Friary Court, Crutched Friars,

London EC3N 2NP, England;

44-207-560-3000;

fax: 44-207-560-3502;

www.lambertfen.com

1998/9 1997/8

Gross revenues $258,851,000 $234,477,600

Brokerage revenues $252,235,000 $226,267,600

Brokerage: Retail 58.75*% 59.25*%

Wholesale 20.75*% 19.25*%

Reinsurance 10% 12%

Personal 7% 6%

Services 1% 0%

Investment income 2.5%* 3.5%*

Employees 2,510 2,509

Rev./employee $100,492 $90,182

Offices 103 98

*BI estimates. All figures converted at applicable exchange rates. Fiscal year ends March 31.

In spite of continued lower rates and a highly competitive insurance market, Lambert Fenchurch Group P.L.C. turned in higher revenues for 1998.

For a broker that derives a majority of its revenues from insurance commissions rather than fee-based services, its executives see this as quite an accomplishment in the current market.

"We are very pleased with the results," said Chief Executive Officer David Margrett, "because what's going on with the market is an unmitigated round of rate reductions."

London-based Lambert Fen-church's corporate gross revenues grew 9.6% to L156.5 million in its most recent fiscal year, from L142.8 million in the previous period. Converted to U.S. dollars at average exchange rates, gross revenues increased to $258.9 million from $234.5 million, an increase of 10.4%.

Brokerage revenues, which exclude corporate interest income, were L152.5 million for the most recent fiscal year, an increase of 10.7% from the prior year. When converted to U.S. dollars, the brokerage revenue figure rose 11.5% to $252.2 million, making Lambert Fenchurch the world's 10th-largest broker.

The broker's 1997 revenue figures were revised by Business Insurance to exclude revenues from minority holdings, which were incorrectly included last year.

Despite the tough market, Lambert Fenchurch gained ground by adding new business and retaining clients.

Profits from the company's brokerage services increased 9% to L17 million ($28.1 million). But lower contributions from associated companies, a fall in interest income and an increase in interest payable resulted in a 7.1% drop in the company's overall profits to L18.3 million ($30.1 million).

During the 12 months ending March 31, 1999, the broker, which was created in February 1997 by the merger of Lowndes Lambert Group Holdings P.L.C. and Fenchurch P.L.C., expanded its network of offices and added teams of brokers and joint ventures to its operations. Additionally, Lambert Fenchurch won new accounts and reorganized part of its internal structure.

"We saw an underlying growth of about 5% (in gross revenues) in the international and U.K. operations, offset against rating reductions between 10% and 15%," explained Mr. Margrett.

Lambert Fenchurch continues to grow. Although Mr. Margrett insists the broker will remain independent, he said to "expect more acquisitions."

The company sold off certain investments over the course of the year, including two small shareholdings in continental European operations. Nevertheless, associated undertakings in which Lambert Fenchurch holds at least 50% added L14.2 million ($23.5 million) to its total revenue figure for the most recent fiscal year, up 17.4% over the prior year.

Exceptional costs of L4.2 million ($6.9 million) for the most recent fiscal year included the cost of restructuring parts of Lambert Fenchurch International Group Ltd. and merging the group's technical services and accounts departments, as well as restructuring some overseas operations.

Meanwhile, Lambert Fenchurch U.K. Group Ltd., one of Lambert Fenchurch Group's three main divisions, has been successful in a number of areas, according to U.K. Group Chairman Michael A. Barnfield.

In particular, Mr. Barnfield pointed to the success of new operations that provide insurance and risk management services to municipalities and clients of venture capital companies.

"We took on the president of the Assn. of Local Authority Risk Managers, Bill Sulman," to assist the new venture, Mr. Barnfield noted. Bringing Mr. Sulman aboard added credibility to the specialized operation and helped develop its book of business, he said. Lambert Fenchurch now is the broker of record for 44 U.K. municipalities.

The U.K. Group also is the broker for the British Venture Capital Assn. and now provides brokerage services to start-up companies through 90% of the European venture capital companies, said Mr. Barnfield. "It has been extremely successful," he said. "We are involved early in the bidding process, at a semi-due diligence level, using a very experienced team with detail knowledge."

Lambert Fenchurch's U.K. Group also won several new clients during the year.

One such client was Inchcape Shipping Services. Inchcape, with revenues of $150 million, is the world's largest independent shipping agency network, providing shipping support for more than 30,000 vessels.

In addition to brokering general insurance coverage, the U.K. Group also offers specialty lines, such as professional liability, as well as captive management services. "Professional indemnity had a record year," said Mr. Barnfield. Among the retained clients was the Royal Institute of British Architects, for which the U.K. Group provides professional indemnity plans through a Lambert Fen-church subsidiary called RIBA Insurance Agency Ltd.

The U.K. Group also is developing its affinity group business, offering products to clients ranging from sports clubs to the staff of financial services institutions. During the year, it added Chelsea Village P.L.C., the fan club of the Chelsea Football Club, to its list of clients. Through the plan, a Chelsea fan club member or season-ticket holder can get a 10% discount on any written quote for household or auto coverage, explained Mr. Barnfield.

Lambert Fenchurch International Group Ltd., the division handling London market business, also has expanded by adding new teams and strengthening those in place, said Mr. Margrett. The division focuses on areas such as property/casualty coverage, political risk, entertainment, media and fine arts. The International Group also handles marine, international wholesale, reinsurance and construction business.

On the international wholesale side, property/casualty business has been strengthened in the Caribbean, South Africa, South America and the Far East, said Mr. Margrett. Business in project risks, such as power plants, also has seen growth, as has the U.K. wholesale business, he said.

Casualty business specifically has expanded in the United States over the past year, he said, and Lambert Fenchurch also is extending its client base throughout Europe and Southeast Asia.

The specialty areas of fine arts, entertainment and media are a particular feather in Lambert Fenchurch's cap. Currently, it arranges coverage for about 30% of the sponsorship arrangements for U.K. Premier League soccer clubs, said Mr. Margrett. In addition, it recently brokered the coverage for a Picasso retrospective in Taipei, valued at about $150 million, and "we insure more Stradivarius violins than any other broker," said Mr. Margrett.

Non-London market business falls under the aegis of Lambert Fenchurch Overseas Ltd., a division that has been particularly affected by divestments of shareholdings. During the year, Lambert Fenchurch sold its 15% holding in Unofi, an asset management company for French notaries. The shareholding was sold in March through Lambert Fenchurch's French operations, La Securite Nouvelle, to French insurance giant AXA Group. So far, L700,000 ($1.16 million) has been added to Lambert Fenchurch's balance sheet as a result of the deal, with additional payments due over the next few years.

Lambert Fenchurch also sold its 20% stake in Belgian insurer Thibaut Colson de Nef for 250 million Belgian francs ($6.7 million). This sale occurred after majority shareholder General Bank was bought by Fortis Group, a Belgian financial services company that decided to exercise General Bank's options to buy the Lambert Fenchurch shares.

Although this has meant the broker currently has no operations in Belgium, this will soon change, said Mr. Margrett. "We have some links with major commercial business (in Belgium)," he said.

The broker also wants to develop more offices in France, he said.

Slightly further afield, Lambert Fenchurch is eyeing Eastern Europe for developing retail business. "It tends to be hugely underinsured," Mr. Margrett said.

Another recent acquisition was a small Scottish broker, Executive Insurance Brokers Ltd., which Lambert Fenchurch purchased in October 1998. It had 1998 revenues of L200,000 ($330,800).

And Lambert Fenchurch did add a couple of offices in Southeast Asia that "performed quite strongly," said Mr. Margrett. He singled out the Singapore operation as performing "very well," though he acknowledged that rating pressure on marine business in Hong Kong meant business there was "very tough." Australia also was tough, though Lambert Fenchurch entered new areas with reinsurance, political risk and financial services business.

In North America, the broker scored its ninth consecutive year of record revenues in Canada, said Mr. Margrett. Most of the Canadian business is made up of group plans and affinity business, though the broker does have some property/casualty clients.

Also, a New York-based brokerage joint venture, New Century Global, involves Reliance Group Holdings Inc. and has "performed quite well," said Mr. Margrett. He said he expects a positive return from the initiative during the current fiscal year. Lambert Fenchurch has just 10 offices in the United States, but it has close links with a number of large independent brokers, said Mr. Margrett.

Closer to home, Lambert Fenchurch has restructured its technical and accounting functions, "partly because we have re-engineered the way business is transacted," he said. At the same time, the U.K. retail business is considering centralizing its claims function, he said.

"We are investing in new projects and new people. We want to make sure we have an integrated business," he said.

Lambert's U.K. financial services business, which includes services for independent financial advisers and corporate clients, has recently posted four record months of revenues, said Mr. Margrett. "Financial services sales are moving ahead in an extremely positive way," he said. He expects the proportion of revenues derived from fee-based services will grow.

Mr. Margrett acknowledged that Lambert Fenchurch has not automatically been the choice of the world's largest organizations. "We have always had a small number of very large clients, but we have not always had the lion's share," he said. In order to attract more large clients, Lambert Fenchurch has set up a risk solutions team that works with the group's three divisions to service clients with complex risks. The team focuses on multibillion-dollar organizations that are "looking for London market service -- wholesale business with a retail flavor," he said.

And medium-sized companies are serviced by Lambert Fenchurch's new risk management service initiative, Total Risk Identification. This approach looks at all of a company's risks, working in partnership with the client, explained Mr. Margrett.

During the course of the past year, Lambert Fenchurch acquired as its new chairman Bernard Myers; he succeeded Sir Robert Clarke, who retired. Mr. Myers, a non-executive appointment, previously was a non-executive director of the broker.

As for the future, Mr. Margrett expects more expansion and growth. "We will look (at opportunities) in all areas where we think we have strength," he said. Already, Lambert Fenchurch has identified a number of private brokers in the United Kingdom it might want to acquire, as well as overseas brokers looking for international coverage for their clients.

For the 52-week period ended July 9, Lambert Fenchurch's shares reached a high of 117.5 pence ($1.83) and a low of 67.5 pence ($1.05). The shares closed as 83.5 pence ($1.30) on July 9.