The following discussion describes our efforts to date and future plans to deal with the Year 2000 issue. These plans have been and continue to be updated and revised as additional information becomes available.

State of Readiness - Since the late 1980s, we have required that all of the internal computer systems supported by our Information Systems Division ("ISD") use a four-digit date field. Early implementation of this design standard has limited the number of systems requiring remediation.

We established a Review Board in the third quarter of 1997 to review and certify the remediation of the hundreds of internally developed and externally sourced systems we use through rigorous testing. To coordinate the Year 2000 remediation efforts, we have created the Year 2000 Project Office, which is responsible for the oversight, coordination and monitoring of our Year 2000 efforts including, among other things, reviewing the compliance status of information systems in all operating units and subsidiaries, both foreign and domestic, directing the Year 2000 coordinators assigned to our operating units, and formulating company-wide contingency plans.

Prior to the merger with USF&G, a separate "Y2K Action Committee" was maintained by USF&G, and a comprehensive program to address each of three identified aspects to the Year 2000 issue (readying USF&G's systems, coordinating with agents and other third parties with whom USF&G interacts, and managing the risk of claims from insured parties) had been established. The Year 2000 program developed by USF&G's Y2K Action Committee has now been integrated into our overall Year 2000 response.

Information Technology Systems - All of our systems, whether internally developed or externally sourced, are subject to the company-wide comprehensive testing and compliance standards promulgated by ISD, the oversight and monitoring of which is the responsibility of the Year 2000 Project Office. Insofar as internal systems are concerned, Year 2000 compliance was achieved by Dec. 31, 1998. Initial compliance validation of all such systems is scheduled to be completed by March 31, 1999. Additionally, all subsidiaries not headquartered in Saint Paul, MN or Baltimore, MD are scheduled to complete initial validation testing of their operating systems on or before June 30, 1999.

The Year 2000 Project Office's plan for remediation and validation of externally sourced systems provides for us to work with the vendors of those systems to ensure that those systems become Year 2000 compliant at the earliest practicable date. Compliance testing in accordance with ISD standards takes place as and when compliant versions and/or affirmations of compliance from vendors are received. We have identified what we believe to be all of our third-party supplied mission critical systems, and expect to receive Year 2000 compliant versions and/or affirmations of compliance for each of them, and to complete the validation process, before Sept. 30, 1999.

Third-Party Service Providers and Distribution Network - We rely indirectly on the information technology systems of our service providers and those of our distribution network. The Year 2000 Project Office is communicating with our service providers, including financial institutions providing custody and other services, our independent agents and brokers, and other entities with which we do business, to identify and resolve Year 2000 issues and to determine the potential impact, where relevant, of the possible failure of certain of such persons to achieve Year 2000 compliance on a timely basis. Results of this process are expected to be used in our contingency planning efforts discussed below.

Nuveen Systems - Having started the development and implementation of internal four-digit date code software and system standards in the early 1980s, Nuveen's Year 2000 program consists primarily of Year 2000 compliance examination and testing of the software packages and hardware provided by third parties and of the systems and software of its service providers. Certification of Year 2000 compliance and testing of critical third-party hardware and software systems used in processing at Nuveen is expected to be complete by the end of the first quarter of 1999, with the remaining certification and testing to follow in the second quarter of 1999. Nuveen is in the process of developing contingency plans based upon its examination of the Year 2000 readiness of its third-party supplied systems and its service providers. Nuveen believes that the costs associated with its Year 2000 efforts will not be material to its operations and financial position.

Embedded Chip Issues - Given the nature of our business, and that of our vendors and the members of our distribution network, we believe that our exposure to embedded chip Year 2000 issues is minimal (other than our exposure to possible disruptions in electricity, telecommunications and other essential services provided by public utilities that are subject to embedded chip-related disruption). We are, where deemed appropriate, coordinating with vendors to obtain certificates of Year 2000 compliance for the embedded computer technology equipment that we use.

Year 2000 Compliance Program Costs - We have developed and implemented plans to address the system modifications required to prepare for the Year 2000, and do not expect the planning and implementation costs associated with Year 2000 efforts to be material to our results of operations, cash flows or consolidated financial position. Through Dec. 31, 1997, the costs of Year 2000 remediation measures incurred, including costs incurred by USF&G prior to the merger, totaled approximately $6 million. We incurred costs of approximately $12 million in 1998, and we anticipate additional costs of approximately $5 million in 1999.

Contingency Planning - The Year 2000 Project Office's contingency planning team created a contingency planning model and template that focuses on maintaining infrastructure and resuming critical business functions. Infrastructure teams, business and staff units, field offices and subsidiary location teams will create plans to address these areas. Infrastructure teams are focusing on creating plans to maintain critical operations at corporate headquarters. The corporate infrastructure team plans were completed during the first quarter of 1999. Each business or staff unit team is focusing on creating plans to provide responsive actions for several potential disruption duration scenarios, and resuming critical business processes, products and services. For each disruption duration scenario, the business and staff unit plans will identify alternative procedures designed to permit continued operations and to minimize risk exposure. The business and staff unit contingency plans are scheduled to be completed on March 31, 1999. The contingency planning model and template will be distributed to all subsidiary and field office locations along with infrastructure plans and business and staff unit plans for leverage in creating their contingency plans. All plans will be analyzed and rolled up to an enterprise level following completion and will be modified as needed during 1999.

We believe that our most significant Year 2000 exposure is the potential business disruptions that would be caused by widespread failure of public utility systems, particularly in the power generation/distribution and the telecommunication industries. While the contingency plans we are developing will provide alternative procedures to lessen the impact of short duration disruptions, prolonged failure of power and telecommunications systems could have a material adverse effect on our results of operations, cash flows and consolidated financial position.

As noted above, we indirectly rely on the information systems of the many components of our distribution network, which includes thousands of independent agents and brokers. We are aware that some of our independent agents and brokers are currently Year 2000 noncompliant and expect that a much lesser number, unknown at this time and expected to consist primarily of smaller agents, will be noncompliant on Jan. 1, 2000. We believe that Year 2000-related difficulties experienced by members of our distribution network have the potential to materially disrupt our business and that such potential disruptions constitute our second greatest area of potential exposure to the Year 2000 problem. As part of our contingency planning effort, we have been providing information to members of our distribution network intended to sensitize them to the Year 2000 issue and to encourage them to take appropriate steps to become Year 2000 compliant. Although our distribution network consists of thousands of agents and brokers, the number of different systems used by the constituent members is far less. For example, we believe that fewer than 20 types of agency management systems are used by our property-liability insurance agents in the United States. Contingency arrangements are being discussed with distribution network members pursuant to which we may, among other provisional steps, provide data in alternative formats and offer temporary direct billing services in the event of a disruption in their individual systems.

We note that the Year 2000 issue by its nature carries the risk of unforeseen and potentially very serious problems of internal or external origin. Some commentators believe that the Year 2000 issue has the potential of destabilizing the global economy or causing a global recession, both of which could adversely affect us. While we believe we are taking appropriate action with respect to third parties on whose systems and services we rely to a significant extent, there can be no assurance that the systems of such third parties will be Year 2000 compliant or that any third party's failure to have Year 2000 compliant systems would not have a material adverse effect on our earnings, cash flows or financial condition.

Insurance Coverage - We also face potential "Year 2000" claims under coverages provided by our insurance and reinsurance policies sold to insured parties who may incur losses as a result of the failure of such parties, or the customers or vendors of such parties, to be Year 2000 compliant. Because coverage determinations depend on unique factual situations, specific policy language and other variables, it is not possible to determine in advance whether and to what extent insured parties will incur losses, the amount of the losses or whether any such losses would be covered under our insurance policies. In some instances, coverage is not provided under the insurance policies or reinsurance contracts, while in other instances, coverage may be provided under certain circumstances.

Our standard property and inland marine policies require, among other things, direct physical loss or damage from a covered cause of loss as a condition of coverage. In addition, it is a fundamental principle of all insurance that a loss must be fortuitous to be considered potentially covered. Given the fact that Year 2000-related losses are not unforeseen, and that we expect that such losses will not, in most if not all cases, cause direct physical loss or damage, we have concluded that our property and inland marine policies do not generally provide coverage for losses relating to Year 2000 issues. To reinforce our view on coverage afforded by such policies, we have developed and are implementing a specific Year 2000 exclusion endorsement.

We continue to assess our exposure to insurance claims arising from our liability coverages, and we are taking a number of actions to address that exposure, including individual risk evaluation, communications with insured parties, the use of exclusions in certain types of policies, and classification of high hazard exposures that in our view present unacceptable risk. We may also face claims from the beneficiaries of our surety bonds resulting from Year 2000-related performance failures by the purchasers of the bonds. We are assessing our exposure to such potential claims.