delay,
deter or prevent a change of control of United National Group, including through
transactions, and in particular unsolicited transactions, that some or all of
the shareholders of United National Group might consider to be desirable.
                                        78
LEGISLATIVE CHANGES

       On November 26, 2002, the Federal Terrorism Risk Insurance Act was
enacted to ensure the availability of insurance coverage for defined terrorist
acts in the United States. This law requires insurers writing certain lines of
property and casualty insurance to offer coverage against certain acts of
terrorism causing damage within the United States or to U.S. flagged vessels or
aircraft. In return, the law requires the federal government, should an insurer
comply with the procedures of the law, to indemnify the insurer for 90% of
covered losses, exceeding a premium-based deductible, up to an industry limit of
$100 billion resulting from covered acts of terrorism. Any policy exclusion
existing at the time the law was enacted for such coverage was immediately
nullified, although such exclusions were subject to reinstatement if either the
insured consented to reinstatement or failed to pay any applicable increase in
premium resulting from the additional coverage within 30 days of being notified
of the increase. With respect to policies issued after the law became effective,
insurers are required to offer such coverage at a stated premium. If the insured
does not wish to purchase the coverage, the policy may exclude such coverage. It
should be noted that "act of terrorism" as defined by the law excludes purely
domestic terrorism. For an act of terrorism to have occurred, the U.S. Treasury
Secretary must make several findings, including that the act was committed on
behalf of a foreign person or foreign interest. The law expires automatically at
the end of 2005.

  STATE INSURANCE REGULATION

       State insurance authorities have broad regulatory powers with respect to
various aspects of the business of U.S. insurance companies, including but not
limited to licensing to transact admitted business or determining eligibility to
write surplus lines business, eligibility of surplus lines insurers,
accreditation of reinsurers, admittance of assets to statutory surplus,
regulating unfair trade and claims practices, establishing reserve requirements
and solvency standards, regulating investments and dividends, approving policy
forms and related materials in certain instances and approving premium rates in
certain instances. State insurance laws and regulations may require our U.S.
Insurance Subsidiaries to file financial statements with insurance departments
everywhere they will be licensed or eligible or accredited to conduct insurance
business, and their operations are subject to review by those departments at any
time. Our U.S. Insurance Subsidiaries prepare statutory financial statements in
accordance with statutory accounting principles, or "SAP," and procedures
prescribed or permitted by these departments. State insurance departments also
conduct periodic examinations of the books and records, financial reporting,
policy filings and market conduct of insurance companies domiciled in their
states, generally once every three to five years, although market conduct
examinations may take place at any time. These examinations are generally
carried out in cooperation with the insurance departments of other states under
guidelines promulgated by the NAIC. In addition, admitted insurers are subject
to targeted market conduct examinations involving specific insurers by state
insurance regulators in the state in which the insurer is admitted.

  STATE DIVIDEND LIMITATIONS

  Indiana

       Under Indiana law, Diamond State Insurance Company and United National
Casualty Insurance Company may not pay any dividend or make any distribution of
cash or other property the fair market value of which, together with that of any
other dividends or distributions made within the 12 consecutive months ending on
the date on which the proposed dividend or distribution is scheduled to be made,
exceeds the greater of (1) 10% of its surplus as of the 31st day of December of
the last preceding year, or (2) its net income for the 12-month period ending on
the 31st day of December of the last preceding year, unless the commissioner
approves the proposed payment or fails to disapprove such payment within 30 days
after receiving notice of such payment. An additional limitation is that Indiana
does not permit a domestic insurer to declare or pay a dividend except out of
earned surplus unless otherwise approved by the commissioner before the dividend
is paid.

                                        79
Pennsylvania

       Under Pennsylvania law, United National Insurance Company may not pay any
dividend or make any distribution that, together with other dividends or
distributions made within the preceding 12 consecutive months, exceeds the
greater of (1) 10% of its surplus as shown on its last annual statement on file
with the commissioner or (2) its net income for the period covered by such
statement, not including pro rata distributions of any class of its own
securities, unless the commissioner has received notice from the insurer of the
declaration of the dividend and the commissioner approves the proposed payment
or fails to disapprove such payment within 30 days after receiving notice of
such payment. An additional limitation is that Pennsylvania does not permit a
domestic insurer to declare or pay a dividend except out of unassigned funds
(surplus) unless otherwise approved by the commissioner before the dividend is
paid. Furthermore, no dividend or other distribution may be declared or paid by
a Pennsylvania insurance company that would reduce its total capital and surplus
to an amount that is less than the amount required by the Insurance Department
for the kind or kinds of business that it is authorized to transact.

  Wisconsin

       Under Wisconsin law, United National Specialty Insurance Company may not
pay any dividend or make any distribution of cash or other property, other than
a proportional distribution of the insurer's stock, the fair market value of
which, together with that of other dividends paid or credited and distributions
made within the preceding 12 months, exceeds the lesser of (1) 10% of its
surplus as of the preceding 31st day of December, or (2) the greater of (a) its
net income of the insurer for the calendar year preceding the date of the
dividend or distribution, minus realized capital gains for that calendar year or
(b) the aggregate of its net income for the three calendar years preceding the
date of the dividend or distribution, minus realized capital gains for those
calendar years and minus dividends paid or credited and distributions made
within the first two of the preceding three calendar years, unless it reports
the extraordinary dividend to the commissioner at least 30 days before payment
and the commissioner does not disapprove the extraordinary dividend within that
period. Additionally, under Wisconsin law, all authorizations of distributions
to shareholders, other than stock dividends, shall be reported to the
commissioner in writing and no payment may be made until at least 30 days after
such report.

       The dividend limitations imposed by the state laws are based on the
statutory financial results of the respective U.S. Insurance Subsidiaries that
are determined by using statutory accounting practices that differ in various
respects from accounting principles used in financial statements prepared in
conformity with U.S. GAAP. See "-- Statutory Accounting Principles." Key
differences relate to among other items, deferred acquisition costs, limitations
on deferred income taxes, required investment reserves and reserve calculation
assumptions and surplus notes.

       For 2003, the maximum amount of distributions that our U.S. Insurance
Subsidiaries could pay in dividends under applicable laws and regulations
without regulatory approval is estimated to be approximately $22.9 million.

  INSURANCE REGULATORY INFORMATION SYSTEM RATIOS

       The NAIC Insurance Regulatory Information System, or "IRIS," was
developed by a committee of the state insurance regulators and is intended
primarily to assist state insurance departments in executing their statutory
mandates to oversee the financial condition of insurance companies operating in
their respective states. IRIS identifies 11 industry ratios and specifies "usual
values" for each ratio. Departure from the usual values of the ratios can lead
to inquiries from individual state insurance commissioners as to certain aspects
of an insurer's business. Insurers that report four or more ratios that fall
outside the range of usual values are generally targeted for regulatory review.

       For 2002, United National Insurance Company and United National Specialty
Insurance Company had four ratios that fell outside the range of usual values,
primarily as a result of the increase in loss reserves during 2002 and the
resulting reduction in statutory surplus. We have received inquiries from

                                        80
state insurance departments and we have prepared an analysis for such state
insurance departments of the factors responsible for such values.

  RISK-BASED CAPITAL REGULATIONS

       Indiana, Pennsylvania and Wisconsin require that each domestic insurer
report its risk-based capital based on a formula calculated by applying factors
to various asset, premium and reserve items. The formula takes into account the
risk characteristics of the insurer, including asset risk, insurance risk,
interest rate risk and business risk. The respective state insurance regulators
use the formula as an early warning regulatory tool to identify possibly
inadequately capitalized insurers for purposes of initiating regulatory action,
and not as a means to rank insurers generally. State insurance laws impose broad
confidentiality requirements on those engaged in the insurance business
(including insurers, general agencies, brokers and others) and on state
insurance departments as to the use and publication of risk-based capital data.
The respective state insurance regulators have explicit regulatory authority to
require various actions by, or to take various actions against, insurers the
total adjusted capital of which does not exceed certain risk-based capital
levels. Each of United National Insurance Company, Diamond State Insurance
Company, United National Casualty Insurance Company and United National
Specialty Insurance Company have risk-based capital in excess of the required
levels prior to the September 5, 2003 acquisition of Wind River Investment
Corporation and the contribution of $80.0 million to our U.S. Operations.

  STATUTORY ACCOUNTING PRINCIPLES

       SAP is a basis of accounting developed to assist insurance regulators in
monitoring and regulating the solvency of insurance companies. SAP is primarily
concerned with measuring an insurer's surplus. Accordingly, statutory accounting
focuses on valuing assets and liabilities of insurers at financial reporting
dates in accordance with appropriate insurance law and regulatory provisions
applicable in each insurer's domiciliary state.

       U.S. GAAP is concerned with a company's solvency, but it is also
concerned with other financial measurements, such as income and cash flows.
Accordingly, U.S. GAAP gives more consideration to appropriate matching of
revenue and expenses. As a direct result, different assets and liabilities and
different amounts of assets and liabilities are reflected in financial
statements prepared in accordance with U.S. GAAP than financial statements
prepared in accordance with SAP.

       Statutory accounting practices established by the NAIC and adopted in
part by the Indiana, Pennsylvania and Wisconsin regulators determine, among
other things, the amount of statutory surplus and statutory net income of our
U.S. Insurance Subsidiaries and thus determine, in part, the amount of funds
these subsidiaries have available to pay dividends.

  GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS

       Most of the jurisdictions in which our U.S. Insurance Subsidiaries are
admitted to transact business require property and casualty insurers doing
business within that jurisdiction to participate in guaranty associations. These
organizations are organized to pay contractual benefits owed pursuant to
insurance policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all member insurers
in a particular state on the basis of the proportionate share of the premiums
written by member insurers in the lines of business in which the impaired,
insolvent or failed insurer is engaged. Some states permit member insurers to
recover assessments paid through full or partial premium tax offset or in
limited circumstances by surcharging policyholders.

  OPERATIONS OF U.N. BARBADOS

       The insurance laws of each of the United States and of many other
countries regulate or prohibit the sale of insurance and reinsurance within
their jurisdictions by non-U.S. insurers and reinsurers that are not admitted to
do business within such jurisdictions. U.N. Barbados is not admitted to do
business in the
                                        81
United States. We do not intend that U.N. Barbados will maintain offices or
solicit, advertise, settle claims or conduct other insurance activities in any
jurisdiction in the United States where the conduct of such activities would
require U.N. Barbados to be admitted or authorized.

       As a Barbados reinsurer that is not licensed, accredited or approved in
any state in the United States, U.N. Barbados will be required to post
collateral security with respect to reinsurance liabilities it assumes from the
ceding U.S. Insurance Subsidiaries as well as other U.S. ceding companies. The
posting of collateral security is generally required in order for U.S. ceding
companies to obtain credit on their U.S. statutory financial statements with
respect to reinsurance liabilities ceded to unlicensed or unaccredited
reinsurers. Under applicable United States "credit for reinsurance" statutory
provisions, the security arrangements generally may be in the form of letters of
credit, reinsurance trusts maintained by third-party trustees or funds-withheld
arrangements whereby the ceded premium is held by the ceding company. If "credit
for reinsurance" laws or regulations are made more stringent in Indiana,
Pennsylvania or Wisconsin or any of the U.S. Insurance Subsidiaries
redomesticates to one of the few states that does not allow credit for
reinsurance ceded to non-licensed reinsurers, we may be unable to realize some
of the benefits we expect from our business plan. Accordingly, our U.N.
Barbados' business operations could be adversely affected.

BARBADOS

       U.N. Barbados will be subject to regulation under the Barbados Exempt
Insurance Act, 1996. In addition, under the Barbados Companies Act, U.N.
Barbados may only pay a dividend out of the realized profits of the company and
may not pay a dividend unless (1) after payment of the dividend it is able to
pay its liabilities as they become due, (2) the realizable value of its assets
is greater than the aggregate value of its liabilities and (3) the stated
capital accounts are maintained in respect of all classes of shares.

       U.N. Barbados will also be required to maintain assets in an amount that
permits it to meet the prescribed minimum solvency margin for the net premium
income level of its business. In respect of its general insurance business, U.N.
Barbados will be required to maintain the following margin of solvency:

       -     to the extent that premium income of the preceding financial year
             did not exceed approximately $750,000, assets must exceed
             liabilities by approximately $125,000;

       -     to the extent that premium income of the preceding financial year
             exceeds approximately $750,000 but is equal to or less than
             approximately $5.0 million, the assets must exceed liabilities by
             20% of the premium income of the preceding financial year; and

       -     to the extent that premium income of the preceding financial year
             exceeds approximately $5.0 million, the assets must exceed
             liabilities by the aggregate of approximately $1.0 million and 10%
             of the premium income of the preceding financial year.

       U.N. Barbados is not required currently to maintain any additional
statutory deposits or reserves relative to its business.

       U.N. Barbados is expressly authorized as a licensed exempt insurance
company by the Barbados Act to make payments of dividends to non-residents of
Barbados and to other licensees free of Barbados withholding tax and without the
need for exchange control permission.

                                        82
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

       The following table sets forth information as to persons who will serve
as our directors and executive officers immediately upon completion of this
offering, as well as those individuals who serve as the executive officers of
our U.S. Operations. All directors hold office until the next general annual
meeting of shareholders or until their successors are duly elected and qualified
in accordance with our articles of association. Officers serve at the request of
our Board of Directors.
NAME                             AGE                             POSITION
----                             ---                             --------
Saul A. Fox....................   50   Chairman, Chief Executive Officer and Director, United
                                       National Group
Troy W. Thacker................   30   President and Director, United National Group
Kevin L. Tate..................   47   Chief Financial Officer, United National Group; Senior Vice
                                       President and Chief Financial Officer of U.S. Operations
Seth D. Freudberg..............   44   President and Chief Executive Officer of U.S. Operations
Richard S. March...............   62   Senior Vice President and General Counsel of U.S. Operations
Robert Cohen...................   54   Senior Vice President -- Marketing of U.S. Operations
William F. Schmidt.............   42   Senior Vice President and Chief Underwriting Officer of U.S.
                                       Operations
Jonathan P. Ritz...............   35   Senior Vice President -- Ceded Reinsurance of U.S.
                                       Operations
W. Dexter Paine, III...........   42   Director, United National Group
Robert N. Lowe, Jr.............   45   Director, United National Group
Angelos J. Dassios.............   29   Director, United National Group
Russell C. Ball, III...........   37   Director, United National Group
John Hendrickson...............   43   Director, United National Group
Saul A. Fox, 50, has served as our Chairman and Chief Executive Officer
since September 5, 2003 and has served as Chief Executive of Fox Paine & Company
since he co-founded Fox Paine & Company in 1997. Prior to founding Fox Paine &
Company, Mr. Fox was general partner with Kohlberg, Kravis & Roberts & Co.
During his thirteen years with Kohlberg, Kravis & Roberts & Co., Mr. Fox led a
focused investment effort in the global insurance and reinsurance sectors. This
effort included the 1992 acquisition of American Reinsurance Corp. and the 1995
acquisition of Canadian General Insurance Company. Mr. Fox was Chairman of the
Executive Committee of the Board of Directors for both companies. Prior to
joining Kohlberg, Kravis & Roberts & Co., Mr. Fox was an attorney specializing
in tax, business law and mergers and acquisitions and participated significantly
in law firm management at Latham & Watkins LLP, an international law firm
headquartered in Los Angeles, California. Mr. Fox received a B.S. in
Communications from Temple University in 1975 (summa cum laude) and a J.D. from
the University of Pennsylvania School of Law in 1978 (cum laude). Mr. Fox is a
director of Alaska Communications Systems Holdings, Inc. and a Member of the
Board of Overseers, University of Pennsylvania Law School.

       Troy W. Thacker, 30, has served as our President since September 5, 2003
and a Director at Fox Paine & Company since 2001. Prior to joining Fox Paine &
Company, Mr. Thacker was an investment professional at Gryphon Investors, Inc.,
a San Francisco, California based private equity firm, which he joined after
receiving his M.B.A. from Harvard Business School in 2000. From 1997 through
1998, Mr. Thacker was employed by SCF Partners, a private equity firm, and from
1995 through 1997, Mr. Thacker was an analyst at Morgan Stanley & Co. Mr.
Thacker received a B.S. in Chemical Engineering from Rice University in 1995.

                                        83
Kevin L. Tate, 47, has been our Chief Financial Officer since September
5, 2003 and has served as Senior Vice President and Chief Financial Officer of
our U.S. Operations since 1990. Mr. Tate joined our U.S. Operations in 1984 as
Vice President and Controller. Prior to joining our U.S. Operations, Mr. Tate
served as a senior auditor at Deloitte Haskins & Sells from 1978 to 1982. In
1982, he joined the then parent company of our U.S. Operations, American
Manufacturing Corporation as Manager of Financial Accounting. Mr. Tate is a
member of the American and Pennsylvania Institutes of Certified Public
Accountants. Mr. Tate received a B.S. in Accounting and Finance from Lehigh
University in 1978.

       Seth D. Freudberg, 44, has served as President and Chief Executive
Officer of our U.S. Operations since 1988. Mr. Freudberg joined our U.S.
Operations in 1983. He was promoted to various executive positions until the
Board of Directors elected him to his current post in 1988. Mr. Freudberg has
served both as Chairman of the NAII Surplus Lines Committee and as a Board
Member of the Insurance Society of Pennsylvania. He holds the Chartered Property
and Casualty Underwriter designation. Mr. Freudberg received a B.S. in Economics
from The Wharton School at the University of Pennsylvania in 1981.

       Richard S. March, 62, has served as General Counsel and Senior Vice
President of our U.S. Operations since 1996. Previously, Mr. March represented
our U.S. Operations in various capacities at the Philadelphia law firm of
Galfand, Berger, Lurie, Brigham & March during his 31 years in private practice
with that firm. Although not an employee of our U.S. Operations during that
time, Mr. March served as an officer and General Counsel throughout most of
those years. Mr. March received a B.S. in Economics from The Wharton School at
the University of Pennsylvania in 1962 and an L.L.B. from the University of
Pennsylvania School of Law in 1965.

       Robert Cohen, 54, has served as Senior Vice President -- Marketing of our
U.S. Operations since 1996. Mr. Cohen joined our U.S. Operations in 1992 as Vice
President of Underwriting. From 1994 to 1996, Mr. Cohen served as Vice President
of Marketing. Prior to joining our U.S. Operations, from 1971 to 1992, Mr. Cohen
served as Senior Vice President for Delaware Valley Underwriting Agency, one of
the nation's largest independently owned wholesale broker/general agency. Mr.
Cohen received a B.B.A. in Marketing from Temple University in 1970.

       William F. Schmidt, 42, has served as Senior Vice President and Chief
Underwriting Officer of our U.S. Operations since 1997. Prior to joining us, Mr.
Schmidt served as Senior Vice President Branch Manager and Chief Underwriting
Officer at Calvert Insurance Company, and prior to that as the Chief Financial
Officer of Stewart Smith Insurance Brokers. Mr. Schmidt began his career as a
CPA with Ernst & Whinney, becoming a Certified Public Accountant in May 1985.
Mr. Schmidt received a B.S. in Accounting from SUNY Oswego in 1983.

       Jonathan P. Ritz, 35, has served as Senior Vice President -- Ceded
Reinsurance of our U.S. Operations since 2002. From 1997 to 2002, Mr. Ritz
served as Vice President of Marketing. Prior to joining our U.S. Operations, Mr.
Ritz served as a reinsurance broker for E. W. Blanch Company from 1990 to 1994.
In 1994, Mr. Ritz joined the reinsurance brokering operations of Johnson &
Higgins (Willcox) as an Assistant Vice President before being promoted to Vice
President in 1996 at Guy Carpenter after the acquisition of Johnson & Higgins by
Marsh & McLennan Companies, Inc. Mr. Ritz received a B.B.A. in Marketing from
Loyola College in 1990.

       W. Dexter Paine, III, 42, has served as President of Fox Paine & Company
since he co-founded Fox Paine & Company in 1997. From 1994 through 1997, Mr.
Paine served as a senior partner of Kohlberg & Company. Prior to joining
Kohlberg & Company, Mr. Paine served as a general partner at Robertson Stephens
& Company. Mr. Paine received a B.A. in Economics from Williams College in 1983.
Mr. Paine is Chairman of the Board of Directors of WJ Communications, Inc. and a
director of Alaska Communications Systems Holdings, Inc. and of Maxxim Medical
Inc.

       Robert N. Lowe, Jr., 45, has served as Chief Operating Officer of Fox
Paine & Company since 2002. Prior to joining Fox Paine & Company, Mr. Lowe was
with Arthur Andersen LLP for 21 years, most recently as the firm's Managing
Partner, Expansions and Alliances. Mr. Lowe received a B.S. in

                                        84
Accounting and Masters of Accounting (Tax) from the University of Florida in
1980 and 1981, respectively (both with High Honors). Mr. Lowe is a director of
WJ Communications, Inc. and of Maxxim Medical Inc.

       Angelos J. Dassios, 29, has served as a Vice President at Fox Paine &
Company since 2002. Prior to joining Fox Paine & Company, Mr. Dassios was an
associate in the Principal Investment Area from 1998 through 2002, and an
analyst in both the Principal Investment Area and the Investment Banking
Division from 1996 through 1998, of Goldman, Sachs & Co. Mr. Dassios received an
A.B. in Applied Mathematics from Dartmouth College in 1996 (summa cum laude, Phi
Beta Kappa).

       Russell C. Ball, III, 37, has served as the Chief Executive Officer of
The AMC Group, L.P. The AMC Group is a privately-owned limited partnership that
provides services under a management agreement to interests of the Ball family
trusts in manufacturing, franchising, insurance and real estate enterprises. Mr.
Ball received a B.A. in History from Harvard University in 1988 and an M.B.A.
from Pennsylvania State University in 1992.

       John Hendrickson, 43, has served as a Managing Director with Fox-Pitt
Kelton, a Swiss Re company and a research, brokerage and investment banking firm
that specializes in the insurance and financial services sector, since March
2003. From 1998 to March 2003, Mr. Hendrickson was a member of the Executive
Board of Swiss Re and head of Swiss Re's merchant banking division. Prior to
that, Mr. Hendrickson was responsible for Securitas Capital, a private equity
fund in which Swiss Re serves as the sponsor and lead investor. Prior to his
service with Securitas, Mr. Hendrickson was employed by Smith Barney for ten
years and held positions including Managing Director within the corporate
finance department. Mr. Hendrickson received a B.A. in History and an M.S. in
Industrial Engineering from Stanford University in 1983.

BOARD OF DIRECTORS

       Our Board of Directors is currently comprised of five directors, namely
Messrs. Fox, Paine, Thacker, Dassios and Ball. Prior to completion of this
offering, we will expand our Board of Directors to consist of eleven individuals
and will appoint Messrs. Lowe and Hendrickson, one other director who is
considered "independent" for purposes of the rules of the Nasdaq National Market
and two other directors. Following completion of this offering, our Board of
Directors intends to appoint one additional independent director, for a total of
three independent directors.

       Under the terms of our shareholders agreement, Fox Paine & Company is
entitled to nominate and have elected a majority of the members of our Board of
Directors and, for so long as the Ball family trusts own securities representing
at least 5% of our total voting power, the Ball family trusts have the right to
appoint one director. See "Our Relationship with Fox Paine &
Company -- Shareholders Agreement."

BOARD COMMITTEES

       Upon completion of this offering, we intend to establish the following
committees of our Board of Directors: executive committee; audit committee;
compensation committee; nominating and governance committee; and operating
committee.

  EXECUTIVE COMMITTEE

       The executive committee is expected to consist of Messrs. Fox and
Thacker. The executive committee will have the authority to exercise the powers
of the Board of Directors, other than those reserved to the audit committee, the
compensation committee, the nominating and governance committee and the
operating committee or our full Board of Directors, between meetings of our full
Board.

                                        85
AUDIT COMMITTEE

       The audit committee is expected to consist of Messrs. Hendrickson, Lowe
and one additional independent director. The audit committee will:

       -     review the audit plans and findings of our independent auditors,
             the audit plans and findings of our internal audit and the results
             of regulatory examinations and will track results of management's
             corrective action plans as necessary;

       -     review our accounting policies and controls, compliance programs
             and significant tax and legal matters;

       -     recommend to our Board of Directors the annual appointment of our
             independent auditors; and

       -     review our risk management processes.

  COMPENSATION COMMITTEE

       The composition of the compensation committee has not been determined;
however, it will be comprised in such a manner so as to comply with the rules of
the Nasdaq National Market. The compensation committee will oversee our
compensation and benefit policies and plans.

  NOMINATING AND GOVERNANCE COMMITTEE

       The composition of the nominating and governance committee has not been
determined; however, it will be comprised in such a manner so as to comply with
the rules of the Nasdaq National Market. The nominating and governance committee
will nominate candidates for election to our Board of Directors and establish
and maintain our corporate governance policies.

  OPERATING COMMITTEE

       The operating committee is expected to consist of Messrs. Fox, Thacker
and Dassios. The operating committee will oversee a number of policies relating
to our day-to-day operations, including our underwriting policies (including
approving exceptions therefrom), our reinsurance and risk management processes
and our investment guidelines.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

       As noted above, prior to completion of this offering, our Board of
Directors did not have a compensation committee, but we intend to form a
compensation committee upon completion of this offering. Prior to this offering,
our senior management was directly involved in setting compensation for our
executives.

ELECTION OF EXECUTIVE OFFICERS

       Our officers are elected by the Board of Directors and serve at the
discretion of the Board of Directors.

DIRECTOR COMPENSATION

       Directors who currently are not receiving compensation as officers or
employees of United National Group or any of its affiliates, who we refer to as
"Non-Employee Directors," are paid an annual retainer of $30,000, $11,250 of
which is payable in cash and the remainder of which is payable in restricted
Class A common shares valued at the time of the grant. Class A common shares
granted to Non-Employee Directors vest monthly from the date of grant over a
three-year period and will be forfeited if the Non-Employee Director's services
are terminated prior to vesting for any reason. Non-Employee Directors are also
paid $2,500 for each Board of Directors meeting attended in person and $1,000
for each

                                        86
Board meeting attended by telephonic means. With respect to additional committee
service, Non-Employee Directors are paid $2,500 for each additional committee
meeting attended in person and $1,000 for each such meeting attended by
telephonic means. All members of our Board of Directors are reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors and its committees. These provisions are subject to change by our
Board of Directors.

EXECUTIVE COMPENSATION

       The following table summarizes the compensation paid or awarded in 2002
to the President and Chief Executive Officer of our U.S. Operations and to our
other named executive officers of our U.S. Operations who were the most highly
compensated in 2002.

                           SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
                                                              -----------------------------------------
                                                                                              OTHER
NAME AND PRINCIPAL                                                                            ANNUAL
POSITION                                                      YEAR    SALARY     BONUS     COMPENSATION
------------------                                            ----   --------   --------   ------------
Seth D. Freudberg,..........................................  2002   $385,786   $111,850      $1,000
  President and Chief Executive Officer
Richard S. March,...........................................  2002    293,838     56,813          --
  Senior Vice President and General
  Counsel
Kevin L. Tate,..............................................  2002    219,873     42,406       1,000
  Senior Vice President and Chief
  Financial Officer
Robert Cohen,...............................................  2002    235,890     45,957          --
  Senior Vice President -- Marketing
William F. Schmidt,.........................................  2002    223,873     43,218          --
  Senior Vice President and Chief
  Underwriting Officer
Jonathan P. Ritz,...........................................  2002    179,798     67,400          --
  Senior Vice President -- Ceded
  Reinsurance
EMPLOYMENT AGREEMENTS

       Each of Messrs. Freudberg, March, Cohen, Schmidt, Tate and Ritz has a
current executive employment agreement with United National Insurance Company,
or "UNIC," an indirect wholly owned subsidiary of the United National Group. The
agreements are similar in structure and provide for five-year initial employment
terms, commencing on the date of acquisition, September 5, 2003, with additional
one-year renewal terms unless either party gives 90 days prior written notice of
non-renewal to the other. If UNIC elects not to renew the agreement at the end
of the initial five-year term, and the executive has otherwise performed
satisfactorily, the executive will receive, conditioned upon execution of a
general release and compliance with post-termination obligations, monthly
payments of base salary until the earlier of six months following the date of
termination or the commencement of full-time employment with another employer.

       Under the agreements, UNIC may also terminate the executive for "cause"
or if the executive becomes "disabled" (as such terms are defined in the
agreement) or upon the death of the executive, in which case (1) the executive
would not be entitled to any separation payments in the case of a termination
for cause or death, and (2) in the case of disability, the executive would be
entitled to six months of base salary payable monthly (subject to reduction for
disability payments otherwise received by the executive), and conditioned upon
the execution by the executive of a general release and compliance with
post-termination obligations.

                                        87
If UNIC terminates the executive without "cause" or the executive resigns
as a result of the relocation of the principal executive offices of UNIC or the
business relocation of the executive (in each case without UNIC offering the
executive a reasonable relocation package), UNIC has agreed to severance pay of
twenty-four months in the case of Mr. Freudberg and eighteen months in the case
of the other executives, payable monthly, and subject to the execution of a
general release and further adjustment for the equity compensation package
granted to such executive. During this severance period, UNIC is also obligated
to maintain any medical, health and accident plan or arrangement in which the
executive participates until the earlier of the end of the severance period or
the executive becoming eligible for coverage by another employer and subject to
the executive continuing to bear his share of coverage costs.

       All of the executive agreements also impose non-compete, non-solicitation
and confidentiality obligations on the executives upon their termination for any
reason. The non-compete provisions provide that for a period of eighteen months
following the termination of employment for any reason the executives shall not
directly or indirectly engage in any "competitive business," which includes any
business engaging in the specialty property and casualty insurance business or
any business engaging in the insurance agency or brokerage business (or any
other material business of UNIC or its affiliates) or which has business
dealings with any general agency or producer of UNIC. The non-solicitation
provisions prohibit the executives, for a period of eighteen months following
termination of employment, from doing business with any employee, officer,
director, agent, consultant or independent contractor employed by or performing
services for UNIC, or engaging in insurance-related business with any party who
is or was a customer of UNIC during the executives' employment (or during such
eighteen-month period), or a business prospect of UNIC during the executive's
employment. The employment agreements also provide that the executives may elect
to forego separation payments and certain equity awards (discussed below) and in
return no longer be subject to certain provisions of the non-competition
restrictions (such as those prohibiting engaging in the specialty and casualty
insurance business or any business engaging in the insurance agency or brokerage
business), but still remain subject to other non-compete provisions,
confidentiality provisions and non-solicitation provisions of the agreements. If
the executives violate their restrictive covenants or confidentiality
obligations, the employment agreements also have provisions that permit UNIC to
recover gain realized by the executives upon the exercise of options or sale of
stock during a designated period, to purchase their shares at the lesser of cost
or fair market value and for the forfeiture of any unexercised options.

       With respect to the executives' annual cash compensation, the agreements
provide as follows: (1) Mr. Freudberg is entitled to an annual salary of
$415,000; (2) Mr. March is entitled to an annual salary of $320,000; (3) Mr.
Cohen is entitled to an annual salary of $255,000; (4) Mr. Schmidt is entitled
to an annual salary of $245,000; (5) Mr. Tate is entitled to an annual salary of
$237,500; and (6) Mr. Ritz is entitled to a salary of $225,000. Each executive
is also eligible for an annual bonus conditioned on the achievement of
performance targets included in the bonus plan adopted by our Board of
Directors.

       In connection with the execution of their employment agreements, the
named executives also purchased our Class A common shares at a purchase price of
$10.00 per share. Class A common shares purchased by the named executives are
subject to the terms of a restricted share purchase agreement and a Management
Shareholders Agreement. The number of Class A common shares acquired by the
named executives is as follows: Mr. Freudberg - 50,000 shares; Mr.
March - 26,250 shares; Mr. Cohen - 26,250 shares; Mr. Schmidt - 26,250 shares;
Mr. Tate - 26,250 shares; and Mr. Ritz - 26,250 shares.

       The executives have been granted various options to purchase our Class A
common shares. Options denoted as the "Option-A Tranche" granted on September 5,
2003 have an exercise price of $6.50 per share and are fully vested at the time
of the grant; Messrs. Freudberg and March were granted 200,000 and 56,074
options, respectively, from the Option-A Tranche. The second set of options
granted to all named executive officers on September 5, 2003 have an exercise
price of $10 per share and vests over time in 20% increments over a five-year
period, with any unvested options forfeitable upon termination of the
executive's employment for any reason (including cause); Mr. Freudberg was
granted 75,000 of these options and the other named executive officers were each
granted 39,375 of these options. The final set of
                                        88
options are performance-vesting options granted on September 5, 2003, having an
exercise price of $10 per share with vesting in 25% increments and conditioned
upon our achieving various operating targets or Fox Paine & Company achieving an
agreed upon rate of return on its investment in us; Mr. Freudberg was granted
125,000 of these options and the other named executive officers were each
granted 65,625 of these options.

MANAGEMENT SHAREHOLDERS AGREEMENT

       All named executives are parties to a Management Shareholders Agreement,
or "MSA", that applies to all shares acquired by such executives, whether by
direct purchase or upon option exercise. Generally, all shares governed by the
MSA are subject to transfer restrictions, some of which no longer apply upon our
filing of a registration statement covering the shares or the reduction in Fox
Paine & Company's ownership interest to below 10%. The management shareholders
are also subject to a "drag along" obligation on their shares and may be
required to join in the sale by Fox Paine & Company of at least 50% of its
shareholdings in us, on the same terms and conditions as Fox Paine & Company. In
any case, we may elect to purchase the shares owned by an executive upon the
termination of the executive's employment for cause or his resignation for any
reason (other than for retirement or failure to renew the executive's employment
agreement), generally, at the lesser of cost or fair market value (provided that
for purposes of this repurchase provision, the cost of shares realized by
Messrs. Freudberg and March upon the exercise of their Option-A Tranche Shares
shall be $10.00). If the executive's employment is terminated due to death,
disability, retirement or by us without cause, we may elect to repurchase the
executive's stock at fair market value as determined by the Board of Directors.
The repurchase rights of the Company extend for seven years from the execution
of the MSA. If during the first five years from the execution of the MSA, the
employment of Messrs. Freudberg and March is terminated by us or our
subsidiaries for any reason, they have the right within 90 days of such
termination to have us purchase all of the Option-A Tranche Shares realized upon
exercise at the lesser of $10.00 or fair market value. The Board of Directors
has also agreed to consider providing Messrs. Freudberg and March with the right
to have any unexercised portion of the Option-A Tranche purchased by the us for
a per share amount equal to the difference (if any) between the exercise price
($6.50) and the lesser of $10.00 or fair market value, provided that such a
repurchase will not result in any material adverse accounting consequences to
us, and if the Board of Directors determines not to provide such a right, the
Board of Directors has agreed to cooperate with Messrs. Freudberg and March to
implement a mutually satisfactory alternative. Our payment obligations with
respect to any such repurchase obligations are subject to a formula providing
for an initial partial payment, followed by a subsequent payment three years
later upon confirmation of fair market value, and all payment obligations are
conditioned on compliance with applicable covenants governing cash expenditures.

       The MSA also provides that if, after the public offering, we subsequently
propose to include common shares and shares held by Fox Paine & Company on any
registration statement, and if the management shares covered under the MSA are
not at such time or otherwise subject to registration or sale under Rule 144,
then the management shareholders may exercise certain "piggyback" registration
rights, subject to cutbacks at the discretion of the managing underwriters.

SHARE INCENTIVE PLAN

  PURPOSE

       Our Board of Directors and shareholders approved our Share Incentive
Plan, or "Plan." The purpose of the Plan is to enable us to offer key employees
and our non-employee directors stock options, restricted stock and other
stock-based awards. We believe this will help us attract, retain and reward our
key employees and directors, and strengthen the mutuality of interests between
such individuals and our shareholders. The Plan also provides additional
advantages if the Board of Directors determines to acquire other business
operations, by permitting us to offer the employees and non-employee directors
of such businesses share-based awards. Under certain circumstances our
consultants and affiliates may also be eligible for grants under the Plan.

                                        89
ADMINISTRATION

       The Plan will be administered by a committee of the Board of Directors.
That committee will consist of two or more non-employee directors, each of whom
is intended to be, to the extent required by Rule 16b-3 under the Exchange Act
and Section 162(m) of the Code, a non-employee director under Rule 16b-3 and an
outside director under Section 162(m) of the Code. With respect to the
application of the Plan to non-employee directors, the committee is the Board of
Directors. If no committee exists, the functions of the committee will be
exercised by the Board of Directors.

       The committee has the full authority to administer and interpret the
Plan, to grant discretionary awards under the Plan, to determine the persons to
whom awards will be granted, to determine the number of shares of common stock
to be covered by each award (subject to the individual participant limitations
provided in the Plan), to prescribe the form of instruments evidencing awards
and to make all other determinations and to take all such steps in connection
with the Plan and the awards thereunder as the committee, in its sole
discretion, deems necessary or desirable.

       The terms and conditions of individual awards will be set forth in
written agreements consistent with the Plan. Awards under the Plan may not be
made on or after September 5, 2013, but awards granted prior to such date may
extend beyond that date.

  ELIGIBILITY AND TYPES OF AWARDS

       Our non-employee directors, senior officers, senior management and key
employees, and those of certain of our subsidiaries and affiliates, and in some
circumstances our consultants, are eligible to be granted stock options,
restricted shares and other share-based awards under the Plan. Eligibility for
awards under the Plan is determined by the committee, in its sole discretion. As
of the date of this prospectus, awards have been granted under the Plan as set
forth in "Option Grants to Executive Officers."

  AVAILABLE SHARES

       A maximum of 2,000,000 Class A common shares may be issued or used for
reference purposes under the Plan. The maximum number of common shares with
respect to which an award may be granted under the Plan during any fiscal year
to any individual will be 800,000 shares in the case of options or, in the case
of other share-based awards, a maximum value at grant based on 400,000 Class A
common shares, except that these maximum numbers for an individual with respect
to options shall be increased for subsequent fiscal years to the extent that
awards with respect to fewer than 800,000 shares are made for such individual
during any fiscal year.

       The committee may, in accordance with the term of the Plan, make
appropriate adjustments to the number of common shares available for the grant
of awards and the terms of outstanding options and other awards to reflect any
stock dividend or distribution, stock split, reverse stock split,
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares (and certain other events affecting our capital structure
or business).

  AMENDMENT AND TERMINATION

       Notwithstanding any other provision of the Plan, the Board of Directors
or the committee may at any time, amend, suspend or terminate the Plan entirely,
retroactively or otherwise; provided, however, that, unless otherwise required
by law, the rights of a participant with respect to awards granted prior to such
amendment, suspension or termination, may not be impaired without the consent of
such participant and, provided further, without the approval of our
shareholders, to the extent required under applicable securities or tax law, no
amendment may be made that would (1) increase the aggregate number of our common
shares that may be issued under the Plan; (2) increase the maximum individual
participant share limitations for a fiscal year; (3) change the classification
of individuals eligible to receive awards under the Plan; (4) decrease the
minimum exercise price of any stock option; (5) extend the maximum option term;
(6) materially alter the performance goals for the award of other stock based
awards; or (7) require shareholder approval in order for the Plan to continue to
comply with applicable securities law.

                                        90
ACQUISITION-RELATED PAYMENTS

       In connection with the acquisition, the named executive officers received
payments from the U.S. Operations for the settlement of stock appreciation
rights previously granted in connection with the U.S. Operations and for
retention payments relating to their services through the closing of the
acquisition. The named executive officers participated in a stock appreciation
rights plan maintained by American Insurance Service during periods prior to
September 5, 2003. This stock appreciation rights plan was terminated upon the
completion of our acquisition of our U.S. Operations on September 5, 2003. The
named executive officers received the following cash payments in satisfaction of
stock appreciation rights outstanding and retention payments, respectively: Mr.
Freudberg -- $922,087 and $117,913; Mr. March -- $196,260 and $1,047,480; Mr.
Tate -- $196,260 and $1,243,740; Mr. Cohen -- $196,260 and $1,243,740; Mr.
Schmidt -- $0 and $1,249,460; and Mr. Ritz -- $0 and $1,249,460. Such payments
were approved by the then shareholders of the U.S. Operations in accordance with
Section 280G of the Code and the regulations promulgated thereunder.

       In addition, Mr. Schmidt and Mr. Ritz received cash bonuses of $190,540
each in connection with the acquisition.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

       Our articles of association provide for the indemnification of our
directors and officers against liabilities that they may incur while discharging
the duties of their offices. See "Description of Share
Capital -- Indemnification."

       In addition, we have entered into indemnification agreements with our
directors and officers, under which we agreed to indemnify our directors and
officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that the director or officer is or was our director, officer, employee or
agent, provided that the director or officer acted in good faith and in a manner
that the director or officer reasonably believed to be in, or not opposed to,
our best interest.

                                        91
PRINCIPAL SHAREHOLDERS

       The following table sets forth certain information concerning the
beneficial ownership of our common shares as of September 16, 2003, including
the percentage of our total voting power such common shares represent on an
actual basis and as adjusted to give effect to this offering (assuming the
underwriters do not exercise their overallotment option), by:

       -     each of our executive officers;

       -     each of our directors;

       -     each holder known to us to hold beneficially more than 5% of either
             class of our common shares; and

       -     all of our executive officers and directors as a group.

       For more information concerning the selling shareholders, see "Selling
Shareholders."

       Except as otherwise set forth in the footnotes below, each beneficial
owner has the sole power to vote and dispose of all common shares held by that
beneficial owner.
BENEFICIAL OWNERSHIP                                            BENEFICIAL OWNERSHIP
                            BEFORE THIS OFFERING(1)(2)                                     AFTER THIS OFFERING(1)(2)(3)
                       -------------------------------------                           -------------------------------------
                            CLASS A             CLASS B          %                          CLASS A             CLASS B
                         COMMON SHARES       COMMON SHARES     TOTAL         %           COMMON SHARES       COMMON SHARES
                       -----------------   -----------------   VOTING   AS-CONVERTED   -----------------   -----------------
NAME AND ADDRESS         SHARES      %       SHARES      %     POWER    OWNERSHIP(4)     SHARES      %       SHARES      %
----------------       ----------   ----   ----------   ----   ------   ------------   ----------   ----   ----------   ----
Fox Paine &
  Company(5).........  24,809,882   91.3%  24,472,432   90.0%  88.2%       82.2%
Ball Family
  Trusts(6)..........   5,190,118   90.6    3,027,568   23.2    11.7        17.2
Saul A. Fox(7).......          --     --           --     --      --          --
Troy W. Thacker(7)...          --     --           --     --      --          --
Kevin L. Tate........      26,250    1.0           --     --       *           *
Seth D. Freudberg....     250,000    8.6           --     --       *           *
Richard S. March.....      82,324    3.0           --     --       *           *
Robert Cohen.........      26,250    1.0           --     --       *           *
William F. Schmidt...      26,250    1.0           --     --       *           *
Jonathan P. Ritz.....      26,250    1.0           --     --       *           *
W. Dexter Paine,
  III(7).............          --     --           --     --      --          --
Robert N. Lowe,
  Jr.(7).............          --     --           --     --      --          --
Angelos J.
  Dassios(7).........          --     --           --     --      --          --
Russell C. Ball,
  III(8).............   5,190,118   90.6    3,027,568   23.2    11.7        17.2
John Hendrickson.....          --     --           --     --      --          --
All directors and
  executive officers
  as a group (13
  persons)...........   5,627,442   94.1%   3,027,568   23.2%  11.8%       18.6%
%
                       TOTAL         %
                       VOTING   AS-CONVERTED
NAME AND ADDRESS       POWER    OWNERSHIP(4)
----------------       ------   ------------
Fox Paine &
  Company(5).........
Ball Family
  Trusts(6)..........
Saul A. Fox(7).......
Troy W. Thacker(7)...
Kevin L. Tate........
Seth D. Freudberg....
Richard S. March.....
Robert Cohen.........
William F. Schmidt...
Jonathan P. Ritz.....
W. Dexter Paine,
  III(7).............
Robert N. Lowe,
  Jr.(7).............
Angelos J.
  Dassios(7).........
Russell C. Ball,
  III(8).............
John Hendrickson.....
All directors and
  executive officers
  as a group (13
  persons)...........
------------

 *  Less than 1.0%

**  Unless otherwise set forth above, the address for each beneficial owner is
    c/o United National Group, Ltd., Walker House, Mary Street, P.O. Box 9086T,
    George Town, Grand Cayman, Cayman Islands.

                                        92
(1) These figures assume exercise by only the beneficial owner named in each row
    of all options and convertible securities held by such beneficial owner that
    are exercisable or convertible by such beneficial owner within 60 days of
    September 5, 2003.

(2) Percentages are based upon 2,698,750 Class A common shares, 10,000,000 Class
    B common shares and 17,500,000 Series A preferred shares outstanding as of
    September 5, 2003. Assuming full conversion of all Class B common shares and
    Series A preferred shares into Class A common shares and Class B common
    shares, respectively, and the further conversion of such Class B common
    shares into Class A common shares, as of September 5, 2003, there were
    30,198,750 Class A common shares outstanding.

(3) Assumes redemption of the Series A preferred shares as described under "Use
    of Proceeds," including the issuance of           Class A common shares in
    such redemption.

(4) Assumes full conversion of Class B common shares into Class A common shares
    and Series A preferred shares into Class B common shares and, in turn, into
    Class A common shares, and excludes options and warrants.

(5) The security holders are: U.N. Holdings (Cayman), Ltd.; U.N. Co-Investment
    Fund I (Cayman), L.P.; U.N. Co-Investment Fund II (Cayman), L.P.; U.N.
    Co-Investment Fund III (Cayman), L.P.; U.N. Co-Investment Fund IV (Cayman),
    L.P.; U.N. Co-Investment Fund V (Cayman), L.P.; U.N. Co-Investment Fund VI
    (Cayman), L.P.; U.N. Co-Investment Fund VIII (Cayman), L.P.; and U.N.
    Co-Investment Fund IX (Cayman), L.P. A majority of the outstanding share
    capital of U.N. Holdings (Cayman), Ltd. is held by Fox Paine Capital Fund II
    International, L.P. The principal general partner of Fox Paine Capital Fund
    II International, L.P. is Fox Paine Capital International Fund GP, L.P. The
    sole general partner of Fox Paine Capital International Fund GP, L.P. is Fox
    Paine International GP, Ltd. As a result, each of Fox Paine Capital Fund II
    International, L.P., Fox Paine Capital International Fund GP, L.P. and Fox
    Paine International GP, Ltd. may be deemed to control U.N. Holdings
    (Cayman), Ltd. The sole general partner of each of U.N. Co-Investment Fund I
    (Cayman), L.P., U.N. Co-Investment Fund II (Cayman), L.P., U.N.
    Co-Investment Fund III (Cayman), L.P., U.N. Co-Investment Fund IV (Cayman),
    L.P., U.N. Co-Investment Fund V (Cayman), L.P., U.N. Co-Investment Fund VI
    (Cayman), L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N.
    Co-Investment Fund IX (Cayman), L.P. is Fox Paine Capital International Fund
    GP, L.P., which may be deemed to control such funds.

(6) The security holders are the following trusts: Russell C. Ball, III, Andrew
    L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as appointed
    by Russell C. Ball, Jr., f/b/o Russell C. Ball, III; Russell C. Ball, III,
    Andrew L. Ball, PNC Bank, N.A., trustees u/w of Russell C. Ball, Sr., as
    appointed by Russell C. Ball, Jr., f/b/o Andrew L. Ball; Russell C. Ball,
    III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of Ethel M. Ball, dated
    2/9/67, as appointed by Russell C. Ball, Jr., f/b/o Russell C. Ball, III;
    Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t of
    Ethel M. Ball, dated 2/9/67, as appointed by Russell C. Ball, Jr., f/b/o
    Andrew L. Ball; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A.,
    trustees u/a/t of Russell C. Ball, Jr., dated 11/9/67; Russell C. Ball, III,
    Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated
    6/9/69; Russell C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t
    Russell C. Ball, Jr., dated 1/29/70; Russell C. Ball, III, Andrew L. Ball,
    PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr., dated 1/24/73; Russell
    C. Ball, III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C.
    Ball, Jr., dated 12/22/76 f/b/o Russell C. Ball, III; and Russell C. Ball,
    III, Andrew L. Ball, PNC Bank, N.A., trustees u/a/t Russell C. Ball, Jr.,
    dated 12/22/76 f/b/o Andrew L. Ball. Russell C. Ball, III, Andrew L. Ball
    and PNC Bank, N.A. are the sole co-trustees of each trust and, therefore,
    share voting and dispositive power over all of the Class A common shares and
    Series A preferred shares held by the Ball family trusts. The address for
    each of the Ball family trusts is 555 Croton Road, Suite 300, King of
    Prussia, Pennsylvania 19406.

(7) Each of Messrs. Fox, Paine, Lowe, Thacker and Dassios is a shareholder of
    Fox Paine International GP, Ltd., which acts through its board of directors,
    which consists of Messrs. Fox and Paine. Each of Messrs. Fox, Paine, Lowe,
    Thacker and Dassios disclaims beneficial ownership of all shares held by
    U.N. Holdings (Cayman), Ltd., U.N. Co-Investment Fund I (Cayman), L.P., U.N.
    Co-Investment Fund II (Cayman), L.P., U.N. Co-Investment Fund III (Cayman),
    L.P., U.N. Co-Investment Fund IV (Cayman), L.P., U.N. Co-Investment Fund V
    (Cayman), L.P., U.N. Co-Investment Fund VI (Cayman),

                                        93
L.P., U.N. Co-Investment Fund VIII (Cayman), L.P. and U.N. Co-Investment
    Fund IX (Cayman), L.P., except to the extent of his indirect pecuniary
    interest in such shares through ownership of such entities.

(8) Mr. Ball is a co-trustee of each of the Ball family trusts described in
    footnote 6, and, therefore, shares voting and dispositive power over all of
    the Class A common shares and Series A preferred shares held by the Ball
    family trusts.

                                        94
SELLING SHAREHOLDERS

       The following table sets forth certain information regarding the
ownership, as of September 16, 2003, of our share capital by each selling
shareholder offering to sell Class A common shares in this offering if the
underwriters exercise the overallotment option. For more information concerning
the selling shareholders see "Principal Shareholders."
NUMBER OF
                                         NUMBER OF SHARES HELD PRIOR TO OFFERING(1)       CLASS A
                                        --------------------------------------------      COMMON
                                          CLASS A         CLASS B        SERIES A        SHARES IN
SELLING                                    COMMON         COMMON         PREFERRED     OVERALLOTMENT
SHAREHOLDER                                SHARES         SHARES          SHARES          OPTION
-----------                             ------------   -------------   -------------   -------------
U.N. Holdings (Cayman), Ltd. .........          --       8,650,198      12,110,278
U.N. Co-Investment Fund I (Cayman),
  L.P. ...............................     159,932         639,731       1,119,529
U.N. Co-Investment Fund II (Cayman),
  L.P. ...............................     125,013         500,050         875,087
U.N. Co-Investment Fund III (Cayman),
  L.P. ...............................      41,671         166,683         291,696
U.N. Co-Investment Fund IV (Cayman),
  L.P. ...............................       4,167          16,668          29,170
U.N. Co-Investment Fund V (Cayman),
  L.P. ...............................       4,167          16,668          29,170
U.N. Co-Investment Fund VI (Cayman),
  L.P. ...............................         833           3,334           5,834
U.N. Co-Investment Fund VIII (Cayman),
  L.P. ...............................         417           1,667           2,917
U.N. Co-Investment Fund IX (Cayman),
  L.P. ...............................       1,250           5,001           8,751
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Russell C. Ball, III................     375,851              --         526,192
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Andrew L. Ball......................     375,851              --         526,192
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Russell C. Ball, III..........     281,781              --         394,492
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Andrew L. Ball................     281,781              --         394,491
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Russell C. Ball, Jr., dated
  11/9/67.............................     140,133              --         196,187
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball Jr., dated 6/9/69...     341,250              --         477,750
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/29/70.............................     206,308              --         288,830
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/24/73.............................     116,777              --         163,488
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Russell C. Ball, III..........      21,409              --          29,973
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Andrew L. Ball................      21,409              --          29,973
         Totals.......................   2,500,000      10,000,000      17,500,000
NUMBER OF SHARES HELD AFTER OFFERING(2)
                                        ---------------------------------------------
                                                                              % OF
                                         CLASS A     CLASS B    SERIES A     CLASS A
SELLING                                  COMMON      COMMON     PREFERRED    COMMON
SHAREHOLDER                              SHARES      SHARES      SHARES      SHARES
-----------                             ---------   ---------   ---------   ---------
U.N. Holdings (Cayman), Ltd. .........
U.N. Co-Investment Fund I (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund II (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund III (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund IV (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund V (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund VI (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund VIII (Cayman),
  L.P. ...............................
U.N. Co-Investment Fund IX (Cayman),
  L.P. ...............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Russell C. Ball, III................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/w of
  Russell C. Ball, Sr., as appointed
  by Russell C. Ball, Jr., f/b/o
  Andrew L. Ball......................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Russell C. Ball, III..........
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Ethel M. Ball, dated 2/9/67, as
  appointed by Russell C. Ball, Jr.
  f/b/o Andrew L. Ball................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t of
  Russell C. Ball, Jr., dated
  11/9/67.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball Jr., dated 6/9/69...
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/29/70.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated
  1/24/73.............................
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Russell C. Ball, III..........
Russell C. Ball, III, Andrew L. Ball,
  PNC Bank, N.A., trustees u/a/t
  Russell C. Ball, Jr., dated 12/22/76
  f/b/o Andrew L. Ball................
         Totals.......................
------------

(1) Assumes no conversion of either Class B common shares or Series A preferred
    shares.

(2) Assumes use of proceeds of this offering as described under "Use of
    Proceeds," including the redemption of all Series A preferred shares and the
    issuance of         Class A common shares in such redemption.

                                        95
OUR RELATIONSHIP WITH FOX PAINE & COMPANY

       The following summary of the material terms of the Amended and Restated
Investment Agreement, the Shareholders Agreement and the Management Agreement is
qualified in its entirety by reference to the Investment Agreement, the
Shareholders Agreement and the Management Agreement, each of which is filed as
an exhibit to the registration statement of which this prospectus forms a part.

INVESTMENT AGREEMENT

       On September 5, 2003, Fox Paine & Company made an aggregate capital
contribution of $240.0 million to us, in exchange for an aggregate of 10.0
million Class B common shares and 14.0 million Series A preferred shares, and we
acquired Wind River Investment Corporation, the subsidiaries of which generally
comprise our U.S. Operations, from a group of family trusts affiliated with the
Ball family of Philadelphia, Pennsylvania.

       To effect the acquisition, we used $100.0 million of this $240.0 million
capital contribution to purchase a portion of the common stock of Wind River
Investment Corporation held by the Ball family trusts. We then purchased the
remainder of the outstanding common stock of Wind River Investment Corporation,
also held by the Ball family trusts with consideration consisting of 2.5 million
Class A common shares, 3.5 million Series A preferred shares and senior notes
issued by Wind River Investment Corporation having an aggregate principal amount
of approximately $72.8 million.

       Of the remaining $140.0 million contributed to us, we contributed $80.0
million to our U.S. Operations, used $43.5 million to capitalize our Non-U.S.
Operations and used $16.5 million to fund fees and expenses incurred in
connection with the transaction.

       The principal amount of the senior notes are subject to adjustment as a
result of the Ball family trusts' agreement to indemnify us for certain breaches
of representations, warranties and covenants in the Investment Agreement and as
result of the amount of recoveries by us from certain of our obligors. Any
indemnification payment due from the Ball family trusts to us is to be first
offset against the interest outstanding on the senior notes held by the Ball
family trusts and then against any principal outstanding on such senior notes.
If no principal is then outstanding, the Ball family trusts must instead make
the indemnification payment directly to us. In addition, if proceeds from
settlement arrangements that we enter into with certain of our obligors are
greater than a specified amount, the principal amount of the senior notes will
be increased by one-half of the excess, up to $7.5 million. Further, if we
receive proceeds from settlement arrangements when the senior notes are no
longer outstanding, the amount that would have increased the principal amount of
the senior notes will instead be paid in cash to the Ball family trusts.

       Wind River Investment Corporation wholly-owned two subsidiaries prior to
August 18, 2003. The subsidiaries included American Insurance Service, Inc. and
a real estate company. On August 18, 2003, the real estate subsidiary was spun
off to the former shareholders of Wind River Investment Corporation. The
historical financial data for United National Group has been adjusted to exclude
the activity related to the former real estate subsidiary because Wind River
Investment Corporation (through American Insurance Service, Inc. and its
subsidiaries) and the real estate subsidiary participated in dissimilar
businesses; they were operated and financed autonomously; and they had only
incidental common costs. Additionally, Wind River Investment Corporation and the
former subsidiary will be operated and financed autonomously following the spin
off and there are no material financial commitments, guarantees or contingent
liabilities between the companies.

SHAREHOLDERS AGREEMENT

       In connection with the acquisition, on September 5, 2003, United National
Group, Fox Paine & Company and the Ball family trusts entered into a
shareholders agreement. The material terms of the shareholders agreement are
described below.

                                        96
BOARD COMPOSITION

       The shareholders agreement provides that our Board of Directors consist
of five directors. Of these five directors, four are to be nominated by Fox
Paine & Company and, for so long as the Ball family trusts beneficially own at
least 5% of our outstanding shares, one is to be nominated by the Ball family
trusts. As of the completion of this offering, the shareholders agreement will
be amended to provide that our Board of Directors be comprised of eleven
directors. Of these eleven directors, six directors are to be nominated by Fox
Paine & Company and, for so long as the Ball family trusts beneficially own at
least 5% of our outstanding shares, one director is to be nominated by the Ball
family trusts. The agreement requires Fox Paine & Company and the Ball family
trusts to vote in favor of the election of the nominees. The remaining directors
will include three individuals who are considered "independent" for purposes of
the rules of the Nasdaq National Market.

  TRANSFERABILITY RIGHTS

       The shareholders agreement provides that the Ball family trusts cannot
generally transfer any Class A common shares or Series A preferred shares,
whether currently owned or subsequently acquired, without the approval of our
Board of Directors, except to another Ball family trust or their affiliates or
to a principal beneficiary of any Ball family trust.

       Fox Paine & Company agreed that, if it proposed to transfer any Class B
common shares or Series A preferred shares to an unaffiliated third party, it
would provide the Ball family trusts with customary "tag-along" rights. Namely,
in any such sale, the Ball family trusts would be permitted to participate in
such transfer by selling a number of shares that bears the same proportion to
the aggregate number of shares that they hold, as the number of shares proposed
to be sold by Fox Paine & Company bears to the aggregate number of shares held
by Fox Paine & Company. Similarly, the Ball family trusts have agreed that, if
Fox Paine & Company proposes to transfer Class B common shares or Series A
preferred shares in such amounts that following such transfer, Fox Paine &
Company will no longer have a majority of the outstanding shares, Fox Paine &
Company will have "drag-along" rights against the Ball family trusts.
Specifically, Fox Paine & Company will have the right to require the Ball family
trusts to transfer a number of shares that bears the same proportion to the
aggregate number of shares that they hold, as the number of shares proposed to
be sold by Fox Paine & Company bears to the aggregate number of shares held by
Fox Paine & Company.

       Each of United National Group and Fox Paine & Company further agreed to
provide the Ball family trusts with "piggyback" registration rights under the
Securities Act in connection with any registered offering of common shares by
United National Group in which Fox Paine & Company participates.

       Finally, United National Group agreed to provide the Ball family trusts
with rights of first refusal if United National Group or any of its subsidiaries
propose to issue additional equity interests or debt securities. However, these
rights of first refusal will not be applicable following completion of this
offering.

  TERMINATION

       Certain material terms of the shareholders agreement will terminate when
Fox Paine & Company ceases to hold at least 25.0% of our fully diluted
outstanding common shares. All terms of the agreement, except terms with respect
to tag-along and piggyback registration rights and indemnification, will
terminate upon any completion of any transaction that results in Fox Paine &
Company and the Ball family trusts owning in the aggregate less than a majority
of the voting power of the entity surviving such transaction. The Ball family
trusts' piggyback registration rights survive until the earlier of September 5,
2023 or the date that they no longer hold any securities outstanding that are
registrable under the Securities Act.

                                        97
MANAGEMENT AGREEMENT

       On September 5, 2003, as part of the acquisition, we entered into a
management agreement with Fox Paine & Company and The AMC Group, L.P., an
affiliate of the Ball family trusts. In the management agreement, we agreed to
pay to Fox Paine & Company an initial management fee of $13.2 million for the
year beginning on September 5, 2003, which was paid on September 5, 2003, and
thereafter an annual management fee of $1.2 million subject to certain
adjustments. We likewise agreed to pay to The AMC Group an annual management fee
of $0.3 million subject to certain adjustments. We believe these fees represent
fair value for the services rendered to us by Fox Paine & Company and The AMC
Group. In exchange for their management fees, Fox Paine & Company and The AMC
Group assist us and our affiliates with strategic planning, budgets and
financial projections and assist us and our affiliates in identifying possible
strategic acquisitions and in recruiting qualified management personnel. In
addition, The AMC Group has agreed to provide us with transitional services
relating to the use of certain tax and accounting software for a limited period
of time. Fox Paine & Company and The AMC Group also consult with us and our
affiliates on various matters including tax planning, public relations
strategies, economic and industry trends and executive compensation.

       Fox Paine & Company and The AMC Group will continue to provide management
services under this agreement until either Fox Paine & Company or The AMC Group
no longer holds any equity investment in our company or we agree with Fox Paine
& Company and The AMC Group to terminate this management relationship. In
connection with this agreement, we agreed to indemnify Fox Paine & Company and
The AMC Group against various liabilities that may arise as a result of the
management services they will provide us. We also agreed to reimburse Fox Paine
& Company and The AMC Group for expenses incurred in providing management
services.

OUR INVESTMENT WITH FOX PAINE & COMPANY

       We are a limited partner in Fox Paine Capital Fund II, L.P. and Fox Paine
Capital Fund II International, L.P., investment funds managed by Fox Paine &
Company. Our interest in these partnerships is valued, as of June 30, 2003, at
$1.6 million, and we have a remaining capital commitment to these partnerships
of approximately $8 million.

                                        98
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       During 2003, 2002, 2001 and 2000, we paid management and investment
advisory fees of approximately $0, $9.9 million, $7.1 million and $7.1 million,
respectively to The AMC Group, L.P., an affiliate of the Ball family trusts,
which at the time were our shareholders.

       As of December 31, 2002, 2001 and 2000, we had payable balances due to
affiliates of the Ball family trusts, which at the time were our shareholders,
totaling approximately $0.2 million, $0.1 million and $0.4 million,
respectively.

       As of January 1, 2000, Wind River Investment Corporation owed $3,526,390
to Wind River Investment, LLC, an affiliate of the Ball family trusts, which
included a note receivable of $3.5 million and interest receivable of $28,455
under a promissory note. The annual rate of interest on this note was 6.0%.
During 2001, United National Insurance Company purchased this promissory note
from Wind River Investments, LLC for $3,850,280, which included a note
receivable of $3,497,935 and interest receivable of $352,345. During 2002,
United National Insurance Company sold this promissory note to American
Manufacturing Corporation (Delaware), an affiliate of the Ball family trusts,
for $4.2 million, which included a note receivable of $3.9 million and interest
receivable of $0.4 million. No gain or loss was recognized on the sale to
American Manufacturing Corporation (Delaware). On August 18, 2003, in
anticipation of the sale of Wind River Investment Corporation, the Ball family
trusts assumed this debt owed to American Manufacturing Corporation (Delaware).
A total of $4.3 million was assumed, which included a note receivable of $3.9
million and interest receivable of $0.5 million.

       During 2001, we purchased a promissory note from Wind River Investments,
LLC for $1.4 million. The promissory note was a loan to The AMC Group, L.P. The
annual rate of interest on this note was 6.0%. Between 2001 and 2003 we received
principal payments of $0.7 million and interest payments of $0.1 million. In
April 2003, we sold this promissory note to American Manufacturing Corporation
(Delaware) for $0.6 million (the amortized value as of April 30, 2003). No gain
or loss was recognized on the sale to American Manufacturing Corporation
(Delaware).

       During 2001, we purchased a promissory note from Philadelphia Gear
Corporation, an affiliate of the Ball family trusts, for $2.4 million. The
promissory note was a loan to 181 Properties, LP, an affiliate of the Ball
family trusts. The annual rate of interest on this note was 6.3%. During 2001,
we received interest payments of $74,784. In April 2003, we sold this promissory
note to American Manufacturing Corporation (Delaware) for $2.6 million, which
included a note receivable of $2.4 million and interest receivable of $0.2
million. No gain or loss was recognized on the sale to American Manufacturing
Corporation (Delaware).

       During 2001, we purchased a mortgage from Wind River Investment, LLC for
$1.3 million. The annual rate of interest on this mortgage was 7.8%. During
2003, this mortgage loan was repaid in full.

       During 2000, we issued insurance policies to affiliates with premiums
totaling approximately $94,000. During 2003, 2002 and 2001, no such insurance
policies were issued to affiliates.

       During 2000, we assigned our interests in various limited liability
partnership funds and other venture capital funds to Wind River Investment, LLC.
In connection with this transaction, a gain of $2.0 million was included in
income. Also during 2000, we purchased interests in two limited liability
partnership funds from Wind River Investment, LLC for their then fair market
value of $3.4 million.

       During 2000, Little Round Top Inc., which at the time was a wholly-owned
subsidiary of Wind River Investment Corporation, but which was distributed to
the Ball family trusts prior to the sale of Wind River Investment Corporation,
established a demand promissory note with American Manufacturing Corporation
(Pennsylvania). Little Round Top participates in real estate related ventures
and was not included in the sale of Wind River Investment Corporation. The
interest rate on this promissory note was variable and was equal to the
applicable federal rate at the end of each month. Between 2000 and 2003, we
borrowed $0.6 million, made principal payments of $32,801 and made interest
payments of $81.

                                        99
During 2000, Robert Strouse, president of The AMC Group, L.P.,
established a promissory note with Little Round Top. The annual interest rate on
this promissory note was 6.39%. During 2000, we loaned Mr. Strouse $0.3 million.
During 2002 and 2003 we received interest payments of $32,642 and $20,577,
respectively.

       During 2000, we made a demand promissory note with Wind River Investment,
LLC. The annual rate of interest on this note was 6%. Between 2000 and 2003 we
borrowed $0.1 million, made principal payments of $20,000 and made interest
payments of $7,173. On August 28, 2003 we paid $96,113 to Wind River Investment,
LLC to satisfy this loan in full, which included principal of $92,436 and
interest of $3,677.

       During 2001, Little Round Top made a promissory note with American
Manufacturing Corporation (Delaware). The annual rate of interest on this note
was 10%. Between 2001 and 2003, we borrowed $1.6 million under this promissory
note.

       On August 18, 2002, Wind River Investment Corporation distributed its
investment in Little Round Top to the Ball family trusts. The distribution was
made in anticipation of the sale of Wind River Investment Corporation.

       On August 25, 2003, Wind River Investment Corporation sold a series of
limited partnership interests to Wind River Investments, LLC. Proceeds from the
sale of these investments totaled $6.0 million.

       During the time that Wind River Investment Corporation was owned by the
Ball family trusts, our employees were eligible for participation in the health
and welfare and retirement benefits packages offered by American Manufacturing
Company (Pennsylvania). In conjunction therewith, American Manufacturing Company
(Pennsylvania) provided services such as selection of vendors, maintenance of
plan documents, legal compliance, record keeping, coordination of actuarial
studies and plan audits and preparation of all required regulatory filings.

                                       100
DESCRIPTION OF SHARE CAPITAL

       Our authorized share capital consists of $100,000, which is divided into
900,000,000 common shares and 100,000,000 preferred shares, each with a nominal
or par value of $0.0001 per share. As of the date of this prospectus, our common
shares are divided into two classes, Class A common shares and Class B common
shares. As of the date of this prospectus, we have issued one series of
preferred shares, which series has been designated as Series A preferred shares.

       We are a Cayman Islands company and our affairs are governed by our
memorandum and articles of association, the Companies Law (2003 Revision) and
the common law of the Cayman Islands. The following is a summary of material
provisions of our memorandum and articles of association as they will be amended
and restated immediately prior to completion of this offering and the Companies
Law, insofar as they relate to the material terms of our share capital. The
following summary is qualified in its entirety by reference to our memorandum
and articles of association, copies of which are filed as exhibits to the
registration statement of which this prospectus forms a part.

       For information concerning agreements relating to our share capital, see
"Our Relationship with Fox Paine & Company -- Shareholders Agreement" and
"Management -- Management Shareholders Agreement."

GENERAL

       All shares, whether common or preferred, will be issued fully paid as to
nominal or par value and any premium determined by the Board of Directors at the
time of issue and are non-assessable. All shares are to be issued in registered,
and not bearer, form, and are issued when registered in the register of
shareholders of United National Group. Each registered holder of shares is
entitled, without payment, to a certificate representing such holder's shares.
All unissued shares are under control of the Board of Directors and may be
redesignated, allotted or disposed of in such manner as the Board of Directors
may determine.

COMMON SHARES

  GENERAL

       As noted above, our common shares are divided into Class A common shares
and Class B common shares. Except as set forth under " -- Voting Rights" and
" -- Conversion," all Class A common shares and Class B common shares rank equal
in all respects and have identical rights. The common shares are not entitled to
any sinking fund or pre-emptive rights.

  VOTING RIGHTS AND GENERAL MEETINGS

       Subject to adjustment as described under " -- Voting Adjustments,"
holders of common shares are entitled to attend general meetings of United
National Group and each Class A common share is entitled to one vote and each
Class B common share is entitled to ten votes on all matters upon which the
common shares are entitled to vote at any general meeting, including the
election of directors. Voting at any general meeting of shareholders is by a
poll. Our articles of association provide that actions by written consent of
shareholders may only be taken if such action is executed by all holders of
shares entitled to receive notice of and vote at a general meeting.

       We will hold an annual general meeting of shareholders at such time and
place as the Board of Directors may determine. In addition, the Board of
Directors may convene a general meeting of shareholders at any time upon ten
days' notice. Further, general meetings may also be convened upon written
requisition of shareholders holding at least a majority of the votes entitled to
be voted at any general meeting, which requisition must state the objects for
the general meeting.

                                       101
The required quorum for a general meeting of our shareholders consists of
shareholders present in person or by proxy and entitled to vote that hold in the
aggregate at least a majority of the votes entitled to be cast at such general
meeting.

       Subject to the quorum requirements referred to in the previous paragraph,
any ordinary resolution requires the affirmative vote of a simple majority of
the votes cast in a general meeting of United National Group for shareholder
approval while a special resolution requires the affirmative vote of two-thirds
of the votes cast attaching to the common shares. A special resolution is
required for matters such as a change of name, amending our memorandum and
articles of association and placing us into voluntary liquidation. Holders of
shares entitled to vote at a general meeting have the power, among other things,
to elect directors, ratify appointment of auditors and make changes in the
amount of our authorized share capital.

  DIVIDENDS

       The holders of our common shares are entitled to receive such dividends,
which may consist of cash or other property, as may be declared by our Board of
Directors. Any such dividends will be paid equally on Class A common shares and
Class B common shares. Any such dividends to be paid in cash may be paid only
out of profits, which include net earnings and retained earnings undistributed
in prior years, and out of share premium, a concept analogous to paid-in surplus
in the United States, subject to a statutory solvency test.

  LIQUIDATION

       In the event of any liquidation, dissolution or winding up, holders of
common shares shall be entitled to receive distributions in proportion to the
number of common shares held by such holder, without regard to class. The
liquidator in any such liquidation may, upon approval of an ordinary resolution
of shareholders and subject to any preferences and priorities of issued share
capital, divide among the shareholders in cash or in kind the whole or any part
of our assets, determine how such division shall be carried out as between the
shareholders or different classes of shareholders and may vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the
shareholders as the liquidator, upon the approval of an ordinary resolution of
the shareholders, sees fit, provided that a shareholder shall not be compelled
to accept any shares or other assets that would subject the shareholder to
liability.

  CONVERSION

       Each Class B common share is convertible at any time at the option of the
holder thereof into one Class A common share. In addition, each Class B common
share shall be automatically converted into one Class A common share upon any
transfer by the registered holder of that share, whether or not for value,
except for transfers to a nominee or affiliate of such holder in a transfer that
will not result in a change of beneficial ownership as determined under Rule
13d-3 under the Exchange Act or to a person that already holds Class B common
shares.

  REDEMPTION

       Each common share may be redeemed upon the approval by both the Board of
Directors and an ordinary resolution of shareholders of any agreement entered
into by United National Group relating to a business combination transaction
involving United National Group. The terms of such redemption, including the
consideration to be received by the holders of common shares in such redemption,
which consideration may consist of cash or other property, shall be set forth in
the agreement pursuant to which such redemption is to be made and that is
approved as provided in the preceding sentence. Holders of common shares will
not have appraisal or similar rights in any such redemption.

  TRANSFER RESTRICTIONS

       Our Board of Directors may decline to register a transfer of any common
shares under certain circumstances, including if the Board of Directors has
reason to believe that as a result of such transfer,

                                       102
any non-de minimis adverse tax, regulatory or legal consequences may occur to
us, to any of our subsidiaries or to any of our shareholders.

  ACQUISITION OF COMMON SHARES BY UNITED NATIONAL GROUP

       Under our articles of association and subject to Cayman Islands law, if
our Board of Directors determines that any shareholder's ownership of common
shares may result in non-de minimis adverse tax, legal or regulatory
consequences to us, to any of our subsidiaries or to any of our shareholders, we
have the option but not the obligation to require such shareholders to sell to
us, or to a third party to which we have assigned that right to repurchase
shares, at fair market value, as determined in the good faith discretion of the
minimum number of common shares that is necessary to avoid or cure any such
adverse consequences.

  MISCELLANEOUS

       Share certificates registered in the names of two or more persons are
deliverable to any one of them named in the share register, and if two or more
such persons tender a vote, the vote of the person whose name first appears in
the share register will be accepted to the exclusion of any other.

PREFERRED SHARES

       Under our articles of association, preferred shares may be issued from
time to time in one or more series as the Board of Directors may determine. The
Board of Directors has the power, without any vote or action on behalf of
shareholders, to fix by resolution the rights and preferences of each series of
preferred shares so issued, including:

       -     the distinctive designation of such series and the number of
             preferred shares that will be so designated;

       -     the dividend rate and preferences of such series, if any, the
             dividend payment dates, the periods in which dividends are payable,
             whether such dividends are to be cumulative and whether such
             dividends are to be payable in cash or in kind;

       -     whether such preferred shares are to be convertible into or
             exchangeable for common or other shares of United National Group
             and the conversion price or rate, including any adjustments
             thereto, at which such conversion or exchange will be effected;

       -     the preferences, and the amounts thereof, if any, such preferred
             shares are entitled to upon winding up, liquidation or dissolution
             of United National Group;

       -     the voting power, if any, of the preferred shares;

       -     the redemption terms, transfer restrictions and preemptive rights,
             if any, of the preferred shares; and

       -     such other terms, conditions, special rights and provisions as the
             Board of Directors may determine.

       Any or all of the rights and preferences of such preferred shares may be
greater than the rights of our common shares, and our Board of Directors,
without shareholder approval, may issue preferred shares with voting, conversion
or other rights that could adversely affect the voting power and other rights of
holders of our common shares. Subject to the general duty of the Board of
Directors to act in the best interest of United National Group, preferred shares
can be issued quickly with terms calculated to delay or prevent a change in
control of us or make removal of management more difficult. Additionally, the
issuance of preferred shares may have the effect of decreasing the market price
of the common shares, and may adversely affect the voting and other rights of
the holders of common shares. We have no current plan to issue additional
preferred shares.

                                       103
SERIES A PREFERRED SHARES

       On September 5, 2003, the Board of Directors designated a series of our
preferred shares as "Series A preferred shares." The rights and preferences of
the Series A preferred shares are described below:

  Ranking

       With respect to dividends rights and rights upon winding up, dissolution
and liquidation, the Series A preferred shares rank prior to our common shares
and equal to any shares that, pursuant to our articles of association or the
resolution designating such shares, are entitled to share ratably with the
Series A preferred shares in such regard.

  Dividends

       The holder of each Series A preferred share is entitled to receive
dividends at an annual rate of 15% of the liquidation preference of each Series
A preferred share plus all accrued but unpaid dividends beginning on the date of
issuance of the Series A preferred shares. Dividends on the Series A preferred
shares are payable semi-annually, beginning on March 1, 2004. Dividends with
respect to each entire semi-annual period accrue on the first day of such period
and are payable regardless of whether the Series A preferred shares remain
outstanding at the end of such semi-annual period. Dividends on the Series A
preferred shares are payable in cash, additional Series A preferred shares or
any combination thereof, at the discretion of the Board of Directors.

  Liquidation Preference

       Upon winding up, dissolution or liquidation, each Series A preferred
share is entitled to a liquidation preference of $10.00 plus all accrued but
unpaid dividends, before any distribution is made with respect to common shares
or other shares ranking junior to the Series A preferred shares. If upon a
winding up, dissolution or liquidation the liquidation preference on the Series
A preferred shares is not paid in full, the holders of Series A preferred shares
and other shares ranking equal to the Series A preferred shares, shall be
entitled to share equally and ratably in any distribution to shareholders in
proportion to the full liquidation preference and all accrued but unpaid
dividends to which such holders are otherwise entitled.

  Voting Rights

       Subject to adjustments as described under "-- Voting Adjustments,"
holders of Series A preferred shares are entitled to notice of and to vote at
general meetings of shareholders on all matters upon which the holders of common
shares are entitled to vote. The Series A preferred shares and common shares
shall vote together as a single class. Each Series A preferred share will have
the same number of votes as could be cast by the holder of the number of Class B
common shares into which each Series A preferred share could be converted as
described under "-- Conversion" on the record date for such general meeting.

       In addition, the affirmative vote of 90% of the outstanding Series A
preferred shares is required to amend in any manner that would adversely affect,
alter or change the powers, preferences or special rights of the Series A
preferred shares.

  Conversion

       Each Series A preferred share is convertible at any time at the option of
the holder thereof into one Class B common share, subject to adjustment in
certain circumstances, including in the event of share splits and combinations,
dividends of shares and other property, transactions in which the Class B common
shares are exchanged and issuances of common shares at values below market
value. In addition, on September 5, 2005, each Series A preferred share shall
automatically convert into one Class B common share, subject to similar
adjustments.

                                       104
Redemption

       Upon completion of an initial public offering of common shares resulting
in net proceeds of $50.0 million or more to United National Group, a number of
Series A preferred shares determined so that 110% of the aggregate liquidation
preference plus accrued but unpaid dividends is equal to the net proceeds to
United National Group from such initial public offering shall be redeemed. The
redemption price will be paid as follows:

       -     an amount equal to 100% of the liquidation preference shall be paid
             in cash; and

       -     the remainder of the redemption price shall be through delivery of
             Class A common shares having a value (based on the initial offering
             price to the public, gross of any underwriting discounts or
             commissions, in such initial public offering) equal to 10.0% of the
             liquidation preference plus all accrued but unpaid dividends.

VOTING ADJUSTMENTS

       In general, and except as provided below, shareholders have one vote for
each Class A common share and ten votes for each Class B common share or Series
A preferred share held by them and are entitled to vote, on a non-cumulative
basis, at all meetings of shareholders. However, pursuant to a mechanism
specified in our articles of association, the voting rights exercisable by a
shareholder may be limited. In any situation in which the "controlled shares"
(as defined below) of a U.S. Person would constitute 9.5% or more of the votes
conferred by the issued shares, the voting rights exercisable by a shareholder
with respect to such shares will be limited so that no U.S. Person is deemed to
hold 9.5% or more of the voting power conferred by our shares. The votes that
could be cast by a shareholder but for these restrictions will be allocated to
the other shareholders pro rata based on the voting power held by such
shareholders, provided that no allocation of any such voting rights may cause a
U.S. Person to exceed the 9.5% limitation as a result of such allocation. In
addition, our Board of Directors may limit a shareholder's voting rights where
it deems necessary to do so to avoid adverse tax, legal or regulatory
consequences. Our articles of association provide that shareholders will be
notified of the applicable voting power exercisable with respect to their shares
prior to any vote to be taken by the shareholders. "Controlled shares" include,
among other things, shares that a U.S. Person owns directly, indirectly or
constructively (within the meaning of Section 958 of the Code).

       We also have the authority under our articles of association to request
information from any shareholder for the purpose of determining whether a
shareholder's voting rights are to be limited or reallocated pursuant to the
articles of association. If a shareholder fails to respond to our request for
information or submits incomplete or inaccurate information in response to a
request by us, we may, in our sole discretion, eliminate the shareholder's
voting rights.

OUR BOARD OF DIRECTORS

       Our articles of association provide that the size of the Board of
Directors shall be determined from time to time by our Board of Directors, but
unless such number is so fixed, our Board of Directors will consist of eleven
directors. Any directors may be removed prior to the expiration of such
director's term by ordinary resolution of the shareholders. The appointment or
removal of a director requires the simple majority of votes cast, in person or
by proxy, at the general meeting at which the proposal is put forth.

       Generally, the affirmative vote of a majority of the directors present at
any meeting at which a quorum is present shall be required to authorize
corporate action. In the case of equality of votes, the Chairman of our Board of
Directors shall have the deciding vote. Corporate action may also be taken by a
unanimous written resolution of the Board of Directors without a meeting. Unless
otherwise fixed at a different number, a majority of the directors in office
shall constitute a quorum.

                                       105
TAX LIABILITY RESULTING FROM ACTS OF SHAREHOLDERS

       Our articles of association provide certain protections against adverse
tax consequences to us resulting from laws that apply to our shareholders. If a
shareholder's death or non-payment of any tax or duty payable by the
shareholder, or any other act or thing involving the shareholder, causes any
adverse tax consequences to us, (1) the shareholder or its executor or
administrator is required to indemnify us against any tax liability that we
incur as a result, (2) we will have a lien on any dividends or any other
distributions payable to the shareholder by us to the extent of the tax
liability and (3) if any amounts not covered by our lien on dividends and
distributions are owed to us by the shareholder as a result of our tax
liability, we have the right to refuse to register any transfer of the
shareholder's shares.

VOTING OF SUBSIDIARY SHARES

       Our articles of association provide that if we are required or entitled
to vote at a general meeting of U.N. Barbados, our directors shall refer the
subject matter of the vote to our shareholders and seek direction from such
shareholders as to how they should vote on the resolution proposed by U.N.
Barbados Substantially similar provisions are contained in the by-laws of U.N.
Barbados with respect to U.N. Holdings II, Inc. and any non-U.S. subsidiaries it
may have.

INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

       Many insurance regulatory laws intended primarily for the protection of
policyholders contain provisions that require advance approval by insurance
authorities of any proposed acquisition of an insurance company that is
domiciled or, in some cases, having such substantial business that it is deemed
to be commercially domiciled in that jurisdiction. See "Regulation -- United
States -- Changes of Control."

DIFFERENCES IN CORPORATE LAW

       The Companies Law is modeled after that of England but does not follow
recent United Kingdom statutory enactments and differs from laws applicable to
U.S. corporations and their shareholders. Set forth below is a summary of the
significant differences between the provisions of the Companies Law applicable
to us and the laws applicable to companies incorporated in the United States and
their shareholders.

  MERGERS AND SIMILAR ARRANGEMENTS

       Cayman Islands law does not provide for mergers as that expression is
understood under U.S. corporate law. While Cayman Islands law does have
statutory provisions that provide for the reconstruction and amalgamation of
companies commonly referred to in the Cayman Islands as a "scheme of
arrangement," the procedural and legal requirements necessary to consummate
these transactions are more rigorous and take longer to complete than the
procedures typically required to consummate a merger in the United States. Under
Cayman Islands law, a scheme of arrangement in relation to a solvent Cayman
Islands company must be approved at a shareholders meeting by each class of
shareholders, in each case, by a majority of the number of holders of each class
of a company's shares who are present and voting (either in person or by proxy)
at such a meeting, which holders must also represent 75% in value of such class
issued and outstanding. The convening of this meeting and the terms of the
amalgamation must also be sanctioned by the Grand Court of the Cayman Islands.
Although there is no requirement to seek the consent of the creditors of the
parties involved in the scheme of arrangement, the Grand Court typically seeks
to ensure that the creditors have consented to the transfer of their liabilities
to the surviving entity or that the scheme of arrangement does not otherwise
materially adversely affect the creditors' interests. Furthermore, the Grand
Court will only approve a scheme of arrangement if it is satisfied that:

       -     the statutory provisions as to majority vote have been complied
             with;

       -     the shareholders have been fairly represented at the meeting in
             question;

       -     the scheme of arrangement is such as a businessman would reasonably
             approve; and

                                       106
-     the scheme of arrangement is not one that would more properly be
             sanctioned under some other provision of the Companies Law.

       If the scheme of arrangement and reconstruction is approved, the
dissenting shareholder would have no rights comparable to appraisal rights,
which would otherwise ordinarily be available to dissenting shareholders of U.S.
corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.

       In addition, if a third party purchases at least 90.0% of our outstanding
shares within a four-month period, the purchaser may, during the following two
months, require the holders of the remaining shares to transfer their shares on
the same terms on which the purchaser acquired the first 90.0% of our
outstanding shares. An objection can be made to the Grand Court of the Cayman
Islands, but this is unlikely to succeed unless there is evidence of fraud, bad
faith, collusion or inequitable treatment of the shareholders.

  SHAREHOLDERS SUITS

       Our Cayman Islands counsel is not aware of any reported class action or
derivative action having been brought in a Cayman Islands court. In principle,
we would normally be the proper plaintiff in any action brought on behalf of the
Company, and a derivative action may not be brought by a minority shareholder.
However, based on English authorities, which would in all likelihood be of
persuasive authority in the Cayman Islands, exceptions to the foregoing
principle apply in circumstances in which:

       -     a company is acting or proposing to act illegally or outside the
             scope of its corporate authority;

       -     the act complained of, although not acting outside the scope of its
             corporate authority could be effected only if authorized by more
             than a simple majority vote;

       -     the individual rights of the plaintiff shareholder have been
             infringed or are about to be infringed; or

       -     those who control the company are perpetrating a "fraud on the
             minority."

  INDEMNIFICATION

       Cayman Islands law does not limit the extent to which a company may
indemnify its directors, officers, employees and agents, except to the extent
that any such provision maybe held by the Cayman Islands courts to be contrary
to public policy. For instance, a provision purporting to provide
indemnification against civil fraud or the consequences of committing a crime
may be deemed contrary to public policy. In addition, an officer or director may
not be indemnified for his own fraud or willful default. Our articles of
association make indemnification of directors and officers and advancement of
expenses to defend claims against directors and officers mandatory on the part
of United National Group to the fullest extent allowed by law.

  INSPECTION OF BOOKS AND RECORDS

       Holders of our shares will have no general right under Cayman Islands law
to inspect or obtain copies of our list of shareholders or our corporate
records. However, we will provide our shareholders with annual audited financial
statements.

PROHIBITED SALE OF SECURITIES UNDER CAYMAN ISLANDS LAW

       An exempted company such as us that is not listed on the Cayman Islands
Stock Exchange is prohibited from making any invitations to the public in the
Cayman Islands to subscribe for any of its securities.

                                       107
LISTING

       We intend to apply to have our Class A common shares approved for
quotation on the Nasdaq National Market under the symbol "UNGL."

TRANSFER AGENT AND REGISTRAR

       The transfer agent and registrar for the common shares will be
               .

                                       108
SHARES ELIGIBLE FOR FUTURE SALE

       We can make no prediction as to the effect, if any, that market sales of
our Class A common shares or the availability of Class A common shares for sale
will have on the market price prevailing from time to time. The sale of
substantial amounts of our Class A common shares in the public market could
adversely affect the prevailing market price of our Class A common shares and
our ability to raise equity capital in the future. For information concerning
agreements between us and our existing shareholders, including restrictions on
transfer, registration rights and other matters, see "Our Relationship With Fox
Paine & Company" and "Management -- Management Shareholders Agreement."

SALE OF RESTRICTED SHARES

       As of September 5, 2003, we had an aggregate of 30,198,750 outstanding
Class A common shares (assuming full conversion of our Class B common shares and
Series A preferred shares into Class A common shares in accordance with their
terms), options to purchase an additional 1,138,574 Class A common shares and
warrants to purchase an additional 55,000 Class A common shares. We expect to
issue an additional      Class A common shares in this offering. Up to      % of
the Class A common shares for sale in this offering are reserved for purchase by
our directors, officers and employees through a reserved share program. All of
the Class A common shares to be sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any Class A common shares purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below. As defined in Rule
144, an affiliate of an issuer is a person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the issuer.

LOCK-UP AGREEMENTS

       United National Group, our directors and executive officers, all of our
current shareholders and those persons who purchase common shares through the
reserved share program have agreed with the underwriters not to, directly or
indirectly, dispose of or hedge any of their common shares or securities
convertible into or exchangeable for common shares, whether owned currently or
acquired later, for a period of 180 days from the date of this prospectus,
without the prior written consent of United National Group and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain exceptions (which
consent with respect to the reserved share program will not be granted for any
sales during the first 90 days of such lock-up). Immediately following this
offering, shareholders subject to lock-up agreements will own           Class A
common shares (assuming full conversion of Class B common shares and Series A
preferred shares in accordance with their terms), representing approximately
     % of the then outstanding Class A common shares, or approximately      % if
the underwriters' overallotment option is exercised in full.

       United National Group may, however, grant options to purchase Class A
common shares under its share incentive plan and may issue Class A common shares
upon the exercise of outstanding options under the share incentive plan as long
as the holder of such common shares agrees in writing to be bound by the
obligations and restrictions of the lock-up agreement.

RULE 144

       In general, under Rule 144 as currently in effect, a person that has
beneficially owned common shares for at least one year, including a person that
is an affiliate, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

       -     1% of the number of common shares then outstanding; or

       -     the average weekly trading volume of the common shares on the
             Nasdaq National Market during the four calendar weeks preceding the
             filing of a notice on Form 144 with respect to a sale, subject to
             restrictions specified in Rule 144.

                                       109
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.

RULE 144(k)

       Under Rule 144(k), a person that has not been one of our affiliates at
any time during the three months preceding a sale, and that has beneficially
owned the common shares proposed to be sold for at least two years, is entitled
to sell those common shares without regard to the volume, manner-of-sale or
other limitations contained in Rule 144.

STOCK OPTIONS

       We had granted options to purchase a total of 1,138,574 Class A common
shares as of September 5, 2003, of which 256,074 were fully vested.

       Following the consummation of this offering, we intend to file one or
more registration statements on Form S-8 under the Securities Act to register
the Class A common shares issued or reserved for issuance under our Stock
Incentive Plan. Any such Form S-8 registration statement will automatically
become effective upon filing. Accordingly, Class A common shares registered
under such registration statement will be available for sale in the open market,
unless such common shares are subject to vesting restrictions with us or the
lock-up restrictions described above, or unless such shares are held by persons
who are considered our "affiliates," as such term is defined under the
Securities Act.

                                       110
MATERIAL TAX CONSIDERATIONS

       The following summary of our taxation, and the taxation of our
shareholders is based upon current law and does not purport to be a
comprehensive discussion of all the tax considerations that may be relevant to a
decision to purchase Class A common shares. Legislative, judicial or
administrative changes may be forthcoming that could affect this summary.

       The following legal discussion (including and subject to the matters and
qualifications set forth in such summary) of the material tax considerations
under (1) "Taxation of United National Group and Subsidiaries -- Cayman" and
"Taxation of Shareholders -- Cayman Taxation" is based upon the advice of
Walkers, special Cayman legal counsel, (2) "Taxation of United National Group
and Subsidiaries -- Barbados" is based upon the advice of David King & Co., and
(3) "Taxation of United National Group and Subsidiaries -- United States" and
"Taxation of Shareholders -- United States Taxation" is based upon the advice of
LeBoeuf, Lamb, Greene & MacRae, L.L.P., as special U.S. tax counsel. Each of
these firms has reviewed the relevant portion of this discussion (as set forth
above) and believes that such portion of the discussion constitutes, in all
material respects, a fair and accurate summary of the relevant income tax
considerations relating to United National Group and its subsidiaries and the
ownership of United National Group's Class A common shares by investors that are
U.S. Persons (as defined below) who acquire such shares in this offering. The
advice of such firms does not include any factual or accounting matters,
determinations or conclusions such as insurance accounting determinations or
RPII, amounts and computations and amounts or components thereof (for example,
amounts or computations of income or expense items or reserves entering into
RPII computations) or facts relating to the business, income, reserves or
activities of United National Group and its subsidiaries. The advice of these
firms relies upon and is premised on the accuracy of factual statements and
representations made by United National Group and its subsidiaries concerning
the business and properties, ownership, organization, source of income and
manner of operation of United National Group and its subsidiaries. The
discussion is based upon current law. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could be retroactive and
could affect the tax consequence to holders of Class A common shares. The tax
treatment of a holder of Class A common shares, or of a person treated as a
holder of Class A common shares for U.S. federal income, state, local or foreign
tax purposes, may vary depending on the holder's particular tax situation.
Statements contained herein as to the beliefs, expectations and conditions of
United National Group and its subsidiaries as to the application of such tax
laws or facts represent the view of management as to the application of such
laws and do not represent the opinions of counsel. PROSPECTIVE INVESTORS
(INCLUDING ALL NON-U.S. PERSONS AS DEFINED BELOW) SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF OWNING CLASS A COMMON SHARES UNDER THE LAWS OF THEIR COUNTRIES OF
CITIZENSHIP, RESIDENCE, ORDINARY RESIDENCE OR DOMICILE.

TAXATION OF UNITED NATIONAL GROUP AND SUBSIDIARIES

  CAYMAN ISLANDS

       We have been incorporated under the laws of the Cayman Islands as an
exempted company and, as such, obtained an undertaking on September 2, 2003 from
the Governor in Council of the Cayman Islands substantially that, for a period
of 20 years from the date of such undertaking, no law that is enacted in the
Cayman Islands imposing any tax to be levied on profit or income or gains or
appreciation shall apply to us and no such tax and no tax in the nature of
estate duty or inheritance tax will be payable, either directly or by way of
withholding, on our common shares.

  BARBADOS

       Under the Barbados Act, no income tax, capital gains tax or other direct
tax or impost is levied in Barbados on U.N. Barbados in respect of (1) its
profits or gains, (2) the transfer of its securities to any person who is not a
resident of Barbados, (3) its shareholders or transferees in respect of the
transfer of all

                                       111
or any part of its securities or other assets to another licensee under the
Barbados Act or to any person who is not a resident of Barbados or (4) any
portion of any dividend, interest, or other return payable to any person in
respect of his or her holding any shares or other of its securities. U.N.
Barbados has applied for a guarantee from the Minister of Finance of Barbados
that such benefits and exemptions effectively will be available for thirty
years. U.N. Barbados will be required to pay an annual licensing fee that is
currently approximately $2,500, and will be subject to tax at a rate of 2% on
its taxable income after the first 15 financial years and thereafter the amount
of such tax will not exceed approximately $2,500 per annum.

  UNITED STATES

       The following discussion is a summary of all material U.S. federal income
tax considerations relating to our operations. Although we have not commenced
business operations outside the United States, we intend to manage our business
in a manner designed to mitigate the risk that United National Group and U.N.
Barbados will be treated as engaged in a U.S. trade or business for U.S. federal
income tax purposes. However, whether business is being conducted in the United
States is an inherently factual determination. Because the Code, regulations and
court decisions fail to identify definitively activities that constitute being
engaged in a trade or business in the United States, we cannot be certain that
the IRS will not contend successfully that United National Group or U.N.
Barbados are or will be engaged in a trade or business in the United States. A
non-U.S. corporation deemed to be so engaged would be subject to U.S. income tax
at regular corporate rates, as well as the branch profits tax, on its income
that is treated as effectively connected with the conduct of that trade or
business unless the corporation is entitled to relief under the permanent
establishment provision of an applicable tax treaty, as discussed below. Such
income tax, if imposed, would be based on effectively connected income computed
in a manner generally analogous to that applied to the income of a U.S.
corporation, except that a non-U.S. corporation is generally entitled to
deductions and credits only if it timely files a U.S. federal income tax return.
U.N. Barbados intends to file protective U.S. federal income tax returns on a
timely basis in order to preserve the right to claim income tax deductions and
credits if it is ever determined that they are subject to U.S. federal income
tax. The highest marginal federal income tax rates currently are 35% for a
corporation's effectively connected income and 30% for the "branch profits" tax.

       If U.N. Barbados is entitled to the benefits under the income tax treaty
between Barbados and the United States or, the "Barbados Treaty", U.N. Barbados
would not be subject to U.S. income tax on any income found to be effectively
connected with a U.S. trade or business unless that trade or business was
conducted through a permanent establishment in the United States. For purposes
of the Barbados Treaty, a permanent establishment in the United States is
defined to include a branch, office or place of management through which the
business of the enterprise is carried on, or an agent (other than an independent
agent acting in the ordinary course of its business) that has, and habitually
exercises in the United States, authority to conclude contracts in the name of
the corporation. No regulations interpreting the Barbados Treaty have been
issued. U.N. Barbados currently intends to conduct its activities to mitigate
the risk that it will have a permanent establishment in the United States,
although we cannot be certain that we will achieve this result.

       An insurance enterprise resident in Barbados generally will be entitled
to the benefits of the Barbados Treaty if: (1) more than 50% of its shares are
owned beneficially, directly or indirectly, by individual residents of the
United States or Barbados or U.S. citizens and its income is not used in
substantial part, directly or indirectly, to make disproportionate distributions
to, or to meet certain liabilities to, persons who are neither residents of
either the United States or Barbados nor U.S. citizens, or (2) if the insurance
company is a resident of Barbados engaged in a trade or business in Barbados and
the income derived by such insurance company from the United States is connected
to such insurance company's Barbados trade or business. We cannot be certain
that U.N. Barbados will be eligible for Barbados Treaty benefits immediately
following this offering or in the future because of factual and legal
uncertainties regarding the residency and citizenship of United National Group's
shareholders and further because of the factual and legal uncertainty regarding
whether the income, if any, that U.N. Barbados may

                                       112
earn in the future will be sufficiently connected to the trade or business that
U.N. Barbados will conduct in Barbados.

       Foreign insurance companies carrying on an insurance business within the
United States have a certain minimum amount of effectively connected net
investment income, determined in accordance with a formula that depends, in
part, on the amount of U.S. risk insured or reinsured by such companies. If U.N.
Barbados is considered to be engaged in the conduct of an insurance business in
the United States and it is not entitled to the benefits of the Barbados Treaty
in general (because it fails to satisfy one of the limitations on treaty
benefits discussed above), the Code could subject a significant portion of U.N.
Barbados' investment income to U.S. income tax.

       Foreign corporations not engaged in a trade or business in the United
States are subject to U.S. income tax imposed by withholding on certain "fixed
or determinable annual or periodic gains, profits and income" derived from
sources within the United States (such as dividends and certain interest on
investments), subject to exemption under the Code or reduction by applicable
treaties. The United States also imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. If U.N. Barbados were writing or reinsuring
business with respect to U.S. risks, the rates of tax applicable to such
business are 4% for direct casualty insurance premiums and 1% for reinsurance
premiums.

       U.N. Holdings II, Inc, U.N. Holdings, Inc, American Insurance Services,
Inc., United National Insurance Company, American Insurance Adjustment Agency,
Inc., International Underwriters, Inc., Unity Risk Partner's Insurance Services,
Inc., Emerald Insurance Company, Diamond State Insurance Company, United
National Specialty Insurance Company and United National Casualty Insurance
Company are each subject to taxation in the United States at regular corporate
rates. Additionally, dividends and other types of passive income paid by U.N.
Holdings II, Inc. to U.N. Barbados. would be subject to a 30% U.S. withholding
tax, subject to reduction under the Barbados Treaty to 5% or 15% to the extent
such payments are eligible for the reduced withholding rate under the Barbados
Treaty.

       Recent comments made by the U.S. Treasury Department indicate that the
U.S. may renegotiate the Barbados Treaty. If and when the treaty is
renegotiated, no assurances can be given as to the availability of benefits
under the treaty in future years.

  Personal Holding Companies

       United National Group or any of its subsidiaries could be subject to U.S.
tax on a portion of its income if any of them is considered to be a personal
holding company, or "PHC," for U.S. federal income tax purposes. A corporation
generally will be classified as a PHC for U.S. federal income tax purposes in a
given taxable year if (1) at any time during the last half of such taxable year,
five or fewer individuals (without regard to their citizenship or residency and
including as individuals for this purpose certain entities such as certain
tax-exempt organizations and pension funds) own or are deemed to own (pursuant
to certain constructive ownership rules) more than 50% of the stock of the
corporation by value and (2) at least 60% of the corporation's gross income, as
determined for U.S. federal income tax purposes, for such taxable year consists
of "PHC income." PHC income includes, among other things, dividends, interest,
royalties, annuities and, under certain circumstances, rents. In the case of a
non-U.S. corporation, PHC income does not include foreign source income, except
to the extent such income is effectively connected with a U.S. trade or
business. Under the constructive ownership rules, among other things, a partner
will be treated as owning a proportionate amount of the stock owned by a
partnership and a partner who is an individual will be treated as owning the
stock owned by his or her partners. Also, stock treated as owned by such partner
proportionally through such partnership will be treated as owned by the partner
for purposes of reapplying the constructive ownership rules. The PHC rules
contain an exception for foreign corporations that are classified as Foreign
Personal Holding Companies (as discussed below).

       If United National Group or any subsidiary were a PHC in a given taxable
year, such corporation would be subject to a 15% PHC tax on its "undistributed
PHC income" (which, in the case of United National Group and U.N. Barbados,
would exclude PHC income that is from foreign sources, except to

                                       113
the extent that such income is effectively connected with a trade or business in
the U.S.). Thus, the PHC income of United National Group and U.N. Barbados would
not include underwriting income or investment income derived from foreign
sources and should not include dividends received by United National Group from
U.N. Barbados (as long as U.N. Barbados is not engaged in a trade or business in
the U.S.). For taxable years beginning after December 31, 2008, the PHC tax rate
on "undistributed PHC income" will be equal to the highest marginal rate on
ordinary income applicable to individuals.

       We believe that five or fewer individuals or tax-exempt organizations
will be treated as owning more than 50% of the value of our shares.
Consequently, we or one or more of our subsidiaries could be or become PHCs,
depending on whether we or any of our subsidiaries satisfy the PHC gross income
test. We intend to manage our business to minimize the possibility that we will
meet the 60% income threshold.

       We cannot be certain, however, that United National Group and its
subsidiaries will not become PHCs following this offering or in the future
because of various factors including legal and factual uncertainties regarding
the application of the constructive ownership rules, the makeup of United
National Group's shareholder base, the gross income of United National Group or
any of its subsidiaries and other circumstances that could change the
application of the PHC rules to United National Group and its subsidiaries. If
we or any of our subsidiaries is or were to become a PHC in a given taxable
year, such company would be subject to PHC tax on its "undistributed PHC
income." In addition, if United National Group or any of its subsidiaries were
to become PHCs we cannot be certain that the amount of PHC income will be
immaterial.

TAXATION OF SHAREHOLDERS

  CAYMAN ISLANDS TAXATION

       The following summary sets forth the material Cayman Islands income tax
considerations related to the purchase, ownership and disposition of our Class A
common shares. The discussion is a general summary of present law, which is
subject to prospective and retroactive change. It is not intended as tax advice,
does not consider any investor's particular circumstances, and does not consider
tax consequences other than those arising under Cayman Islands law.

       You will not be subject to Cayman Islands taxation on payments of
dividends or upon the repurchase by us of your common shares. In addition, you
will not be subject to withholding tax on payments of dividends or
distributions, including upon a return of capital, nor will gains derived from
the disposal of common shares be subject to Cayman Islands income or corporation
tax. The Cayman Islands currently have no income, corporation or capital gains
tax and no estate duty, inheritance tax or gift tax.

       No Cayman Islands stamp duty will be payable by you in respect of the
issue or transfer of common shares. However, an instrument transferring title to
a common share, if brought to or executed in the Cayman Islands, would be
subject to Cayman Islands stamp duty.

       Prospective investors should consult their professional advisers on the
possible tax consequences of buying, holding or selling our common shares under
the laws of their country of citizenship, residence or domicile.

  UNITED STATES TAXATION

       The following summary sets forth the material United States federal
income tax considerations related to the purchase, ownership and disposition of
our Class A common shares. Unless otherwise stated, this summary deals only with
shareholders that are U.S. Persons (as defined below) who purchase their Class A
common shares in this offering, who did not own (directly or indirectly through
foreign entities or constructively) shares of United National Group prior to
this offering and who hold their Class A common shares as capital assets within
the meaning of section 1221 of the Code. The following discussion is only a
discussion of the material U.S. federal income tax matters as described herein
and does not purport to address all of the U.S. federal income tax consequences
that may be relevant to a particular shareholder in light of such shareholder's
specific circumstances. For example, if a partnership holds our Class A

                                       114
common shares, the tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If you are a
partner of a partnership holding the Class A common shares, you should consult
your tax advisor. In addition, the following summary does not address the U.S.
federal income tax consequences that may be relevant to special classes of
shareholders, such as financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, financial asset
securitization investment trusts, dealers or traders in securities, tax-exempt
organizations, expatriates, persons who are considered with respect to any of us
as "United States shareholders" for purposes of the "controlled foreign
corporation," or "CFC," rules of the Code (generally, a U.S. Person, as defined
below, who owns or is deemed to own 10% or more of the total combined voting
power of all classes of United National Group or of the stock of U.N. Barbados
entitled to vote (i.e., 10% U.S. Shareholders)), or persons who hold the Class A
common shares as part of a hedging or conversion transaction or as part of a
short-sale or straddle, who may be subject to special rules or treatment under
the Code. This discussion is based upon the Code, treasury regulations under the
Code and any relevant administrative rulings or pronouncements or judicial
decisions, all as in effect on the date hereof and as currently interpreted, and
does not take into account possible changes in such tax laws or interpretations
thereof, which may apply retroactively. This discussion does not include any
description of the tax laws of any state or local governments within the United
States.

       For purposes of this discussion, the term "U.S. Person" means: (1) a
citizen or resident of the United States, (2) a partnership or corporation, or
entity treated as a partnership or corporation, created or organized in or under
the laws of the United States, or any political subdivision thereof, (3) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, (4) a trust if either (a) a court within the United States is
able to exercise primary supervision over the administration of such trust and
one or more U.S. Persons have the authority to control all substantial decisions
of such trust or (b) the trust has a valid election in effect to be treated as a
U.S. Person for U.S. federal income tax purposes or (5) any other person or
entity that is treated for U.S. federal income tax purposes as if it were one of
the foregoing.

  Taxation of Dividends

       Subject to the discussions below relating to the potential application of
the CFC rules, related person insurance income, or "RPII," foreign personal
holding company, or "FPHC," and passive foreign investment company, or "PFIC,"
rules, cash distributions, if any, made with respect to the Class A common
shares will constitute dividends for U.S. federal income tax purposes to the
extent paid out of current or accumulated earnings and profits of United
National Group (as computed using U.S. tax principles). Under recently enacted
legislation, certain dividends paid to individual shareholders before 2009 are
eligible for reduced rates of tax. Dividends paid by us will not be eligible for
the dividends received deduction. To the extent such distributions exceed United
National Group's earnings and profits, they will be treated first as a return of
the shareholder's basis in the Class A common shares to the extent thereof, and
then as gain from the sale of a capital asset.

  Classification of United National Group or U.N. Barbados as Controlled Foreign
  Corporations

       Each 10% U.S. Shareholder (as defined below) of a foreign corporation
that is a CFC for an uninterrupted period of 30 days or more during a taxable
year, and who owns shares in the CFC, directly or indirectly through foreign
entities, on the last day of the CFC's taxable year, must include in its gross
income for U.S. federal income tax purposes its pro rata share of the CFC's
"subpart F income," even if the subpart F income is not distributed. A foreign
corporation is considered a CFC if 10% U.S. Shareholders own (directly,
indirectly through foreign entities or by attribution by application of the
constructive ownership rules of section 958(b) of the Code (i.e.,
"constructively")) more than 50% of the total combined voting power of all
classes of voting stock of such foreign corporation, or more than 50% of the
total value of all stock of such corporation. For purposes of taking into
account insurance income, a CFC also includes a foreign insurance company in
which more than 25% of the total combined voting power of all classes of stock
(or more than 25% of the total value of the stock) is owned by 10% U.S.

                                       115
Shareholders, on any day during the taxable year of such corporation, if the
gross amount of premiums or other consideration for the reinsurance or the
issuing of insurance or annuity contracts exceeds 75% of the gross amount of all
premiums or other consideration in respect of all risks. A "10% U.S.
Shareholder" is a U.S. Person who owns (directly, indirectly through foreign
entities or constructively) at least 10% of the total combined voting power of
all classes of stock entitled to vote of the foreign corporation. As a result of
the attribution and constructive ownership rules described above, we believe
that United National Group and U.N. Barbados are CFCs. That status as a CFC does
not cause us or any of our subsidiaries to be subject to U.S. federal income
tax. Such status also has no adverse U.S. federal income tax consequences for
any U.S. Person that is not a 10% U.S. Shareholder.

       We believe that because of the anticipated dispersion of our share
ownership, provisions in our organizational documents that limit voting power
(these provisions are described in "Description of Share Capital") and other
factors, no U.S. Person who acquires shares of United National Group in this
offering directly or indirectly through foreign entities and that did not own
(directly or indirectly through foreign entities or constructively) shares of
United National Group prior to this offering should be treated as owning
(directly, indirectly through foreign entities, or constructively) 10% or more
of the total voting power of all classes of shares of United National Group or
U.N. Barbados. It is possible, however, that the IRS could challenge the
effectiveness of these provisions and that a court could sustain such a
challenge.

  The RPII CFC Provisions

       The following discussion generally is applicable only if the RPII of U.N.
Barbados determined on a gross basis, is 20% or more of U.N. Barbados' insurance
income for the taxable year and the 20% Ownership Exception (as defined below)
is not met. The following discussion generally would not apply for any fiscal
year in which U.N. Barbados' RPII falls below the 20% threshold. Although we
cannot be certain, United National Group believes that the gross RPII of U.N.
Barbados as a percentage of its gross insurance income will be for the
foreseeable future below the 20% threshold for each tax year. Additionally, as
United National Group is not licensed as an insurance company, we do not
anticipate that United National Group will have insurance income, including
RPII. RPII is any "insurance income" (as defined below) attributable to policies
of insurance or reinsurance with respect to which the person (directly or
indirectly) insured is a "RPII shareholder" (as defined below) or a "related
person" (as defined below) to such RPII shareholder. In general, and subject to
certain limitations, "insurance income" is income (including premium and
investment income) attributable to the issuing of any insurance or reinsurance
contract that would be taxed under the portions of the Code relating to
insurance companies if the income were the income of a domestic insurance
company. For purposes of inclusion of the RPII of U.N. Barbados in the income of
any shareholder of United National Group, unless an exception applies, the term
"RPII shareholder" means any U.S. Person who owns (directly or indirectly
through foreign entities) any amount of United National Group's shares.
Generally, the term "related person" for this purpose means someone who controls
or is controlled by the RPII shareholder or someone who is controlled by the
same person or persons that control the RPII shareholder. Control is measured by
either more than 50% in value or more than 50% in voting power of stock applying
certain constructive ownership principles. A corporation's pension plan is
ordinarily not a "related person" with respect to the corporation unless the
pension plan owns, directly or indirectly through the application of certain
constructive ownership rules, more than 50% measured by vote or value, of the
stock of the corporation. U.N. Barbados will be treated as a CFC under the RPII
provisions if RPII shareholders are treated as owning (directly, indirectly
through foreign entities or constructively) 25% or more of the shares of United
National Group by vote or value.

  RPII Exceptions

       The special RPII rules do not apply if (1) direct and indirect insureds
and persons related to such insureds, whether or not U.S. Persons, are treated
as owning (directly or indirectly through foreign entities) less than 20% of the
voting power and less than 20% of the value of the stock of United National
Group, which we refer to as the "20% Ownership Exception," (2) RPII, determined
on a gross basis, is

                                       116
less than 20% of U.N. Barbados' gross insurance income for the taxable year,
which we refer to as the "20% Gross Income Exception," (3) U.N. Barbados elects
to be taxed on its RPII as if the RPII were effectively connected with the
conduct of a U.S. trade or business, and waives all treaty benefits with respect
to RPII and meets certain other requirements or (4) U.N. Barbados elects to be
treated as a U.S. corporations and waives all treaty benefits and meets certain
other requirements. Where none of these exceptions applies, each U.S. Person
owning or treated as owning any shares in United National Group (and therefore,
indirectly, in U.N. Barbados) on the last day of United National Group's taxable
year will be required to include in its gross income for U.S. federal income tax
purposes its share of the RPII for the portion of the taxable year during which
U.N. Barbados was a CFC under the RPII provisions, determined as if all such
RPII were distributed proportionately only to such U.S. Persons at that date,
but limited by each such U.S. Person's share of U.N. Barbados' current year
earnings and profits as reduced by the U.S. Person's share, if any, of certain
prior year deficits in earnings and profits. U.N. Barbados intends to operate in
a manner that is intended to ensure that each qualifies for the 20% Gross Income
Exception. Although we do not expect that the RPII of U.N. Barbados will equal
or exceed 20% of its gross insurance income, it is possible that we will not be
successful in qualifying under this exception.

  Computation of RPII

       In order to determine how much RPII U.N. Barbados has earned in each
taxable year, U.N. Barbados may obtain and rely upon information from its
insureds and reinsureds to determine whether any of the insureds, reinsureds or
persons related thereto owning (directly or indirectly through non-U.S.
entities) shares of United National Group are U.S. Persons. United National
Group may not be able to determine whether any of the underlying direct or
indirect insureds to which U.N. Barbados provides insurance or reinsurance are
shareholders or related persons to such shareholders. Consequently, United
National Group may not be able to determine accurately the gross amount of RPII
earned by U.N. Barbados in a given taxable year. For any year in which U.N.
Barbados' gross does not meet the 20% Gross Income Exception or the 20%
Ownership Exception, United National Group may also seek information from its
shareholders as to whether beneficial owners of shares at the end of the year
are U.S. Persons so that the RPII may be determined and apportioned among such
persons; to the extent United National Group is unable to determine whether a
beneficial owner of shares is a U.S. Person, United National Group may assume
that such owner is not a U.S. Person, thereby increasing the per share RPII
amount for all known RPII shareholders.

       If, as expected, RPII is less than 20% of gross insurance income, RPII
shareholders will not be required to include RPII in their taxable income. The
amount of RPII includable in the income of a RPII shareholder is based upon the
net RPII income for the year after deducting related expenses such as losses,
loss reserves and operating expenses.

  Apportionment of RPII to U.S. Holders

       Every RPII shareholder who owns shares on the last day of any fiscal year
of United National Group in which U.N. Barbados does not meet the 20% Gross
Income Exception or the 20% Ownership Exception should expect that for such year
it will be required to include in gross income its share of U.N. Barbados' RPII
for the portion of the taxable year during which U.N. Barbados was a CFC under
the RPII provisions, whether or not distributed, even though it may not have
owned the shares throughout such period. A RPII shareholder who owns shares
during such taxable year but not on the last day of the taxable year is not
required to include in gross income any part of U.N. Barbados' RPII.

  Basis Adjustments

       A RPII shareholder's tax basis in its shares will be increased by the
amount of any RPII that the shareholder includes in income. The RPII shareholder
may exclude from income the amount of any distributions by United National Group
out of previously taxed RPII income. The RPII shareholder's tax basis in its
shares will be reduced by the amount of such distributions that are excluded
from income.

                                       117
Uncertainty as to Application of RPII

       The RPII provisions have never been interpreted by the courts or the
Treasury Department in final regulations, and regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made in the proposed regulation or whether
any such changes, as well as any interpretation or application of RPII by the
IRS, the courts or otherwise, might have retroactive effect. These provisions
include the grant of authority to the Treasury Department to prescribe "such
regulations as may be necessary to carry out the purpose of this subsection
including . . . regulations preventing the avoidance of this subsection through
cross insurance arrangements or otherwise." Accordingly, the meaning of the RPII
provisions and their application to U.N. Barbados is uncertain. In addition, we
cannot be certain that the amount of RPII or the amounts of the RPII inclusions
for any particular RPII shareholder, if any, will not be subject to adjustment
based upon subsequent IRS examination. Any prospective investor considering an
investment in Class A common shares should consult his tax advisor as to the
effects of these uncertainties.

  Tax-Exempt Shareholders

       Tax-exempt entities will be required to treat certain subpart F insurance
income, including RPII, that is includible in income by the tax-exempt entity as
unrelated business taxable income. Prospective investors that are tax-exempt
entities are urged to consult their tax advisors as to the potential impact of
the unrelated business taxable income provisions of the Code. A tax-exempt
organization that is treated as a 10% U.S. Shareholder or a RPII Shareholder
also must file IRS Form 5471 in the circumstances described below in
"Information Reporting and Backup Withholding."

  Dispositions of Class A common shares

       Subject to the discussions below relating to the potential application of
the Code section 1248, PFIC and FPHC rules, holders of Class A common shares
generally should recognize capital gain or loss for U.S. federal income tax
purposes on the sale, exchange or other disposition of Class A common shares in
the same manner as on the sale, exchange or other disposition of any other
shares held as capital assets. If the holding period for these Class A common
shares exceeds one year, any gain will be subject to tax at a current maximum
marginal tax rate of 15% for individuals and 35% for corporations. Moreover,
gain, if any, generally will be U.S. source gain and generally will constitute
"passive income" for foreign tax credit limitation purposes.

       Code section 1248 provides that if a U.S. Person sells or exchanges stock
in a foreign corporation and such person owned, directly, indirectly through
certain foreign entities or constructively, 10% or more of the voting power of
the corporation at any time during the five-year period ending on the date of
disposition when the corporation was a CFC, any gain from the sale or exchange
of the shares will be treated as a dividend to the extent of the CFC's earnings
and profits (determined under U.S. federal income tax principles) during the
period that the shareholder held the shares and while the corporation was a CFC
(with certain adjustments). We believe, because of the anticipated dispersion of
our share ownership, provisions in our organizational documents that limit
voting power and other factors, that no U.S. shareholder of United National
Group that acquires shares in this offering and did not own (directly,
indirectly through foreign entities or constructively) shares of United National
Group prior to this offering) should be treated as owning (directly, indirectly
through foreign entities or constructively) 10% of more of the total voting
power of United National Group; to the extent this is the case, the application
of Code section 1248 under the regular CFC rules should not apply to
dispositions of our Class A common shares. It is possible, however, that the IRS
could challenge the effectiveness of these provisions and that a court could
sustain such a challenge. A 10% U.S. Shareholder may in certain circumstances be
required to report a disposition of shares of a CFC by attaching IRS Form 5471
to the U.S. federal income tax or information return that it would normally file
for the taxable year in which the disposition occurs. In the event this is
determined necessary, United National Group will provide a completed IRS Form
5471 or the relevant information necessary to complete the Form.

                                       118
Code section 1248 also applies to the sale or exchange of shares in a
foreign corporation if the foreign corporation would be treated as a CFC for
RPII purposes regardless of whether the shareholder is a 10% U.S. Shareholder or
whether the 20% Gross Income Exception or the 20% Ownership Exception applies.
Existing proposed regulations do not address whether Code section 1248 would
apply if a foreign corporation is not a CFC but the foreign corporation has a
subsidiary that is a CFC and that would be taxed as an insurance company if it
were a domestic corporation. We believe, however, that this application of Code
section 1248 under the RPII rules should not apply to dispositions of Class A
common shares because United National Group will not be directly engaged in the
insurance business. We cannot be certain, however, that the IRS will not
interpret the proposed regulations in a contrary manner or that the Treasury
Department will not amend the proposed regulations to provide that these rules
will apply to dispositions of Class A common shares. Prospective investors
should consult their tax advisors regarding the effects of these rules on a
disposition of Class A common shares.

  Passive Foreign Investment Companies

       In general, a foreign corporation will be a PFIC during a given year if
(1) 75% or more of its gross income constitutes "passive income" or (2) 50% or
more of its assets produce passive income.

       If United National Group were characterized as a PFIC during a given
year, U.S. Persons holding Class A common shares would be subject to a penalty
tax at the time of the sale at a gain of, or receipt of an "excess distribution"
with respect to, their shares, unless such persons made a "qualified electing
fund election" or "mark-to-market" election. It is uncertain that United
National Group would be able to provide its shareholders with the information
necessary for a U.S. Person to make a "qualified electing fund election." In
general, a shareholder receives an "excess distribution" if the amount of the
distribution is more than 125% of the average distribution with respect to the
shares during the three preceding taxable years (or shorter period during which
the taxpayer held the shares). In general, the penalty tax is equivalent to an
interest charge on taxes that are deemed due during the period the shareholder
owned the shares, computed by assuming that the excess distribution or gain (in
the case of a sale) with respect to the shares was taken in equal portion at the
highest applicable tax rate on ordinary income throughout the shareholder's
period of ownership. The interest charge is equal to the applicable rate imposed
on underpayments of U.S. federal income tax for such period. In addition, a
distribution paid by United National Group to U.S. shareholders that is
characterized as a dividend and is not characterized as an excess distribution
would not be eligible for a reduced rate of tax under recently enacted
legislation with respect to dividends paid before 2009. If we were considered a
PFIC, upon the death of any U.S. individual owning Class A common shares, such
individual's heirs or estate may not be entitled to a "step-up" in the tax basis
of the Class A common shares that might otherwise be available under U.S.
federal income tax laws.

       For the above purposes, passive income generally includes interest,
dividends, annuities and other investment income. The PFIC rules provide that
income "derived in the active conduct of an insurance business by a corporation
that is predominantly engaged in an insurance business . . . is not treated as
passive income." The PFIC provisions also contain a look-through rule under
which a foreign corporation shall be treated as if it "received directly its
proportionate share of the income" and as if it "held its proportionate share of
the assets" of any other corporation in which it owns at least 25% of the value
of the stock.

       This exception is intended to ensure that income derived by a bona fide
insurance company is not treated as passive income, except to the extent such
income is attributable to financial reserves in excess of the reasonable needs
of the insurance business. We expect for purposes of the PFIC rules that U.N.
Barbados will be predominantly engaged in an insurance business and is unlikely
to have financial reserves in excess of the reasonable needs of U.N. Barbados'
insurance business in each year of operations. Accordingly, none of the income
or assets of U.N. Barbados should be treated as passive. Additionally, we expect
that the passive income and assets (other than the stock of any indirect United
National Group subsidiary) of any other United National Group subsidiary will be
de minimis in each year of operations with respect to the overall income and
assets of United National Group. Also, under the look-through rule

                                       119
United National Group should be deemed to own its proportionate share of the
assets and to have received its proportionate share of the income of its direct
and indirect subsidiaries for purposes of the 75% test and the 50% test. As a
result, we believe that United National Group should not be treated as a PFIC.
However, as there are currently no regulations regarding the application of the
PFIC provisions to an insurance company and new regulations or pronouncements
interpreting or clarifying these rules may be forthcoming, we can not be certain
that the IRS will not challenge this position and that a court will not sustain
such challenge. Prospective investors should consult their tax advisor as to the
effects of the PFIC rules.

  Foreign Personal Holding Companies

       A foreign corporation will be classified as an FPHC for U.S. federal
income tax purposes if (1) at any time during the taxable year at issue, five or
fewer individuals who are U.S. citizens or residents own or are deemed to own
(pursuant to certain constructive ownership rules) more than 50% of all classes
of the corporation's stock measured by voting power or value and (2) at least
60% (or 50% in taxable years subsequent to the characterization of the foreign
company as an FPHC) of its gross income for the year is "FPHC income." Under
these constructive ownership rules, among other things, a partner will be
treated as owning a proportionate amount of the stock owned by the partnership
and a partner who is an individual will be treated as owning the stock owned by
his partners. Also, stock treated as owned by such partner proportionally
through such partnership will be treated as owned by the partner for purposes of
reapplying the constructive ownership rules. If United National Group or U.N.
Barbados were or were to become FPHCs, a portion of the "undistributed foreign
personal holding company income" (as defined for U.S. federal income tax
purposes) of each such FPHC would be imputed to all of United National Group's
shareholders who are U.S. Persons. Such income would be taxable as a dividend
even if no distributions were made, and should not be eligible for a reduced
rate of tax under recently enacted legislation, with respect to dividends paid
before 2009. In such event, subsequent cash distributions will first be treated
as a tax-free return of any previously taxed and undistributed amounts. In
addition, a distribution paid by United National Group to a U.S. shareholder
that is not treated as a tax-free return of any previously taxed and
undistributed amount and is characterized as a dividend would not be eligible
for a reduced rate of tax under recently enacted legislation with respect to
dividends paid before 2009. If we were to become an FPHC in the year next
preceding the date of the death of any U.S. individual owning Class A common
shares, such individual's heirs or estate would not be entitled to a "step-up"
in the basis of the Class A common shares that might otherwise be available
under U.S. federal income tax laws. Moreover, each shareholder who owns,
directly or indirectly, 10% or more of the value of an FPHC is required to file
IRS Form 5471. We believe that five or fewer U.S. individuals will be treated as
owning more than 50% of the voting power or value of our shares. Consequently,
United National Group or U.N. Barbados could be or become an FPHC, depending on
whether either company satisfies the FPHC gross income test. We intend to
monitor the income of United National Group and U.N. Barbados to minimize the
possibility that either company will meet the 60% income threshold. We cannot be
certain, however, that United National Group or U.N. Barbados will not be
considered an FPHC, because of factors including legal and factual uncertainties
regarding the application of the constructive ownership rules, the makeup of
United National Group' shareholder base, the gross income of United National
Group or U.N. Barbados and other circumstances that could change the application
of the FPHC rules to United National Group and U.N. Barbados. If United National
Group or U.N. Barbados is or becomes an FPHC, there can be no assurance that the
amount of FPHC income would be immaterial.

  Foreign Tax Credit

       Because it is anticipated that U.S. Persons will own a majority of our
shares, only a portion of the current income inclusions, if any, under the CFC,
RPII, FPHC and PFIC rules and of dividends paid by us (including any gain from
the sale of Class A common shares that is treated as a dividend under section
1248 of the Code) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitations. We will consider
providing shareholders with information regarding the portion of such amounts
constituting foreign source income to the extent such information is

                                       120
reasonably available. It is also likely that substantially all of the "subpart F
income," RPII and dividends that are foreign source income will constitute
either "passive" or "financial services" income for foreign tax credit
limitation purposes. Thus, it may not be possible for most shareholders to
utilize excess foreign tax credits to reduce U.S. tax on such income.

  Information Reporting and Backup Withholding

       Under certain circumstances, U.S. Persons owning stock in a foreign
corporation are required to file IRS Form 5471 with their U.S. federal income
tax returns. Generally, information reporting on IRS Form 5471 is required by
(1) a person who is treated as a RPII shareholder, (2) a 10% U.S. Shareholder of
a foreign corporation that is a CFC for an uninterrupted period of 30 days or
more during any tax year of the foreign corporation, and who owned the stock on
the last day of that year and (3) under certain circumstances, a U.S. Person who
acquires stock in a foreign corporation and as a result thereof owns 10% or more
of the voting power or value of such foreign corporation, whether or not such
foreign corporation is a CFC. For any taxable year in which United National
Group determines that gross RPII constitutes 20% or more of U.N. Barbados' gross
insurance income and the 20% Ownership Exception does not apply, United National
Group will provide to all U.S. Persons registered as shareholders of its Class A
common shares a completed IRS Form 5471 or the relevant information necessary to
complete the form. Failure to file IRS Form 5471 may result in penalties.

       Information returns may be filed with the IRS in connection with
distributions on the Class A common shares and the proceeds from a sale or other
disposition of the Class A common shares unless the holder of the Class A common
shares establishes an exemption from the information reporting rules. A holder
of Class A common shares that does not establish such an exemption may be
subject to U.S. backup withholding tax on these payments if the holder is not a
corporation or non-U.S. Person or fails to provide its taxpayer identification
number or otherwise comply with the backup withholding rules. The amount of any
backup withholding from a payment to a U.S. Person will be allowed as a credit
against the U.S. Person's U.S. federal income tax liability and may entitle the
U.S. Person to a refund, provided that the required information is furnished to
the IRS.

  Proposed U.S. Tax Legislation

       Legislation has been introduced in the U.S. Congress intended to
eliminate certain perceived tax advantages of companies (including insurance
companies) that have legal domiciles outside the United States but have certain
U.S. connections. In this regard, legislation has been introduced that includes
a provision that permits the IRS to reallocate or recharacterize items of
income, deduction or certain other items related to a reinsurance agreement
between related parties to reflect the proper source, character and amount for
each item (in contrast to current law, which only refers to source and
character). While there are no currently pending legislative proposals that, if
enacted, would have a material adverse effect on us or our shareholders, it is
possible that broader based legislative proposals could emerge in the future
that could have an adverse impact on us or our shareholders.

       Additionally, the U.S. federal income tax laws and interpretations
regarding whether a company is engaged in a trade or business within the United
States or is a PFIC, or whether U.S. Persons would be required to include in
their gross income the "subpart F income" or the RPII of a CFC, are subject to
change, possibly on a retroactive basis. There are currently no regulations
regarding the application of the PFIC rules to insurance companies and the
regulations regarding RPII are still in proposed form. New regulations or
pronouncements interpreting or clarifying such rules may be forthcoming. We
cannot be certain if, when or in what form such regulations or pronouncements
may be provided and whether such guidance will have a retroactive effect.

                                       121
UNDERWRITING

       Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as
book-running manager of this offering and, together with Banc of America
Securities LLC and Dowling & Partners Securities, LLC, is acting as
representative of the underwriters named below. Subject to the terms and
conditions described in a purchase agreement among us, the selling shareholders
and the underwriters, we and the selling shareholders agreed to sell to the
underwriters, and the underwriters severally agreed to purchase from us the
number of Class A common shares listed opposite their names below.
NUMBER OF
                                                                 CLASS A
                                                              COMMON SHARES
UNDERWRITER                                                   -------------
-----------
Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...................................
Banc of America Securities LLC..............................
Dowling & Partners Securities, LLC..........................
                                                                 -------
             Total..........................................
                                                                 =======
The underwriters have agreed to purchase all of the Class A common shares
sold under the purchase agreement if any of these Class A common shares are
purchased. If an underwriter defaults, the purchase agreement provides that the
purchase commitments of the non-defaulting underwriters may be increased or the
purchase agreement may be terminated.

       We and the selling shareholders agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect of
those liabilities.

       The underwriters are offering the Class A common shares, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the Class A common
shares, and other conditions contained in the purchase agreement, such as the
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

       The representatives advised us and the selling shareholders that the
underwriters propose initially to offer the Class A common shares to the public
at the initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $  .  per Class A
common share. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $  .  per Class A common share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.

       The following table shows the public offering price, underwriting
discount and proceeds before expenses to United National Group and the selling
shareholders. The information assumes either no exercise or full exercise by the
underwriters of their overallotment option.
PER SHARE   WITHOUT OPTION   WITH OPTION
                                             ---------   --------------   -----------
Public offering price......................      $             $               $
Underwriting discount......................      $             $               $
Proceeds, before expenses, to United
  National Group...........................      $             $               $
The expenses of the offering, not including the underwriting discount,
are estimated at $          and are payable by United National Group.

                                       122
OVERALLOTMENT OPTION

       We have granted an option to the underwriters to purchase up to
          additional Class A common shares and the selling shareholders have
granted an option to the underwriters to purchase up to           additional
Class A common shares at the public offering price less the underwriting
discount. The underwriters may exercise this option for 30 days from the date of
this prospectus solely to cover any overallotments. If the underwriters exercise
this option, each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional Class A common shares
proportionate to that underwriter's initial amount reflected in the above table.

RESERVED SHARES

       At our request, the underwriters have reserved for sale, at the initial
public offering price, up to           Class A common shares offered by this
prospectus for sale to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. If these persons purchase
reserved Class A common shares, this will reduce the number of Class A common
shares available for sale to the general public. Any reserved common shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other Class A common shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

       We and our executive officers and directors and all existing shareholders
have agreed, with exceptions, not to sell or transfer any Class A common shares
for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly:

       -     offer, pledge, sell or contract to sell any Class A common shares;

       -     sell any option or contract to purchase any Class A common shares;

       -     purchase any option or contract to sell any Class A common shares;

       -     grant any option, right or warrant for the sale of any Class A
             common shares;

       -     lend or otherwise dispose of or transfer any Class A common shares;

       -     request or demand that we file a registration statement related to
             any sale of Class A common shares; or

       -     enter into any swap or any other agreement or any transaction that
             transfers, in whole or in part, the economic consequence of
             ownership of any Class A common shares whether any such swap or
             transaction is to be settled by delivery of Class A common shares
             or other securities, in cash or otherwise.

       This lockup provision applies to Class A common shares and to securities
convertible into or exchangeable or exercisable for or repayable with Class A
common shares, including our Class B common shares and our Series A preferred
shares but permits the redemption of the Series A preferred shares, but permits
redemption of Series A preferred shares. It also applies to common shares owned
now or acquired later by the person executing the agreement or for which the
person executing the agreement has or later acquires the power of disposition.

NASDAQ QUOTATION

       We intend to apply to have the Class A common shares approved for
quotation on the Nasdaq National Market, subject to notice of issuance, under
the symbol "UNGL."

       Prior to this offering, there has been no public market for our Class A
common shares. The initial public offering price will be determined through
negotiations among us, the selling shareholders and the

                                       123
representatives. In addition to prevailing market conditions, the factors to be
considered in determining the initial public offering price include, among
others:

       -     the valuation multiples of publicly traded companies that the
             representatives believe to be comparable to us;

       -     our financial information;

       -     the history of, and the prospects for, our company and the industry
             in which we compete;

       -     an assessment of our management, its past and present operations,
             and the prospects for, and timing of, our future revenues;

       -     the present state of our development; and

       -     the above factors in relation to market values and various
             valuation measures of other companies engaged in activities similar
             to ours.

       An active trading market for the Class A common shares may not develop.
It is also possible that after the offering, the Class A common shares will not
trade in the public market at or above the initial public offering price.

       The underwriters do not expect to sell more than 5.0% of the Class A
common shares in the aggregate to accounts over which they exercise
discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

       Until the distribution of the Class A common shares is completed, SEC
rules may limit underwriters and selling group members from bidding for and
purchasing our Class A common shares. However, the representatives may engage in
transactions that stabilize the price of our Class A common shares, such as bids
or purchases to peg, fix or maintain that price.

       If the underwriters create a short position in our Class A common shares
in connection with the offering, i.e., if they sell more Class A common shares
than are listed on the cover of this prospectus, the representatives may reduce
that short position by purchasing Class A common shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the overallotment option described above. Purchases of our Class A
common shares to stabilize their price or to reduce a short position may cause
the price of our Class A common shares to be higher than it might be in the
absence of such purchases.

       The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase Class A
common shares in the open market to reduce the underwriters' short position or
to stabilize the price of such Class A common shares, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those Class A common shares. The imposition of a penalty bid may also
affect the price of our Class A common shares in that it discourages resales of
those Class A common shares.

       Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common shares. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

       Some of the underwriters or their affiliates have interests in investment
funds affiliated with Fox Paine & Company. Some of the underwriters or their
affiliates have engaged in, and in the future may engage in, investment banking
and other commercial dealings in the ordinary course of business with us or our
affiliates, including Fox Paine & Company. They have received customary fees and
commissions for

                                       124
these transactions. We are involved in legal proceedings involving an affiliate
of one of the underwriters. See "Business -- Legal Proceedings."

                                 LEGAL MATTERS

       Each of Wachtell, Lipton, Rosen & Katz, New York, New York and LeBoeuf,
Lamb, Greene & MacRae, L.L.P., as special U.S. tax counsel, is representing us
in connection with this offering. Legal matters in connection with the offering
of the Class A common shares have been passed upon for United National Group by
its Cayman Islands counsel, Walkers, Cayman Islands. Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, acts as counsel for the underwriters.
The underwriters are being advised as to certain legal matters with respect to
Cayman Islands law by Maples and Calder, Cayman Islands.

                                    EXPERTS

       The financial statements as of December 31, 2002 and 2001 and for each of
the three years in the period ended December 31, 2002 included in this
prospectus are included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

       We have filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission or SEC regarding this offering. This prospectus, which
is part of the registration statement, does not contain all of the information
included in the registration statement, and you should refer to the registration
statement and its exhibits to read that information. References in this
prospectus to any of our contracts or other documents are not necessarily
complete, and you should refer to the exhibits attached to the registration
statement for copies of the actual contract or document. You may read and copy
the registration statement, the related exhibits and the reports and other
information we file with the SEC at the SEC's public reference facilities
maintained at Judiciary Plaza, 450 Fifth Street, N.W., in Washington, D.C.,
20549. You can also request copies of those documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference room. The SEC
also maintains an Internet website that contains reports, proxy and information
statements and other information regarding issuers that file with the SEC. The
website's Internet address is www.sec.gov.

       Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and will be required to file
reports, proxy statements and other information with the SEC. You will be able
to obtain copies of this material from the public reference room of the SEC as
described above, or inspect them without charge at the SEC's website. In
addition, you will be able to inspect such reports free of charge on our company
Internet website, www.unitednat.com.

            ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES
                   FEDERAL SECURITIES LAWS AND OTHER MATTERS

       United National Group is an exempted company incorporated with limited
liability under the laws of the Cayman Islands. In addition, some of its
directors and officers reside outside the United States, and all or a
substantial portion of their assets and United National Group's assets are or
may be located in jurisdictions outside the United States. Therefore, it may be
difficult for investors to effect service of process within the United States
upon our non-U.S. based directors and officers or to recover against United
National Group, or such directors and officers or obtain judgments of U.S.
courts, including judgments predicated upon the civil liability provisions of
the U.S. federal securities laws against them.

                                       125
However, United National Group may be served with process in the United
States with respect to actions against it arising out of or in connection with
violations of U.S. federal securities laws relating to offers and sales of Class
A common shares made hereby by serving National Registered Agents, Inc., 440
Ninth Avenue, Fifth Floor, New York, New York 10001, our U.S. agent irrevocably
appointed for that purpose.

       We have been advised by our Cayman Islands counsel, that although there
is no statutory enforcement in the Cayman Islands of judgments obtained in the
United States, the courts of the Cayman Islands will, based on the principle
that a judgment by a competent foreign Court imposes upon the judgment debtor an
obligation to pay the sum for which judgment has been given, recognize and
enforce a foreign judgment of a court of competent jurisdiction if such judgment
is final, for a liquidated sum, not in respect of taxes or a fine or penalty, is
not inconsistent with a Cayman Islands judgment in respect of the same matters,
and was not obtained in a manner, and is not a kind for which the enforcement is
contrary to the public policy of the Cayman Islands. There is doubt, however, as
to whether the courts of the Cayman Islands will (a) recognize or enforce
judgments of U.S. courts predicated upon the civil liability provisions of the
securities laws of the United States or any state of the United States, or (b)
in original actions brought in the Cayman Islands, impose liabilities predicated
upon the civil liability provisions of the securities laws of the United States
or any state of the United States, on the grounds that such provisions are penal
in nature.

       A Cayman Islands court may stay proceedings if concurrent proceedings are
being brought elsewhere.

                                       126
INDEX TO FINANCIAL STATEMENTS
WIND RIVER INVESTMENT CORPORATION:

  Report of Independent Auditors............................   F-2

  Consolidated Balance Sheets as of December 31, 2001 and
     2002...................................................   F-3

  Consolidated Statements of Operations For the Years Ended
     December 31, 2000, 2001 and 2002.......................   F-4

  Consolidated Statements of Comprehensive Income For the
     Years Ended December 31, 2000, 2001 and 2002...........   F-5

  Consolidated Statements of Changes in Shareholders' Equity
     For the Years Ended December 31, 2000, 2001 and 2002...   F-6

  Consolidated Statements of Cash Flows For the Years Ended
     December 31, 2000, 2001 and 2002.......................   F-7

  Notes to Consolidated Financial Statements................   F-8

  Consolidated Balance Sheets as of December 31, 2002 and
     June 30, 2003..........................................  F-26

  Consolidated Statements of Operations For the Six Months
     Ended June 30, 2002 and 2003 (Unaudited)...............  F-27

  Consolidated Statements of Comprehensive Income For the
     Six Months Ended June 30, 2002 and 2003 (Unaudited)....  F-28

  Consolidated Statements of Changes in Shareholders' Equity
     For the Six Months Ended June 30, 2002 and 2003
     (Unaudited)............................................  F-29

  Consolidated Statements of Cash Flows For the Six Months
     Ended June 30, 2002 and 2003 (Unaudited)...............  F-30

  Notes to Consolidated Financial Statements June 30, 2003
     and 2002 (Unaudited)...................................  F-31

UNITED NATIONAL GROUP:

  Note Concerning Financial Information of United National
     Group, Ltd. ...........................................  F-38
F-1
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
  Wind River Investment Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Wind River Investment Corporation and its subsidiaries
at December 31, 2001 and 2002, and the results of their operations and their
cash flows for the three years ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP
Philadelphia, PA
June 25, 2003

                                       F-2
WIND RIVER INVESTMENT CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2001         2002
                                                              ----------   ----------
ASSETS
Bonds:
  Trading securities, at fair value (amortized cost:
     2001-$15,766; 2002-$14,913)............................  $   16,196   $   14,607
  Available for sale securities, at fair value (amortized
     cost: 2001-$334,250; 2002-$434,957)....................     337,167      446,418
Preferred stocks:
  Trading securities, at fair value.........................       1,893        3,106
  Available for sale securities, at fair value..............         865           --
Common stocks:
  Trading securities, at fair value.........................      49,006       31,604
Other invested assets.......................................      32,998       41,285
Mortgage loans..............................................       1,226        1,167
                                                              ----------   ----------
     Total investments......................................     439,351      538,187
Cash and cash equivalents...................................      77,057       72,942
Receivable for securities...................................         280           --
Agents' balances, net of allowance..........................      40,724       50,744
Reinsurance receivables, net of allowance...................     799,066    1,743,524
Funds held by reinsured companies...........................       8,250           --
Accrued investment income...................................       4,932        6,567
Federal income taxes receivable.............................       2,144       31,798
Deferred federal income taxes...............................      15,663       29,970
Deferred acquisition costs, net.............................         428        3,289
Prepaid reinsurance premiums................................     172,988      196,172
Other assets................................................      14,871       12,427
                                                              ----------   ----------
     Total assets...........................................  $1,575,754   $2,685,620
                                                              ==========   ==========
            LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses..................  $  907,357   $2,004,422
Unearned premiums...........................................     214,028      247,138
Amounts held for the account of others......................       5,794       13,766
Ceded balances payable......................................      53,853       61,787
Payable for securities......................................          --        6,250
Contingent commissions......................................       9,496        5,426
Due to affiliates...........................................         101          163
Other liabilities...........................................      60,281       78,031
                                                              ----------   ----------
     Total liabilities......................................   1,250,910    2,416,983
                                                              ----------   ----------
Commitments and Contingencies (Note 11).....................          --           --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100 shares authorized, issued
  and outstanding...........................................          --           --
Additional paid-in capital..................................      81,186       81,186
Accumulated other comprehensive income......................       1,873        7,329
Retained earnings...........................................     241,785      180,122
                                                              ----------   ----------
     Total shareholders' equity.............................     324,844      268,637
                                                              ----------   ----------
     Total liabilities and shareholders' equity.............  $1,575,754   $2,685,620
                                                              ==========   ==========
See accompanying notes to consolidated financial statements.
                                       F-3
WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2000       2001       2002
                                                              --------   --------   ---------
REVENUE:
Gross premiums written......................................  $453,464   $670,520   $ 793,083
                                                              ========   ========   =========
Net premiums written........................................  $127,572   $169,310   $ 172,689
                                                              ========   ========   =========
Net premium earned..........................................  $136,931   $150,336   $ 162,763
Net investment income.......................................    22,490     19,353      17,685
Net realized investment gains (losses)......................       593    (12,719)    (11,702)
                                                              --------   --------   ---------
     Total Revenue..........................................   160,014    156,970     168,746
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses.....................   113,151    128,338     201,750
Acquisition costs and other underwriting expenses...........    14,999     15,867      18,938
Provision for doubtful reinsurance receivables..............        --         --      44,000
Other operating expenses....................................     2,918      2,220       5,874
Interest expense............................................       322         77         115
                                                              --------   --------   ---------
     Income (loss) before income taxes......................    28,624     10,468    (101,931)
Income tax (benefit) expense................................     5,883        295     (40,520)
                                                              --------   --------   ---------
Net income (loss) before equity in net income (loss) of
  partnerships..............................................    22,741     10,173     (61,411)
Equity in net income (loss) of partnerships.................        --        664        (252)
                                                              --------   --------   ---------
     Net income (loss)......................................  $ 22,741   $ 10,837   $ (61,663)
                                                              ========   ========   =========
  Per average share data:
     Weighted-average common shares outstanding.............       100        100         100
     Weighted-average share equivalents outstanding.........        --         --          --
                                                              --------   --------   ---------
     Weighted-average share and share equivalents
       outstanding..........................................       100        100         100
                                                              ========   ========   =========
     Basic and diluted earnings per share...................  $    227   $    108   $    (617)
                                                              ========   ========   =========
See accompanying notes to consolidated financial statements.
                                       F-4
WIND RIVER INVESTMENT CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                             (DOLLARS IN THOUSANDS)
2000       2001       2002
                                                              --------   --------   --------
Net income (loss)...........................................  $ 22,741   $ 10,837   $(61,663)
                                                              --------   --------   --------
Other comprehensive income (loss), before tax:
  Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) arising during
       period...............................................    12,190    (14,774)    (3,307)
     Less:
       Reclassification adjustment for (losses) gains
          included in net income (loss).....................      (593)    12,719     11,702
                                                              --------   --------   --------
  Other comprehensive income (loss), before tax.............    11,597     (2,055)     8,395
  Income tax (expense) benefit related to items of other
     comprehensive loss.....................................    (4,059)       719     (2,939)
                                                              --------   --------   --------
  Other comprehensive income (loss), net of tax.............     7,538     (1,336)     5,456
                                                              --------   --------   --------
Comprehensive income (loss), net of tax.....................  $ 30,279   $  9,501   $(56,207)
                                                              ========   ========   ========
See accompanying notes to consolidated financial statements.
                                       F-5
WIND RIVER INVESTMENT CORPORATION

                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED DECEMBER 2000, 2001 AND 2002
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2000       2001       2002
                                                              --------   --------   --------
Common shares:
  Balance at beginning and end of year......................       100        100        100
                                                              --------   --------   --------
Common stock:
  Balance at beginning and end of year......................  $     --   $     --   $     --
                                                              --------   --------   --------
Additional paid in capital
  Balance at beginning and end of year......................    81,186     81,186     81,186
                                                              --------   --------   --------
Accumulated other comprehensive income
  Net of deferred income taxes:
     Balance at beginning of year...........................    (4,329)     3,209      1,873
     Other comprehensive income (loss), net of taxes........     7,538     (1,336)     5,456
                                                              --------   --------   --------
       Balance at end of year...............................     3,209      1,873      7,329
                                                              --------   --------   --------
Retained earnings
     Balance at beginning of year...........................   208,207    230,948    241,785
     Net income (loss)......................................    22,741     10,837    (61,663)
                                                              --------   --------   --------
       Balance at end of year...............................   230,948    241,785    180,122
                                                              --------   --------   --------
Total shareholders' equity..................................  $315,343   $324,844   $268,637
                                                              ========   ========   ========
See accompanying notes to consolidated financial statements.
                                       F-6
WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
                             (DOLLARS IN THOUSANDS)
2000       2001         2002
                                                              --------   ---------   ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $ 22,741   $  10,837   $  (61,663)
  Adjustments to reconcile net income (loss) to net cash
    from operating activities:
    Deferred federal income taxes...........................     1,986      (4,533)     (17,104)
    Amortization of bond premium and discount, net..........    (1,178)        (81)         853
    (Loss) gain on sale of investments......................    (2,917)      7,961       12,275
    Unrealized loss (gain) on trading securities............     2,324       4,758         (573)
    Equity in net income or loss of partnerships............        --        (664)         252
    Proceeds from sale or maturity of trading securities....     2,142      20,855       33,598
    Purchase of trading securities..........................   (49,281)    (49,471)     (27,896)
    Provision for doubtful agent's balances.................        --          --        2,500
    Provision for doubtful reinsurance receivables..........        --          --       44,000
  CHANGES IN:
    Agents' balances........................................    19,467      (3,280)     (12,520)
    Reinsurance receivables.................................   (46,578)   (104,300)    (988,458)
    Unpaid losses and loss adjustment expenses..............    (5,087)    106,727    1,097,065
    Unearned premiums.......................................     4,668      63,950       33,110
    Ceded balances payable..................................    (2,121)     15,855        7,934
    Other liabilities.......................................    19,170       4,232       17,750
    Amounts held for the account of others..................    (2,144)      2,961        7,972
    Funds held by reinsured companies.......................    45,381      (7,250)       8,250
    Contingent commissions..................................     1,961         444       (4,070)
    Federal income tax receivable...........................     3,559         255      (29,655)
    Prepaid reinsurance premiums............................   (14,027)    (44,981)     (23,184)
    Receivable for securities...............................     4,566        (400)       6,530
    Other -- net............................................    (5,080)     (5,829)      (1,993)
                                                              --------   ---------   ----------
       Net cash from operating activities...................      (448)     18,046      104,973
                                                              --------   ---------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of bonds and preferred stocks..........    36,264      95,255      187,391
  Proceeds from maturity of bonds...........................       675       3,075        6,000
  Proceeds from sale of other invested assets...............     1,977         196        4,347
  Purchase of bonds and preferred stocks....................   (54,855)   (142,105)    (292,410)
  Proceeds from sale or repayment of mortgage principal.....        --          51           59
  Purchase of mortgages.....................................        --      (1,277)          --
  Purchase of other invested assets, including promissory
    notes...................................................   (10,321)    (20,962)     (14,475)
                                                              --------   ---------   ----------
       Net cash from investing activities...................   (26,260)    (65,767)    (109,088)
                                                              --------   ---------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility............................        --          --       17,600
Repayments of credit facility...............................        --          --      (17,600)
                                                              --------   ---------   ----------
       Net cash from financing activities...................        --          --           --
                                                              --------   ---------   ----------
Net decrease in cash and cash equivalents...................   (26,708)    (47,721)      (4,115)
Cash and cash equivalents at beginning of year..............   151,486     124,778       77,057
                                                              --------   ---------   ----------
Cash and cash equivalents at end of year....................  $124,778   $  77,057   $   72,942
                                                              ========   =========   ==========
  Supplemental disclosure of cash flows information:
  Income taxes paid.........................................  $  4,650   $   4,470   $    6,147
See accompanying notes to consolidated financial statements.
                                       F-7
WIND RIVER INVESTMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 2001 AND 2002

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

       The consolidated financial statements include the accounts of Wind River
Investment Corporation ("Wind River") and its wholly-owned subsidiary, American
Insurance Service, Inc. ("AIS")(collectively, the "Company"). AIS owns all of
the outstanding shares of American Insurance Adjustment Agency, Inc.,
International Underwriters, Inc., Unity Risk Partners Insurance Services, Inc.
and United National Insurance Company ("UNIC"). UNIC owns all of the outstanding
shares of Diamond State Insurance Company ("DSIC"). DSIC owns all of the
outstanding shares of United National Specialty Insurance Company ("UNSIC"),
United National Casualty Insurance Company ("UNCIC") and J.H. Ferguson and
Associates, L.L.C. All significant intercompany balances and transactions have
been eliminated in consolidation.

       The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"), which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

  FORMATION OF UNITED NATIONAL CASUALTY INSURANCE COMPANY

       During 2002, UNIC and its subsidiaries formed UNCIC. On May 9, 2002, DSIC
purchased $5,000,000 of UNCIC common stock. UNIC subsequently contributed
$40,242,830 to DSIC. DSIC contributed $20,000,000 of capital to UNSIC and
$15,000,000 to UNCIC. The formation of a new insurance carrier and capital
contributions to DSIC and UNSIC were completed to increase the admitted writing
capabilities of the group.

  DESCRIPTION OF BUSINESS

       The Company writes property and casualty insurance lines on both a
surplus lines and admitted basis. These coverages include general liability
(consisting of owners, landlords and tenants, manufacturers and contractors,
products, comprehensive personal, liquor law and umbrella liability forms),
commercial multiple peril, commercial and private passenger auto, fire coverages
and miscellaneous errors and omissions. Facilities are also available for
writing of unique and unusual risks. Collectively, Wind River's insurance
subsidiaries are licensed in all 50 states and the District of Columbia.

  CASH AND CASH EQUIVALENTS

       For the purpose of the statements of cash flows, the Company considers
all liquid instruments with maturities, at date of acquisition, of three months
or less to be cash equivalents. The Company has a cash management program that
provides for the investment of excess cash balances primarily in short-term
money market instruments. Generally, bank balances exceed federally insured
limits. The carrying amount of cash and cash equivalents approximates fair
value.

  INVESTMENTS

       The Company's investments in bonds classified as available for sale and
trading are carried at their fair value. The difference between book value and
fair value of bonds classified as available for sale, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in

                                       F-8
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. The current year change in
the difference between book value and fair value of bonds classified as trading
is included in income.

       Preferred stocks are carried at fair value. The difference between book
and fair value of preferred stocks classified as available for sale, net of the
effect of deferred income taxes, is reflected in accumulated other comprehensive
income in shareholders' equity and, accordingly, has no effect on net income
other than for impairments deemed to be other than temporary. The current year
change in the difference between book value and fair value of preferred stocks
classified as trading is included in income.

       Common stocks are carried at fair value. All of the Company's investments
in common stock are classified as trading as of December 31, 2001 and 2002. The
current year change in the difference between book value and fair value of
common stocks is included in income.

       Other invested assets are comprised primarily of limited liability
partnerships interests and uncollateralized commercial loans. Partnership
interests of three percent ownership or greater are accounted for under the
equity method. Partnership interests of less than three percent ownership are
carried at their fair value. The difference between book value and fair value of
partnership interests of less than three percent ownership, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
shareholders' equity and, accordingly, has no effect on net income other than
for impairments deemed to be other than temporary. Uncollateralized commercial
loans are stated at unpaid principal balance, net of allowances.

       Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

       The Company's investments are regularly evaluated to determine if
declines in market value below amortized cost are other than temporary. If
market value declines are determined to be other than temporary, the security's
cost basis is adjusted to the market value of the security, with the loss
recognized in the current period.

       The Company measures the fair value of investments in fixed income and
equity portfolios based upon quoted market prices. The Company also holds
investments in several limited partnerships, which were valued at $24.5 million
and $37.7 million as of December 31, 2001 and 2002, respectively. Several of
these partnerships invest solely in securities that are publicly traded and are
valued at the net asset value as reported by the investment manager. As of
December 31, 2001 and 2002, respectively, the limited partnership portfolio
includes $9.2 and $16.8 million in securities for which there is no readily
available independent market price. The estimated fair value of such securities
is determined by the general partner of each limited partnership based on
comparisons to transactions involving similar investments. Material assumptions
and factors utilized in pricing these securities include future cash flows,
constant default rates, recovery rates and any market clearing activity that may
have occurred since the prior month-end pricing period.

       The provisions of Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities"
require, among other things, that all derivatives be recognized in the
consolidated balance sheets as either assets or liabilities and measured at fair
value. The corresponding derivative gains and losses should be reported based
upon the hedge relationship, if such a relationship exists. Changes in the fair
value of derivatives that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS 133 are required to be reported in income. The
Company held no derivative financial instruments, nor embedded financial
derivatives, as of December 31, 2001 or 2002.

                                       F-9
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  AGENTS' BALANCES

       In the normal course of business, the Company has various receivables due
from agents or insureds. However, cash received prior to the processing of the
related policies is recorded as a credit to agents' balances. During 2002, the
Company established a $2,500,000 allowance for uncollectible receivables due
from agents or insureds. The expense associated with the establishment of this
reserve has been reflected in the Company's results of operation in 2002. The
five largest general agencies accounted for approximately 37.5% of the net
premiums written for the year ended December 31, 2002.

  DEFERRED ACQUISITION COSTS/FUTURE SERVICING COSTS

       The excess of the Company's costs of acquiring new and renewal insurance
and reinsurance contracts over the related ceding commissions earned from
reinsurers is capitalized as deferred acquisition costs and amortized over the
period in which the related premiums are earned. The excess of the ceding
commissions earned from reinsurers over the Company's costs of acquiring new and
renewal insurance and reinsurance contracts is capitalized as future servicing
costs and amortized over the period in which the related premiums are earned.
Deferred acquisition costs and future servicing costs are netted in the
accompanying consolidated financial statements. The costs of acquiring new and
renewal insurance and reinsurance contracts include commissions, premium taxes
and certain other costs that are directly related to and vary with the
production of business. The method followed in computing such amounts limits
them to their estimated realizable value that gives effect to the premium to be
earned, related investment income, losses and loss adjustment expenses, and
certain other costs expected to be incurred as the premium is earned.

  UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       The liability for unpaid losses and loss adjustment expenses represents
the Company's best estimate of future amounts needed to pay losses and related
settlement expenses with respect to insured events. This liability is based upon
the accumulation of individual case estimates for losses reported prior to the
close of the accounting period with respect to direct business, estimates
received from ceding reinsurers with respect to assumed reinsurance and
estimates of unreported losses established by management.

       The process of establishing the liability for property and casualty
unpaid losses and loss adjustment expenses is a complex process, requiring the
use of informed estimates and judgments. In some cases, significant periods of
time, up to several years or more, may elapse between the occurrence of an
insured loss and the reporting of the loss to the Company. To establish this
liability, the Company reviews past loss experience and considers a variety of
other factors such as legal, social and economic developments. The Company
regularly reviews and updates the methods of making such estimates and
establishing the resulting liabilities. Any resulting adjustments are recorded
in income during the period in which the determination is made.

  PREMIUMS

       Premiums are recognized as revenue ratably over the term of the
respective policies. Unearned premiums are computed to the day of expiration.
Premium suspense is recorded in Other Liabilities in the accompanying balance
sheets.

  INCOME TAXES

       The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement

                                       F-10
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

       A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining deferred tax
assets.

  CONTINGENT COMMISSIONS

       Certain managing general agencies receive special incentives when certain
premium thresholds are met or when loss results of programs are more favorable
than predetermined thresholds. These costs are estimated and charged to other
underwriting expenses when incurred.

  REINSURANCE

       In the normal course of business, the Company seeks to reduce the loss
that may arise from events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with reinsurers.
Amounts receivable from reinsurers are estimated in a manner consistent with the
reinsured policy. The Company regularly reviews the collectibility of
reinsurance receivables. Any allowances resulting from this review are included
in income during the period in which the determination is made. During 2002, the
Company recorded an allowance for doubtful reinsurance receivables of $44.0
million.

  EARNINGS PER SHARE

       Basic earnings per share has been calculated by dividing net income
available to common shareholders by the weighted-average common shares
outstanding. Diluted earnings per share has been calculated by dividing net
income available to common shareholders by the weighted-average common shares
outstanding and the weighted-average share equivalents outstanding.

(2)  INVESTMENTS

       Bonds, included in the available for sale category, with an amortized
cost of approximately $84,088,000 and $136,342,000, and an estimated fair market
value of approximately $86,611,000 and $141,443,000, were deposited with various
governmental authorities in accordance with statutory requirements at December
31, 2001 and 2002, respectively.

                                       F-11
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       The cost and estimated fair value of investments classified as available
for sale are as follows as of December 31, 2001 and 2002:
COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
2001                                           COST        GAINS        LOSSES     FAIR VALUE
----                                         ---------   ----------   ----------   ----------
          (DOLLARS IN THOUSANDS)
Bonds:
  Obligations of states and political
     subdivisions..........................  $253,550      $5,212       $2,479      $256,283
  Mortgage-backed securities...............    48,450       1,225          552        49,123
  U.S. treasury and agency obligations.....    18,847         400            8        19,239
  Corporate notes..........................    13,403         192        1,073        12,522
                                             --------      ------       ------      --------
Total bonds................................   334,250       7,029        4,112       337,167
Preferred stock............................       900          --           35           865
                                             --------      ------       ------      --------
  Total....................................  $335,150      $7,029       $4,147      $338,032
                                             ========      ======       ======      ========
COST OR      GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED   ESTIMATED
2002                                           COST        GAINS        LOSSES     FAIR VALUE
----                                         ---------   ----------   ----------   ----------
          (DOLLARS IN THOUSANDS)
Bonds:
  Obligations of states and political
     subdivisions..........................  $391,706     $13,446       $2,072      $403,080
  Mortgage-backed securities...............     8,566          35          451         8,150
  U.S. treasury and agency obligations.....    29,364       1,303           --        30,667
  Corporate notes..........................     5,321          --          800         4,521
                                             --------     -------       ------      --------
  Total....................................  $434,957     $14,784       $3,323      $446,418
                                             ========     =======       ======      ========
The Company held no debt or equity investments in a single issuer
totaling in excess of 10% of shareholders' equity at December 31, 2001 or 2002.

       The amortized cost and estimated fair value of debt securities classified
as available for sale at December 31, 2002, by contractual maturity, are shown
below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
AMORTIZED   ESTIMATED
                                                                COST      FAIR VALUE
                   (DOLLARS IN THOUSANDS)                     ---------   ----------
Due in one year or less.....................................  $ 27,071     $ 28,319
Due after one year through five years.......................   141,163      145,104
Due after five years through ten years......................   203,264      207,968
Due after ten years.........................................    54,893       56,877
Mortgage-backed securities..................................     8,566        8,150
                                                              --------     --------
                                                              $434,957     $446,418
                                                              ========     ========
Proceeds from sales of investments in debt and preferred stocks
classified as available for sale were $36,264,000, $95,255,000 and $187,391,000
during 2000, 2001 and 2002, respectively. Gross gains of $1,419,000, $1,199,000
and $3,200,000 and gross losses of $343,000, $3,612,000 and $1,604,000 were
realized on those sales during 2000, 2001 and 2002, respectively. During 2001,
the Company recorded

                                       F-12
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

realized losses, net of tax, of $2,923,456 for bonds that experienced other than
temporary declines in their estimated market value. During 2000, 2001, and 2002,
the Company recorded realized losses, net of tax, of $0, $1,575,126, and
$823,607 for other invested assets that experienced other than temporary
declines in their estimated market value.

       Investments in debt securities classified as trading securities at
December 31, 2001 and 2002, had a fair value of $16,196,000 and $14,607,000,
respectively. In addition, common stocks with a fair value of $49,006,000 and
$31,604,000 at December 31, 2001 and 2002, respectively, were classified as
trading securities.

       A loss of $1,509,000, net of tax benefit of $813,000 in 2000, a loss of
$3,093,000, net of tax benefit of $1,665,000 in 2001, and a gain of $373,000,
net of tax expense of $200,000 in 2002, on debt and equity securities classified
as trading securities were included in earnings in 2000, 2001 and 2002,
respectively.

The sources of net investment income for the years ended December 31, 2000, 2001
and 2002 are as follows:
2000             2001         2002
           (DOLLARS IN THOUSANDS)             ---------------   -------------   -------
Fixed maturities............................  $        17,991   $      19,307   $20,868
Equity securities...........................              271             976       872
Cash and cash equivalents...................            2,119           3,665     1,411
Short term investments......................            8,197              66        --
Other.......................................               --             477     1,444
                                              ---------------   -------------   -------
Total investment income.....................           28,578          24,491    24,595
Investment expense..........................           (6,088)         (5,138)   (6,910)
                                              ---------------   -------------   -------
Net investment income.......................  $        22,490   $      19,353   $17,685
                                              ===============   =============   =======
There were no material investments in fixed maturity securities that were
non-income producing for the years ended December 31, 2000, 2001 or 2002.

(3)  FEDERAL INCOME TAXES

       The effective tax rate for the years ended December 31, 2000, 2001 and
2002 differs from the United States statutory rate principally due to tax-exempt
investment income.

       For income tax purposes, property and casualty insurance companies are
required to recalculate the liability for unpaid losses and loss adjustment
expenses on a discounted basis and to recalculate unearned premium.

       The Company incurred a net operating loss and realized losses in 2002 and
will carry those losses back to prior years to recover federal income taxes. The
current tax receivable represents the expected refund claim for the carryback
along with the refund request for estimated payments and similar payments

                                       F-13
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

made for the 2002 federal income tax return. The tax effects of temporary
differences that give rise to significant portions of the deferred tax asset at
December 31, 2001 and 2002 are presented below:
2001      2002
                   (DOLLARS IN THOUSANDS)                     -------   -------
Deferred tax assets:
  Losses on trading securities..............................  $ 1,986   $ 2,004
  Losses on other securities................................    2,400     2,279
  Discounted unpaid losses and loss adjustment expenses.....    9,190    15,808
  Unearned premiums.........................................    2,873     3,568
  Alternative minimum tax credit carryover..................       --     7,301
  Other.....................................................      781     4,760
                                                              -------   -------
  Total deferred tax assets.................................   17,230    35,720
                                                              -------   -------
Deferred tax liabilities:
  Unrealized gain on securities available for sale..........    1,366     4,011
  Deferred acquisition costs................................      150     1,151
  Other.....................................................       51       588
                                                              -------   -------
  Total deferred tax liabilities............................    1,567     5,750
                                                              -------   -------
  Total net deferred tax asset..............................  $15,663   $29,970
                                                              =======   =======
The alternative minimum tax credit carryover is available for future
years and does not expire.

       Management believes it is more likely than not that the deferred tax
asset will be completely utilized in future years.

       Cash paid for federal income taxes was $4,650,000, $4,470,000 and
$6,147,000 in 2000, 2001 and 2002, respectively.

(4)  REINSURANCE

       The Company cedes insurance to unrelated insurers in the ordinary course
of business to limit its net loss exposure. In addition, there are excess of
loss contracts that protect against losses over stipulated amounts. Reinsurance
ceded arrangements do not discharge the Company of primary liability as the
originating insurer.

                                       F-14
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       As of December 31, 2002, the Company had reinsurance receivables
(including prepaid reinsurance premiums) due from the following reinsurers that
exceeded 3% of shareholders' equity:
REINSURANCE   A.M. BEST
                                                              RECEIVABLES    RATINGS
                   (DOLLARS IN MILLIONS)                      -----------   ---------
Berkshire Hathaway..........................................   $   84.7     A++
CNA Insurance Group.........................................       10.9     A
Converium Re (North America)................................      103.9     A
Everest Reinsurance Company.................................       23.4     A+
Fairfax Financial...........................................       29.8     A
GE Global Group.............................................      424.5     A+
Gerling Global Re Group.....................................       29.9     NR-5/NR-3
Hartford Fire Insurance Co. ................................      111.1     A+
Insurance Corp of Hannover..................................       12.1     A+
Lumbermans Mutual Casualty Co. .............................       19.0     D
Motors Insurance Corporation................................       15.1     A
Munich Group................................................      708.3     A+
Penn Mfr Asn Ins............................................        8.9     A-
Riunione Adriatica Di Sicurta...............................       23.5     A+
SCOR Reinsurance Company....................................       49.0     A-
St. Paul Group..............................................       24.5     A
Swiss Re Group..............................................       64.8     A++\A+
Trenwick America Reins Corp. ...............................       29.7     NR-4
White Mountains Group.......................................        8.2     A-
XL Reinsurance Company......................................       28.9     A+
                                                               --------
                                                               $1,810.2
                                                               ========
During 2000, the Company commuted several assumed reinsurance treaties.
These commutations release the Company from all future obligations under the
agreement. No gain or loss was recognized on the transactions. Losses and loss
adjustment expenses paid in connection with these commutations, totaling $36.5
million in 2000, were offset by funds held by the reinsured companies relative
to these treaties.

       On April 6, 2001, the Company commuted all of its reinsurance
arrangements with Reliance Insurance Company. As a result of this commutation,
the Company has reported in its operations in 2001, losses and loss adjustment
expenses incurred of $5.0 million.

       During 2002, the Company established a $44.0 million allowance for
potentially uncollectible reinsurance. The Company believes its reinsurance
receivables are collectible net of the allowance.

       On April 16, 2002, the Company commuted an assumed aggregate stop loss
retrocession agreement. The commutation released the Company from all future
obligations under the agreement. Losses paid in connection with this
commutation, totaling $82.9 million, were offset by funds held by the reinsurer
relative to this treaty. Losses and loss adjustment expenses incurred during
2001 were $49.9 million and $5.4 million, respectively. Premiums earned were
$52.0 million for the year ended December 31, 2001 in connection with this
assumed agreement. No gain or loss was recognized as a result of this
commutation.

                                       F-15
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       At December 31, 2001 and 2002, the Company had letters of credit totaling
$159,183,752 and $104,496,852, respectively, collateralizing reinsurance
receivables.

       During 2002, the Company was involved in arbitration proceedings with one
of its reinsurers, Riunione Adriatica Di Sicurta ("RAS"). RAS was seeking to
rescind the reinsurance agreement, prohibit the Company from drawing down on
available lines of credit, and demanding repayment of funds drawn from the line
of credit. On October 1, 2002 the arbitration panel issued an Order and Award
holding RAS liable for a portion of the total amount in dispute. RAS was also
ordered to pay interest at a rate of 4% compounded annually with respect to
balances currently due. The panel further ordered a portion of the reinsurance
agreement between RAS and the Company to be rescinded from inception. RAS was
released from all future liabilities or responsibilities to the Company with
respect to the rescinded portion of the reinsurance agreement. This rescission
had a $20.6 million detrimental impact on the underwriting results of the
Company during 2002.

       In connection with this rescission, the Company reported the following
amounts in its operations for the year ended December 31, 2002:
(DOLLARS IN THOUSANDS)
Losses and loss adjustment expense incurred.................         $(23,610)
Premium earned..............................................            3,968
Reversal of ceding commission income........................             (938)
                                                                     --------
Total -- underwriting income effect.........................         $(20,580)
                                                                     ========
The effect of reinsurance on premiums written and earned is as follows:
WRITTEN     EARNED
                   (DOLLARS IN THOUSANDS)                     --------   --------
For the year ended December 31, 2000
  Direct business...........................................  $389,348   $374,179
  Reinsurance assumed.......................................    64,116     74,627
  Reinsurance ceded.........................................   325,892    311,875
                                                              --------   --------
Net premiums................................................  $127,572   $136,931
                                                              --------   --------
Percentage assumed of net...................................                 54.5%
                                                                         --------
For the year ended December 31, 2001
  Direct business...........................................  $604,738   $547,963
  Reinsurance assumed.......................................    65,782     58,599
  Reinsurance ceded.........................................   501,210    456,226
                                                              --------   --------
Net premiums................................................  $169,310   $150,336
                                                              --------   --------
Percentage assumed of net...................................                 39.0%
                                                                         --------
For the year ended December 31, 2002
  Direct business...........................................  $791,864   $750,426
  Reinsurance assumed.......................................     1,220      9,538
  Reinsurance ceded.........................................   620,395    597,201
                                                              --------   --------
Net premiums................................................  $172,689   $162,763
                                                              --------   --------
Percentage assumed of net...................................                  5.9%
                                                                         --------
F-16
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5)  PENSION AND DEFERRED COMPENSATION PLANS

       UNIC participates in a non-contributory pension plan with the American
Manufacturing Corporation (an affiliate) covering all employees. The plan
provides pension benefits that are based on length of service and a percentage
of average qualifying compensation for the highest five consecutive years of
employment. The funding policy is to contribute the requirements set forth in
the Employee Retirement Income Security Act ("ERISA") plus such additional
amounts that the Company may determine to be appropriate. Total plan assets
exceeded the projected benefit obligations at December 31, 2001 and 2002. The
Company recorded prepaid pension assets of $1,305,000 and $765,000, as of
December 31, 2001 and 2002, respectively. The Company recorded pension income of
$535,000 for 2000, and pension expense of $73,000 and $541,000 in 2001 and 2002,
respectively.

       The Company has a qualified 401(k) defined contribution plan that covers
substantially all of its full-time employees. Eligible employees may elect to
defer up to 15% of their salary. The Company matches 50% of employees'
contributions up to 6% of their salary. Eligible employees are vested in the
Company's contribution and related investment income after five years of
service. Expense for the plan in 2000, 2001 and 2002 was $216,000, $225,000 and
$279,000, respectively.

       The Company also has a qualified deferred compensation plan for certain
key executives. At December 31, 2000, 2001 and 2002, the Company accrued
$3,530,000, $4,667,000 and $3,867,000, respectively, in other liabilities
related to this plan, and the Company recorded expense (income) of $1,352,000,
$1,137,000 and ($800,000) for the years ended December 31, 2000, 2001 and 2002,
respectively, for this plan.

(6)  STATUTORY FINANCIAL INFORMATION

       These consolidated financial statements vary in certain respects from
those prepared using statutory accounting practices prescribed or permitted by
the applicable state Departments of Insurance ("Insurance Departments").
Prescribed Statutory Accounting Practices ("SAP") include state laws,
regulations and general administrative rules, as well as a variety of National
Association of Insurance Commissioners ("NAIC") publications. Permitted SAP
encompasses all accounting practices that are not prescribed. In 1998, the NAIC
adopted the Codification of Statutory Accounting Principles ("Codification")
guidance that replaced the previous version of the Accounting Practices and
Procedures manual as the NAIC's primary guidance on statutory accounting
beginning in 2001. Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in some
areas, such as deferred income taxes, which are recorded under the Codification.
The effect of the adoption on the Company's statutory surplus as of January 1,
2001 was an increase of $4,247,697, primarily as a result of the recording of a
deferred tax asset.

       GAAP differs in certain respects from SAP prescribed or permitted by the
Insurance Departments. The principal differences between SAP and GAAP are as
follows:

       -     Under SAP, investments in debt securities are carried at amortized
             cost, while under GAAP, the Company records its debt securities at
             estimated fair value.

       -     Under SAP, policy acquisition costs, such as commissions, premium
             taxes, fees and other costs of underwriting policies are charged to
             current operations as incurred, while under GAAP, such costs are
             deferred and amortized on a pro rata basis over the period covered
             by the policy.

       -     Under SAP, certain assets, designated as "Non-admitted Assets"
             (such as prepaid expenses) are charged against surplus.

                                       F-17
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       -     Under SAP, net deferred income tax assets are admitted following
             the application of certain criteria, with the resulting admitted
             deferred tax amount being credited directly to surplus.

       -     Under SAP, receivables are non-admitted based upon aging criteria.

       -     Under SAP, the costs and related recoverables for guaranty funds
             and other assessments are recorded based on management's estimate
             of the ultimate liability and related recoverable settlement, while
             under GAAP, such costs are accrued when the liability is probable
             and reasonably estimable and the related recoverable amount is
             based on future premium collections or policy surcharges from
             in-force policies.

       The NAIC issues model laws and regulations, many of which have been
adopted by state insurance regulators, relating to: (a) risk-based capital
("RBC") standards; (b) codification of insurance accounting principles; (c)
investment restrictions; and (d) restrictions on the ability of insurance
companies to pay dividends.

       Wind River's subsidiaries are required by law to maintain certain minimum
surplus on a statutory basis, and are subject to regulations under which payment
of a dividend from statutory surplus is restricted and may require prior
approval of regulatory authorities. Applying the current regulatory restrictions
as of December 31, 2002, approximately $22,875,000 is available for distribution
during 2003. The Company paid no dividends during the three years ended December
31, 2003.

       The NAIC's risk-based capital model provides a tool for insurance
regulators to determine the levels of statutory capital and surplus an insurer
must maintain in relation to its insurance and investment risks, as well as its
reinsurance exposures, to assess the potential need for regulatory attention.
The model provides four levels of regulatory attention, varying with the ratio
of the insurance company's total adjusted capital to its authorized control
level RBC ("ACLRBC"): (a) if a company's total adjusted capital is less than or
equal to 200 percent, but greater than 150 percent of its ACLRBC (the "Company
Action Level"), the company must submit a comprehensive plan to the regulatory
authority proposing corrective actions aimed at improving its capital position;
(b) if a company's total adjusted capital is less than or equal to 150 percent,
but greater than 100 percent of its ACLRBC (the "Regulatory Action Level"), the
regulatory authority will perform a special examination of the company and issue
an order specifying the corrective actions that must be followed; (c) if a
company's total adjusted capital is less than or equal to 100 percent, but
greater than 70 percent of its ACLRBC (the "Authorized Control Level"), the
regulatory authority may take any action it deems necessary, including placing
the company under regulatory control; and (d) if a company's total adjusted
capital is less than or equal to 70 percent of its ACLRBC (the "Mandatory
Control Level"), the regulatory authority must place the company under its
control.

       The following is selected information for Wind River's domestic insurance
subsidiaries, net of intercompany eliminations, where applicable, as determined
in accordance with SAP:
2000       2001       2002
               (DOLLARS IN THOUSANDS)                  --------   --------   --------
Statutory capital and surplus........................  $299,198   $304,266   $228,751
                                                       ========   ========   ========
Statutory net income (loss)..........................  $ 33,025   $ 11,651   ($78,015)
                                                       ========   ========   ========
As of December 31, 2002, the total adjusted capital of UNIC, DSIC, UNSIC,
and UNCIC exceeds the levels that would result in regulatory action under these
standards. However, UNIC's ACLRBC ratio has declined significantly during the
past year and is near the level that would require it to submit a comprehensive
plan aimed at improving its capital position.

                                       F-18
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7)  LEASE COMMITMENTS

       Total rental expense under operating leases for the years ended December
31, 2000, 2001 and 2002 aggregated $1,331,483, $1,577,471 and $1,833,273,
respectively. Future minimum payments under non-cancelable operating leases are
as follows:
(DOLLARS IN THOUSANDS)
2003........................................................         $ 2,084
2004........................................................           1,953
2005........................................................           1,923
2006........................................................           1,953
2007 and thereafter.........................................           3,999
                                                                     -------
Total.......................................................         $11,912
                                                                     =======
(8)  LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

       Activity in the liability for unpaid losses and loss adjustment expenses
is summarized as follows:
2000       2001        2002
                   (DOLLARS IN THOUSANDS)                     --------   --------   ----------
Unpaid losses and loss adjustment expenses at January 1.....  $805,717   $800,630   $  907,357
Less gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   637,850    669,504      750,573
                                                              --------   --------   ----------
Net balance at January 1....................................   167,867    131,126      156,784
                                                              --------   --------   ----------
Incurred losses and losses adjustment expenses related to:
  Current year..............................................   123,476    134,558      130,327
  Prior years...............................................   (10,325)    (6,220)      71,423
                                                              --------   --------   ----------
Total incurred losses and loss adjustment expenses..........   113,151    128,338      201,750
                                                              --------   --------   ----------
Paid losses and losses adjustment expenses related to:
  Current year..............................................    85,811     76,508       34,045
  Prior years(1)............................................    64,081     26,172       63,669
                                                              --------   --------   ----------
Total paid losses and loss adjustment expenses..............   149,892    102,680       97,714
                                                              --------   --------   ----------
Net balance at December 31..................................   131,126    156,784      260,820
Plus gross reinsurance receivables on unpaid losses and loss
  adjustment expenses.......................................   669,504    750,573    1,743,602
                                                              --------   --------   ----------
Unpaid losses and loss adjustment expenses at December 31...  $800,630   $907,357   $2,004,422
                                                              ========   ========   ==========
------------

(1) Paid losses and loss adjustment expenses in 2001, related to prior years,
    included the commutation with Reliance Insurance Company in the amount of
    $9.9 million.

       The increase in losses and loss adjustment expenses incurred relating to
prior years, which totaled $71.4 million in 2002, is primarily attributable to
higher than anticipated losses in the multi-peril and other liability lines of
business for prior accident years. Prior to 2002, management used its
traditional methods of examining reserves for losses and loss adjustment expense
relative to these accident years. In 2002, management determined that it was
necessary to increase the projected ultimate loss ratios, relative to these
accident years, due to the fact that losses relative to these accident years
were emerging at a rate

                                       F-19
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that was greater than originally expected. In addition, during the past year,
the Company was involved in an arbitration proceeding that resulted in the
rescission of a reinsurance agreement. This rescission caused an $23,610,000
increase in losses and loss adjustment expense incurred for prior years. See
note 4 for further details.

       In the past, the Company underwrote a product of multi-peril business
insuring general contractors and developers that has resulted in significant
exposure to construction defect claims. Management believes its reserves for
this product ($36,804,701 as of December 31, 2002, net of reinsurance) are
appropriately established based upon known facts, existing case law and
generally accepted actuarial methodologies. However, due to the inherent
uncertainty concerning this type of business, the ultimate exposure for these
claims may vary significantly from the amounts currently recorded.

       The Company has 37 direct claims related to the September 11th terrorist
attacks as of December 31, 2002. The majority of these claims are first party
property claims while a few stem from event interruption. Estimated direct
indemnity exposure as of December 31, 2002, was $4,957,989 with ceded exposure
to non-affiliates totaling $4,585,060, leaving net indemnity exposure of
$372,929. The Company does not anticipate any additional material impact to its
financial statements, nor does it expect any future obligations related to this
tragedy.

       The Company has exposure to environmental and asbestos claims. The
environmental exposure arises from the sale of general liability and commercial
multi-peril insurance and the asbestos exposure primarily arises from the sale
of product liability insurance. In establishing the liability for unpaid losses
and loss adjustment expenses related to asbestos and environmental exposures,
management considers facts currently known and the current state of the law and
coverage litigation. Liabilities are recognized for known claims (including the
cost of related litigation) when sufficient information has been developed to
indicate the involvement of a specific insurance policy, and management can
reasonably estimate its liability. In addition, liabilities have been
established to cover additional exposures on both known and unasserted claims.
Estimates of the liabilities are reviewed and updated continually. Developed
case law and adequate claim history do not exist for such claims, especially
because significant uncertainty exists about the outcome of coverage litigation
and whether past claim experience will be representative of future claim
experience. In 2001 and prior years, the Company did not provide specific
amounts of IBNR for environmental and asbestos claims. In 2002, the Company
identified that portion of its IBNR reserves that is related to such claims.
Included in net unpaid losses and loss adjustment expenses as of December 31,
2002, were IBNR reserves of $6,370,000 and case reserves of approximately
$1,774,000 for known asbestos and environmental-related claims. As of December
31, 2001 the Company held case reserves of $2,103,000 for known asbestos and
environmental-related claims. Net incurred losses and loss adjustment expenses
for asbestos and environmental-related claims were $(177,000), $(8,000), and
$6,540,000 for the years ended December 31, 2000, 2001 and 2002, respectively.

(9)  SEGMENT INFORMATION

       The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expense experience. Investments and investment performance
including investment income and net realized investment gains and losses;
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level by the corporate accounting function in conjunction with other
corporate departments and are included in "Corporate."

                                       F-20
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reinsurance segment was de-emphasized in 2002 and the Company did not write
any business in this segment in 2002.

       Gross premiums written, excluding the reinsurance segment, by product
class for the years ended December 31, 2000, 2001, and 2002 are as follows:
2000       2001       2002
                                                              --------   --------   --------
                                                               AMOUNT     AMOUNT     AMOUNT
                   (DOLLARS IN THOUSANDS)                     --------   --------   --------
Specific specialty..........................................  $277,167   $375,962   $439,364
Umbrella and excess.........................................    58,095    138,425    209,369
Property and general liability..............................    32,360     50,725     75,376
Non-medical professional liability..........................    23,842     43,408     68,974
                                                              --------   --------   --------
    Total...................................................  $391,464   $608,520   $793,083
                                                              ========   ========   ========
The gross premiums written information above is not segregated by
business segment because product lines cross segments.

       Following is a tabulation of business segment information for each of the
past three years. Corporate information is included to reconcile segment data to
the consolidated financial statements:
EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
2000:
Revenue:
Gross premiums written..............   $260,730    $130,734      $62,000     $       --   $  453,464
Net premiums written................     40,663      24,909       62,000             --      127,572
Net premiums earned.................     40,504      25,677       70,750             --      136,931
Net investment income...............         --          --           --         22,490       22,490
Net realized investment gains.......         --          --           --            593          593
                                       --------    --------      -------     ----------   ----------
     Total revenue..................     40,504      25,677       70,750         23,083      160,014
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................     24,613      18,408       70,130             --      113,151
Acquisition costs and other
  underwriting expenses.............         --          --           --         14,999       14,999
Other operating expenses............         --          --           --          2,918        2,918
Interest expense....................         --          --           --            322          322
                                       --------    --------      -------     ----------   ----------
Income (loss) before income taxes...     15,891       7,269          620          4,844       28,624
Income tax (benefit) expense........         --          --           --          5,883        5,883
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................     15,891       7,269          620         (1,039)      22,741
Equity in net income (loss) of
  partnerships......................         --          --           --             --           --
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................     15,891       7,269          620         (1,039)      22,741
                                       ========    ========      =======     ==========   ==========
     Total assets...................                                         $1,376,528   $1,376,528
                                                                             ==========   ==========
F-21
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
2001
Revenue:
Gross premiums written..............   $398,308    $210,212      $62,000             --   $  670,520
Net premiums written................     68,226      39,084       62,000             --      169,310
Net premiums earned.................     59,004      36,582       54,750             --      150,336
Net investment income...............         --          --           --         19,353       19,353
Net realized and unrealized gains
  (loss)............................         --          --           --        (12,719)     (12,719)
                                       --------    --------      -------     ----------   ----------
     Total Revenue..................     59,004      36,582       54,750          6,634   $  156,970
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................     43,880      29,075       55,383             --      128,338
Acquisition costs and other
  underwriting expenses.............         --          --           --         15,867       15,867
Other operating expenses............         --          --           --          2,220        2,220
Interest expense....................         --          --           --             77           77
                                       --------    --------      -------     ----------   ----------
Income (loss) before income taxes...     15,124       7,507         (633)       (11,530)      10,468
Income tax (benefit) expense........         --          --           --            295          295
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................     15,124       7,507         (633)       (11,825)      10,173
Equity in net income (loss) of
  partnerships......................         --          --           --            664          664
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................     15,124       7,507         (633)       (11,161)      10,837
                                       ========    ========      =======     ==========   ==========
Total assets........................                                         $1,575,754   $1,575,754
                                                                             ==========   ==========
Revenue:
2002
Gross premiums written..............   $543,998    $249,085      $    --     $       --   $  793,083
Net premiums written................    112,110      60,579           --             --      172,689
Net premiums earned.................    101,474      53,039        8,250             --      162,763
Net investment income...............         --          --           --         17,685       17,685
Net realized and unrealized gains
  (loss)............................         --          --           --        (11,702)     (11,702)
                                       --------    --------      -------     ----------   ----------
Total Revenue.......................    101,474      53,039        8,250          5,983      168,746
Losses and Expenses:
Net losses and loss adjustment
  expenses..........................    128,642      64,857        8,251                     201,750
Acquisition costs and other
  underwriting expenses.............         --          --           --         62,938       62,938
Other operating expenses............         --          --           --          5,874        5,874
Interest expense....................         --          --           --            115          115
                                       --------    --------      -------     ----------   ----------
F-22
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS AND
                                       SURPLUS     SPECIALTY
                                        LINES      ADMITTED    REINSURANCE   CORPORATE      TOTAL
       (DOLLARS IN THOUSANDS)         ----------   ---------   -----------   ----------   ----------
Income (loss) before income taxes...    (27,168)    (11,818)          (1)       (62,944)    (101,931)
Income tax (benefit) expense........         --          --           --        (40,520)     (40,520)
                                       --------    --------      -------     ----------   ----------
Net income (loss) before equity in
  net income (loss) of
  partnerships......................    (27,168)    (11,818)          (1)       (22,424)     (61,411)
Equity in net income (loss) of
  partnerships......................         --          --           --           (252)        (252)
                                       --------    --------      -------     ----------   ----------
Net income (loss)...................    (27,168)    (11,818)          (1)       (22,676)     (61,663)
                                       ========    ========      =======     ==========   ==========
Total assets........................                                         $2,685,620   $2,685,620
                                                                             ==========   ==========
(10)  RELATED PARTY TRANSACTIONS

       During 2000, 2001 and 2002, the Company paid management and investment
advisory fees of approximately $7,146,000, $7,104,000 and $9,931,000,
respectively, to affiliates.

       As of December 31, 2001 and 2002, the Company had payable balances due to
affiliates totaling approximately $101,000 and $163,000, respectively.

       During 2001, the Company purchased a promissory note from Wind River
Investments, LLC, an affiliate, for $3,850,280, which included a note receivable
of $3,497,935 and interest receivable of $352,345. The annual rate of interest
on this note was 6%. During 2002, this note was sold for $4,188,261 (the sum of
book value plus accrued interest) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       During 2001, the Company issued a promissory note for $1,362,855 to AMC
Group, LLC, an affiliate. The annual rate of interest on this note is 6%. This
note, which was carried at amortized cost of $1,167,286 and $758,147, was
included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $616,234 (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       During 2001, the Company purchased a promissory note from Philadelphia
Gear Corporation, an affiliate, for $2,354,733. The annual rate of interest on
this note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2,354,733, was
included in other invested assets as of December 31, 2001 and 2002,
respectively. In April 2003, this note was sold for $2,354,733 (the amortized
value as of April 30, 2003) to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

       For the year ended December 31, 2000, the Company issued insurance
policies with premium totaling approximately $94,000 to affiliates.

(11)  COMMITMENTS AND CONTINGENCIES

       The Company has committed to investing $62,151,000 over a period of time
into several limited liability partnership funds. As of December 31, 2002,
$41,199,000 has been invested. During the period of January 1st to May 31st,
2003, an additional $2,877,144 has been invested. The timing and funding of the

                                       F-23
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

remaining commitment of $18,074,856 has not been determined. As investment
opportunities are identified by the partnerships, capital calls will be made.

       Various lawsuits against the Company have arisen in the ordinary course
of business, including defending coverage claims brought against the Company by
its policyholders or others. The Company's litigation, including coverage claims
matters, is subject to many uncertainties, and given their complexity and scope,
the outcomes cannot be predicted with certainty. It is possible that the results
of operations in a particular quarterly or annual period, could be materially
affected by an ultimate unfavorable outcome of litigation or coverage claim
matters. Management believes, however, that the ultimate outcome of all
litigation and coverage claim matters after consideration of applicable reserves
should not have a material adverse effect on the Company's financial condition.

       On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29
million, plus interest in excess of $10 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc. purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

       In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance Company Ltd. and Partner
Reinsurance Company of the U.S. seeking recovery under a reinsurance agreement
covering the business produced by Worldwide Weather Insurance Agency on a 100%
quota share basis. In addition, if it were held liable to Bank of America on the
grounds DSIC was negligent in appointing the Worldwide Weather Insurance Agency,
DSIC is claiming indemnification and contribution from Partner Reinsurance
Company of the U.S. because of its role in the appointment of the agency's
principal and the Worldwide Weather Insurance Agency. The arbitration has been
consolidated into the Bank of America litigation for discovery purposes, and is
not likely to proceed to a hearing until the Bank of America litigation is
resolved.

       During 2002, the Company established a $25,000,000 Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate (LIBOR) plus 65 basis points or the
Prime Rate. As of December 31, 2002, there were no balances due in connection
with this credit facility. The Revolving Credit Facility was converted to a
Demand Discretionary Facility in February 2003.

(12)  SUBSEQUENT EVENTS

       On May 1, 2003, affiliates of Fox Paine and Company, LLC, a San
Francisco, California based private equity firm, entered into an Investment
Agreement in which they agreed to acquire a controlling interest in the Company.

                                       F-24
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       In March 2003, the Company resolved a claim by one of its producers that
his agency sustained damages in loss of business and in the value of his agency
as a result of the alleged delay in DSIC obtaining regulatory approval of rates
and forms necessary to support the producer's business. The Company paid the
agent $350,000 in connection with this resolution.

       On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries will file a consolidated
federal income tax return and AIS and its other subsidiaries, AIAA, IUI and URP,
will each file a separate, stand-alone federal income tax return.

(13)  NEW ACCOUNTING PRONOUNCEMENTS

       In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

       In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS NO. 148") which amends
SFAS Statement No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). The objective of SFAS No. 148 is to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 does not change the
provisions of SFAS No. 123 that permit entities to continue to apply the
intrinsic value method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Management has determined that this interpretation will have no effect
on the Company's consolidated financial statements.

       FASB Interpretation 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" became effective December 15, 2002. This interpretation elaborates on
the disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Management has
determined that this interpretation will have no effect on the Company's
consolidated financial statements.

       FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. This interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.

                                       F-25
WIND RIVER INVESTMENT CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                   AS OF DECEMBER 31, 2002 AND JUNE 30, 2003
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF
                                                              -------------------------
                                                              DECEMBER 31,    JUNE 30,
                                                                  2002          2003
                                                              ------------   ----------
ASSETS
Bonds:
  Trading securities, at fair value (amortized cost:
     2002 -- $14,913; 2003 -- $15,134)......................   $   14,607    $   16,128
  Available for sale securities, at fair value (amortized
     cost: 2002 -- $434,957; 2003 -- $449,707)..............      446,418       467,270
Preferred stocks:
  Trading securities, at fair value.........................        3,106         3,409
Common stocks:
  Trading securities, at fair value.........................       31,604        35,189
Other invested assets.......................................       41,285        41,842
Mortgage loans..............................................        1,167            --
                                                               ----------    ----------
     Total investments......................................      538,187       563,838
Cash and cash equivalents...................................       72,942        71,709
Agents' balances, net of allowance..........................       50,744        62,453
Reinsurance receivables, net of allowance...................    1,743,524     1,852,205
Accrued investment income...................................        6,567         6,266
Federal income taxes receivable.............................       31,798        21,434
Deferred federal income taxes...............................       29,970        27,881
Deferred acquisition costs, net.............................        3,289         5,096
Prepaid reinsurance premiums................................      196,172       159,653
Other assets................................................       12,427        12,120
                                                               ----------    ----------
     Total assets...........................................   $2,685,620    $2,782,655
                                                               ==========    ==========
                         LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses..................   $2,004,422    $2,133,728
Unearned premiums...........................................      247,138       215,683
Amounts held for the account of others......................       13,766        14,834
Ceded balances payable......................................       61,787        72,195
Payable for securities......................................        6,250         2,362
Contingent commissions......................................        5,426         6,861
Due to affiliates...........................................          163           101
Other liabilities...........................................       78,031        45,039
                                                               ----------    ----------
     Total liabilities......................................   $2,416,983    $2,490,803
                                                               ----------    ----------
Commitments and Contingencies...............................           --            --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 100 shares
  authorized, issued and outstanding........................           --            --
Additional paid-in capital..................................       81,186        81,186
Accumulated other comprehensive income......................        7,329        11,935
Retained earnings...........................................      180,122       198,731
                                                               ----------    ----------
     Total shareholders' equity.............................      268,637       291,852
                                                               ----------    ----------
     Total liabilities and shareholders' equity.............   $2,685,620    $2,782,655
                                                               ==========    ==========
See accompanying notes to consolidated financial statements.
                                       F-26
WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
REVENUE:
Gross premium written.......................................  $435,082   $362,953
                                                              --------   --------
Net premium written.........................................   110,095     99,461
                                                              --------   --------
Net premiums earned.........................................    95,096     94,397
Net investment income.......................................     8,879      9,329
Net realized investment (losses) gains......................    (7,914)     3,116
                                                              --------   --------
     Total revenue..........................................    96,061    106,842
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses.....................    74,826     61,846
Acquisition costs and other underwriting expenses...........    12,286     20,733
Provision for doubtful reinsurance receivables..............        --      1,750
Other operating expenses....................................     1,423        367
Interest expense............................................        28         12
                                                              --------   --------
  Income before income taxes................................     7,498     22,134
Income tax expense..........................................       431      5,012
                                                              --------   --------
Net income before equity in net (loss) income of
  partnerships..............................................     7,067     17,122
Equity in net (loss) income of partnerships.................      (283)     1,487
                                                              --------   --------
  Net income................................................  $  6,784   $ 18,609
                                                              ========   ========
  Per average share data:
     Weighted-average common shares outstanding.............       100        100
     Weighted-average share equivalents outstanding.........        --         --
                                                              --------   --------
     Weighted-average share and share equivalents
      outstanding...........................................       100        100
                                                              ========   ========
     Basic and diluted earnings per share...................  $     68   $    186
                                                              ========   ========
See accompanying notes to consolidated financial statements.
                                       F-27
WIND RIVER INVESTMENT CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
Net income..................................................  $  6,784   $ 18,609
                                                              --------   --------
  Other comprehensive income, before tax:
     Unrealized gains (losses) on securities:
       Unrealized holding gains (losses) arising during
        period..............................................     6,730       (825)
       Less:
          Reclassification adjustment for (losses) gains
           included in net income...........................    (3,116)     7,914
                                                              --------   --------
  Other comprehensive income, before tax....................     3,614      7,089
  Income tax expense related to items of other comprehensive
     loss...................................................    (1,265)    (2,483)
                                                              --------   --------
  Other comprehensive income, net of tax....................     2,349      4,606
                                                              --------   --------
Comprehensive income, net of tax............................  $  9,133   $ 23,215
                                                              ========   ========
See accompanying notes to consolidated financial statements.
                                       F-28
WIND RIVER INVESTMENT CORPORATION

                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                2002       2003
                                                              --------   --------
Common shares:
  Balance at beginning and end of year......................       100        100
                                                              --------   --------
Common stock:
  Balance at beginning and end of year......................  $     --   $     --
                                                              --------   --------
Additional paid in capital
  Balance at beginning and end of year......................    81,186     81,186
                                                              --------   --------
Accumulated other comprehensive income
  Net of deferred income taxes:
     Balance at beginning of year...........................     1,873      7,329
     Other comprehensive income, net of taxes...............     2,349      4,606
                                                              --------   --------
       Balance at end of year...............................     4,222     11,935
                                                              --------   --------
Retained earnings:
     Balance at beginning of year...........................   241,785    180,122
     Net income.............................................     6,784     18,609
                                                              --------   --------
       Balance at end of year...............................   248,569    198,731
                                                              --------   --------
Total shareholders' equity..................................  $333,977   $291,852
                                                              ========   ========
See accompanying notes to consolidated financial statements.
                                       F-29
WIND RIVER INVESTMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
FOR THE SIX     FOR THE SIX
                                                              MONTHS ENDED    MONTHS ENDED
                                                              JUNE 30, 2002   JUNE 30, 2003
                                                              -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................   $     6,784      $  18,609
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Deferred federal income taxes..........................        (4,046)        (1,188)
     Amortization of bond premium and discount, net.........           234          1,181
     Gain on sale of investments............................         3,501          2,453
     Equity in loss (income) of partnerships................           283         (1,487)
     Unrealized loss (gain) on trading securities...........         4,411         (5,568)
     Provision for doubtful reinsurance receivables.........            --          1,750
     Proceeds from sale or maturity of trading securities...        17,125          6,825
     Purchase of trading securities.........................        (9,693)        (8,197)
CHANGES IN:
     Agents' balances.......................................       (21,759)       (11,709)
     Reinsurance receivables................................       (35,751)      (110,431)
     Unpaid losses and loss adjustment expenses.............        55,585        129,306
     Unearned premiums......................................        35,296        (31,455)
     Ceded balances payable.................................        34,345         10,408
     Other liabilities......................................       (18,015)       (32,992)
     Amounts held for the account of others.................          (647)         1,068
     Funds held by reinsured companies......................          (250)            --
     Contingent commissions.................................          (528)         1,435
     Federal income tax receivable..........................        (2,459)        10,364
     Prepaid reinsurance premiums...........................       (20,296)        36,519
     Payable for securities.................................        24,101         (3,888)
     Other -- net...........................................         8,543         (1,467)
                                                               -----------      ---------
       Net cash from operating activities...................        76,764         11,536
                                                               -----------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of bonds and preferred stocks..........        97,525         63,772
  Proceeds from maturity of bonds...........................         4,500          2,500
  Proceeds from sale of other invested assets...............           382          4,973
  Purchase of bonds and preferred stocks....................      (157,433)       (82,932)
  Proceeds from sale or repayment of mortgage principal.....            29              8
  Proceeds from sale of mortgage............................            --          1,166
  Purchase of other invested assets.........................        (8,995)        (2,260)
  Other -- net..............................................            --              4
                                                               -----------      ---------
       Net cash from investing activities...................       (63,992)       (12,769)
CASH FLOWS FROM FINANCING ACTIVITIES:.......................            --             --
                                                               -----------      ---------
Borrowings under credit facility............................        10,500          4,650
Repayments of credit facility...............................       (10,500)        (4,650)
                                                               -----------      ---------
       Net cash from financing activities...................            --             --
                                                               -----------      ---------
  Net decrease in cash and cash equivalents.................        12,772         (1,233)
  Cash and cash equivalents at beginning of year............        77,057         72,942
                                                               -----------      ---------
  Cash and cash equivalents at end of year..................   $    89,829      $  71,709
                                                               ===========      =========
See accompanying notes to consolidated financial statements.
                                       F-30
WIND RIVER INVESTMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

       The consolidated financial statements as of and for the six months ended
June 30, 2002 and 2003 are unaudited, but in the opinion of management, have
been prepared on the same basis as the annual audited consolidated financial
statements and reflect all adjustments, consisting of only normal recurring
accruals, necessary for a fair statement of the information set forth therein.
The results of operations for the six months ended June 30, 2003, are not
necessarily indicative of the operating results to be expected for the full year
or any other period.

       The consolidated financial statements include the accounts of Wind River
Investment Corporation ("Wind River") and its wholly-owned subsidiary, American
Insurance Service, Inc. ("AIS")(collectively, the "Company"). AIS owns all of
the outstanding shares of American Insurance Adjustment Agency, International
Underwriters, Inc., Unity Risk Partners Insurance Services, Inc. and United
National Insurance Company ("UNIC"). UNIC owns all of the outstanding shares of
Diamond State Insurance Company ("DSIC"). DSIC owns all of the outstanding
shares of United National Specialty Insurance Company ("UNSIC"), United National
Casualty Insurance Company ("UNCIC") and J.H. Ferguson and Associates L.L.C. All
significant intercompany balances and transactions have been eliminated in
consolidation.

       The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
("GAAP"), which differ in certain respects from those followed in reports to
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

       These financial statements should be read in conjunction with the
financial statements and notes included in the Company's annual audited
consolidated financial statements as of and for the year ended December 31,
2002.

  INVESTMENTS

       The Company's investments in bonds classified as available for sale and
trading are carried at their fair value. The difference between book value and
fair value of bonds classified as available for sale, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
stockholders equity and, accordingly, has no effect on net income other than for
impairments deemed to be other than temporary. The current year change in the
difference between book value and fair value of bonds classified as trading is
included in income.

       Preferred stocks are carried at fair value. The difference between book
and fair value of preferred stocks classified as available for sale, net of the
effect of deferred income taxes, is reflected in accumulated other comprehensive
income in stockholders' equity and, accordingly, has no effect on net income
other than for impairments deemed to be other than temporary. The current year
change in the difference between book value and fair value of preferred stocks
classified as trading is included in income.

       Common stocks are carried at fair value. All of the Company's investments
in common stocks are classified as trading at June 30, 2003 and 2002. The
current year change in the difference between book value and fair value of
common stocks is included in income.

                                       F-31
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

       During the six months ended June 30, 2003, the Company recorded other
than temporary impairment losses of $1.9 million on its fixed income portfolio
and $0.7 million on its investments in limited partnerships. No such losses were
incurred during the six months ended June 30, 2002.

       Other invested assets are comprised primarily of limited liability
partnerships interests and uncollateralized commercial loans. Partnership
interests of three percent ownership or greater are accounted for under the
equity method. Partnership interests of less than three percent ownership are
carried at their fair value. The difference between book value and fair value of
partnership interests of less than three percent ownership, net of the effect of
deferred income taxes, is reflected in accumulated other comprehensive income in
stockholders equity and, accordingly, has no effect on net income other than for
impairments deemed to be other than temporary. Uncollateralized commercial loans
are stated at unpaid principal balances, net of allowances.

       Net realized gains and losses on investments are reported as a component
of income from investments. Such gains or losses are determined based on the
specific identification method.

       The Company's investments are regularly evaluated to determine if
declines in market value below amortized cost are other than temporary. If
market value declines are determined to be other than temporary, the security's
cost basis is adjusted to the market value of the security, with the loss
recognized in the current period.

       Realized losses recorded, as a result of other than temporary impairment
evaluations, for the six months ended June 30, 2002 and 2003 were $0 and
$2,617,000, respectively.

       Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction with willing parties. The fair values of the
Company's investments in bonds and stocks are determined on the basis of quoted
market prices.

  OTHER UNDERWRITING EXPENSES

       In March 2003, the Company resolved a claim by one of its producers. The
Company paid the agent $350,000 in connection with this resolution. This
$350,000 charge is included in the Company's results of operations in 2003 as an
other underwriting expense.

       During 2003, the Company increased its allowance for doubtful
uncollectible reinsurance receivables by $1,750,000.

  INCOME TAXES

       The Company files a consolidated federal tax return. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

       A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining defined tax
assets.

       On February 28, 2003, AIS converted from a C Corporation to an S
Corporation. AIS will file a consolidated federal tax return as of February 28,
2003. In subsequent periods, UNIC and its subsidiaries

                                       F-32
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

will file a consolidated federal income tax return and AIS and its other
subsidiaries, AIAA, IUI and URP, will each file a separate, stand-alone federal
income tax return.

(2)  SEGMENT INFORMATION

       The Company's operations are classified into three reportable business
segments that are organized around its three underwriting divisions: E&S Lines,
specialty admitted and reinsurance. The segments follow the same accounting
policies used for the Company's consolidated financial statements as described
in the summary of significant accounting policies. Management evaluates a
segment's performance based upon premium production and the associated losses
and loss adjustment expense experience. Investments and investment performance
including investment income and net realized investment gains and losses;
acquisition costs and other underwriting expenses including commissions, premium
taxes and other acquisition costs; and other operating expenses are managed at a
corporate level by the corporate accounting function in conjunction with other
corporate departments and are included in "Corporate." The reinsurance segment
was de-emphasized in 2002. Subsequent to June 30, 2002, the Company amended the
treaty with the reinsurer to reduce the net premiums written and earned for 2002
to $0; subsequent to that the treaty was commuted.

       Gross premiums written, excluding the reinsurance segment, by product
class for the six months ended June 30, 2002 and 2003 are as follows:
SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2002       2003
                   (DOLLARS IN THOUSANDS)                     --------   --------
Specific specialty..........................................  $236,142   $151,366
Umbrella and excess.........................................   106,295    100,367
Property and general liability..............................    38,598     66,507
Non-medical professional liability..........................    31,047     44,713
                                                              --------   --------
    Total...................................................  $412,082   $362,953
                                                              ========   ========
The gross premiums written information above is not segregated by business
segment because product lines cross segments.

                                       F-33
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

       Following is a tabulation of business segment information for the six
months ended June 30, 2002 and 2003. Corporate information is included to
reconcile segment data to the consolidated financial statements:
EXCESS AND     SPECIALTY
                                    SURPLUS LINES   ADMITTED    REINSURANCE   CORPORATE      TOTAL
      (DOLLARS IN THOUSANDS)        -------------   ---------   -----------   ----------   ----------
SIX MONTHS ENDED JUNE 30, 2002:
Revenue:
Gross premiums written............    $278,991      $133,091      $23,000     $       --   $  435,082
Net premiums written..............      54,277        32,818       23,000             --      110,095
Net premiums earned...............      46,899        25,447       22,750             --       95,096
Net investment income.............          --            --           --          8,879        8,879
Net realized investment losses....          --            --           --         (7,914)      (7,914)
                                      --------      --------      -------     ----------   ----------
  Total revenue...................      46,899        25,447       22,750            965       96,061
Losses and expenses:
Net losses and loss adjustment
  expenses........................      33,868        18,208       22,750             --       74,826
Acquisition costs and other
  underwriting expenses...........                                                12,286       12,286
Provision for doubtful reinsurance
  receivables.....................          --            --           --             --           --
Other operating expenses..........          --            --           --          1,423        1,423
Interest and other investment
  expense.........................          --            --           --             28           28
                                      --------      --------      -------     ----------   ----------
Income (loss) before income
  taxes...........................      13,031         7,239           --        (12,772)       7,498
Income tax expense................          --            --           --            431          431
                                      --------      --------      -------     ----------   ----------
Net income (loss) before equity in
  net loss of partnerships........      13,031         7,239           --        (13,203)       7,067
Equity in net loss of
  partnerships....................          --            --           --           (283)        (283)
                                      --------      --------      -------     ----------   ----------
  Net income (loss)...............    $ 13,031      $  7,239      $    --     $  (13,486)  $    6,784
                                      ========      ========      =======     ==========   ==========
  Total assets....................                                            $1,757,877   $1,757,877
                                                                              ==========   ==========
F-34
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)
EXCESS AND     SPECIALTY
                                    SURPLUS LINES   ADMITTED    REINSURANCE   CORPORATE      TOTAL
      (DOLLARS IN THOUSANDS)        -------------   ---------   -----------   ----------   ----------
SIX MONTHS ENDED JUNE 30, 2003:
Revenue:
Gross premiums written............    $241,952      $121,001      $    --     $       --   $  362,953
Net premiums written..............      57,493        41,968           --             --       99,461
Net premiums earned...............      56,240        38,157           --             --       94,397
Net investment income.............          --            --           --          9,329        9,329
Net realized investment gains.....          --            --           --          3,116        3,116
                                      --------      --------      -------     ----------   ----------
  Total revenue...................      56,240        38,157           --         12,445      106,842
Losses and Expenses:
Net losses and loss adjustment
  expenses........................      38,007        23,839           --             --       61,846
Acquisition costs and other
  underwriting expenses...........          --            --           --         20,733       20,733
Provision for doubtful reinsurance
  receivables.....................          --            --           --          1,750        1,750
Other operating expenses..........          --            --           --            367          367
Interest and expense..............          --            --           --             12           12
                                      --------      --------      -------     ----------   ----------
Income (loss) before income
  taxes...........................      18,233        14,318           --        (10,417)      22,134
Income tax expense................          --            --           --          5,012        5,012
                                      --------      --------      -------     ----------   ----------
Net income (loss) before equity in
  net income of partnerships......      18,233        14,318           --        (15,429)      17,122
Equity in net income of
  partnerships....................          --            --           --          1,487        1,487
                                      --------      --------      -------     ----------   ----------
  Net income (loss)...............    $ 18,233      $ 14,318      $    --     $  (13,942)  $   18,609
                                      ========      ========      =======     ==========   ==========
  Total assets....................                                            $2,782,655   $2,782,655
                                                                              ==========   ==========
(3)  RELATED PARTY TRANSACTIONS

       As of December 31, 2002 and June 30, 2003, the Company had balances
payable due to affiliates totaling approximately $163,000 and $101,000,
respectively.

       During 2001, the Company made a loan to AMC Group, LLC (an affiliate).
This note, which was carried at amortized cost of $758,147, was included in
other invested assets as of December 31, 2002. In April 2003, this note was sold
for $616,234 (the amortized value as of April 30, 2003) to American
Manufacturing Corporation (an affiliate). No gain or loss was realized on the
sale to American Manufacturing Corporation.

       During 2001, AIS purchased a promissory note from Philadelphia Gear
Corporation, an affiliate, for $2,354,733. The annual rate of interest on this
note was 6.3%. The promissory note was a loan to 181 Properties, LP (an
affiliate). This note, which was carried at amortized cost of $2,354,733, was
included in other invested assets as of December 31, 2002. In April 2003, this
note was sold for $2,354,733 to American Manufacturing Corporation (an
affiliate). No gain or loss was realized on the sale to American Manufacturing
Corporation.

                                       F-35
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(4)  COMMITMENTS AND CONTINGENCIES

       The Company has committed to investing $62,151,000 over a period of time
into several limited liability partnership funds. As of June 30, 2003,
$43,236,000 has been invested. During July and August of 2003, an additional
$2,663,000 was invested. On August 25, 2003, the Company sold its interest in
six limited liability partnership funds to AMC, an affiliate, for $5,978,586.
AMC also assumed the Company's future investment commitments, totaling
$6,599,000, with respect to the six limited liability funds purchased. Excluding
the investment commitments transferred to American Manufacturing Corporation,
the Company has a remaining commitment of $9,653,000. The timing and funding of
this remaining commitment has not been determined. As investment opportunities
are identified by the partnerships, capital calls will be made.

       Various lawsuits against the Company have arisen in the ordinary course
of the Company's business, including defending coverage claims brought against
the Company by its policyholders or others. The Company's litigation, including
coverage claims matters, is subject to many uncertainties, and given their
complexity and scope, the outcomes cannot be predicted with certainty. It is
possible that the results of operations in a particular quarterly or annual
period could be materially affected by an ultimate unfavorable outcome of
litigation and /or coverage claim matters. Management believes, however, that
the ultimate outcome of all litigation and coverage claim matters after
consideration of applicable reserves should not have a material adverse effect
on the Company's financial condition.

       On January 26, 2001, our subsidiary DSIC was named a defendant in a
lawsuit filed in the United States Court for the Southern District of New York
by Bank of America N.A. and Platinum Indemnity Limited for breach of contract,
negligent supervision and reckless disregard of an agent, and related claims for
relief. Bank of America and Platinum seek indemnification of approximately $29
million, plus interest in excess of $10 million and fees and costs, under
alleged "facultative reinsurance policies" issued by Worldwide Weather Insurance
Agency, Inc. purportedly on behalf of DSIC. The complaint alleges the
facultative certificates reinsure Platinum for losses paid under Weather Risk
Mitigation Insurance Policies issued by Platinum to Palladium Insurance Limited
covering specific weather derivative trades. Bank of America is the issuing bank
for a letter of credit in favor of Palladium, and is allegedly the assignee of
Platinum's rights against DSIC. DSIC denies the allegations in the complaint,
and takes the position, among other things, that even if the facultative
certificates were issued in its name, they are unenforceable because Worldwide
Weather Insurance Agency and its principal exceeded any authority, either actual
or apparent, to issue the "facultative reinsurance policies." The parties are
currently engaged in discovery, and a trial date has not been set. The Company
believes that this claim is without merit and is vigorously defending this
action.

       In related proceedings, DSIC has preserved its potential avenues of
recovery in the event it is found liable to Bank of America and Platinum. DSIC
is in arbitration against Partner Reinsurance Company Ltd. and Partner
Reinsurance Company of the U.S. seeking recovery under a reinsurance agreement
covering the business produced by Worldwide Weather Insurance Agency on a 100%
quota share basis. In addition, if it were held liable to Bank of America on the
grounds DSIC was negligent in appointing the Worldwide Weather Insurance Agency,
DSIC is claiming indemnification and contribution from Partner Reinsurance
Company of the U.S. because of its role in the appointment of the agency's
principal and the Worldwide Weather Insurance Agency. The arbitration has been
consolidated into the Bank of America litigation for discovery purposes, and is
not likely to proceed to a hearing until the Bank of America litigation is
resolved.

       During 2002, the Company established a $25,000,000 Revolving Credit
Facility with Citizens Bank of Pennsylvania. Interest is payable monthly at
either the London inter-bank "offered" rate
                                       F-36
WIND RIVER INVESTMENT CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             JUNE 30, 2002 AND 2003
                                  (UNAUDITED)

(LIBOR) plus 65 basis points or the Prime Rate. The Revolving Credit Facility
was converted to a Demand Discretionary Facility in February 2003. As of June
30, 2003, there were no balances due in connection with this credit facility.

(5)  SUBSEQUENT EVENTS

       On May 1, 2003, affiliates of Fox Paine and Company, LLC, a San
Francisco, California based private equity firm, entered into an Investment
Agreement in which they agreed to acquire a controlling interest in the Wind
River Investment Corporation, the Company's direct parent, from a group of
family trusts affiliated with the Ball family of Philadelphia, Pennsylvania,
which trusts then held 100% of the issued and outstanding shares of Wind River
Investment Corporation. The transactions contemplated by the Investment
Agreement, as it had been subsequently amended, were completed on September 5,
2003.

       On August 25, 2003, the Company sold its interest in six limited
liability partnership funds to American Manufacturing Corporation, an affiliate,
for $5,978,586, the sum of carrying value per UNIC's March 31, 2003 statutory
financial statement plus any capital calls and less any distributions between
July 1, 2003 and August 25, 2003. The fair value of these investments as of June
30, 2003 was $5,447,693. The Company will record a capital loss of $112,155 in
connection with this transaction.

(6)  NEW ACCOUNTING PRONOUNCEMENTS

       In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). The objective of SFAS No. 150 is to establish standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equities. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Management has determined that this interpretation will
have no effect on the Company's consolidated financial statements.

       In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure ("SFAS No. 148"), which amends SFAS Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). The objective of SFAS No. 148 is to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148 does not change the provisions of SFAS No. 123 that permit entities to
continue to apply the intrinsic value method of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Management has determined that
this interpretation will have no effect on the Company's consolidated financial
statements.

       FASB Interpretation 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" became effective December 15, 2002. This interpretation elaborates on
the disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Management has
determined that this interpretation will have no effect on the Company's
consolidated financial statements.

       FASB Interpretation 46 "Consolidation of Variable Interest Entities" was
issued in January 2003 and is effective at various dates for various
requirements. The interpretation addresses consolidation of variable interest
entities (formerly known as special purpose entities). Management has determined
that this interpretation will have no effect on the Company's consolidated
financial statements.
                                       F-37
NOTE CONCERNING FINANCIAL INFORMATION OF UNITED NATIONAL GROUP, LTD.

     United National Group, Ltd. was organized by Fox Paine & Company on August
27, 2003, for the purpose of acquiring Wind River Investment Corporation and its
subsidiaries, which acquisition was completed on September 5, 2003. United
National Group, Ltd. did not have any material assets or operations prior to
September 5, 2003. As a result, we have not included any financial information
for United National Group, Ltd.

                                       F-38
GLOSSARY OF SELECTED INSURANCE TERMS

Admitted Company..............   An insurer that is authorized and licensed to
                                 do business in a given jurisdiction.

Broker........................   An intermediary that negotiates contracts of
                                 insurance or reinsurance on behalf of an
                                 insured party, receiving a commission from the
                                 insurer or reinsurer for placement and other
                                 services rendered.

Capacity......................   The percentage of surplus, or the dollar amount
                                 of exposure, that an insurer or reinsurer is
                                 willing or able to place at risk. Capacity may
                                 apply to a single risk, a program, a line of
                                 business or an entire book of business.
                                 Capacity may be constrained by legal
                                 restrictions, corporate restrictions or
                                 indirect restrictions.

Casualty Insurance or
Reinsurance...................   Insurance or reinsurance that is primarily
                                 concerned with the losses caused by injuries to
                                 third persons, i.e., not the insured, or to
                                 property owned by third persons and the legal
                                 liability imposed on the insured resulting
                                 therefrom. It includes, but is not limited to,
                                 employers' liability, workers' compensation,
                                 public liability, automobile liability,
                                 personal liability and aviation liability
                                 insurance. It excludes certain types of losses
                                 that by law or custom are considered as being
                                 exclusively within the scope of other types of
                                 insurance or reinsurance, such as fire or
                                 marine.

Catastrophe...................   A severe loss, typically involving multiple
                                 claimants. Common perils include earthquakes,
                                 hurricanes, hailstorms, severe winter weather,
                                 floods, fires, tornadoes, explosions and other
                                 natural or man-made disasters. Catastrophe
                                 losses may also arise from acts of war, acts of
                                 terrorism and political instability.

Cede; Ceding Company..........   When an insurer reinsures some or all of its
                                 liability with another insurer, it "cedes"
                                 business and is referred to as the "ceding
                                 company."

Claim.........................   Request by an insured or reinsured for
                                 indemnification by an insurance company or a
                                 reinsurance company for loss incurred from an
                                 insured peril or event.

Clash.........................   Exposure to a larger single loss than intended
                                 due to losses incurred under two or more
                                 coverages or policies for the same event.

Combined Ratio................   The sum of the expense ratio and the losses and
                                 loss adjustment expense ratio.

Development...................   The difference between the amount of reserves
                                 for losses and loss adjustment expenses
                                 initially estimated by an insurer and the
                                 amount reestimated in an evaluation on a later
                                 date.

Direct Insurance..............   Insurance sold by an insurer that contracts
                                 with the insured, as distinguished from
                                 reinsurance.

Directors and Officers
Liability.....................   Insurance that covers liability for corporate
                                 directors and officers for wrongful acts,
                                 subject to applicable exclusions, terms and
                                 conditions of the policy.

                                       G-1
Premiums Earned...............   That portion of property and casualty premiums
                                 written that applies to the expired portion of
                                 the policy term. Earned premiums are recognized
                                 as revenues under both SAP and U.S. GAAP.

Excess and Surplus Lines......   Lines of insurance that admitted companies
                                 generally are not providing in a given
                                 jurisdiction and which are placed through
                                 excess and surplus line brokers with companies
                                 not admitted in the jurisdiction. Excess and
                                 surplus lines policies generally are not
                                 subject to regulations governing premium rates
                                 or policy language. Excess and surplus lines
                                 coverage may be provided for specialty products
                                 or for standard coverages that at such time are
                                 not being offered by admitted companies in the
                                 particular jurisdiction.

Excess of Loss................   Reinsurance or insurance that indemnifies the
                                 reinsured or insured against all or a specified
                                 portion of losses over a specified currency
                                 amount or "retention."

Exclusions....................   Provisions in an insurance or reinsurance
                                 policy excluding certain risks or otherwise
                                 limiting the scope of coverage.

Expense Ratio.................   Under SAP, the ratio of underwriting expenses
                                 to net premiums written. Under generally
                                 accepted accounting principles, the ratio of
                                 acquisition costs and underwriting expenses to
                                 net premiums earned.

Exposure......................   The possibility of loss. A unit of measure of
                                 the amount of risk a company assumes.

Frequency.....................   The number of claims occurring during a given
                                 coverage period.

General Agency................   An independent agency that represents one or
                                 more insurers and has the authority to appoint
                                 sub-agents who write their business through the
                                 general agency. A general agency places
                                 insurance with an insurance company in
                                 accordance with underwriting criteria, terms
                                 and rates established by the insurance company.

Gross Premiums Written and
Acquired......................   Total premiums for insurance written and
                                 assumed reinsurance during a given period.

Incurred but Not Reported, or
"IBNR"........................   The liability for future payments on losses
                                 which have occurred but have not yet been
                                 reported in the insurer's records. This may
                                 include expected future development on reported
                                 claims.

Liability Insurance...........   Same as casualty insurance.

Loss; Losses..................   An occurrence that is the basis for submission
                                 or payment of a claim. Losses may be covered,
                                 limited or excluded from coverage, depending on
                                 the terms of the policy.

Loss Adjustment Expense.......   The expenses of settling claims, including
                                 legal and other fees.

Loss Expenses.................   The expenses of settling claims, including
                                 legal and other fees and the portion of general
                                 expenses allocated to claim settlement costs.

                                       G-2
Losses and Loss Adjustment
Expense Ratio.................   The ratio of incurred losses and loss
                                 adjustment expenses to premiums earned.
                                 Incurred losses include an estimated provision
                                 for incurred but not reported claims.

Loss Reserves.................   Liabilities established by insurers and
                                 reinsurers to reflect the estimated cost of
                                 claims incurred that the insurer or reinsurer
                                 will ultimately be required to pay in respect
                                 of insurance or reinsurance it has written.
                                 Reserves are established for losses and for
                                 loss expenses, and consist of case reserves and
                                 IBNR reserves. As the term is used in this
                                 prospectus, "loss reserves" is meant to include
                                 reserves for both losses and for loss expenses.

Losses Incurred...............   The total losses sustained by an insurer or
                                 reinsurer under a policy or policies, whether
                                 paid or unpaid. Incurred losses include a
                                 provision for IBNR.

National Association of
Insurance Commissioners, or
"NAIC"........................   An organization of the insurance commissioners
                                 or directors of all 50 states and the District
                                 of Columbia organized to promote consistency of
                                 regulatory practice and statutory accounting
                                 standards throughout the United States.

Net Premiums Earned...........   The portion of net premiums written during or
                                 prior to a given period that was actually
                                 recognized as income during such period.

Net Premiums Written..........   Premiums retained by an insurer after deducting
                                 premiums on business ceded to others.

Non-Admitted Company..........   An insurer not licensed in a given
                                 jurisdiction, but writing insurance in that
                                 jurisdiction on an unregulated basis with the
                                 permission of the insurance regulatory
                                 authorities of that jurisdiction. In some
                                 jurisdictions, non-admitted companies appear on
                                 a list of approved, non-admitted companies.

Policyholders Surplus.........   The amount remaining after all liabilities of
                                 an insurance company are subtracted from all of
                                 its assets, applying statutory accounting
                                 principles. This amount is regarded as
                                 financial protection to policyholders in the
                                 event an insurer suffers unexpected or
                                 unreserved losses.

Premiums......................   The amount charged during the term on policies
                                 and contracts issued, renewed or reinsured by
                                 an insurance company or reinsurance company.

Professional Liability........   Insurance that provides coverage for attorneys,
                                 doctors, accountants and other professionals.

Rates.........................   Amounts charged per unit of insurance and
                                 reinsurance.

Reinsurance...................   A procedure whereby an insurer remits or cedes
                                 a portion of the premium to a reinsurer as
                                 payment to the reinsurer for assuming a portion
                                 of the related risk.

Reported Losses...............   Claims or potential claims that have been
                                 identified to a reinsurer by a ceding company
                                 or to an insurer by an insured.

                                       G-3
Reserves......................   Estimates at a given point in time of amounts
                                 that an insurance carrier expects to pay on
                                 losses based on facts and circumstances then
                                 known.

Retention.....................   The amount of exposure a policyholder company
                                 retains on any one risk or group of risks. The
                                 term may apply to an insurance policy, where
                                 the policyholder is an individual, family or
                                 business, or a reinsurance policy, where the
                                 policyholder is an insurance company.

Risk-Based Capital, or
"RBC".........................   A measure adopted by the NAIC and enacted by
                                 states for determining the minimum statutory
                                 capital and surplus requirements of insurers
                                 with required regulatory and company actions
                                 that apply when an insurer's capital and
                                 surplus is below these minimums.

Specialty Lines...............   Lines of insurance for risks that are unique,
                                 unusual or otherwise difficult to find insurers
                                 willing to insure.

Statutory Accounting
Principles, or "SAP"..........   Those principles required by state law that
                                 must be followed by insurers in submitting
                                 their financial statements to state insurance
                                 departments.

Statutory Policyholders
Surplus or Surplus............   As determined under SAP, the amount remaining
                                 after all liabilities, including loss reserves,
                                 are subtracted from all admitted assets.
                                 Admitted assets are assets of an insurer
                                 prescribed or permitted by a state to be
                                 recognized on the statutory balance sheet.
                                 Statutory surplus is also referred to as
                                 "surplus" or "surplus as regards policyholders"
                                 for statutory accounting purposes.

TPAs..........................   Third party administrators that are used to
                                 assist in the processing of claims.

Underwriting..................   The process of reviewing applications submitted
                                 for insurance coverage and determining whether
                                 to accept all or part of the coverage being
                                 requested and what the applicable premiums,
                                 terms and conditions should be.

Underwriting Expense..........   As used in the definition of "Expense Ratio,"
                                 the aggregate of policy acquisition costs and
                                 the portion of general and administrative and
                                 other expenses of an insurer attributable to
                                 underwriting operations.

U.S. GAAP.....................   United States generally accepted accounting
                                 principles as defined by the American Institute
                                 of Certified Public Accountants or statements
                                 of the Financial Accounting Standards Board.
                                 U.S. GAAP is the method of accounting to be
                                 used by the Company for reporting to
                                 shareholders.

Umbrella Liability............   A form of insurance protection against losses
                                 in excess of amounts covered by other liability
                                 insurance policies or amounts not covered by
                                 the usual liability policies.

Underwriter...................   An employee of an insurance or reinsurance
                                 company who examines, accepts or rejects risks
                                 and classifies accepted risks in

                                       G-4
order to charge an appropriate premium for each
                                 accepted risk. The underwriter is expected to
                                 select business that will produce an average
                                 risk of loss no greater than that anticipated
                                 for the class of business.

Unearned Premium..............   The portion of premiums written that is
                                 allocable to the unexpired portion of the
                                 policy term.

                                       G-5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

     Through and including           , 2003, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

                                     SHARES

                          [UNITED NATIONAL GROUP LOGO]

                          UNITED NATIONAL GROUP, LTD.

                             CLASS A COMMON SHARES

                             ----------------------

                                   PROSPECTUS
                             ----------------------

                              MERRILL LYNCH & CO.
                         BANC OF AMERICA SECURITIES LLC
                       DOWLING & PARTNERS SECURITIES, LLC

                                           , 2003

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

       The following table sets forth the estimated expenses expected to be
incurred by the registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions.
Securities and Exchange Commission registration fee.........   $18,607
National Association of Securities Dealers, Inc. filing
  fee.......................................................         *
Nasdaq National Market listing fee..........................         *
Legal fees and expenses.....................................         *
Accounting fees and expenses................................         *
Blue sky fees and expenses..................................         *
Printing and engraving expenses.............................         *
Registrar and transfer agent fees and expenses..............         *
Miscellaneous fees and expenses.............................         *
                                                               -------
     Total..................................................   $     *
                                                               -------
---------------

* To be filed by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

       The articles of association of the registrant provide for the
indemnification of its directors and officers. Specifically, under the
indemnification provisions, the registrant will indemnify its directors and
officers to the fullest extent permitted by law against liabilities that are
incurred by the directors or officers while executing the duties of their
respective offices. The directors and officers, however, will not be entitled to
the indemnification if they incurred the liabilities through their own willful
default or fraud.

       The board resolutions of the registrant provide for the indemnification
of its directors and officers against any claims arising out of or relating to
the preparation, filing and distribution of this registration statement or the
prospectus contained in this registration statement. The resolutions expressly
authorize the registrant to indemnify its directors and officers to the fullest
extent permitted by law.

       The registrant is an exempted company with limited liability incorporated
in the Cayman Islands. As such, it is subject to and governed by the laws of the
Cayman Islands with respect to the indemnification provisions. Although The
Companies Law (2003 Revision) of the Cayman Islands does not specifically
restrict a Cayman Islands company's ability to indemnify its directors or
officers, it does not expressly provide for such indemnification either. Certain
English case law (which is likely to be persuasive in the Cayman Islands),
however, indicate that the indemnification is generally permissible, unless
there had been fraud, willful default or reckless disregard on the part of the
director or officer in question.

       The registrant has entered into indemnification agreements with its
directors and officers, whereby the registrant agreed to indemnify its directors
and officers to the fullest extent permitted by law, including indemnification
against expenses and liabilities incurred in legal proceedings to which the
director or officer was, or is threatened to be made, a party by reason of the
fact that such director or officer is or was a director, officer, employee or
agent of the registrant, provided that such director or officer acted in good
faith and in a manner that the director or officer reasonably believed to be in,
or not opposed to, the best interest of the registrant. At present, there is no
pending litigation or proceeding involving a director or officer of the
registrant regarding which indemnification is sought, nor is the registrant
aware of any threatened litigation that may result in claims for
indemnification.

                                       II-1
The registrant maintains insurance policies that indemnify its directors
and officers against various liabilities arising under the Securities Act of
1933 and the Securities Exchange Act of 1934 that might be incurred by any
director or officer in his capacity as such.

       The underwriters are obligated, under certain circumstances, pursuant to
the underwriting agreement to be filed as Exhibit 1.1 hereto, to indemnify the
registrant, the selling shareholder, the directors, certain officers and
controlling persons of the registrant against liabilities under the Securities
Act of 1933, as amended.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

       In the three years prior to the filing of this registration statement,
the registrant issued the following unregistered securities:

       1.  Upon the incorporation of the registrant on August 26, 2003, One
           subscriber share was issued to the incorporator, Roderick Palmer,
           which share was repurchased by the registrant on September 5, 2003.
           Such sale was deemed to be exempt from registration under the
           Securities Act in reliance on Section 4(2) of the Securities Act as a
           transaction not involving any public offering.

       2.  On August 29, 2003, the registrant issued 15,000 Class B Common
           Shares, par value $0.0001 per share (the "Class B Shares") to U.N.
           Holdings (Cayman) Ltd. in exchange for consideration of $150,000 in
           cash. Such sale was deemed to be exempt from registration under the
           Securities Act in reliance on Section 4(2) of the Securities Act as a
           transaction not involving any public offering.

       3.  On September 5, 2003, the registrant issued an aggregate of 2,500,000
           Class A Common Shares, par value $0.0001 per share (the "Class A
           Shares"), 9,985,000 Class B Shares, and 17,500,000 Series A Preferred
           Shares, par value $0.0001 per share (the "Preferred Shares"), in
           connection as described under "Our Relationship with Fox Paine &
           Company." Such sales were deemed to be exempt from registration under
           the Securities Act in reliance on Section 4(2) of the Securities Act
           as a transaction not involving any public offering. The Amended and
           Restated Investment Agreement pursuant to which such issuances were
           effected is filed as an exhibit to this registration statement.

       4.  On September 5, 2003, the registrant issued an aggregate of 198,750
           Class A Shares to Seth A. Freudberg, Richard S. March, Kevin L. Tate,
           Robert Cohen, William F. Schmidt and Jonathan Ritz, each of whom is
           an officer of subsidiaries of the registrant, in exchange for an
           aggregate of $2 million in cash. Such sales were deemed to be exempt
           from registration under the Securities Act in reliance on Section
           4(2) of the Securities Act as a transaction not involving any public
           offering.

       5.  On September 5, 2003, options to purchase an aggregate of 1,138,574
           Class A Shares were granted under the registrant's Stock Incentive
           Plan at a weighted average exercise price of $9.21 per share. The
           issuance of the Class A Shares under such plan was deemed to be
           exempt from registration under the Securities Act by virtue of Rule
           701 promulgated under Section 3(b) of the Securities Act as
           transactions pursuant to compensation benefit plans and contracts
           relating to compensation.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

       The following exhibits are being filed with this registration statement
pursuant to Item 601 of Regulation S-K.

                                       II-2
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
1.1*    Form of Underwriting Agreement
  2.1*    Amended and Restated Investment Agreement, dated as of
          September 5, 2003, by and among U.N. Holdings (Cayman),
          Ltd., United National Group Ltd., U.N. Holdings II, Inc.,
          U.N. Holdings Inc., Wind River Investment Corporation and
          certain Trusts Listed on Schedule A thereof.
  3.1*    Amended and Restated Memorandum and Articles of Association
          of United National Group Ltd.
  3.2*    Written Resolutions of the Board of Directors Designating
          the Rights and Preferences of the Series A Preferred Shares
          of United National Group Ltd., dated September 5, 2003
  4.1*    Form of 5.0% Senior Note, due September 5, 2015, of Wind
          River Investment Corporation
  4.2*    Deed of Guaranty, dated September 5, 2003, by United
          National Group Ltd. in favor of the holders of the 5.0%
          Senior Notes, due September 5, 2015, of Wind River
          Investment Corporation
  5.1*    Legal Opinion of Walkers
 10.1*    Shareholders Agreement, dated as of September 5, 2003, by
          and among United National Group Ltd., U.N. Holdings (Cayman)
          Ltd. and those trusts signatory thereto.
 10.2*    Management Shareholders Agreement, dated as of September 5,
          2003, by and among United National Group Ltd. and those
          management shareholder signatory thereto.
 10.3*    Management Agreement, dated as of September 5, 2003, by and
          among United National Group Ltd., Fox Paine & Company, LLC
          and The AMC Group, L.P., with related Indemnity Letter.
 10.4.*   United National Group Ltd. Stock Incentive Plan.
 10.5*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Seth A.
          Freudberg.
 10.6*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Richard S.
          March.
 10.7*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Kevin L. Tate.
 10.8*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Robert Cohen.
 10.9*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and William F.
          Schmidt.
 10.10*   Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Jonathan Ritz.
 11.1*    Statement Regarding Computation of Per Share Earnings.
 21.1*    List of Subsidiaries
 23.1     Consent of PricewaterhouseCoopers LLP
 23.2*    Consent of Walkers (included in Exhibit 5)
 24.1*    Powers of Attorney (included on the signature pages hereto)
 27.1*    Financial Data Schedule
 99.1*    Form F-N
------------

* To be filed by amendment.

ITEM 17.  UNDERTAKINGS

       Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant

                                       II-3
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

       The undersigned registrant hereby undertakes that:

                1.  For purposes of determining any liability under the
       Securities Act of 1933, the information omitted from the form of
       prospectus filed as part of this registration statement in reliance upon
       Rule 430A and contained in a form of prospectus filed by the registrant
       pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
       shall be deemed to be part of this registration statement as of the time
       it was declared effective.

                2.  For the purpose of determining any liability under the
       Securities Act of 1933, each post-effective amendment that contains a
       form of prospectus shall be deemed to be a new registration statement
       relating to the securities offered therein, and the offering of such
       securities at that time shall be deemed to be the initial bona fide
       offering thereof.

                                       II-4
SIGNATURES

       Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on September 16, 2003.

                                          UNITED NATIONAL GROUP, LTD.

                                          By:        /s/ SAUL A. FOX
                                            ------------------------------------
                                          Name:  Saul A. Fox
                                          Title:   Chairman and Chief Executive
                                          Officer

                               POWER OF ATTORNEY

       KNOW ALL PERSONS BY THESE PRESENTS:  that each person whose signature
appears below hereby constitutes and appoints Saul A. Fox, Troy W. Thacker and
Kevin L. Tate, and each of them, that person's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for that person
and in that person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to the registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as full to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute, may lawfully do or cause to be done
by virtue hereof.

       Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on September 16, 2003.
SIGNATURE                                                 TITLE
---------                                                 -----
/s/ SAUL A. FOX                       Chairman and Chief Executive Officer
--------------------------------------------------------
                      Saul A. Fox

                  /s/ TROY W. THACKER                     President and Director
--------------------------------------------------------
                    Troy W. Thacker

                   /s/ KEVIN L. TATE                      Principal Financial Officer
--------------------------------------------------------
                     Kevin L. Tate

                /s/ W. DEXTER PAINE, III                  Director
--------------------------------------------------------
                  W. Dexter Paine, III

                 /s/ ANGELOS J. DASSIOS                   Director
--------------------------------------------------------
                   Angelos J. Dassios

                /s/ RUSSELL C. BALL, III                  Director
--------------------------------------------------------
                  Russell C. Ball, III
II-5
REPORT OF INDEPENDENT AUDITORS ON
                         FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders of
  Wind River Investment Corporation:

Our audits of the consolidated financial statements referred to in our report
dated June 25, 2003 appearing in this Registration Statement on Form S-1 also
included an audit of the financial statement schedules listed in Item 16(a)(2)
of this Registration Statement. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP
Philadelphia, PA
June 25, 2003

                                       S-1
WIND RIVER INVESTMENT CORPORATION

         SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS
                   IN RELATED PARTIES AS OF DECEMBER 31, 2002
AMOUNT AT
                                                                                       WHICH
                                                                                   SHOWN IN THE
                                                        COST*          VALUE       BALANCE SHEET
                                                     ------------   ------------   -------------
TYPE OF INVESTMENT:
BONDS
  United States Government and government agencies
     and authorities...............................  $ 29,364,450   $ 30,667,363   $ 30,667,363
  States, municipalities, and political
     subdivisions..................................   395,938,043    407,297,598    407,297,598
  Foreign Governments..............................            --             --             --
  Public Utilities.................................       823,049        748,125        748,125
  Convertibles and bonds with warrants attached....    14,090,269     13,859,313     13,859,313
  All other corporate bonds........................     9,654,972      8,452,673      8,452,673
Certificates of deposit............................            --             --             --
Redeemable preferred stock.........................       825,404        653,600        653,600
                                                     ------------   ------------   ------------
       Total fixed maturities......................   450,696,187    461,678,672    461,678,672
                                                     ============   ============   ============
EQUITY SECURITIES
Common Stocks......................................       669,740        542,327        542,327
  Public Utilities.................................     4,437,379      3,863,048      3,863,048
  Banks, trusts and insurance companies............    32,038,313     27,198,250     27,198,250
Non-redeemable preferred stock.....................     2,159,780      2,452,888      2,452,888
                                                     ------------   ------------   ------------
       Total equity securities.....................    39,305,212     34,056,513     34,056,513
                                                     ============   ============   ============
Mortgage loans on real estate......................     1,277,098             --      1,166,556
Real estate........................................            --             --             --
Policy loans.......................................            --             --             --
Other long-term investments........................    41,199,230             --     41,285,106
Short-term investments.............................            --             --             --
                                                     ------------   ------------   ------------
       Total Investments...........................  $532,477,727   $495,735,185   $538,186,847
                                                     ============   ============   ============
------------

* Original cost of equity securities; original cost of fixed maturities adjusted
  for amortization of premiums and accretion of discounts. All amounts are shown
  net of impairment losses.

                                       S-2
WIND RIVER INVESTMENT CORPORATION

              SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
         AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
FUTURE POLICY                    OTHER                                   BENEFITS,
                        DEFERRED       BENEFITS,                      POLICY                                   CLAIMS,
                         POLICY      LOSSES, CLAIMS                    AND                         NET        LOSSES AND
                       ACQUISITION      AND LOSS        UNEARNED     BENEFITS     PREMIUM      INVESTMENT     SETTLEMENT
       SEGMENT            COSTS         EXPENSES        PREMIUMS     PAYABLE      REVENUE        INCOME        EXPENSES
       -------         -----------   --------------   ------------   --------   ------------   -----------   ------------
2000:
Excess and Surplus
  Lines..............          --                --             --       --       40,504,000            --     24,613,000
Specialty Admitted...          --                --             --       --       25,677,000            --     18,408,000
Reinsurance..........          --                --             --       --       70,750,000            --     70,130,000
Corporate............      (8,000)      800,630,000    150,078,000       --               --    22,490,000             --
Total................  $   (8,000)   $  800,630,000   $150,078,000       --     $136,931,000   $22,490,000   $113,151,000

2001:
Excess and Surplus
  Lines..............          --                --             --       --       59,004,000            --     43,880,000
Specialty Admitted...          --                --             --       --       36,582,000            --     29,075,000
Reinsurance..........          --                --             --       --       54,750,000            --     55,383,000
Corporate............     428,000       907,357,000    214,028,000       --               --    19,353,000             --
Total................     428,000       907,357,000    214,028,000       --      150,336,000    19,353,000    128,338,000

2002:
Excess and Surplus
  Lines..............  $       --    $           --   $         --       --     $101,474,000   $        --   $128,642,000
Specialty Admitted...          --                --             --       --       53,039,000            --     64,857,000
Reinsurance..........          --                --             --       --        8,250,000            --      8,251,000
Corporate............   3,289,000     2,004,422,000    247,138,000       --               --    17,685,000             --
Total................   3,289,000     2,004,422,000    247,138,000       --      162,763,000    17,685,000    201,750,000
AMORTIZATION
                       OF DEFERRED
                          POLICY         OTHER
                       ACQUISITION     OPERATING      PREMIUMS
       SEGMENT            COSTS        EXPENSES       WRITTEN
       -------         ------------   -----------   ------------
2000:
Excess and Surplus
  Lines..............           --                    40,663,000
Specialty Admitted...           --             --     24,909,000
Reinsurance..........           --             --     62,000,000
Corporate............      280,000      2,918,000             --
Total................  $   280,000    $ 2,918,000   $127,572,000

2001:
Excess and Surplus
  Lines..............           --             --     68,226,000
Specialty Admitted...           --             --     39,084,000
Reinsurance..........           --             --     62,000,000
Corporate............     (436,000)     2,220,000             --
Total................     (436,000)     2,220,000    169,310,000

2002:
Excess and Surplus
  Lines..............  $        --    $        --   $112,110,000
Specialty Admitted...           --             --     60,579,000
Reinsurance..........           --             --             --
Corporate............    2,861,000      5,874,000             --
Total................    2,861,000      5,874,000    172,689,000
------------

                                       S-3
WIND RIVER INVESTMENT CORPORATION

                           SCHEDULE IV -- REINSURANCE
                                EARNED PREMIUMS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
PERCENTAGE
                                                 CEDED TO    ASSUMED FROM                OF AMOUNT
                                       GROSS       OTHER        OTHER                    ASSUMED TO
                                       AMOUNT    COMPANIES    COMPANIES     NET AMOUNT      NET
       (DOLLARS IN THOUSANDS)         --------   ---------   ------------   ----------   ----------
2000
Property and Liability Insurance....  $374,179   $311,875      $74,627       $136,931        54%
2001
Property and Liability Insurance....  $547,963   $456,226      $58,599       $150,336        39%
2002
Property & Liability Insurance......  $750,426   $597,201      $ 9,538       $162,763         6%
S-4
WIND RIVER INVESTMENT CORPORATION
  SCHEDULE VI -- SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY UNDERWRITERS
          AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, 2000
                             (DOLLARS IN THOUSANDS)
RESERVES FOR
                        DEFERRED     UNPAID CLAIMS
                         POLICY        AND CLAIM     DISCOUNT IF ANY
                       ACQUISITION    ADJUSTMENT       DEDUCTED IN     UNEARNED    EARNED    NET INVESTMENT
                          COSTS        EXPENSES         COLUMN C       PREMIUMS   PREMIUMS       INCOME
                       -----------   -------------   ---------------   --------   --------   --------------
Consolidated Property
  Casualty Entities
  2002...............    $3,289       $2,004,422                       $247,138   $162,763      $17,685
  2001...............       428          907,357                       214,028    150,336        19,353
  2000...............        (8)         800,630                       150,078    136,931        22,490
Unconsolidated
  property Casualty
  Entities(1)
  2002...............
  2001...............
  2000...............
Proportionate share
  of UNG and its
  subsidiaries
  50-percent-or-less-
  owned property
  casualty
  investees(1)
  2002...............
  2001...............
  2000...............
CLAIMS AND CLAIM
                          ADJUSTMENT EXPENSE       AMORTIZATION OF   PAID CLAIMS
                          INCURRED RELATED TO      DEFERRED POLICY    AND CLAIM
                       -------------------------     ACQUISITION     ADJUSTMENT    PREMIUMS
                       CURRENT YEAR   PRIOR YEAR        COSTS         EXPENSES     WRITTEN
                       ------------   ----------   ---------------   -----------   --------
Consolidated Property
  Casualty Entities
  2002...............    $130,327      $ 71,423        $(2,861)       $ 97,714     $172,689
  2001...............     134,558        (6,220)          (436)        102,680      169,310
  2000...............     123,476       (10,325)           280         149,892      127,572
Unconsolidated
  property Casualty
  Entities(1)
  2002...............
  2001...............
  2000...............
Proportionate share
  of UNG and its
  subsidiaries
  50-percent-or-less-
  owned property
  casualty
  investees(1)
  2002...............
  2001...............
  2000...............
------------

(1) All of the Companies entities are 100% owned and consolidated.

                                       S-5
EXHIBIT INDEX
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
1.1*    Form of Underwriting Agreement
  2.1*    Amended and Restated Investment Agreement, dated as of
          September 5, 2003, by and among U.N. Holdings (Cayman),
          Ltd., United National Group, Ltd., U.N. Holdings II, Inc.,
          U.N. Holdings LLC, U.N. Holdings Inc., Wind River Investment
          Corporation and certain Trusts Listed on Schedule A thereof.
  3.1*    Amended and Restated Memorandum and Articles of Association
          of United National Group Ltd.
  3.2*    Written Resolutions of the Board of Directors Designating
          the Rights and Preferences of the Series A Preferred Shares
          of United National Group, Ltd., dated September 5, 2003
  4.1*    Form of 5.0% Senior Note, due September 5, 2015, of Wind
          River Investment Corporation
  4.2*    Deed of Guaranty, dated September 5, 2003, by United
          National Group, Ltd. in favor of the holders of the 5.0%
          Senior Notes, due September 5, 2015, of Wind River
          Investment Corporation
  5.1*    Legal Opinion of Walkers
 10.1*    Shareholders Agreement, dated as of September 5, 2003, by
          and among United National Group Ltd., U.N. Holdings (Cayman)
          Ltd. and those trusts signatory thereto.
 10.2*    Management Shareholders Agreement, dated as of September 5,
          2003, by and among United National Group, Ltd. and those
          management shareholder signatory thereto.
 10.3*    Management Agreement, dated as of September 5, 2003, by and
          among United National Group, Ltd., Fox Paine & Company, LLC
          and The AMC Group, L.P., with related Indemnity Letter.
 10.4.*   United National Group, Ltd. Stock Incentive Plan.
 10.5*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Seth A.
          Freudberg.
 10.6*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Richard S.
          March.
 10.7*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Kevin L. Tate.
 10.8*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Robert Cohen.
 10.9*    Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and William F.
          Schmidt.
 10.10*   Employment Agreement, dated as of September 5, 2003, by and
          between United National Insurance Company and Jonathan Ritz.
 11.1*    Statement Regarding Computation of Per Share Earnings.
 21.1*    List of Subsidiaries
 23.1     Consent of PricewaterhouseCoopers LLP
 23.2*    Consent of Walkers (included in Exhibit 5)
 24.1*    Powers of Attorney (included on the signature pages hereto)
 27.1*    Financial Data Schedule
 99.1*    Form F-N
------------

* To be filed by amendment.