SYMONS INTERNATIONAL GROUP INC - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-29042

SYMONS INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)

INDIANA 35-1707115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4720 Kingsway Drive
Indianapolis, Indiana 46205
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (317) 259-6300

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

As of July 31, 2002, there were 10,385,399 shares of Registrant's no par value
common stock issued and outstanding.

FORM 10-Q INDEX

Page
Number
PART I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets at June 30, 2002
(unaudited) and December 31, 2001 3

Unaudited Consolidated Statements of Operations
for the Three Months Ended
June 30, 2002 and 2001 4

Unaudited Consolidated Statements of Operations
for the Six Months Ended
June 30, 2002 and 2001 5

Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 6

Condensed Notes to Unaudited Consolidated Financial
Statements 7

Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15

Item 3 Quantitative and Qualitative Disclosures about Market Risk 21

PART II OTHER INFORMATION 21

Item 1 Legal Proceedings 21

Item 2 Changes in Securities and Use of Proceeds 23

Item 3 Defaults Upon Senior Securities 23

Item 4 Submission of Matters to a Vote of Security Holders 23

Item 5 Other Information 23

Item 6 Exhibits and Reports on Form 8-K 23

SIGNATURES 24

CERTIFICATIONS 25

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMONS INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

June 30,
2002 December 31,
(Unaudited) 2001
----------- ----------

ASSETS
Investments available for sale:
Fixed maturities, at market . . . . . . . . . . . . . . . . . . . . . $ 75,230 $ 77,896
Equity securities, at market. . . . . . . . . . . . . . . . . . . . . 7,914 14,396
Short-term investments, at amortized cost, which approximates market. 5,540 13,266
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . 570 1,469
---------- ----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . 89,254 107,027
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 3,547 3,385
Receivables, net of allowance of $176 and $1,526, respectively. . . 38,185 44,688
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . . 36,177 31,546
Prepaid reinsurance premiums. . . . . . . . . . . . . . . . . . . . 35,023 40,039
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . 777 763
Property and equipment, net of accumulated depreciation . . . . . . 8,457 9,890
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . 4,291 4,376
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,393 2,418
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 218,104 $ 244,132
========== ==========

LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Liabilities:
Loss and loss adjustment expense reserves . . . . . . . . . . . . . . $ 73,686 $ 81,142
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . 50,487 59,216
Reinsurance payables. . . . . . . . . . . . . . . . . . . . . . . . . 58,950 58,226
Distributions payable on preferred securities . . . . . . . . . . . . 41,022 33,203
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,875 3,625
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1,380 596
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 16,904 17,136
---------- -- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 245,304 253,144
---------- -- --------
Minority interest:
Company-obligated mandatorily redeemable preferred stock of trust
subsidiary holding solely parent debentures . . . . . . . . . . . . 135,000 135,000
---------- -- --------
Shareholders' (Deficit):
Common stock, no par value, 100,000,000 shares authorized,
10,385,399 shares issued and outstanding in both 2002 and 2001. . . 38,136 38,136
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 5,851 5,851
Unrealized loss on investments available for sale . . . . . . . . . . (3,651) (2,613)
Retained (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . (202,536) (185,386)
---------- -- --------
Total Shareholders' (Deficit) . . . . . . . . . . . . . . . . . . . . (162,200) (144,012)
---------- -- --------
Total Liabilities and Shareholders' (Deficit) . . . . . . . . . . . . $ 218,104 $ 244,132
========== ==========

See condensed notes to consolidated financial statements.

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Three Months Ended
June 30
--------------------
2002 2001
--------- ---------

Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,499 $ 46,868
Less ceded premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,859) (22,248)
--------- ---------
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,640 $ 24,620
========= =========
Net premiums earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,876 $ 23,031
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186 3,540
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 -
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,375 1,574
Net realized capital (loss). . . . . . . . . . . . . . . . . . . . . . . . (352) (287)
--------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,460 27,858
--------- ---------
Expenses:
Losses and loss adjustment expenses. . . . . . . . . . . . . . . . . . . 11,558 20,280
Policy acquisition and general and administrative expenses . . . . . . . 7,221 10,713
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 -
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . 43 42
--------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,897 31,035
--------- ---------
Loss from continuing operations before income taxes and minority interest. (5,437) (3,177)
--------- ---------
Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------- ---------
Loss from continuing operations before minority interest . . . . . . . . . (5,437) (3,177)
Minority interest:
Distributions on preferred securities, net of tax of nil in both 2002 and
2001 3,984 3,832
--------- -------
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . . (9,421) (7,009)
Discontinued operations:
Loss from operations of discontinued segment, less applicable income
taxes of nil in both 2002 and 2001. . . . . . . . . . . . . . . . . . . - (2,156)
--------- ---------

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,421) $ (9,165)
========= =========
Weighted average shares outstanding - basic and fully diluted. . . . . . . 10,385 10,385
========= =========
Net loss from continuing operations per share - basic and fully diluted. . $ (0.91) $ (0.67)
========= =========
Net loss of discontinued operations per share-basic and fully diluted. . . $ - $ (0.21)
========= =========
Net loss per share - basic and fully diluted . . . . . . . . . . . . . . . $ (0.91) $ (0.88)
========= =========

See condensed notes to consolidated financial statements.

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Six Months Ended
June 30
--------------------
2002 2001
--------- ---------

Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,254 $ 95,090
Less ceded premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,832) (53,641)
--------- ---------
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,422 $ 41,449
========= =========
Net premiums earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,642 $ 41,759
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,829 6,466
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 -
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,619 3,172
Net realized capital (loss). . . . . . . . . . . . . . . . . . . . . . . . (1,100) (1,056)
--------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,740 50,341
--------- ---------
Expenses:
Losses and loss adjustment expenses. . . . . . . . . . . . . . . . . . . 24,229 38,025
Policy acquisition and general and administrative expenses . . . . . . . 13,680 21,231
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 -
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . 86 85
--------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,070 59,341
--------- ---------
Loss from continuing operations before income taxes and minority interest. (9,330) (9,000)
--------- ---------
Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
--------- ---------
Loss from continuing operations before minority interest . . . . . . . . . (9,330) (9,000)
Minority interest:
Distributions on preferred securities, net of tax of nil in both 2002 and
2001 7,820 7,441
--------- -------
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . . (17,150) (16,441)
Discontinued operations:
Loss from operations of discontinued segment, less applicable income
taxes of nil in both 2002 and 2001 . . . . . . . . . . . . . . . . . . - (2,156)
--------- ---------

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(17,150) $(18,597)
========= =========
Weighted average shares outstanding - basic and fully diluted. . . . . . . 10,385 10,385
========= =========
Net loss from continuing operations per share - basic and fully diluted. . $ (1.65) $ (1.58)
========= =========
Net loss of discontinued operations per share-basic and fully diluted. . . $ - $ (0.21)
========= =========
Net loss per share - basic and fully diluted . . . . . . . . . . . . . . . $ (1.65) $ (1.79)
========= =========

See condensed notes to consolidated financial statements.

SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Six Months Ended
June 30
-------------------
2002 2001
--------- --------

Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $(17,150) $(18,597)
Adjustments to reconcile net loss to net cash provided by
(used in) operations:
Depreciation, amortization, impairment and other. . . . . . 1,846 2,274
Net realized capital loss . . . . . . . . . . . . . . . . . 1,100 1,056
Net changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . 6,503 (14,190)
Reinsurance recoverable on losses, net. . . . . . . . . . . (4,631) 5,011
Prepaid reinsurance premiums. . . . . . . . . . . . . . . . 5,016 (11,430)
Deferred policy acquisition costs . . . . . . . . . . . . . (14) 259
Loss and loss adjustment expense reserves . . . . . . . . . (7,456) (15,627)
Unearned premiums . . . . . . . . . . . . . . . . . . . . . (8,729) 11,120
Reinsurance payables. . . . . . . . . . . . . . . . . . . . 724 5,027
Distribution payable on preferred securities. . . . . . . . 7,819 7,440
Other assets and liabilities. . . . . . . . . . . . . . . . (207) 7,994
Deferred income . . . . . . . . . . . . . . . . . . . . . . (750) 4,375
Net assets from discontinued operations . . . . . . . . . . (3,483) 2,302
--------- ---------
Net cash (used in) operations . . . . . . . . . . . . . . . . (19,412) (12,986)
--------- ---------

Cash flows from investing activities, net of assets acquired:
Net (purchase) sales of short-term investments. . . . . . . . 7,726 (990)
Proceeds from sales, calls and maturities of fixed maturities 16,766 22,409
Purchase of fixed maturities. . . . . . . . . . . . . . . . . (13,922) (7,961)
Proceeds from sales of equity securities. . . . . . . . . . . 4,875 9,508
Purchase of equity securities . . . . . . . . . . . . . . . . (758) (10,277)
Proceeds from repayment of mortgage loans . . . . . . . . . . - 1,870
Purchase of property and equipment. . . . . . . . . . . . . . (259) (1,577)
Proceeds from sales of other investments. . . . . . . . . . . 635 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 (44)
Net investing activities from discontinued operations . . . . 3,912 (263)
--------- ---------
Net cash provided by investing activities . . . . . . . . . . 19,219 12,675
--------- ---------

Cash flows from financing activities, net of assets acquired:
Loans from and (repayment to) related parties . . . . . . . . 784 653
Net financing activities from discontinued operations . . . . (429) (655)
--------- ---------
Net cash provided by (used in) financing activities . . . . . 355 (2)
--------- ---------
Increase (decrease) in cash and cash equivalents. . . . . . . 162 (313)
Cash and cash equivalents, beginning of period. . . . . . . . 3,385 1,363
--------- ---------
Cash and cash equivalents, end of period. . . . . . . . . . . $ 3,547 $ 1,050
========= =========

See condensed notes to consolidated financial statements.

SYMONS INTERNATIONAL GROUP, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Six Months Ended June 30, 2002

1. OVERVIEW OF THE COMPANY AND BASIS OF PRESENTATION

Symons International Group, Inc. (the "Company") owns insurance companies that
underwrite and market nonstandard private passenger automobile insurance. The
Company's principal insurance company subsidiaries are Pafco General Insurance
Company ("Pafco") and Superior Insurance Company ("Superior"). The Company is a
73.1% owned subsidiary of Goran Capital Inc. ("Goran").

The parent company for Pafco and Superior is Superior Insurance Group, Inc.
("Superior Group"). Pafco, Superior and Superior's subsidiaries, Superior
Guaranty Insurance Company ("Superior Guaranty") and Superior American Insurance
Company ("Superior American"), are engaged in the writing of insurance coverage
for automobile physical damage and liability policies for nonstandard risks.
Nonstandard risk insureds are those individuals who are unable to obtain
insurance coverage through standard market carriers due to factors such as poor
premium payment history, driving experience or violations, particular occupation
or type of vehicle. The Company offers several different policies that are
directed towards different classes of risk within the nonstandard market.
Premium rates for nonstandard risks are higher than for standard risks. Since it
can be viewed as a residual market, the size of the nonstandard private
passenger automobile insurance market changes with the insurance environment and
grows when standard coverage becomes more restrictive. Nonstandard policies have
relatively short policy periods and low limits of liability. Also, since the
nonstandard automobile insurance business typically experiences lower rates of
retention than standard automobile insurance, the number of new policyholders
underwritten by nonstandard automobile insurance carriers each year is
substantially greater than the number of new policyholders underwritten by
standard carriers.

As previously announced, the Company sold its crop insurance operations to
Acceptance Insurance Companies, Inc. ("Acceptance") on June 6, 2001. The crop
insurance business was written through the Company's wholly owned subsidiary,
IGF Insurance Company ("IGF"), which is in runoff. Accordingly, the financial
statements included in this report reflect the results of the crop insurance
segment as "discontinued operations".

The financial statements included in this report are the consolidated financial
statements of the Company and its subsidiaries. The consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). In management's opinion, these
financial statements include all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation of the results of
operations for the interim periods presented. Pursuant to SEC rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements, unless
significant changes have taken place since the end of the most recent fiscal
year. For this reason, the accompanying consolidated financial statements and
notes thereto should be read in conjunction with the financial statements and
notes for the year ended December 31, 2001 included in the Company's 2001 Annual
Report on Form 10-K. Results for any interim period are not necessarily
indicative of results to be expected for the year.

2. PREFERRED SECURITIES

On August 12, 1997, the Company's trust subsidiary issued $135 million in
preferred securities (the "Preferred Securities") bearing interest at an annual
rate of 9.5%. The principal assets of the trust subsidiary are senior
subordinated notes of the Company in the principal amount of $135 million with
an interest rate and maturity date substantially identical to those of the
Preferred Securities. Expenses of the issue aggregated $5.1 million and are
being amortized over the term of the Preferred Securities.

The Preferred Securities represent Company-obligated mandatorily redeemable
securities of a trust subsidiary holding solely parent debentures and have a
term of 30 years with semi-annual interest payments that commenced February 15,
1998. The Company may redeem the Preferred Securities in whole or in part after
10 years. The annual Preferred Security obligations of approximately $13 million
must be funded from the Company's nonstandard automobile management company,
which receives management and billing fees from its insurance subsidiaries. In
the event the Company's insurance company subsidiaries continue to reduce
premium volume, reduced management and billing fees will be payable to Superior
Group, which would result in less funds from which to fund the obligations of
the Preferred Securities. Under the terms of the indenture, the Company is
permitted to defer semi-annual interest payments for up to five years. The
Company elected to defer the interest payments due in February and August 2000
and 2001 and February 2002 and may continue this practice through January 2005.
The Company plans to defer the interest payments due in August 2002.

The trust indenture for the Preferred Securities contains certain restrictive
covenants including covenants based on the Company's consolidated coverage ratio
of earnings before interest, taxes, depreciation and amortization ("EBITDA"). If
the Company's EBITDA falls below 2.5 times consolidated interest expense
(including Preferred Security distributions) for the most recent four quarters,
the following restrictions become effective:

- - The Company may not incur additional indebtedness or guarantee additional
indebtedness.
- - The Company may not make certain restricted payments including making loans
or advances to affiliates, repurchasing common stock or paying dividends in
excess of a stated limitation.
- - The Company may not increase its level of non-investment grade securities
defined as equities, mortgage loans, real estate, real estate loans and
non-investment grade, fixed income securities.

These restrictions currently apply, as the Company's consolidated coverage ratio
was (1.06) at June 30, 2002, and will continue to apply until the Company's
consolidated coverage ratio complies with the terms of the trust indenture. The
Company was in compliance with these additional restrictions as of June 30,
2002.

3. REGULATORY AFFAIRS

Two of the Company's insurance company subsidiaries, Pafco and IGF, are
domiciled in Indiana and prepare their statutory financial statements in
accordance with accounting practices prescribed or permitted by the Indiana
Department of Insurance ("IDOI"). While neither Pafco nor IGF currently has
surplus from which to pay dividends, statutory requirements place limitations on
the amount of funds that can be remitted to the Company from Pafco and IGF. The
Indiana statute allows 10% of surplus in regard to policyholders or 100% of net
income, whichever is greater, to be paid as dividends only from earned surplus;
however, the consent orders with the IDOI, described below, prohibit the payment
of any dividends by Pafco and IGF. Another insurance company subsidiary,
Superior and Superior's insurance company subsidiaries, Superior American and
Superior Guaranty, are domiciled in Florida and prepare their statutory
financial statements in accordance with accounting practices prescribed or
permitted by the Florida Department of Insurance ("FDOI"). The Florida statute
also contains limitations with regard to the payment of dividends. Superior may
pay dividends of up to 10% of surplus or 100% of net income, whichever is
greater, from earned surplus. Prescribed statutory accounting practices include
a variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations, and general administrative rules.
The NAIC adopted the Codification of Statutory Accounting Principles guidance
("Codification"), as the NAIC's primary guidance on statutory accounting
effective January 1, 2001. The IDOI and FDOI have adopted Codification.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed.

On June 6, 2001, IGF sold substantially all of its crop insurance assets to
Acceptance. On June 24, 2001, following the sale of IGF's crop insurance assets
and as a result of losses experienced by IGF in its crop insurance operations,
the IDOI and IGF entered into a consent order (the "Consent Order") relating to
IGF. IGF has discontinued writing new business and its operations are presently
in run off. The IDOI has continued to monitor the status of IGF. The Consent
Order prohibits IGF from taking any of the following actions without prior
written consent of the IDOI:

- - Sell or encumber any of its assets, property, or business in force;
- - Disburse funds, except to pay direct unaffiliated policyholder claims and
normal operating expenses in the ordinary course of business (which does
not include payment to affiliates except for the reimbursement of costs for
running IGF by the Company, and does not include payments in excess of
$10,000);
- - Lend its funds or make investments, except in specified types of
investments;
- - Incur debts or obligations, except in the ordinary course of business to
unaffiliated parties;
- - Merge or consolidate with another company;
- - Enter into new, or amend existing, reinsurance agreements;
- - Complete, enter into or amend any transaction or arrangement with an
affiliate, and
- - Disburse funds or assets to any affiliate.

The Consent Order also requires IGF to provide the IDOI with monthly written
updates and immediate notice of any material change regarding the status of
litigation with Continental Casualty Company, statutory reserves, number of
non-standard automobile insurance policies in-force by state, and reports of all
non-claims related disbursements. IGF's failure to comply with the Consent Order
could cause the IDOI to begin proceedings to have a rehabilitator or liquidator
appointed for IGF to extend the provisions of the Consent Order.

Pafco has been subject to an agreed to order of the IDOI since February 17, 2000
that requires Pafco, among other matters, to:

- - Refrain from doing any of the following without the IDOI's prior written
consent:
- - Selling assets or business in force or transferring property, except in the
ordinary course of business;
- - Disbursing funds, other than for specified purposes or for normal operating
expenses and in the ordinary course of business (which does not include
payments to affiliates, other than under written contracts previously
approved by the IDOI, and does not include payments in excess of $10,000);
- - Lending funds;
- - Making investments, except in specified types of investments;
- - Incurring debt, except in the ordinary course of business and to
unaffiliated parties;
- - Merging or consolidating with another company; or
- - Entering into new, or modifying existing, reinsurance contracts.
- - Reduce its monthly auto premium writings, or obtain additional statutory
capital or surplus, such that the ratio of gross written premium to surplus
and net written premium to surplus does not exceed 4.0 and 2.4,
respectively; and provide the IDOI with regular reports demonstrating
compliance with these monthly writings limitations.
- - Continue to comply with prior IDOI agreements and orders to correct
business practices under which Pafco must provide monthly financial
statements to the IDOI, obtain prior IDOI approval of reinsurance
arrangements and affiliated party transactions, submit business plans to
the IDOI that address levels of surplus and net premiums written, and
consult with the IDOI on a monthly basis.

Pafco's inability or failure to comply with any of the above conditions could
result in the IDOI requiring further reductions in Pafco's permitted premium
writings or in the IDOI instituting future proceedings against Pafco.
Restrictions on premium writings result in lower premium volume. Management fees
payable to Superior Group are based on gross written premium; therefore lower
premium volume results in reduced management fees paid by Pafco to Superior
Group.

Pafco has agreed with the Iowa Department of Insurance ("IADOI") that it will
not write any new non-standard business in Iowa, until such time as Pafco has
reduced its overall non-standard automobile policy counts in the state or:

- - Has increased surplus, or
- - Has achieved a net written premium to surplus ratio of less than three to
one, or
- - Has surplus reasonable to its risk.

Pafco has continued to service existing policyholders and renew policies in Iowa
and provide policy count information on a monthly basis in conformance with
IADOI requirements.

Superior and Pafco also provide monthly financial information to the departments
of insurance in certain states in which they write business, and Pafco has
agreed to obtain IDOI prior approval of any new affiliated party transactions.

On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the
"Notice") which principally addressed certain policy and finance fee payments by
Superior to Superior Group. A formal administrative hearing to review the
Notice and a determination that the order contemplated by the Notice not be
issued was held in February 2001. The administrative law judge entered a
recommended order on June 1, 2001 that was acceptable to the Company. On August
30, 2001, the FDOI rejected the recommended order and issued its final order
which the Company believes improperly characterized billing and policy fees paid
by Superior to Superior Group. On September 28, 2001, Superior filed an appeal
of the final order to the Florida District Court, which is pending. On March 4,
2002, the FDOI filed a petition in the Circuit Court of the Second Judicial
Circuit in and for Leon County, Florida seeking court enforcement of the FDOI's
final order. Superior filed a motion with the FDOI for stay of the FDOI's final
order. Superior also filed a motion for stay with the District Court of Appeals,
which was denied pending a ruling from the FDOI. On April 5, 2002 the FDOI
granted a stay of the final order which is conditional upon the cessation of the
payment of billing fees by Superior to Superior Group and the posting of a $15
million appeal bond. Superior did not agree to the conditions imposed by the
FDOI's conditional stay. On May 6, 2002 Superior filed a motion with the
district court seeking a stay of the final order pending Superior's appeal or,
in the alternative, a consolidation of the FDOI's enforcement action with the
pending appeal. On June 19, 2002, the district court entered an order which
struck the FDOI's conditional requirement for the stay that Superior post a $15
million appeal bond. However, the order denied Superior's request to consolidate
the appeal with the enforcement action.

In 1999, Superior ceased writing business in Illinois and agreed to obtain the
approval of the Illinois Department of Insurance prior to writing any new
business in Illinois. In July 2001, Superior agreed with the Department of
Insurance in Texas to obtain its prior approval before writing any new business
in that state.

On October 9, 2001, the State Corporation Commission of Virginia ("Virginia
Commission") issued an order to take notice regarding an order suspending
Superior's license to write business in that state. An administrative hearing
for a determination that the suspension order not be issued was held March 5,
2002. On May 3, 2002, the hearing examiner issued his report and recommended
that Superior's license not be suspended and that Superior file its Risk Based
Capital plans and monthly and quarterly financial information with the Virginia
Bureau of Insurance ("Bureau"). On June 19, 2002 the Virginia Commission
entered an order which adopted the findings of the hearing examiner, continued
the matter until such time as the Bureau requests further action and requires
the continued monitoring of the financial condition of Superior by the Bureau.
The nonstandard automobile insurance policies written in Virginia by Superior
accounted for approximately 13.1% of the total gross written premiums of the
Company in 2001.

The Company's operating subsidiaries, their business operations, and their
transactions with affiliates, including the Company, are subject to regulation
and oversight by the IDOI, the FDOI, and the insurance regulators of other
states in which the subsidiaries write business. The Company is a holding
company and all of its operations are conducted by its subsidiaries. Regulation
and oversight of insurance companies and their transactions with affiliates is
conducted by state insurance regulators primarily for the protection of
policyholders and not for the protection of other creditors or of shareholders.
Failure to resolve issues with the IDOI and the FDOI or other state insurance
regulators in a mutually satisfactory manner could result in future regulatory
actions or proceedings that materially and adversely affect the Company.

4. COMMITMENTS AND CONTINGENCIES

As previously reported, IGF had been a party to a number of pending legal
proceedings and claims relating to agricultural production interruption
insurance policies (the "AgPI Program") which were sold during 1998. All of the
policies of insurance issued in the AgPI Program were issued by and under the
name of Mutual Service Casualty Insurance Company ("MSI"), a Minnesota
corporation with its principal place of business located in Arden Hills,
Minnesota. Sales of this product resulted in large underwriting losses by IGF.

Approximately $29 million was paid through June 30, 2002 in settlement of legal
proceedings and policyholder claims related to the AgPI Program. All AgPI
policyholder claims were settled during 2000. However, on January 12, 2001 a
case was filed in the Superior Court of California, County of Fresno, entitled
S&W Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual
Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo &
Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought by
four AgPI policyholders who had previously settled their AgPI claims pursuant to
binding settlement agreements who now seek additional compensation by asserting
through litigation that IGF and the third party carrier paid less than the
policy limits they were promised when they purchased the policy and that each
settling policyholder was forced to accept the lesser amount due to their
economic duress - a legal theory recognized in California if certain elements
can be established. On January 16, 2002, the court entered an order granting
IGF's motion for judgment on the pleadings and required plaintiffs to show an
insurable interest. Plaintiffs amended their complaint attempting to allege an
insurable interest, and on March 19, 2002, the court granted IGF's demurrer to
the amended complaint. In granting the demurrer the court held that any recovery
payable to plaintiff would be limited to their actual economic losses regardless
of how much plaintiffs thought they had been promised (i.e. plaintiffs cannot be
paid policy limits without regard to actual losses incurred). The plaintiffs
then filed their third amended complaint to which MSI filed a demurrer
challenging the insurance contract allegations, as the issuer of the AgPI
policies, contending that plaintiffs failed to make the amendments to show an
insurable interest as required by the court's previous rulings. This demurrer
was granted, without leave to amend, because the lack of an insurable interest
rendered the contract an unenforceable wager agreement, as described in each of
the various versions of the complaint. Plaintiffs have now moved for
reconsideration of the dismissal of the insurance claims asking for another
chance to allege an adequate insurable interest. This hearing is set for August
13, 2002. Discovery is proceeding.

As previously reported in the Company's March 31, 2002 Form 10-Q, MSI and IGF
were arbitrating their dispute over responsibility for claims paid to MSI
insureds. Also as previously reported, an action was filed against the Company,
IGF, IGF Holdings, Inc. ("IGFH"), Granite Reinsurance Company, Ltd. ("Granite
Re"), a wholly owned subsidiary of Goran, Goran and certain affiliates of those
companies, as well as certain members of the Symons family, and Acceptance in
the United States District Court for the Southern District of Indiana which
alleged that the June 6, 2001 sale of IGF's assets to Acceptance and the
payments by Acceptance to the Company, Goran and Granite Re violated Indiana law
and were voidable. The parties have settled the arbitration and the Indiana
action, and an order of dismissal was entered by the court on June 26, 2002.

As previously reported, the Company and two of its subsidiaries, IGFH and IGF,
are parties to a "Strategic Alliance Agreement" dated February 28, 1998 (the
"SAA") with Continental Casualty Company ("CNA"), pursuant to which IGF acquired
certain crop insurance operations of CNA. The obligations of the Company, IGFH,
IGF and CNA under the SAA are the subject of an action pending in United States
District Court for the Southern District of Indiana, Indianapolis Division.
Claims have also been asserted in the action against Goran, Granite Re, Pafco,
Superior and certain members of the Symons family. Although the Company
continues to believe that it has claims against CNA and defenses to CNA's claims
which may offset or reduce amounts owing by the Company or its affiliates to
CNA, there can be no assurance that the ultimate resolution of the claims
asserted by CNA against the Company and its affiliates will not have a material
adverse effect upon the Company's and its affiliates' financial condition or
results of operations. There have been no material developments since last
reported in the Company's March 31, 2002 Form 10-Q.

As previously reported, the Company is a defendant in a case filed on February
23, 2000, in the United States District Court for the Southern District of
Indiana entitled Robert Winn, et al. v. Symons International Group, Inc., et
al., Cause No. IP 00-0310-C-B/S. Other parties named as defendants are Goran,
three individuals who were or are officers or directors of the Company or of
Goran, PricewaterhouseCoopers LLP and Schwartz Levitsky Feldman, LLP. The case
purports to be brought on behalf of a class consisting of purchasers of the
Company's stock or Goran's stock during the period February 27, 1998, through
and including November 18, 1999. Plaintiffs allege, among other things, that
defendants misrepresented the reliability of the Company's reported financial
statements, data processing and financial reporting systems, internal controls
and loss reserves in violation of Section 10(b) of the Securities Exchange Act
of 1934 (the "1934 Act") and SEC Rule 10b-5 promulgated thereunder. The
individual defendants are also alleged to be liable as "controlling persons"
under Sec.20 (a) of the 1934 Act. Discovery in the case is proceeding. There
have been no material developments since last reported in the Company's March
31, 2002 Form 10-Q.

As previously reported, an action has been brought in Florida against Superior
which purports to be brought on behalf of a class consisting of healthcare
providers improperly paid discounted rates on services to patients based upon a
preferred provider contract with a third party. The plaintiff alleges that
Superior breached a third party beneficiary contract, committed fraud and
engaged in racketeering activity in violation of federal and Florida law by
obtaining discounted rates offered by a third party with whom the plaintiff
contracted directly. Superior believes that the allegations of wrongdoing as
alleged in the complaint are without merit and intends to vigorously defend the
claims brought against it. There have been no material developments since last
reported in the Company's March 31, 2002 Form 10-Q.

As previously reported, an action has been brought in Florida against Superior
which purports to be brought on behalf of a class consisting of healthcare
providers that rendered treatment to and obtained a valid assignment of benefits
from Superior. The plaintiff alleges that Superior reduced or denied claims for
medical expenses payable to the plaintiff without first obtaining a written
report in violation of Florida law. The plaintiff also alleges that Superior
inappropriately reduced the amount of benefits payable to the plaintiff in
breach of Superior's contractual obligations to the plaintiff. Superior
believes the allegations of wrongdoing in violation of law are without merit and
intends to vigorously defend the claims brought against it. There have been no
material developments since last reported in the Company's March 31, 2002 Form
10-Q.

As previously reported, an action has been brought against Superior in Florida
by a purported class consisting of (i) healthcare providers that rendered
treatment to Superior insureds and claimants of Superior insureds and (ii) such
insureds and claimants. The plaintiff alleges that Superior improperly reduced
medical benefits payable and improperly calculated interest in violation of
Florida law. The Company believes the claim is without merit and intends to
vigorously defend the charges brought against it. There have been no material
developments since last reported in the Company's March 31, 2002 Form 10-Q.

As previously reported, actions have been brought in Florida against Superior
Guaranty purporting to be on behalf of a class of purchasers of insurance from
Superior Guaranty allegedly charged service or finance charges in violation of
Florida law. Superior Guaranty believes that the allegations of wrongdoing as
alleged in the complaint are without merit and intends to vigorously defend the
claims brought against it. There have been no material developments since last
reported in the Company's March 31, 2002 Form 10-Q.

The Company is a 50% owner in a limited liability corporation ("LLC")
established to provide business services to the Company and an unrelated third
party. The fair market value of the LLC's operating assets approximated its
outstanding debt at June 30, 2002.

The Company and its subsidiaries are named as defendants in various other
lawsuits relating to their business. Legal actions arise from claims made under
insurance policies issued by the Company's subsidiaries. The Company, in
establishing its loss reserves, has considered these actions. There can be no
assurance that the ultimate disposition of these lawsuits will not have an
adverse material affect the Company's operations or financial position.

5. LOSS DEVELOPMENT ON PRIOR ACCIDENT YEARS

During the second quarter of 2002, the Company experienced unfavorable
development on its year-end 2001 loss and loss adjustment expense ("LAE")
reserves in the amount of $3.2 million. This was the result of unfavorable
settlement of outstanding claims due primarily to abnormally high loss
frequency. This increased the loss and LAE ratio for the second quarter of 2002
by 32.3 percentage points. The Company believes the high frequency of loss is
due to increased motor vehicle traffic as policyholders opt to drive rather than
fly to their destinations following the September 11, 2001 terrorist attacks.

6. RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current
year presentation.

7. LOSS PER SHARE

Basic and diluted net loss per share are computed by dividing net loss as
reported by the average number of shares outstanding as follows:

Three Months Ended
June 30
------------------
(in thousands) 2002 2001
-------- -------

Basic:
Weighted-average common shares outstanding. 10,385 10,385
======= =======

Diluted:
Weighted-average common shares outstanding. 10,385 10,385
======= =======

The Company has 916,333 stock options outstanding as of June 30, 2002. Common
stock equivalents are anti-dilutive; therefore, fully diluted loss per share is
the same as basic loss per share.

8. DISCONTINUED OPERATIONS

In December 2000, the Company initiated the divestiture of its crop insurance
segment. This business was predominantly written through IGF. The transaction
was completed in June 2001 and transferred ownership of substantially all of the
crop insurance assets of the Company and IGF, effective with the 2001 crop
cycle, to Acceptance. Upon completion of the sale, the net assets of the
discontinued operations were reduced to zero. IGF and its affiliates received
approximately $27.4 million at closing and Acceptance assumed all of the crop
insurance in-force policies for the 2001 crop year. For agreeing not to compete
in the crop insurance industry for a period of three years from the date of
sale, the Company received $4.5 million at closing that is being amortized to
income on a straight-line basis over three years. An additional $9.0 million in
reinsurance premium is payable by Acceptance to Granite Re under a multi-year
reinsurance treaty whereby Granite Re has agreed to reinsure a portion of the
crop insurance business of Acceptance and provide an indemnity on behalf of IGF.
The results of the crop insurance segment have been reflected as "Discontinued
Operations" in the accompanying unaudited consolidated financial statements in
accordance with Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations --- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."

Summarized results of operations for discontinued operations were as follows:

STATEMENTS OF OPERATIONS:
(in thousands)
Three Months Ended
June 30
----------------

2002 2001
------- -------

Gross premiums written . . . . . . . . . . . . . . . . . . $ 192 $88,569
====== ========
Net premiums written . . . . . . . . . . . . . . . . . . . $ (2) $(7,906)
====== ========

Net premiums earned. . . . . . . . . . . . . . . . . . . $ (2) $(2,816)
Net investment and fee income. . . . . . . . . . . . . . 294 1,251
Net realized capital gain. . . . . . . . . . . . . . . . 44 629
------ -------
Total revenues . . . . . . . . . . . . . . . . . . . . . . 336 (936)
------ -------

Loss and loss adjustment expenses. . . . . . . . . . . . (175) 913
Policy acquisition and general and administrative expenses 511 1,901
Interest and amortization expense. . . . . . . . . . . . . - (1,594)
------ -------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 336 1,220
------ --------

Earnings before income taxes . . . . . . . . . . . . . . . - (2,156)

Income tax expense . . . . . . . . . . . . . . . . . . . . - -
------ -------

Net earnings from discontinued operations. . . . . . . . . $ - $(2,156)
====== =======

STATEMENTS OF OPERATIONS:
(in thousands)
Six Months Ended
June 30
------------------
2002 2001
------ --------

Gross premiums written. . . . . . . . . . . . . . . . . . . $ 192 $182,959
====== =========
Net premiums written. . . . . . . . . . . . . . . . . . . . $ 0 $ (18)
====== =========

Net premiums earned . . . . . . . . . . . . . . . . . . . $ 0 $ (18)
Net investment and fee income . . . . . . . . . . . . . . 483 935
Net realized capital gain (loss). . . . . . . . . . . . . (79) 631
------ ---------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . 404 1,548
------ ---------

Loss and loss adjustment expenses . . . . . . . . . . . . . (193) 6,783
Policy acquisition and general and administrative expenses. 597 (1,722)
Interest and amortization expense . . . . . . . . . . . . . - (1,357)
------ ---------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . 404 3,704
------ ---------

Earnings before income taxes. . . . . . . . . . . . . . . . - (2,156)

Income tax expense. . . . . . . . . . . . . . . . . . . . . - -
------ ---------

Net earnings from discontinued operations . . . . . . . . . $ - $ (2,156)
====== =========

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD LOOKING STATEMENTS AND CERTAIN RISKS

All statements, trend analyses, and other information contained in this report
relative to markets for the Company's products and/or trends in the Company's
operations or financial results, as well as other statements which include words
such as "anticipate," "could," "feel(s)," "believes," "plan," "estimate,"
"expect," "should," "intend," "will," and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors which may cause actual results to be materially
different from those contemplated by the forward-looking statements. Such
factors include, among other things: (i) the effect on customers, agents,
employees and others due to the Company's receipt of a going concern opinion
from its accountants; (ii) general economic conditions, including prevailing
interest rate levels and stock market performance; (iii) factors affecting the
Company's nonstandard automobile operations such as rate increase approval,
policy renewals, new business written, and premium volume; (iv) the factors
described in this section and elsewhere in this report; and (v) adverse actions
by insurance regulatory officials.

OVERVIEW OF THE COMPANY

Symons International Group, Inc. (the "Company") owns insurance companies that
underwrite and market nonstandard private passenger automobile insurance. The
Company's principal insurance company subsidiaries are Pafco General Insurance
Company ("Pafco") and Superior Insurance Company ("Superior"). The Company is a
73.1% owned subsidiary of Goran Capital Inc. ("Goran").

Pafco, Superior and Superior's subsidiaries, Superior Guaranty Insurance Company
("Superior Guaranty") and Superior American Insurance Company ("Superior
American"), are engaged in the writing of insurance coverage for automobile
physical damage and liability policies for nonstandard risks. Nonstandard risk
insureds are those individuals who are unable to obtain insurance coverage
through standard market carriers due to factors such as poor premium payment
history, driving experience or violations, particular occupation or type of
vehicle. The Company offers several different policies that are directed
towards different classes of risk within the nonstandard market. Premium rates
for nonstandard risks are higher than for standard risks. Since it can be
viewed as a residual market, the size of the nonstandard private passenger
automobile insurance market changes with the insurance environment and grows
when the standard coverage becomes more restrictive. Nonstandard policies have
relatively short policy periods and low limits of liability. Also, since the
nonstandard automobile insurance business typically experiences lower rates of
retention than standard automobile insurance, the number of new policyholders
underwritten by nonstandard automobile insurance carriers each year is
substantially greater than the number of new policyholders underwritten by
standard carriers.

As previously announced, the Company sold its crop insurance operations to
Acceptance Insurance Companies Inc. ("Acceptance") on June 6, 2001. The crop
insurance business was written through the Company's subsidiary, IGF Insurance
Company ("IGF"), which is in runoff. Accordingly, the financial statements
included in this report reflect the results of the crop insurance segment as
"discontinued operations".

SIGNIFICANT LOSSES HAVE BEEN REPORTED AND ARE LIKELY TO CONTINUE

For the three months ended June 30, 2002, losses from continuing operations
totaled $(9,421,000) compared to losses of $(7,009,000) in the same comparable
period of 2001. For the six months ended June 30, 2002, losses from continuing
operations were $(17,150,000) compared to losses of $(16,441,000) for the same
period of 2001. The Company previously reported losses from continuing
operations of $(30,736,000) for the year 2001, $(71,384,000) for 2000 and
$(65,443,000) for 1999. Results from continuing operations before the effects
of income taxes and minority interest were losses of $(15,930,000) and
$(59,946,000) for 2001 and 2000, respectively. Losses from continuing operations
for the six months ended June 30, 2002 increased over the same period in 2001
primarily due to significant adverse development on year end 2001 loss and LAE
reserves and on new business generated in the first quarter of 2002, primarily
due to increased frequency of losses. Although the Company has taken a number of
actions to address factors contributing to these past losses, there can be no
assurance that operating losses will not continue.

RECENT AND FURTHER REGULATORY ACTIONS MAY ADVERSELY AFFECT THE COMPANY'S FUTURE
OPERATIONS

The Company's insurance company subsidiaries, their business operations, and
their transactions with affiliates, including the Company, are subject to
extensive regulation and oversight by the Indiana Department of Insurance
("IDOI"), the Florida Department of Insurance ("FDOI") and the insurance
regulators of other states in which the insurance company subsidiaries write
business. Moreover, the insurance company subsidiaries' losses, adverse trends
and uncertainties discussed in this report have been and continue to be matters
of concern to the domiciliary and other insurance regulators of the Company's
insurance company subsidiaries and have resulted in enhanced scrutiny and
regulatory action by several regulators (see Note 3, "Regulatory Affairs" in the
Condensed Notes to the Consolidated Financial Statements). The primary purpose
of insurance regulation is the protection of policyholders rather than
shareholders. Failure to resolve issues with the IDOI and the FDOI, and with
other regulators, in a manner satisfactory to the Company could impair the
Company's ability to execute its business strategy or result in future
regulatory actions or proceedings that could otherwise materially and adversely
affect the Company's operations.

THE COMPANY IS SUBJECT TO A NUMBER OF PENDING LEGAL PROCEEDINGS

As discussed elsewhere in this report, the Company is involved in a number of
pending legal proceedings (see Part II - Item 1, "Legal Proceedings"). Although
the Company believes that many of the allegations of wrongdoing are without
merit and intends to vigorously defend the claims brought against it, there can
be no assurance that such proceedings will not have a material adverse effect on
the Company's financial position or results of operations. Furthermore, the
existence of these lawsuits diverts the time and attention of management and
results in continued expense irrespective of the ultimate outcome.

THE TERMS OF THE TRUST PREFERRED SECURITIES MAY RESTRICT THE COMPANY'S ABILITY
TO ACT

The Company has issued through a wholly owned trust subsidiary $135 million
aggregate principal amount in trust originated preferred securities (the
"Preferred Securities"). The Preferred Securities have a term of 30 years with
annual interest at 9.5% paid semi-annually. The obligations of the Preferred
Securities are funded from the Company's nonstandard automobile insurance
management company. The Company elected to defer the semi-annual interest
payments due in February and August 2000 and 2001 and the payment due in
February 2002 and may continue to defer such payments for up to an aggregate of
five years as permitted by the indenture for the Preferred Securities. The
Company plans to defer the interest payments due in August 2002. All of the
deferred interest (if all payments due in 2002, 2003, and 2004 are deferred) of
approximately $84 million will become due and payable in February 2005. The
indenture contains a number of covenants that may restrict the Company's ability
to act in the future. These covenants include restrictions on the Company's
ability to incur or guarantee debt, make payment to affiliates, repurchase its
common stock, pay dividends on common stock or increase its level of certain
investments other than investment-grade, fixed-income securities. There can be
no assurance that compliance with these restrictions and other provisions of the
indenture for the Preferred Securities will not adversely affect the cash flow
of the Company.

CASH FLOW CONSTRAINTS TO SUPERIOR GROUP MAY ADVERSELY AFFECT THE COMPANY'S
ABILITY TO FUND OPERATIONS AND TO SERVICE THE OBLIGATIONS OF THE TRUST PREFERRED
SECURITIES

Under the present structure, claims, agent commissions and premium taxes are
paid directly by the insurance company subsidiaries. However, pursuant to the
terms of the management agreement, Superior Group is responsible for all
payroll, facilities, data processing, computer systems and other functions
necessary for the operations of the Company and its subsidiaries. The insurance
companies pay for such services through management fees that are calculated as a
percentage of gross written premiums. Therefore, declines in written premiums
result in reduced cash flow to Superior Group.

As discussed in "Business - Recent Developments" in the annual report on Form
10-K for 2001, the Company projected a material decrease in gross written
premiums for 2002 from 2001 levels with a corresponding decrease in management
fees payable to Superior Group. However, the decrease in written premiums for
the three months ended June 30, 2002 was significantly higher than the Company
had originally anticipated. Unless the Company is able to increase written
premiums or reduce expenses to correspond with the reduced level of written
premiums, cash flow will be inadequate to fund operations, including servicing
of the Preferred Securities. See, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."

There can be no assurance that current levels of reduced cash flows will not
have a material adverse effect on the Company's financial position, results of
operations and its ability to meet short and long-term obligations.

REVIEW OF CONSOLIDATED OPERATIONS

NET LOSS

The net loss for the three months ended June 30, 2002 totaled $(9,421,000) or
$(.91) per share (basic and diluted). This is an increase of $(256,000) or
$(0.03) per share from the net loss for the same period in 2001. The increased
net loss is due primarily to the higher loss ratio of 117.0% in 2002 versus
88.1% for the comparable period in 2001. In addition, policy acquisition and
general and administrative expenses were 73.1% and 46.5% of earned premiums in
2002 and 2001, respectively, due to the Company's inability to cut expenses
quickly enough to match declining revenue. Results from discontinued operations
were zero and $(2,156,000) for the three months ended June 30, 2002 and 2001,
respectively. The net loss for the six months ended June 30, 2002 decreased by
$1,447,000 or $0.14 per share from the net loss for the same period of 2001 due
primarily to the loss from discontinued operations in 2001. Refer to Note 8
"Discontinued Operations" of the Condensed Notes to Consolidated Financial
Statements for additional information.

GROSS PREMIUMS WRITTEN

Gross premiums written decreased 54.1% and 31.4% for the three and six months
ended June 30, 2002, respectively, as compared to the same periods in 2001. The
primary reasons for this decline in volume are the withdrawal from certain
competitive markets and more stringent underwriting initiatives intended to
increase profitability. Refer to "Liquidity and Capital Resources" for
additional volume related disclosure.

NET PREMIUMS WRITTEN

Net premiums written represent the portion of premiums retained by the Company
after consideration for risk sharing through reinsurance contracts. As a result
of declines in surplus in the Company's insurance subsidiaries and to manage
overall risk retention, in 2000 the Company entered into a reinsurance agreement
to cede a portion of its gross written premiums to National Union Fire Insurance
Company of Pittsburgh, PA, an unrelated third party. For the first half of 2002,
the Company ceded 71.8% of its gross written premiums.

NET PREMIUMS EARNED

Net premiums earned decreased 57.1% and 48.2% for the three and six months ended
June 30, 2002, respectively, as compared to the same periods in 2001. Premiums
are earned ratably over the term of the underlying insurance contracts and the
reduction in net premiums earned is a result of the decreases in written premium
and policies in force.

FEE INCOME

Fee income is derived from installment billings and other services provided to
policyholders. Fee income decreased 38.2% and 25.3% for the three and six
months ended June 30, 2002, respectively as compared to the same periods in
2001. The reduction in fee income is attributable to the reduction in policies
in force and the overall decline in written premium in the second quarter of
2002.

NET INVESTMENT INCOME

Net investment income decreased 12.6% and 17.4% for the three and six months
ended June 30, 2002, respectively, as compared to the same periods in 2001. This
decrease is reflective of the decline in invested assets during a period of
declining premiums and the liquidation of investments to pay prior year losses
settled in 2002.

NET REALIZED CAPITAL (LOSSES)

Net realized capital losses were $(352,000) and $(1,100,000) for the second
quarter and first half of 2002, respectively, as compared to net realized
capital losses of $(287,000) and $(1,056,000) in the comparable periods of
2001. Capital losses resulted primarily from the continued liquidation of
investments to fund operations and claim payments under unfavorable market
conditions.

LOSSES AND LOSS ADJUSTMENT EXPENSES

The loss and loss adjustment expense ("LAE") ratio for the Company for the three
and six months ended June 30, 2002, was 117.0% and 112.0%, respectively, of net
premiums earned as compared to 107.7% for first quarter 2002 and to 91.5% for
the entire year of 2001. During the second quarter of 2002 the Company
experienced unfavorable development on its loss and LAE reserves for accidents
occurring in 2001 and prior, primarily due to increased frequency of losses.
This raised the loss and LAE for the quarter by 32.3 percentage points.

POLICY ACQUISITION AND GENERAL AND ADMINISTRATIVE EXPENSES

Policy acquisition and general and administrative expenses for the three and six
months ended June 30, 2002 declined to $7,221,000 and 13,680,000, respectively,
from $10,713,000 and 21,231,000 in the comparable periods of 2001, a reduction
for the second quarter and first half of 2002 of 32.6% and 35.6%, respectively.
This reduction is reflective of the decline in gross written premiums and
overall operating expense reduction initiatives. As a percentage of gross
premiums earned, the Company experienced an increase in its operating expense
ratio, net of fee income, from 31.1% for the second quarter of 2001 to 51.0% for
2002. This increase in the expense ratio is the result of lower net earned
premium as compared to second quarter 2001.

INCOME TAXES

At June 30, 2002, the Company's net deferred tax assets are fully offset by a
100% valuation allowance that resulted in no tax benefit in the second quarters
of both 2002 and 2001.

REVIEW OF CONSOLIDATED FINANCIAL POSITION

CASH AND INVESTMENTS

Total cash and investments at June 30, 2002 and December 31, 2001 was $92.8
million and $110.4 million, respectively. The decline in invested assets
resulted from continued liquidations to fund claim payments and operating
expenses in a period of declining premium volume.

REINSURANCE RECEIVABLES AND PAYABLES

The Company negotiated a third-party quota share reinsurance agreement that
became effective January 1, 2000. Under the quota share agreement, the Company
may cede a portion of its nonstandard automobile insurance premiums and related
losses based on a variable percentage of up to 75% of Superior's and Pafco's
earned premiums. The Company's ceding percentage for the second quarter of 2002
totaled 71.8%. The decrease in the amount of premiums and losses ceded under
this contract directly affect reinsurance balances due and payable on the face
of the financial statements.

RECEIVABLES

Receivables, exclusive of the allowance for doubtful accounts, have decreased by
approximately $6.5 million, or 14.6%, from December 31, 2001. This decrease is
primarily attributable to a reduction in billable premiums due to lower written
premiums in the first and second quarters of 2002 compared to the fourth quarter
of 2001. The allowance for doubtful accounts was reduced in 2002 by
approximately $1.4 million, or 88.5%, from December 31, 2001, primarily due to
the final reconciliation of receivables previously maintained on a legacy policy
administration system that is no longer in service.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Total loss and loss adjustment expense reserves decreased from $81,142,000 as of
December 31, 2001 to $73,686,000 as of June 30, 2002, a reduction of
approximately $7.5 million. This decrease is consistent with the Company's
declining volume of business.

UNEARNED PREMIUMS

At June 30, 2002, unearned premiums were $50,487,000, a decrease of $8,729,000
from December 31, 2001. This is consistent with the decrease in receivables
discussed above.

DEFERRED INCOME

In connection with the sale of the crop insurance book of business to Acceptance
on June 6, 2001, the Company received a payment of $4.5 million for agreeing not
to engage in the crop insurance business for three years from the sale date. The
payment is being amortized to income on a straight-line basis over a three-year
period.

PAYABLE TO AFFILIATES

At June 30, 2002, the Company owed a total of $1,380,000 to Goran Capital Inc.
("Goran") and its affiliates. This balance is comprised primarily of the
$2,500,000 line of credit owing to Granite Reinsurance Company Ltd. offset by a
$700,000 receivable from Goran's subsidiary, Granite Insurance Company, and held
by IGF. The remaining balance is attributable to other receivables for expenses
paid by the Company on behalf of Goran or its subsidiaries. The net increase of
$784,000 from December 31, 2001 is due primarily to an additional $1,200,000
draw on the line of credit in the first six months of 2002, offset by the
receivable for expenses discussed above.

SHAREHOLDERS' (DEFICIT)

Shareholders' (deficit) has increased by $(18,188,000) from December 31, 2001.
This increase is primarily the result of the net loss of $(17,150,000) for the
six months ended June 30, 2002 along with the increase of $(1,038,000) in
unrealized losses on investments available for sale.

LIQUIDITY AND CAPITAL RESOURCES

The primary source of funds available to the management and holding companies
are fees from policyholders, management fees and dividends from its insurance
company subsidiaries.

Superior Insurance Group, Inc. ("Superior Group") collects billing fees charged
to policyholders who elect to make their premium payments in installments.
Superior Group also receives management fees under its management agreement with
its insurance subsidiaries. When the FDOI approved the acquisition of Superior
by Superior Group, it prohibited Superior from paying any dividends (whether
extraordinary or not) for four years from the date of acquisition (May 1, 1996)
without the prior written approval of the FDOI, which restriction expired in
April 2000. As a result of regulatory actions taken by the IDOI with respect to
Pafco and IGF, those subsidiaries may not pay dividends without prior approval
by the IDOI. Pafco cannot pay extraordinary dividends, within the meaning of
the Indiana Insurance Code, without the prior approval of the Indiana Insurance
Commissioner. The management fees charged to Pafco, Superior and IGF are
subject to review by the IDOI and FDOI.

The nonstandard automobile insurance subsidiaries' primary source of funds is
premiums, investment income and proceeds from the maturity or sale of invested
assets. Such funds are used principally for the payment of claims, payment of
claims settlement costs, operating expenses (primarily management fees),
commissions to independent agents, premium taxes, dividends and the purchase of
investments. There is variability in cash outflows because of uncertainties
regarding settlement dates for liabilities for unpaid losses. Accordingly, the
Company maintains investment programs intended to provide adequate funds to pay
claims. During the second quarter of 2002 and during 2001 and 2000, due to
reduced premium volume, the Company has liquidated investments to pay claims.
The Company historically has tried to maintain duration averages of 3.5 years.
However, the reduction in new funds due to lower premium volume has and will
continue to cause the Company to shorten the duration of its investments. The
Company may incur additional costs in selling longer bonds to pay claims, as
claim payments tend to lag premium receipts. Due to the decline in premium
volume, the Company has experienced a reduction in its investment portfolio, but
to date has not experienced any problems meeting its obligations for claims
payments.

As of June 30, 2002, the Company has drawn all funds available under its $2.5
million revolving credit facility ("Facility") with Granite Reinsurance Company,
Ltd., a related party. The terms of the Facility call for monthly interest
payments at the prime rate (as printed in the Wall Street Journal on the first
business day of each month) plus 5.25% (the total rate was 10.0% at August 1,
2002) computed on an annual basis and not to exceed 18% per annum calculated on
the average principal outstanding each month. All principal borrowed under the
Facility is due on December 20, 2004.

On August 12, 1997, the Company issued through a wholly owned trust subsidiary
$135 million aggregate principal amount in trust originated preferred securities
(the "Preferred Securities"). The Preferred Securities have a term of 30 years
with semi-annual interest payments of $6.4 million that commenced February 15,
1998. The Company may redeem the Preferred Securities in whole or in part after
10 years. The Company may defer interest payments in accordance with the terms
of the trust indenture for a period of up to five years. The unpaid interest
installment amounts accrue interest at 9.5%. The Company deferred the
semi-annual interest payments due in February and August 2000 and 2001 and
February 2002 and may continue this deferral practice for all remaining payments
due in 2002, 2003, and 2004. The Company intends to defer the interest payments
due in August 2002.

The following table sets forth the minimum required obligations of the Company
under the Preferred Securities for interest and principal payments for each of
the next four years and thereafter assuming all semi-annual interest payments
due in 2002, 2003, and 2004 are deferred (in thousands):

2002 2003 2004 2005 Thereafter Total
----- ----- ----- ------- ----------- --------

Interest payments. $ - $ - $ - $96,779 $ 282,150 $378,929
Principal payments - - - - 135,000 135,000
----- ----- ----- ------- ----------- --------
Total due. . . . . $ - $ - $ - $96,779 $ 417,150 $513,929
===== ===== ===== ======= =========== ========

The trust indenture contains certain restrictive covenants including those based
upon the Company's consolidated coverage ratio of earnings before interest,
taxes, depreciation and amortization (EBITDA). If the Company's EBITDA falls
below 2.5 times consolidated interest expense (including Preferred Securities
distributions) for the most recent four quarters, the following restrictions
become effective:

- - The Company may not incur additional indebtedness or guarantee additional
indebtedness.
- - The Company may not make certain restricted payments including making loans
or advances to affiliates, repurchasing common stock or paying dividends in
excess of a stated limitation.
- - The Company may not increase its level of non-investment grade securities
defined as equities, mortgage loans, real estate, real estate loans and
non-investment grade fixed income securities.

These restrictions currently apply, as the Company's consolidated coverage ratio
was (1.06) at June 30, 2002, and will continue to apply until the Company's
consolidated coverage ratio complies with the terms of the trust indenture. The
Company was in compliance with these additional restrictions as of June 30,
2002.

Beginning in the fourth quarter of 2001 and continuing in the second quarter of
2002, the Company experienced adverse loss experience on a substantial portion
of its new business written in certain markets. In late February and early March
2002, the Company commenced further analysis of loss ratios by individual agency
and a review of claim settlement procedures. Based on this and other analysis,
the Company took the following actions in late March and in April 2002 to
improve the financial position and operating results of the Company:

- - Eliminated reinstatements in all markets, i.e., upon policy cancellation,
the insured must obtain a new policy at prevailing rates and current
underwriting guidelines;
- - Terminated or placed on new business moratorium several hundred agents
whose loss ratios were abnormally high when compared to the average for the
remaining agents (these agents accounted for approximately 16% of the total
gross written premium in 2001);
- - Increased underwriting requirements in certain markets including: higher
down payments, new policy fees, and shorter policy terms;
- - Hired a consultant with significant auto claims experience to review
processes and suggest modifications to the claims function.

As previously reported in the Company's December 31, 2001 Annual Report on Form
10-K, the Company expected the above actions to result in a decline of
approximately 10 to 15% in gross written premiums from 2001 levels. Based on
actual results through June 2002, the Company now expects a decline of 30% to
35% in gross written premiums for calendar year 2002 from 2001 levels with a
corresponding decrease in management fees payable to Superior Group. In April
2002, the Company eliminated approximately 60 full-time positions, primarily in
its claims and underwriting departments, representing approximately 17% of the
Company's employees before the layoffs. In addition, the Company has undertaken
other cost savings initiatives and process changes in order to reduce operating
expenses.

Net cash used by operating activities in the first half of 2002 aggregated
$(19,412,000) compared to $(12,986,000) for the same period in 2001. The
increase is primarily due to the lower premium volume in the first half of 2002
and the receipt in 2001 of $4.5 million for the non-compete agreement with
Acceptance. See Note 8 "Discontinued Operations" in the Condensed Notes to the
Financial Statements.

The present projected level of cash flow from premium volume, investment income
and billing fees will be insufficient to fund operating expenses at their
present levels through the end of 2002. The Company is considering alternative
sources of working capital which may be available in order to fund operations.
Among the alternate sources pursued by the Company are capital contributions and
loans from the Company's parent, Goran Capital Inc. In addition, the Company may
continue to reduce operating expenses to match cash inflows and may increase
premium volume in the third or fourth quarters in certain states assuming the
new business is written to generate an underwriting profit. In the event the
Company's insurance company subsidiaries continue to reduce premium volume, the
result will be continued reductions in management and billing fees paid to
Superior Group which will reduce cash flow and sources of funds available to
fund operating expenses and other obligations, including the Preferred
Securities.

Shareholders' equity reflected a deficit of $(162) million at June 30, 2002,
which does not reflect the statutory surplus upon which the Company conducts its
various insurance operations. The Company's insurance subsidiaries, not
including IGF, after the effects of Codification, had statutory surplus of
approximately $13.2 million at June 30, 2002.

Given the financial position and loss experience of the Company over the past
several years as described above, the Company's accountants issued an opinion
based on their audit of the December 31, 2001 Consolidated Financial Statements
which includes an emphasis paragraph that raises the question of whether or not
the Company can continue as a going concern. The Company's plans to improve
financial results are described above.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Information related to Qualitative and Quantitative Disclosures about Market
Risk was included under Item 1. Business in the December 31, 2001 Form 10-K. No
material changes have occurred in market risk since this information was
disclosed in the December 31, 2001 Form 10-K.

PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

As previously reported, IGF, which is a wholly owned subsidiary of the Company,
had been a party to a number of pending legal proceedings and claims relating to
agricultural production interruption insurance policies (the "AgPI Program")
which were sold during 1998. All of the policies of insurance which were issued
in the AgPI Program were issued by and under the name of Mutual Service Casualty
Insurance Company ("MSI"), a Minnesota corporation with its principal place of
business located in Arden Hills, Minnesota. Sales of this product resulted in
large underwriting losses by IGF.

Approximately $29 million was paid through March 31, 2002 in settlement of legal
proceedings and policyholder claims related to the AgPI Program. All AgPI
policyholder claims were settled during 2000. However, on January 12, 2001 a
case was filed in the Superior Court of California, County of Fresno, entitled
S&W Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual
Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo &
Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought
by four AgPI policyholders who had previously settled their AgPI claims pursuant
to binding settlement agreements who now seek additional compensation by
asserting through litigation that IGF and the third party carrier paid less than
the policy limits they were promised when they purchased the policy and that
each settling policyholder was forced to accept the lesser amount due to their
economic duress - a legal theory recognized in California if certain elements
can be established. On January 16, 2002, the court entered an order granting
IGF's motion for judgment on the pleadings and required plaintiffs to show an
insurable interest. Plaintiffs amended their complaint attempting to allege an
insurable interest, and on March 19, 2002, the court granted IGF's demurrer to
the amended complaint. In granting the demurrer the court held that any
recovery payable to plaintiff would be limited to their actual economic losses
regardless of how much plaintiffs thought they had been promised (i.e.
plaintiffs cannot be paid policy limits without regard to actual losses
incurred). The plaintiffs then filed their third amended complaint to which MSI
filed a demurrer challenging the insurance contract allegations, as the issuer
of the AgPI policies, contending that plaintiffs failed to make the amendments
to show an insurable interest as required by the court's previous rulings. This
demurrer was granted, without leave to amend, because the lack of an insurable
interest rendered the contract an unenforceable wager agreement, as described in
each of the various versions of the complaint. Plaintiffs have now moved for
reconsideration of the dismissal of the insurance claims asking for another
chance to allege an adequate insurable interest. This hearing is set for August
13, 2002. Discovery is proceeding.

As previously reported in the Company's March 31, 2002 Form 10-Q, MSI and IGF
were arbitrating their dispute over responsibility for claims paid to MSI
insureds. Also as previously reported, an action was filed against the Company,
IGF, IGF Holdings, Inc. ("IGFH"), Granite Reinsurance Company, Ltd. ("Granite
Re"), a wholly owned subsidiary of Goran, Goran and certain affiliates of those
companies, as well as certain members of the Symons family, and Acceptance in
the United States District Court for the Southern District of Indiana which
alleged that the June 6, 2001 sale of IGF's assets to Acceptance and the
payments by Acceptance to the Company, Goran and Granite Re violated Indiana law
and were voidable. The parties have settled the arbitration and the Indiana
action, and an order of dismissal was entered by the court on June 26, 2002.

The Company is a defendant in a case filed on February 23, 2000, in the United
States District Court for the Southern District of Indiana entitled Robert Winn,
et al. v. Symons International Group, Inc., et al., Cause No. IP 00-0310-C-B/S.
Other parties named as defendants are Goran, three individuals who were or are
officers or directors of the Company or of Goran, PricewaterhouseCoopers LLP and
Schwartz Levitsky Feldman, LLP. The case purports to be brought on behalf of a
class consisting of purchasers of the Company's stock or Goran's stock during
the period February 27, 1998, through and including November 18, 1999.
Plaintiffs allege, among other things, that defendants misrepresented the
reliability of the Company's reported financial statements, data processing and
financial reporting systems, internal controls and loss reserves in violation of
Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") and SEC
Rule 10b-5 promulgated thereunder. The individual defendants are also alleged
to be liable as "controlling persons" under Sec.20 (a) of the 1934 Act.
Discovery in the case is proceeding.

The Company and its subsidiaries are named as defendants in various other
lawsuits relating to their business. Legal actions arise from claims made under
insurance policies issued by the Company's subsidiaries. The Company, in
establishing its loss reserves, has considered these actions. There can be no
assurance that the ultimate disposition of these lawsuits will not have an
adverse material affect the Company's operations or financial position.

Except as set forth above, there have been no other material developments in any
of the pending legal proceedings previously reported by the Company in the March
31, 2002 Form 10-Q.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on
May 30, 2002. The following is a summary of the matters
voted on at the meeting:

(a) The three nominees for director were elected to serve
three-year terms ending in 2005, as follows:

Nominee For Against Withhold Vote
------------- -------- -------- -------------
G. Gordon Symons 4,445,566 None 237,284
Larry S. Wechter 4,628,766 None 54,084
Terry W. Anker 4,628,766 None 54,084

The terms of the following directors continued after
the meeting: G. Gordon Symons, Alan G. Symons and
Douglas H. Symons.

(b) The appointment of BDO Seidman, LLP as the Company's
independent auditors was ratified by the following
shareholder vote:

For: 4,467,313
Against: 208,137
Abstain: 7,400

ITEM 5. OTHER INFORMATION
On August 12, 2002, Larry S. Wechter resigned as a director
of the Company. There were no material disagreements between
Mr. Wechter and Symons International Group, Inc. on any
matter relating to the Company's operations, policies or
practices.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
None

Reports on Form 8-K
----------------------
On June 10, 2002 the Company filed a Form 8-K announcing the retirement of Alan
G. Symons, the Company's Vice Chairman of the Board, effective May 31, 2002, and
the end of Gene S. Yerant's employment with the Company effective May 20, 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on August 13, 2002.

By: /s/ Douglas H. Symons
----------------------------
Douglas H. Symons
President, Chief Executive Officer and Secretary
(principal executive officer)

By: /s/ Mark A. Paul
----------------------------
Mark A. Paul
Vice President and Chief Financial Officer
(principal financial and accounting officer)

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Symons International Group, Inc. (the
"Company") on Form 10-Q for the three month period ended June 30, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned, in the capacities and on the dates indicated below, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company as of
the dates and for the periods indicated.

Dated: August 13, 2002 By: /s/ Douglas H. Symons
-----------------------------
Douglas H. Symons
President, Chief Executive Officer and Secretary
(principal executive officer)

Dated: August 13, 2002 By: /s/ Mark A. Paul
----------------------------
Mark A. Paul
Vice President and Chief Financial Officer
(principal financial and accounting officer)