================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

(MARK ONE)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED]

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

  [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

             FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 0-18786

                                   ----------
                               PICO HOLDINGS, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


               CALIFORNIA                                      94-2723335
     (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

                         875 PROSPECT STREET, SUITE 301
                           LA JOLLA, CALIFORNIA 92037
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (858) 456-6022

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, $.001 PAR VALUE
                                (TITLE OF CLASS)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any amendment to this
Form 10-K. [ X ]

Approximate aggregate market value of the registrant's common stock held by
non-affiliates of the registrant (based on the closing sales price of such stock
as reported in the NASDAQ National Market) on March 13, 2002 was $75,185,221.
This excludes shares of common stock held by directors, officers and each person
who holds 5% or more of the registrant's common stock.

On March 13, 2002, the Registrant had 12,368,616 shares of common stock, $.001
par value, outstanding, excluding 4,415,607 shares of common stock which are
held by the registrant and its subsidiaries.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)      None.

================================================================================







                               PICO HOLDINGS, INC.

                           ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS



                                                                                                                           Page
                                                                                                                            No.
                                                                                                                            ---
                                                                                                                       
  PART I..............................................................................................................      3

      Item 1.   BUSINESS..............................................................................................      3
      Item 2.   PROPERTIES............................................................................................     11
      Item 3.   LEGAL PROCEEDINGS.....................................................................................     11
      Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................     11

  PART II.............................................................................................................     12

      Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................     12
      Item 6.    SELECTED FINANCIAL DATA..............................................................................     13
      Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS........................................................................     14
           7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.........................................     50
      Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................................     50
      Item 9.    CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                     AND FINANCIAL DISCLOSURE.........................................................................     88

  PART III............................................................................................................     89

      Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................     89
      Item 11.  EXECUTIVE COMPENSATION................................................................................     89
      Item 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT......................................................................................     89
      Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................     89

  PART IV.............................................................................................................     89

      Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................................     89

  SIGNATURES..........................................................................................................     99







                                       2



                                     PART I

THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS. THESE INCLUDE, BUT ARE NOT
LIMITED TO, STATEMENTS ABOUT OUR INVESTMENT PHILOSOPHY, PLANS FOR EXPANSION,
BUSINESS EXPECTATIONS, AND REGULATORY FACTORS. THESE STATEMENTS REFLECT OUR
CURRENT VIEWS ABOUT FUTURE EVENTS WHICH COULD AFFECT OUR FINANCIAL PERFORMANCE.
ALTHOUGH WE AIM TO PROMPTLY DISCLOSE ANY NEW DEVELOPMENT WHICH WILL HAVE A
MATERIAL EFFECT ON PICO, WE DO NOT UNDERTAKE TO UPDATE ALL FORWARD-LOOKING
STATEMENTS UNTIL OUR NEXT PERIODIC SEC FILING. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS, BECAUSE THEY ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES, INCLUDING THOSE LISTED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS FORM 10-K, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS, OR FROM OUR PAST RESULTS.


ITEM 1. BUSINESS

INTRODUCTION

     PICO Holdings, Inc. is a diversified holding company. We acquire interests
in companies which our management believes:
-    are undervalued at the time we buy them; and
-    have the potential to provide a superior rate of return over time, after
     considering the risk involved.

     Our over-riding objective is to generate superior long-term growth in
shareholders' equity, as measured by book value per share. To accomplish this,
we are seeking to build a profitable operating base and to realize gains from
our investment holdings. In the long term, we expect that most of the growth in
shareholders' equity will come from realized gains on the sale of assets, rather
than operating earnings. Accordingly, when analyzing PICO's performance, our
management places more weight on increased asset values than on reported
earnings.

     Over time, the assets and operations owned by PICO will change. Currently
our major activities are:
-    owning and developing water rights and water storage operations through
     Vidler Water Company, Inc.;
-    owning and developing land and the related mineral rights and water rights
     through Nevada Land & Resource Company, LLC;
-    property and casualty insurance in California and Nevada through Sequoia
     Insurance Company, and "running off" the property and casualty loss
     reserves of Citation Insurance Company;
-    "running off" the medical professional liability loss reserves of
     Physicians Insurance Company of Ohio; and
-    making long term value-based investments in other public companies.

     The address of our main office is 875 Prospect Street, Suite 301, La Jolla,
California 92037, and our telephone number is (858) 456-6022.

     Our web-site at www.picoholdings.com contains further material about PICO,
our Securities and Exchange Commission filings, and links to other sites,
including some of the companies which we are associated with. You should check
the site periodically during the year for press releases and updated
information.

HISTORY

     PICO was incorporated in 1981 and began operations in 1982. The company was
known as Citation Insurance Group until a reverse merger with Physicians
Insurance Company of Ohio on November 20, 1996. After the reverse merger, the
former shareholders of Physicians owned approximately 80% of Citation Insurance
Group, the Board of Directors and management of Physicians replaced their
Citation counterparts, and Citation Insurance Group changed its name to PICO
Holdings, Inc. You should be aware that information pre-dating the reverse
merger relates to the old Citation Insurance Group only, and does not reflect
the performance of Physicians prior to the merger.



                                       3

MAJOR OPERATING SEGMENTS & SUBSIDIARY COMPANIES

     This section describes our operating segments and lists the important
subsidiaries in each segment. Unless otherwise indicated, we own 100% of each
subsidiary.


                         WATER RIGHTS AND WATER STORAGE

     This segment is comprised of two distinct but inter-related activities: the
ownership and development of water rights in Nevada, Arizona, and Colorado; and
our interests in water storage facilities in Arizona and California.

     We entered the water rights and water storage business with the acquisition
of Vidler Water Company, Inc. in 1995. At the time, Vidler owned a limited
quantity of water rights and related assets in Colorado. Since then, Vidler has
acquired:

-    additional water rights and related assets, predominantly in Arizona and
     Nevada. Vidler seeks to acquire water rights at prices consistent with
     their current use, with the expectation of an increase in value if the
     water right can be converted to a higher use. The majority of Vidler's
     water rights are in Nevada and Arizona, the two states which experienced
     the most rapid population growth in the past 10 years; and
-    interests in water storage facilities in Arizona and California.
PICO currently owns approximately 96.2% of Vidler.

     Vidler is the leading private company in the water rights and water storage
business in the southwestern United States. PICO identified water rights and
water storage as attractive niches to invest in due to the escalating
supply/demand imbalance for water in the Southwest. There are already
disparities between the time and place of highest demand and the time and place
where supplies of water are available. Meanwhile, demand continues to rise
rapidly, fueled by population growth, economic development, environmental
requirements, and the claims of Native Americans.

     While, physically, there is enough water in the region to meet foreseeable
demand, some of the water is in remote locations and available water is
allocated inefficiently, which creates opportunity for private providers such as
Vidler. For example:

-    the majority of water rights are currently controlled by agricultural
     users. In many locations, there are insufficient water rights controlled by
     municipal users to meet present and future demand;
-    currently there are not effective procedures in place for the transfer of
     water from private parties with excess supply in one state to end-users in
     other states, although regulation and procedures are steadily being
     developed to facilitate the interstate transfer of water; and
-    infrastructure to store water will be required to accommodate and allow
     interstate transfer, and transfers from wet years to dry years. Currently
     there is limited storage capacity in place.

     The water rights and water storage business is relatively new and complex,
and water law and terminology vary from state to state. A water right is the
legal right to divert water and put it to beneficial use. Water rights are
tradable assets which can be bought and sold. In some states, the use of the
water can also be leased. The value of a water right depends on a number of
factors, including location, the seniority of the right, and whether or not the
water is transferable.

     Vidler is engaged in the following activities:

-    identifying end-users in the Southwest who require water, namely water
     utilities, municipalities, developers, or industrial users, and then
     locating a source of water and supplying the demand, utilizing the
     Company's own assets where possible;
-    acquiring water rights, redirecting the water right to its highest and best
     use, and then generating cash flow from either leasing the water or selling
     the right;
-    development of storage and distribution infrastructure, and then generating
     cash flow from charging customers fees for "recharge," or placing water
     into storage; and
-    purchase and storage of water for resale in dry years.

     After an acquisition and development phase spanning several years, Vidler's
priority is to develop recurring cash flow from these assets and additional
water assets which we may acquire or develop in the future.


                                       4


     If Vidler is successful in commercially developing its water and water
storage assets, revenues could be significantly higher in future years if the
company:

-    secures significant supply contracts utilizing its water rights in Arizona
     and Nevada; and
-    obtains contracts to store water at the Vidler Arizona Recharge Facility.

     Vidler has also entered into joint ventures with parties who lack the
capital or expertise to commercially develop water rights. Vidler continues to
explore additional joint venture opportunities throughout the Southwest.

     This table details the water rights and water storage assets owned by
Vidler at December 31, 2001. Please note that this is intended as a summary, and
that some numbers are rounded. Item 7 of this Form 10-K contains more detail
about these assets, recent developments affecting them, and the current outlook.

     An acre-foot is a unit commonly used to measure the volume of water. An
acre-foot is the volume of water required to cover one acre to a depth of one
foot. As a rule of thumb, one acre-foot of water would sustain two families of
four persons each for one year.


------------------------------------------- ----------------------------------------------- ----------------------------------------
NAME OF ASSET & APPROXIMATE LOCATION        BRIEF DESCRIPTION                               PRESENT COMMERCIAL USE
------------------------------------------- ----------------------------------------------- ----------------------------------------
                                                                                      
WATER RIGHTS

ARIZONA:

HARQUAHALA VALLEY GROUND WATER BASIN        16,520 acres of land, plus 4,814 acres          Leased to farmers
LA PAZ & MARICOPA COUNTIES                  under option
75 miles northwest of metropolitan Phoenix  39,911 acre-feet of transferable ground water,
                                            plus 13,764 acre-feet under option

                                            State legislation allows use of the
                                            Central Arizona Project Aqueduct to
                                            convey up to 20,000 acre-feet of
                                            ground water from this area to
                                            cities and communities in the
                                            Phoenix metropolitan area as an
                                            assured municipal water supply

------------------------------------------- ----------------------------------------------- ----------------------------------------
NEVADA:

FISH SPRINGS RANCH, LLC (51% INTEREST) &    8,600 acres of deeded ranchland                 Vidler is currently farming the
  V&B, LLC (50% INTEREST)                                                                   property. Cattle graze on part of the
Washoe County, 40 miles north of Reno       8,000 acre-feet of permitted water rights,      property on a revenue-sharing basis
                                            which are transferable to the Reno/Sparks area


------------------------------------------- ----------------------------------------------- ----------------------------------------
LINCOLN COUNTY JOINT VENTURE                Applications* for more than 100,000 acre-feet    Agreement to supply an electricity-
                                            of water rights through a joint venture with     generating company with between 6,700
                                            Lincoln County, of which it is currently         and 9,000 acre-feet of water at $3,300
                                            anticipated that up to 40,000 acre-feet will     per acre-foot
                                            be permitted and put to use in Lincoln County.

                                            The purchase of approximately 822 acre-feet of
                                            permitted  water rights at Meadow Valley is in
                                            escrow

------------------------------------------- ----------------------------------------------- ----------------------------------------
SANDY VALLEY                                Application* for 2,000 acre-feet of water       Agreement to supply water to support
Near the Nevada / California state line     rights                                          addiitonal growth at Primm, Nevada once
in the Interstate 15 corridor                                                               the water rights have been permitted

                                            *The numbers indicated for water
                                            rights applications are the maximum
                                            amount which we have filed for. In
                                            some cases, we anticipate that the
                                            actual permits received will be for
                                            smaller quantities.
------------------------------------------- ----------------------------------------------- ----------------------------------------
WEST WENDOVER                               Approximately 6,300 acres of land near West     Agreement to sell 7 acres of industrial
Adjacent to the Nevada / Utah state line    Wendover, Nevada                                land
in the Interstate 80 corridor
------------------------------------------- ----------------------------------------------- ----------------------------------------
BIG SPRINGS RANCH                           Approximately 37,500 acres of deeded ranch      Leased to ranchers
65 miles from Elko in Elko County, Nevada   land
                                            6,000 acre-feet of certificated water rights
                                            6,000 acre-feet of permitted water rights
------------------------------------------- ----------------------------------------------- ----------------------------------------




                                             5



                                                                                      
------------------------------------------- ----------------------------------------------- ---------------------------------------
COLORADO:

CLINE RANCH                                 Approximately 500 acre-feet of senior water     Sale agreement in final stages of
                                            rights                                          regulatory approval

------------------------------------------- ----------------------------------------------- ---------------------------------------
VIDLER TUNNEL WATER RIGHTS                                                                  Agreement to sell 200 acre-feet of
(the Vidler Tunnel itself was divested in                                                   senior water rights, 640 acre-feet of
2000)                                                                                       junior water rights, and related land
                                                                                            and tunnel assets to the City of
                                                                                            Golden, Colorado

                                                                                            Agreement to sell 86 acre-feet of
                                                                                            water rights to East Dillon Water
                                                                                            District

                                            163 acre-feet of senior water rights            65.73 acre-feet leased. Vidler has
                                                                                            applied for remaining water rights
                                                                                            to be upgraded, which will increase
                                                                                            their commercial value

------------------------------------------- ----------------------------------------------- ---------------------------------------
WET MOUNTAIN                                600 acre-feet of priority water rights          Vidler is in discussions with  potentia
                                                                                            users


------------------------------------------- ----------------------------------------------- ---------------------------------------
WATER STORAGE

ARIZONA:

VIDLER ARIZONA RECHARGE FACILITY            An underground water storage facility
                                            with Harquahala Valley, Arizona
                                            estimated capacity exceeding 1
                                            million acre-feet and permitted
                                            annual recharge capability of up to
                                            100,000 acre-feet

------------------------------------------- ----------------------------------------------- ---------------------------------------
CALIFORNIA:

SEMITROPIC WATER STORAGE FACILITY           The right to store 30,000 acre-feet of
                                            water underground for 35 years. This
                                            includes the right to recover up to
                                            approximately 6,800 acre-feet in any
                                            one year and minimum guaranteed
                                            recovery of approximately 2,700
                                            acre-feet every year
------------------------------------------- ----------------------------------------------- ---------------------------------------



                  LAND AND RELATED MINERAL RIGHTS AND WATER RIGHTS

     In April 1997, PICO paid $48.6 million to acquire Nevada Land & Resource
Company, LLC, which at the time owned approximately 1,352,723 acres of deeded
land in northern Nevada, and the water, mineral, and geothermal rights related
to the property. Much of Nevada Land's property is checker-boarded in square
mile sections with publicly owned land. The lands generally parallel the
Interstate-80 corridor and the Humboldt River from West Wendover, in northeast
Nevada, to Fernley, in western Nevada.

     Nevada Land is the largest private landowner in the state of Nevada.
According to census data, the population of Nevada increased 66% in the 10 years
ended April 1, 2000, which was the most rapid population growth of any state in
the United States. In the fifteen months from April 1, 2000 to July 1, 2001,
Nevada's population increased another 5.4%, to approximately 2.1 million people.
Most of the growth is centered in southern Nevada, which includes the city of
Las Vegas and surrounding municipalities. Governmental agencies own
approximately 87% of the land in Nevada, so developable land is relatively
scarce.

     Before we acquired Nevada Land, the property had been under the ownership
of a succession of railway companies, to whom it was a non-core asset.
Accordingly, we believe that the potential of the property had never been
exploited.

     After acquiring Nevada Land, we completed a "highest and best use study."
The study divided the land into 7 major categories and developed strategies to
maximize the value of each type of asset. These strategies include:

- the sale of land and water rights. There is demand for land and water for a
  variety of purposes including residential development, residential estate
  living, farming, ranching, and from industrial users -- for example,
  electricity-generating companies, which wish to locate new plants in Nevada;


                                         6


-    land exchanges where Nevada Land transfers parcels of its land in return
     for land owned by government agencies or private parties. The Bureau of
     Land Management and other government agencies are motivated to conduct land
     exchanges for many purposes, including obtaining environmentally sensitive
     lands for conservation purposes or consolidating their land holdings into
     more manageable contiguous parcels. Nevada Land completed its first land
     exchange in 2000, and is working on other potential exchanges;
-    the development of water rights. Nevada Land has applied for additional
     water rights on land owned by the company. Where water rights are
     permitted, we anticipate that the value and marketability of the related
     land will increase;
-    the development of land in and around growing municipalities; and
-    the management of mineral rights.

A cost basis has been assigned to each category of land and other asset, which,
in aggregate, equals Nevada Land's original purchase price.

     During the period from April 23, 1997 to December 31, 2001, Nevada Land
received consideration of approximately $15.5 million from the sale and exchange
of land and the sale of water rights. This is comprised of $13.6 million in
sales of land, $1.3 million of cash and land received in a land exchange
transaction, and $624,000 from the sale of water rights. Over this period, we
sold 113,128 acres and divested 25,828 acres in a land exchange. The average
price received in land disposals has been $112 per acre, compared to our average
basis of $57 in the acres disposed of, and the average cost of $35 per acre for
the total land, water, and mineral assets acquired. Therefore, the proceeds from
selling and exchanging 10.3% of the land area acquired represent 31.5% of the
cost basis of the original land, water, and mineral assets.

     At December 31, 2001, Nevada Land owned approximately 1,213,767 acres of
former railroad land. We anticipate continuing to sell parcels of land for
residential, agricultural, and industrial use, and that significantly larger
parcels could be divested through land exchanges.

     In addition to the former railroad property, Nevada Land has acquired:
-    17,558 acres of land in a land exchange with a private landowner. This land
     is contiguous with Native American tribal lands and is culturally
     sensitive. We have agreed to a second transaction, with the Bureau of Land
     Management, where we will give up the 17,558 acres in exchange for lands in
     the Highway 50 corridor, which runs from the state capital of Carson City,
     Nevada to Fernley, Nevada. While agreement has been reached, it will likely
     take several years to complete the exchange; and
-    Spring Valley Ranches, which is located approximately 40 miles west of Ely
     in White Pine County, Nevada. This property was purchased out of bankruptcy
     proceedings in 2000. We believe that the land has significant environmental
     value to federal agencies, making it suitable for a land exchange
     transaction. The real estate assets consist of approximately 9,500 acres of
     deeded land and 500,000 acres of Forest Service and Bureau of Land
     Management allotment land. There are 5,582 acre-feet of permitted
     agricultural water rights related to the property. Nevada Land intends to
     develop these water rights in conjunction with the property.

     During 2000 and 2001, Nevada Land filed applications for an additional
105,516 acre-feet of water rights on the company's lands. The applications
consist of:
-    39,076 acre-feet of water rights for the beneficial use of irrigating the
     related 9,769 acres of arable land, and 40,240 acre-feet of water rights
     for municipal and industrial use, on the former railroad lands; and
-    26,200 acre-feet of water rights for the beneficial use of irrigating
     another 6,550 acres of Spring Valley Ranches.

     Progress continues on a number of potential land exchange transactions, in
which Nevada Land will give up land with environmental, cultural, or historical
value, in exchange for land which is either more marketable, or suitable for
future development. In some cases, we may form joint ventures with developers in
order to participate in the upside from developing the land acquired. Nevada
Land is currently working on the following land exchange opportunities, each of
which could take up to several years to complete:
-    the exchange of mountain lands in Washoe County for land suitable for
     industrial use in Lincoln County;
-    the exchange of mountain lands in Washoe County for land suitable for
     residential, commercial, and industrial use near Dayton, in Lyon County;
-    the exchange of working ranch land at Spring Valley Ranches and mountain
     lands in Pershing County for developable land in southeastern Nevada; and
-    the exchange of mountain lands in Elko County for land which would be
     suitable for agricultural use in Independence Valley, Elko County.


                                         7


                          PROPERTY AND CASUALTY INSURANCE

     PICO's Property and Casualty Insurance segment is comprised of our
California-based subsidiaries Sequoia Insurance Company and Citation Insurance
Company. Physicians Insurance Company of Ohio acquired Sequoia in 1995, and
merged with Citation's parent company in 1996.

     Sequoia's core business is property and casualty insurance in California
and Nevada, focusing on the niche markets of commercial insurance for small to
medium-sized businesses and farm insurance. While Sequoia had previously written
some personal insurance in California, the company's book of business in
personal lines of insurance increased significantly with the acquisition of the
Personal Express Insurance Services, Inc. book of business in May 2000. Personal
Express has a unique business model, writing insurance direct with the customer,
but with branches providing local service for underwriting and claims. At
present Personal Express operates in two central California cities --
Bakersfield and Fresno.

     In the past, Citation wrote commercial property and casualty insurance,
primarily in California and Arizona. After the merger was completed, we
identified redundancy between Citation and Sequoia, and combined the operations
of the two companies. After we assumed management of Citation, we tightened
underwriting standards significantly and did not renew much of the business
which Citation had written previously. Eventually all business in California and
Nevada was transitioned to Sequoia. Citation ceased writing business at the end
of 2000, and is now in "run off." This means that Citation is handling claims
arising from its historical business, but not writing new business. Most of the
revenues of an insurance company in "run off" come from investment income.
Citation's loss reserve liabilities and corresponding investment assets are
decreasing as claims are paid with the funds from maturing fixed-income
securities.

     Sequoia's management takes a selective approach to underwriting and aims to
earn a profit from underwriting (that is, a profit before investment income).
During the period of our ownership of both companies, there have also been a
number of management initiatives to improve efficiency and reduce expenses.
These include the combination of the operations of Sequoia and Citation, the
introduction of an innovative information system, and the re-underwriting of
each company's book of business. Sequoia has earned a profit from its insurance
activities, before investment income, in 3 of the past 5 years.

     In 1998 and 1999, Citation incurred losses from its insurance business due
to a large number of claims in one line of business -- artisans/contractors
construction defect insurance -- which Citation stopped writing in 1995, the
year before the merger.

     In this segment, revenues come from premiums earned on policies written and
investment income on the assets held by the insurance companies. Typically more
than 80% of the insurance companies' portfolios are invested in fixed-income
securities, and up to 20% in equities. The fixed-income portfolios focus on high
quality corporate bonds with 10 or less years to maturity. The equities portion
of the Sequoia and Citation portfolios contains some of PICO's long term
holdings, as well as a number of small-capitalization value investments.


                      MEDICAL PROFESSIONAL LIABILITY INSURANCE

     Until 1995, Physicians Insurance Company of Ohio and The Professionals
Insurance Company wrote medical professional liability insurance, mostly in the
state of Ohio. In 1995, Physicians and Professionals stopped writing new
business and went into "run off." On December 21, 2001, Professionals merged
with, and into, Physicians.

     Although we periodically evaluate the strategic alternatives, we currently
believe that the most advantageous option is for Physicians' own claims
personnel to manage the "run off" and for us to retain management of the
associated investment portfolios.


                                 LONG TERM HOLDINGS

     This segment contains our long-term investments in public companies,
subsidiaries, and other assets which individually are too small to constitute a
segment, and parent company assets.

      PICO invests in companies which we identify as undervalued based on
fundamental analysis. Typically, the stocks will be selling for less than
tangible book value or appraised intrinsic value -- that is, our assessment of
what the company is worth. Often the stocks will also be trading for low ratios
of earnings and cash flow, or on high dividend yields. Additionally, the company
must have special qualities, such as unique assets, a potential catalyst for
change, or it may be in an industry with attractive characteristics.


                                         8


     We invest for the long term, typically 5 years or more, and seek to develop
a constructive relationship with the company. This may include an appropriate
level of shareholder influence, such as encouraging companies to use proper
financial criteria when making capital expenditure decisions, or providing
financing or strategic input. In the case of large holdings, this will usually
include board representation.

     Before a substantial sum is invested, after significant research and
analysis, we must be convinced that -- for an acceptable level of risk -- there
is sufficient value to provide the opportunity for superior returns. On rare
occasions, we will deviate from our strict value criteria. In these cases, given
the higher level of risk, we invest smaller sums.

     We sell investments if their price has significantly exceeded our
objective, or if there have been changes in the business or in the company which
we believe limit further appreciation potential, on a risk-adjusted basis.

     PICO began to invest in European companies in 1996. We have been
accumulating shares in a number of undervalued asset-rich companies,
particularly in Switzerland, which we believe will benefit from pan-European
consolidation.

     Our largest long-term investments are in HyperFeed Technologies, Inc.,
Jungfraubahn Holding AG, and Australian Oil & Gas Corporation Limited. After
allowing for related taxes, the carrying value of these three holdings on
December 31, 2001 was approximately $29.2 million, which represents 14.1% of
PICO's shareholders' equity.



          ----------------------------------------------------------------------------------------------------------------
          DECEMBER 31, 2001                                               CARRYING VALUE       UNITS HELD    CLOSING PRICE

                                                                                                        
          Carrying value before taxes:
          HyperFeed Technologies, Inc.              Common                     $2,128,000      10,077,856           $0.61
                                                    Warrants                      527,000       4,055,195        unlisted
                                                                         -----------------
                                                    Total                       2,655,000

          Jungfraubahn Holding AG                                              17,676,000         112,672         $156.88
          Australian Oil & Gas Corporation Limited                              7,489,000       9,867,391           $0.76
                                                                         -----------------
          Total carrying value before taxes                                   $27,820,000

          Deferred taxes                                                       $1,363,000
                                                                         -----------------
          Carrying value                                                      $29,183,000


          Notes:   1. Our HyperFeed common shares are carried under the equity
          method. This is cost, adjusted for our proportionate share of net
          income (or losses) and other events affecting equity. This is
          explained in the Long Term Holdings section of Item 7, and in Note 4
          of Notes to Consolidated Financial Statements, "Investment in
          Unconsolidated Affiliates."

                   2. Our HyperFeed warrants are carried at estimated fair
          value, based on the Black-Scholes model. Full detail is provided in
          Note 4 of Notes to Consolidated Financial Statements, "Investment in
          Unconsolidated Affiliates"; however, the volatility of the common
          shares, and their price at December 31, 2001 are important inputs in
          the valuation. Since the HyperFeed price can be volatile, the carrying
          value of the warrants can fluctuate considerably from quarter to
          quarter. We are required to use this accounting treatment; however, it
          introduces volatility to our reported shareholders' equity.

                   3. At December 31, 2001, it would have cost $5.5 million to
          exercise our HyperFeed warrants.

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

     We also have a small portfolio of alternative investments where, in
previous years, we deviated from our traditional value criteria in an attempt to
capitalize on areas of potentially greater growth without incurring undue risk.
The total after-tax carrying value of this portfolio at year-end was $3.2
million, which represents approximately 1.5% of shareholders' equity. The
largest investment in this group is SISCOM, Inc.

                                  FUTURE STRATEGY

     Over the past 4 years, the majority of PICO's new investments have been in
private companies and foreign public companies. New investments were focused in
these areas because we perceived that selected private companies and foreign
public companies carried less downside risk and offered greater upside potential
than investment in publicly-traded small-capitalization value equities in North
America.

     Although the actual investments which PICO makes depend on many factors, in
the foreseeable future it is likely that new investments will be focused on
domestic and foreign small-capitalization value equities, rather than private
companies.





                                         9



EMPLOYEES

     At December 31, 2001, PICO had 139 employees. A total of 8 employees were
engaged in land and related mineral rights and water rights operations; 4 in
water rights and storage; 105 in property and casualty insurance operations; 4
in medical professional liability operations; and 18 in holding company
activities.

EXECUTIVE OFFICERS

     The executive officers of PICO are as follows:

                Name             Age                   Position
                ----             ---                   --------
         Ronald Langley          57    Chairman of the Board, Director
         John R. Hart            42    President, Chief Executive Officer and
                                       Director
         Richard H. Sharpe       46    Chief Operating Officer
         James F. Mosier         54    General Counsel and Secretary
         Maxim C. W. Webb        40    Chief Financial Officer and Treasurer

     Except for Maxim C. W. Webb, each executive officer of PICO was an
executive officer of Physicians prior to the 1996 merger between Physicians
Insurance Company of Ohio and Citation Insurance Group, the predecessors to PICO
Holdings, Inc. Each became an officer of PICO in November 1996 as a result of
the merger. Maxim C. W. Webb was an officer of Global Equity Corporation and
became an officer of PICO upon the effective date of the PICO/Global Equity
Corporation Combination in December 1998.

     Mr. Langley has been Chairman of the Board of PICO since November 1996 and
of Physicians since July 1995. Mr. Langley has been a Director of PICO since
November 1996 and a Director of Physicians since 1993. Mr. Langley has been a
Director of HyperFeed Technologies, Inc., formerly, PC Quote, Inc. ("HyperFeed")
since 1995 and a Director of Jungfraubahn Holding AG since 2000. Mr. Langley
became a Director of Australian Oil & Gas Corporation Limited in September 2001.

     Mr. Hart has been President and Chief Executive Officer of PICO since
November 1996 and of Physicians since July 1995. Mr. Hart has been a Director of
PICO since November 1996 and a Director of Physicians since 1993. Mr. Hart has
been a Director of HyperFeed since 1997, and a Director of SISCOM, Inc. since
November 1996.

     Mr. Sharpe has served as Chief Operating Officer of PICO since November
1996, and in various executive capacities since joining Physicians in 1977.

     Mr. Mosier has served as General Counsel and Secretary of PICO since
November 1996 and of Physicians since October 1984 and in various other
executive capacities since joining Physicians in 1981.

     Mr. Webb has been Chief Financial Officer and Treasurer of PICO since May
14, 2001. Mr. Webb served in various capacities with the Global Equity
Corporation group of companies since 1993, including Vice President, Investments
of Forbes Ceylon Limited from 1994 through 1996. Mr. Webb became an officer of
Global Equity Corporation in November 1997 and Vice President, Investments of
PICO on November 20, 1998. Mr. Webb has been a Director of SISCOM, Inc. since
November 1996.





                                        10



ITEM 2. PROPERTIES

     PICO leases approximately 6,354 square feet in La Jolla, California for its
principal executive offices.

     Physicians leases approximately 1,892 square feet of office space in
Columbus, Ohio for its headquarters. Sequoia leases office space for its and
Citation's headquarters in Monterey, California and for regional claims and
underwriting offices in Modesto, Monterey, Ventura, Visalia, Orange, Pleasanton,
San Jose, Bakersfield, Clovis and Sacramento, California as well as Midvale,
Utah. Nevada Land leases office space in Carson City, Nevada. Vidler and Nevada
Land hold significant investments in land, water rights and mineral rights in
the western United States. See "Item 1-Business-Introduction."


ITEM 3. LEGAL PROCEEDINGS

     The Company is subject to various litigation that arises in the ordinary
course of its business. Members of PICO's insurance group are frequently a party
in claims proceedings and actions regarding insurance coverage, all of which
PICO considers routine and incidental to its business. Based upon information
presently available, management is of the opinion that such litigation will not
have a material adverse effect on the consolidated financial position, the
results of operations or cash flows of the Company. Neither PICO nor its
subsidiaries are parties to any potential material pending legal proceedings
other than the following:

     On January 10, 1997, Global Equity Corporation ("Global Equity"), a wholly
owned PICO subsidiary, commenced an action in British Columbia against MKG
Enterprises Corp. ("MKG") to enforce repayment of a loan made by Global Equity
to MKG. On the same day, the Supreme Court of British Columbia granted an order
preventing MKG from disposing of certain assets pending resolution of the
action. In March 1999 Global Equity filed an action in the Supreme Court of
British Columbia against a third party. This action states the third party had
fraudulently entered into loan agreements with MKG. Accordingly, under this
action Global Equity is claiming damages from the third party and restraining
the third party from further action.

     During 2000 and 2001, Global Equity entered into settlement negotiations
with a third party to dispose of the remaining assets of MKG. Due to the
protracted nature of these discussions and the increasing uncertainty of whether
the remaining asset can be realized, Global Equity wrote off the remaining
balance of $500,000 of the investment in the quarter ended June 30, 2001. (See
Long Term Holdings in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".) Global Equity is currently reviewing its
legal options before deciding if it will continue pursuing the outstanding legal
actions.

     As disclosed in our 2000 Annual Report on Form 10-K and subsequent SEC
filings, in September and December 2000, PICO Holdings loaned a total of $2.2
million to Dominion Capital Pty. Ltd. ("Dominion Capital"), a private Australian
company. In May 2001, one of the loans for $1.2 million became overdue.
Negotiations between PICO and Dominion Capital to reach a settlement agreement
on both the overdue loans of $1.2 million and the other loan of $1 million
proved unsuccessful. Accordingly, PICO has commenced legal actions through the
Australian courts against Dominion Capital to recover the total amount due to
PICO Holdings. Due to the inherent uncertainty involved in pursuing a legal
action and our ability to realize the assets collateralizing the loans, PICO
fully provided for these loans and interest accrued in 2001.

     PICO has been awarded summary judgment in relation to the principal and
interest on the $1.2 million loan and, as a result, Dominion Capital has been
placed in receivership. The court appointed receiver is in the process of
ascertaining Dominion Capital's assets and liabilities. The court trial in
connection with PICO's $1 million loan (with interest) has been adjourned
pending the receiver's investigations. In addition, PICO has commenced
proceedings in Australia to secure the proceeds from the sale of real estate in
Australia offered as collateral under the $1.2 million loan.

     See Note 15 of Notes to Consolidated Financial Statements, "Commitments
and Contingencies."


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      (a) The Company held its Annual Meeting of Shareholders on October 11,
          2001.

      (b) At the October 11, 2001 Annual Meeting of Shareholders, Robert R.
          Broadbent and Carlos C. Campbell were elected to terms ending in 2004.
          The other Directors whose terms continued after the meeting are John
          R. Hart, Ronald Langley, John D. Weil, S. Walter Foulkrod, III, Esq.,
          and Richard D. Ruppert, MD.


                                        11


      (c) The following matters were voted upon and approved by the Company's
          shareholders at the Company's October 11, 2001 Annual Meeting of
          Shareholders:
          1)  To elect Robert R. Broadbent and Carlos C. Campbell as Directors.
              Both Mr. Broadbent and Mr. Campbell were elected as Directors for
              terms ending in 2004. The vote for Mr. Broadbent was 9,287,300
              votes in favor, no votes against, and 240,887 abstentions.
              The vote for Mr. Campbell was 9,288,291 votes in favor,
              no votes against, and 239,890 abstentions.
          2)  To ratify the Board's selection of Deloitte & Touche LLP to serve
              as the Company's independent auditor for the fiscal year ended
              December 31, 2001. There were 7,981,086 votes in favor, 1,541,702
              votes against, and 5,393 abstentions.


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common stock of PICO is traded on the NASDAQ National Market under the
symbol PICO. The following table sets forth the high and low sale prices as
reported on the NASDAQ National Market. These reported prices reflect
inter-dealer prices without adjustments for retail markups, markdowns or
commissions.



                                      2001                                2000
                        --------------------------------      ---------------------------
                            High               Low              High              Low
                        -------------      -------------      ----------       ----------
                                                                     
1st Quarter                  $ 14.38            $ 11.88         $ 14.13          $  9.88
2nd Quarter                  $ 14.62            $ 12.50         $ 14.06          $ 10.00
3rd Quarter                  $ 15.91            $ 10.80         $ 14.06          $ 11.59
4th Quarter                  $ 14.25            $ 10.70         $ 13.38          $ 10.44



     On December 31, 2001, the closing sale price of PICO's common stock was
$12.50 and there were 1,179 holders of record.

PICO has not declared or paid any dividends in the last two years and does not
expect to pay any dividends in the foreseeable future.




                                       12


ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents PICO's selected consolidated financial data.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of this Form 10-K and the consolidated financial statements and the
related notes thereto included elsewhere in this document.



                                                                                  Year Ended December 31,
                                                       ----------------------------------------------------------------------------
                                                           2001            2000            1999            1998            1997
                                                       ------------    ------------    ------------    ------------    ------------
                                                                                                        
OPERATING RESULTS                                                            (In thousands, except share data)
Revenues:
     Premium income earned                             $     43,290    $     34,436    $     36,379    $     36,131    $     49,876
     Net investment income                                    9,767           8,238           6,387           9,261          13,416
     Other income                                            16,523           2,679          11,722           1,845          26,623
                                                       ------------    ------------    ------------    ------------    ------------
Total revenues                                         $     69,580    $     45,353    $     54,488    $     47,237    $     89,915
                                                       ============    ============    ============    ============    ============
Income (loss) from continuing operations before
  extraordinary gain and cumulative effect             $      5,754    $     (4,562)   $     (7,262)   $     (8,951)   $     19,649
Income from discontinued operations, net                                                                      1,075             456
Extraordinary gain, net of tax                                                                  442
Cumulative effect of change in accounting principle            (981)         (4,964)
                                                       ------------    ------------    ------------    ------------    ------------
Net income (loss)                                      $      4,773    $     (9,526)   $     (6,820)   $     (7,876)   $     20,105
                                                       ============    ============    ============    ============    ============
INCOME (LOSS) PER COMMON SHARE: BASIC
-------------------------------------
  Income (loss) from continuing operations             $       0.47    $      (0.39)   $      (0.81)   $      (1.50)   $       3.12
  Income from discontinued operations                                                                          0.18            0.07
  Extraordinary gain, net of tax                                                               0.05
  Cumulative effect of change in accounting principle  $      (0.08)   $      (0.43)
                                                       ------------    ------------    ------------    ------------    ------------
    Net income (loss)                                  $       0.39    $      (0.82)   $      (0.76)   $      (1.32)   $       3.19
                                                       ============    ============    ============    ============    ============
      Weighted Average Shares Outstanding                12,384,682      11,604,120       8,998,442       5,981,814       6,302,401
                                                       ============    ============    ============    ============    ============
INCOME (LOSS) PER COMMON SHARE: DILUTED
---------------------------------------
  Income (loss) from continuing operations            $       0.47    $      (0.39)   $      (0.81)   $      (1.50)   $       3.00
  Income from discontinued operations                                                                         0.18            0.07
  Extraordinary gain, net of tax                                                              0.05
  Cumulative effect of change in accounting principle        (0.08)          (0.43)
                                                       ------------    ------------    ------------    ------------    ------------
    Net income (loss)                                  $       0.39    $      (0.82)   $      (0.76)   $      (1.32)   $       3.07
                                                       ============    ============    ============    ============    ============
      Weighted Average Shares Outstanding                12,384,682      11,604,120       8,998,442       5,981,814       6,540,264
                                                       ============    ============    ============    ============    ============





                                                   2001             2000             1999             1998             1997
                                               --------------    ------------     ------------     ------------    -------------
                                                                    (In thousands, except per share data)
                                                                                                       
FINANCIAL CONDITION
Assets                                             $ 373,135       $ 395,145        $ 380,049        $ 396,154        $ 430,877
Unpaid losses and loss adjustment expenses,
     net of discount (1999 and prior)               $ 98,449       $ 121,542        $ 139,133        $ 155,021        $ 196,096
Total liabilities and minority interest            $ 166,495       $ 189,952        $ 206,657        $ 222,135        $ 318,142
Shareholders' equity                               $ 206,640       $ 205,193        $ 173,392        $ 174,018        $ 112,735
Book value per share                                 $ 16.71         $ 16.56          $ 19.15          $ 19.45          $ 18.72




Note:    Prior year share values have been adjusted to reflect the 1-for-5
         Reverse Stock Split effective December 16, 1998, the treatment of
         American Physicians Life Insurance Company as discontinued operations
         and to reflect the investment results of HyperFeed and Jungfraubahn
         using the equity method of accounting (Jungfraubahn was accounted for
         using the equity method until April 1, 2001). Book value per share is
         computed by dividing shareholders' equity by the net of total shares
         issued less shares held as treasury shares.



                                       13



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


COMPANY SUMMARY, RECENT DEVELOPMENTS AND FUTURE OUTLOOK


                      WATER RIGHTS AND WATER STORAGE ASSETS

WATER RIGHTS

ARIZONA

     At December 31, 2001, Vidler owned or had the right to acquire
approximately 53,675 acre-feet of transferable ground water in the HARQUAHALA
VALLEY, approximately 75 miles northwest of metropolitan Phoenix, Arizona.
Vidler owns 39,911 acre-feet, and we have the option to purchase a further
13,764 acre-feet.

     The Arizona State Legislature has passed several pieces of legislation
which recognize the Harquahala Valley ground water as a special resource. In
1991, the expansion of irrigated farming in the Valley was prohibited, and the
transfer of the ground water to municipalities was authorized. In order to
protect the Harquahala Valley ground water from large commercial and industrial
users which were moving into the Basin, Vidler supported legislation, which was
enacted in 2000, placing restrictions on commercial and industrial users
utilizing more than 100 acre-feet of water annually. These users are required to
purchase irrigable land and to withdraw the water that they need from the land
at no more than 3 acre-feet per annum per acre of land.

     One of the constraints on beginning to supply Harquahala Valley water to
municipalities is the need for the water to be conveyed through the Central
Arizona Project Aqueduct. The Arizona State Legislature has passed legislation
which commits the CAP to convey up to 20,000 acre-feet per annum of Harquahala
groundwater to cities and communities in Arizona as an assured municipal water
supply. Any new residential development in Arizona must obtain a permit from the
Arizona Department of Water Resources certifying a "designated assured water
supply" sufficient to sustain the development for at least 100 years. The
Harquahala Valley ground water meets the designation of assured water supply,
and Vidler is meeting with communities and developers in the Phoenix
metropolitan area, some of whom need to secure further water to support expected
growth.

     On March 1, 2002, Vidler closed the sale, to developers near Scottsdale, of
3,645 acre-feet of water rights and 1,215 acres of land in the Harquahala Valley
ground water basin, for approximately $5.3 million, or $1,450 per acre-foot of
water. The sale was originally scheduled to close in 2001, but closing was
extended until 2002 and the price was increased. This transaction is expected to
add $5.3 million to revenues and approximately $2.3 million to segment income in
the first quarter of 2002.

     There is also demand for the water within the Harquahala Basin. On March
19, 2001, Vidler closed the sale of 6,496.5 acre-feet of water rights and 2,589
acres of land in the Harquahala Valley to a unit of Allegheny Energy, Inc. for
approximately $9.1 million. The purchase price equated to $1,400 per acre-foot
of water. This transaction added $9.4 million to revenues and $2.3 million to
pre-tax income for Vidler in 2001; however, we paid $4.4 million in cash to
acquire the assets which were sold, resulting in a $5 million cash surplus. Most
of the difference between the $2.3 million pre-tax income on an accounting basis
and the $5 million cash surplus was recorded as an increase in book value of the
assets when PICO acquired Vidler's ultimate parent company, Global Equity
Corporation, in 1998.

     Following these sales, Vidler owns or has the right to acquire
approximately 50,030 acre-feet of transferable Harquahala Valley ground water.


NEVADA

     Vidler has been increasing its ownership of water rights in northern Nevada
through the purchase of ranch properties and entering into joint ventures with
parties owning water rights, which they wish to maximize the value of. Nevada is
the state experiencing the most rapid population growth in the United States.



                                       14



    1. THE LINCOLN COUNTY JOINT VENTURE

    In October 1999, Vidler announced a public/private joint venture with
Lincoln County, Nevada for the location and development of water resources in
Lincoln County. The joint venture has filed applications for more than 100,000
acre-feet of water rights, covering substantially all of the unappropriated
water in the County, with the intention of supplying water to rapidly growing
communities and industrial users. Vidler anticipates that up to 40,000 acre-feet
of water rights will ultimately be permitted from these applications, and put to
use in Lincoln County.

    Under the Lincoln County Land Act, more than 13,000 acres of publicly owned
land in southern Lincoln County will be offered for sale near the fast growing
City of Mesquite. Additional water supply will be required if this land is to be
developed.

    Agreement has been reached to sell an electricity-generating company a
minimum of 6,700 acre-feet of water, and a maximum of 9,000 acre-feet of water,
at $3,300 per acre-foot. Among other things, the agreement is subject to the
water rights being permitted, and the electricity-generating company obtaining
permitting and financing for a new power plant. The agreement specifies a
closing date of July 2003. Under the terms of the Lincoln County joint venture,
when a water sale occurs, Vidler will first recover its costs, and then the
remaining revenues will be split on a 50:50 basis.

    Vidler has agreed to purchase 822.29 acre-feet of permitted water rights in
Meadow Valley, which is located in Lincoln County. The agreement went into
escrow in March 2001. Vidler is in discussions to commercially utilize these
water rights by supplying the water to an industrial user through the joint
venture with Lincoln County.

    The Lincoln County joint venture is an example of a transaction where Vidler
can partner with an entity, in this case a governmental entity, to provide the
necessary capital and skills to commercially develop water assets.

    2. SANDY VALLEY, NEVADA

    Vidler has filed an application for approximately 2,000 acre-feet of water
rights near Sandy Valley, Nevada.

    A hearing related to the application was held in December 2001. The Nevada
State Engineer is expected to announce a decision regarding the permitting of
the water rights in the second quarter of 2002. When, and if, the water rights
are permitted, we expect to close an agreement to supply water to support
additional growth at Primm, Nevada, a resort town on the border between
California and Nevada, in the Interstate 15 corridor.

    3. FISH SPRINGS RANCH

    During 2000, Vidler purchased a 51% interest in Fish Springs Ranch, LLC and
a 50% interest in V&B, LLC. These companies own the Fish Springs Ranch and other
properties totaling approximately 8,600 acres in Honey Lake Valley in Washoe
County, 45 miles north of Reno, Nevada. Approximately 8,000 acre-feet of
permitted water rights associated with Fish Springs Ranch are transferable to
the Reno/Sparks area.

    Vidler is holding discussions with a number of potential users for the Fish
Springs water rights, including developers and industrial users. There is strong
demand for water in Nevada's north valleys, and few alternative sources of
supply. If water from Fish Springs could be supplied to the north valleys, this
would reduce their reliance on river water which comes through Reno, thereby
providing additional water to support growth in and around Reno, an area which
has been experiencing consistent growth. Alternatively, if the capacity of
nearby transmission lines can be expanded, we believe that Fish Springs Ranch
would be an attractive site for gas-fired electricity generation.

    4. BIG SPRINGS RANCH

    During 2001, a partnership dispute was resolved which resulted in Vidler
attaining full ownership and direct management of Big Springs Ranch and related
assets. See Item 3, "Legal Proceedings."

    Big Springs Ranch consists of approximately 37,500 acres of deeded ranch
land, located approximately 65 miles east of Elko, Nevada, in the northeastern
part of the state. Currently the ranch land is leased to farmers, although parts
of the property have the potential for a higher and better use.



                                       15



    There are 6,000 acre-feet of certificated water rights at Big Springs Ranch,
which are the only known practical source of water to support new growth for
West Wendover, Nevada and Wendover, Utah.

    In addition, there are 6,000 acre-feet of permitted water rights related to
the ranch, and Vidler has filed applications for an additional 5,950 acre-feet
of water rights.

    5. WEST WENDOVER, NEVADA

    In 1999, a land exchange was completed in which approximately 70,500 acres
of ranchland at Big Springs Ranch was exchanged with the Bureau of Land
Management for several parcels of developable land near West Wendover, Nevada,
totaling approximately 6,300 acres. West Wendover is adjacent to the Nevada/Utah
border in the Interstate 80 corridor. Governmental officials are considering a
proposal to move the state line and then merge the cities of West Wendover,
Nevada and Wendover, Utah. West Wendover is approximately 120 miles from Salt
Lake City, Utah, and attracts a significant number of drive-in visitors from
Utah, a state where gaming is prohibited. The land owned by Vidler will stay in
Nevada.

    Following the resolution of the partnership dispute, Vidler attained direct
management of this land in 2001. The first parcel to be developed is
approximately 82 acres of industrial land. Vidler has agreed to sell
approximately 7 acres of unimproved land to a user who will then be responsible
for installing offsite utilities and access road improvements for an industrial
park. The transaction is expected to close later in 2002. We anticipate that
these improvements will allow Vidler to sell the remaining 75 acres as
higher-value industrial land.

    Vidler is examining alternatives for the remaining parcels, including
industrial, commercial, hotel/casino, and residential development.

COLORADO

     Vidler is progressing with the sale of all of its Colorado water assets, in
order to focus resources on states experiencing faster growth in demand for
water.

     In December 2000, Vidler closed the sale of various water rights and
related assets to the City of Golden, Colorado for $1 million, and granted the
City options to acquire other water rights. The City exercised an option to
acquire water assets for $390,000 in 2001. If the remaining options are
exercised, the aggregate purchase price is approximately $1.3 million.

     On December 15, 2000, Vidler entered into a definitive agreement to sell 86
acre-feet of water rights to the East Dillon Water District for $3.1 million.
The agreement must be approved by a referendum, so closing is not expected until
late 2002. In the meantime, part of the senior water rights is being leased out
for approximately $110,000 per annum.

     Vidler has agreed to sell its interest in Cline Ranch to Centennial Water
and Sanitation District for approximately $2.1 million. This sale requires the
approval of the Denver Water Court, which is expected during 2002.

     Discussions are continuing to either lease or sell the remaining water
rights in Colorado, including the 97 acre-feet of senior water rights which are
currently unutilized. Vidler has applied to upgrade these water rights, which
would increase their commercial value.


WATER STORAGE

    1. VIDLER ARIZONA RECHARGE FACILITY

     During 2000, Vidler completed the second stage of construction at its
facility to "bank", or store, water underground in the Harquahala Valley, and
received the necessary permits to operate a full-scale water "recharge"
facility. "Recharge" is the process of placing water into storage underground.
Vidler has the permitted right to recharge 100,000 acre-feet of water per year
at the Vidler Arizona Recharge Facility, and anticipates being able to store in
excess of 1 million acre-feet of water in the aquifer underlying much of the
valley. When needed, the water will be "recovered," or removed from storage, by
ground water wells.



                                       16



     The Vidler Arizona Recharge Facility is the first privately owned water
storage facility for the Colorado River system, which is a primary source of
water for the Lower Division States of Arizona, California, and Nevada. The
water storage facility is strategically located adjacent to the Central Arizona
Project aqueduct, a conveyance canal running from Lake Havasu to Phoenix and
Tucson. The water to be recharged will come from surplus flows of CAP water. We
believe that proximity to the CAP is a competitive advantage, because it
minimizes the cost of water conveyance.

     Vidler is able to provide storage for users located both within Arizona and
out-of-state. Potential users include industrial companies, developers, and
local governmental political subdivisions in Arizona, and out-of-state users
such as municipalities and water agencies in Nevada and California. The Arizona
Water Banking Authority has the responsibility for intrastate and interstate
storage of water for governmental entities.

     Vidler intends to charge customers a fee based on the amount of water
"recharged," and then an additional fee when the water is "recovered." The
revenues generated from this asset will depend on the quantity of water which
the AWBA, and private users, store at the facility. The quantity of water stored
will depend on a number of factors, including the availability of water and
available storage capacity at publicly owned facilities.

     We believe that a number of events in recent years have increased the
scarcity value of the project's storage capacity. At a public hearing on March
14, 2000, the AWBA disclosed that the Bureau of Reclamation has indicated that,
before permits are issued for new facilities to store water for interstate
users, extensive environmental impact studies will be required. The AWBA also
indicated that the first priority for publicly owned storage capacity in Arizona
is to store water for Arizona users. At the same hearing, the states of
California and Nevada again confirmed that their demand for storage far exceeds
the total amount of storage available at existing facilities in Arizona.
Consequently, interstate users will need to rely, at least in part, on privately
owned storage capacity.

     The Southern Nevada Water Authority Water Resource Plan, which can be
viewed at www.snwa.com, calls for 1.2 million acre-feet of water to be stored in
Arizona in order to meet forecast demand after 2015. The AWBA is currently
finalizing agreements to store water on behalf of Nevada. Once these agreements
have been concluded, the AWBA can begin to negotiate storage for California. The
AWBA will be able to store water at existing publicly owned sites and at the
Vidler Arizona Recharge Facility, which is one of the largest water storage
facilities. In April 2001, Vidler reached agreement with the Arizona Water
Banking Authority concerning the terms under which water can be stored at the
facility for the users represented by the Authority -- $45.00 per acre-foot of
water recharged in 2001, rising to $46.50 in 2002, and $48.00 in 2003. The
agreement concludes on December 31, 2003.

    In addition to the potential demand from the public users represented by the
AWBA, demand from private users could potentially utilize up to 100% of the
site's storage capacity.

     Vidler has not stored water for customers at the facility yet, but the
company has been recharging water for its own account since 1998, when the pilot
plant was constructed. Vidler purchased the water from the CAP, and intends to
resell this water at an opportune time. At December 31, 2001, Vidler had
recharged approximately 4,800 acre-feet of water at the facility.

     Once Vidler has concluded agreements to store water, it will know the rate
at which customers will need to be able to recover water. At that time, Vidler
will be able to design, construct and finance the final stage of the project
which will allow full-scale recovery. It is anticipated that the users of the
facility will bear the capital cost of the improvements required to recover
water at commercial rates.

     It is anticipated that Vidler will be able to recharge 100,000 acre-feet of
water per year at the facility, and to store in excess of 1 million acre-feet of
water in the aquifer. Vidler's estimate of the aquifer's storage volume is
primarily based on a hydrological report prepared by an independent engineering
firm for the Central Arizona Water Conservation District in 1990. The report
concluded that there is storage capacity of 3.7 million acre-feet, which is in
excess of the 1 million acre-feet indicated by Vidler.

     Recharge and recovery capacity is critical, because it indicates how
quickly water can be put into storage or recovered from storage. In wet years,
it is important to have a high recharge capacity, so that as much available
water as possible may be stored. In dry years, the crucial factor is the ability
to recover water as quickly as possible. There is a long history of farmers
recovering significant quantities of water from the Harquahala Valley aquifer.



                                       17



     2. SEMITROPIC

     Vidler originally had an 18.5% right to participate in the Semitropic Water
Banking and Exchange Program, which operates a 1,000,000 acre-foot water storage
facility at Semitropic, near the California Aqueduct, northwest of Bakersfield,
California.

     Over the first 10 years of the agreement with the Semitropic Water Storage
District, Vidler was required to make a minimum annual payment of $2.3 million.
Vidler began making the annual payments in November 1998. In return, Vidler had
the right to store up to 185,000 acre-feet of water underground over a 35-year
period. Vidler had the right to recover up to 42,000 acre-feet of water in any
one year, including the right to a guaranteed minimum recovery of 16,650
acre-feet every year. Vidler was also required to make an annual payment for
operating expenses.

     The interest in Semitropic is Vidler's only asset in California, which has
proved a difficult state to operate in due to the large number of entities
involved in the water industry, each serving different, and sometimes
conflicting, constituencies. In the meantime, the strategic value of the
guaranteed right to recover an amount of water from Semitropic every year --
even in drought years -- became clear to water agencies, developers, and other
parties seeking a reliable water supply. For example, developers of large
residential projects in Kern County and Los Angeles County must now be able to
demonstrate that they have sufficient back-up supplies of water in the case of a
drought year before they are permitted to begin development. Accordingly, during
2001, Vidler took advantage of current demand for water storage capacity with
guaranteed recovery, and began to sell its interest in Semitropic.

     On May 21, 2001, Vidler closed the sale of 29.7% of its original interest
(i.e., approximately 55,000 acre-feet of water storage capacity) to The Newhall
Land and Farming Company for $3.3 million, resulting in a pre-tax gain of $1.6
million. This transaction added $1.6 million to revenues and segment income in
2001.

     On September 30, 2001, Vidler closed the sale of another 54.1% of its
original interest (i.e., approximately 100,000 acre-feet of water storage
capacity) to the Alameda County Water District for $6.9 million, resulting in a
pre-tax gain of $4.1 million. This transaction added $4.1 million to revenues
and segment income in 2001.

     Vidler's remaining interest includes approximately 30,000 acre-feet of
storage capacity, and the right to recover up to approximately 6,800 acre-feet
in any one year and minimum guaranteed recovery of approximately 2,700 acre-feet
every year. We are considering various alternatives for the remaining interest,
including sale to developers or industrial users. Currently Vidler is not
storing any water at Semitropic for third parties.


OTHER PROJECTS

     Vidler routinely evaluates the purchase of further water-righted properties
in Arizona and, potentially, Nevada. Vidler also continues to be approached by
parties who are interested in obtaining a water supply, or discussing joint
ventures to commercially develop water assets and/or develop water storage
facilities.


SUMMARY

     In 2002, Vidler's focus will be on:
-   generating cash flow from the water rights in Nevada and Arizona through
    lease agreements or the sale of water rights;
-   leasing storage capacity to customers at the Vidler Arizona Recharge
    Facility; and
-   pursuing present and additional water rights applications and partnerships
    to commercially develop water rights.


                 LAND AND RELATED MINERAL RIGHTS & WATER RIGHTS

     The majority of Nevada Land & Resource Company, LLC's revenues come from
the sale of land and water rights. In addition, various types of recurring
revenue are generated from use of the company's lands, including leasing,
easements, and mineral royalties. Nevada Land also generates interest revenue
from land sales contracts where the company has provided partial financing, and
from temporary investment of the proceeds of land and water rights sales.



                                       18


     Nevada Land recognizes revenue from land sales, and the resulting gross
profit or loss, when transactions close. On closing, the entire sales price is
recorded as revenue, and a gross margin is recognized depending on the cost
basis attributed to the land which was sold. Since the date of closing
determines the accounting period in which the sales revenue and gain are
recorded, Nevada Land's reported revenues and income fluctuate from period to
period, depending on the date when specific transactions close.

     In 2001, Nevada Land generated $1.9 million in revenues from the sale of:
-    15,352 acres of former railroad land for $1.7 million. The average sales
     price of $113 per acre compares to our average basis of $43 per acre in the
     parcels which were sold, and our average cost of $35 per acre for all of
     Nevada Land's land, water, and mineral assets; and
-    280 acres of land at Spring Valley Ranches for $178,000, resulting in a
     gross profit of $70,000. This land was not contiguous with the main
     property, and was not part of the land exchange transaction we are
     proposing for the bulk of the land assets at Spring Valley Ranches.

     In 2001, 86% of land sales were settled for cash, and Nevada Land provided
partial financing for the balance. Vendor financing has been collateralized by
the land conveyed, carries a 10% interest rate, and is subject to a minimum 20%
down payment.


                         PROPERTY AND CASUALTY INSURANCE

     From 1997 until 1999, intense competition in the California market led many
insurance companies to lower premiums in an attempt to attract business. In this
environment, given that our strategy is to price policies with the objective of
earning an underwriting profit, Sequoia declined to write policies which its
management felt were inadequately priced, even if this resulted in lower volume
overall. Faced with inadequate underwriting returns, during 1999 the focus of
many companies in the California market returned to adequate pricing of
policies, and some of our competitors began to raise premium rates.
Consequently, the rate of decline in Sequoia's premium volume steadily slowed
throughout 1999, before turning around to low-single-digit percentage growth
from January 2000. Growth in premium volume then accelerated significantly as a
result of two developments in the second quarter of 2000.

     First, commercial insurance premium volume increased as a result of new
policies issued after A.M. Best Company, a leading insurance company rating
service, upgraded Sequoia's claims paying ability from "B++" (Very Good) to "A"-
(Excellent). This allowed Sequoia to compete for business in an additional
market segment -- customers who can only purchase coverage from "A-" rated
insurance companies.

     Second, in May 2000, Sequoia acquired the Personal Express Insurance
Services, Inc. book of business for approximately $3 million. Personal Express
had few tangible assets, so the bulk of the purchase price was allocated to the
book of business and recorded as an intangible asset, which is being charged off
over 10 years. Personal Express markets personal insurance products to customers
in the central California cities of Bakersfield and Fresno. Historically, this
book of business has generated an underwriting profit. The acquisition greatly
expanded Sequoia's business in personal lines of insurance, bringing
approximately $7.5 million in additional premiums in 2001.

     As a result of these factors, Sequoia Insurance Company generated strong
growth in direct written premiums in 2000 and 2001.

     In 2000, direct written premiums increased by 33.5% to $47.1 million, as a
result of both growth in the existing book of business, which was principally in
commercial lines of insurance, and new policies issued after the A.M. Best
upgrade and the acquisition of Personal Express.

     Direct written premiums in commercial lines increased 17.8% to $39.7
million in 2000. This included 29.1% growth to $21.4 million in the second half
of 2000, following the change in Sequoia's A.M. Best rating.

     Direct written premiums in personal lines began to increase markedly in the
second quarter of 2000, as new revenues from the Personal Express book of
business began. In mid-May, Sequoia began to write new policies which were
generated by the Personal Express Bakersfield office. From July 1, the amount of
premium written for Personal Express customers increased significantly as
Sequoia had the opportunity to renew existing policies for clients of the
Bakersfield office as these expired with the former carrier. Reflecting a full
contribution from Personal Express, written premium in personal lines reached
$6.4 million in the second half of 2000.



                                       19




     In 2001, direct written premiums rose another 14.9%, to $54.1 million,
comprised of $45 million in commercial lines and $9.1 million in personal lines.
The growth in premium volume in 2001 was primarily due to growth in the
commercial insurance book of business.

     In 2002, Sequoia is budgeting for approximately 10% growth in direct
written premiums, with approximately 84% of direct written premiums coming from
commercial lines and approximately 16% from personal lines.

     During 2001 and 2000, Sequoia's loss ratio, and consequently underwriting
results, deteriorated because growth in claims costs (e.g., for construction,
medical care, and automobile repair) had outpaced growth in effective premiums
in recent years. In 2001, Sequoia introduced a number of initiatives to improve
its loss ratio. Sequoia further tightened underwriting standards, for example,
by ceasing to provide coverage for certain types of business. In addition,
Sequoia increased rates for commercial automobile coverage. Rate increases are
planned in most other commercial lines in 2002. While these initiatives have led
to an increase in average premiums per policy, the effect on total written
premiums was partially offset by a reduction in the number of policies issued.
Average direct premiums per policy in commercial lines increased approximately
15% in 2001, but the number of commercial policies written declined by
approximately 2.6%. The overall effect on profitability is expected to be
positive. Due to the lag between a policy being "written" and the premium being
"earned," the full effect of these initiatives will not be reflected in
Sequoia's reported results until 2002.

     The growth in commercial premium volume and the acquisition of the Personal
Express book of business have helped to reduce Sequoia's underwriting expense
ratio (i.e., underwriting expenses as a percentage of earned premiums). Since
some costs are fixed (i.e., do not vary with changes in volume), Sequoia's
operating expenses have increased at a slower rate than premium volume, which
has reduced Sequoia's average operating expense per policy and underwriting
expense ratio.

     In December 2000, Citation ceased writing business and is now in "run off"
(i.e., handling claims arising from policies written in previous years, but not
writing new policies). In 1997, 1998, and 1999, Citation took charges to
increase claims reserves in the artisans/contractors line of business, including
a pre-tax charge of $10.1 million in 1999. Citation did not need to increase
claims reserves in the artisans/contractors line of business in 2000 or 2001. If
current claims trends continue, we believe that our loss reserves in this line
of business are adequate; however, if the trend in claims worsens in the future,
then additional charges could be required to increase reserves.

    The artisan/contractors business was written under Citation's previous
management. In fact, Citation ceased writing this type of insurance coverage in
1995, the year before the reverse merger with Physicians Insurance Company of
Ohio, and no artisans/contractors business was renewed after the merger. The
decline in the California real estate market in the early 1990's encouraged
property owners to try and improve their position by filing claims against
contractors and related parties for alleged construction defects. Citation's
average loss ratio (i.e., the cost of making provision to pay claims as a
percentage of earned premium) for all years from 1989 to 1995 for this insurance
coverage is over 375%. This experience is not unique to Citation, but is shared
by all insurers who wrote this type of coverage in California in the 1980's and
1990's.

    Income from the investment of funds held as part of their insurance business
is an important component of the profitability of insurance companies.
Investment income consists of interest from fixed-income securities and
dividends from stocks held in the insurance company portfolios. In addition,
from time to time, gains or losses are realized from the sale of investments.

    The duration of a bond portfolio measures the amount of time it would take
for the cash flows from scheduled interest payments and bond maturities to equal
the current value of the portfolio. Duration is important because it indicates
the sensitivity of the market value of a bond portfolio to changes in interest
rates. Typically, the longer the duration, the greater the sensitivity of the
value of the bond portfolio to changes in interest rates.

    To minimize interest rate risk (i.e., the potential decrease in the market
value of the bond portfolio which would be brought on by higher interest rates),
Sequoia targets a duration of 5 years or less. At December 31, 2001, the
duration of Sequoia's bond portfolio was 4.4 years. The maturity of securities
in Citation's bond portfolio is structured to match the projected pattern of
claims payouts. At December 31, 2001, the duration of Citation's bond portfolio
was 3.1 years.

    Apart from treasury bonds which are held as deposits and collateral with
regulators, and government-sponsored enterprise bonds (i.e., Freddie Mac and
FNMA) held for capital purposes, the bond portfolio consists of high quality
corporate issues. Our insurance companies do not own any bonds in the
telecommunications, technology, utilities, energy, or consumer finance sectors
which experienced difficulties in 2001 and the first two months of 2002.


                                       20


                    MEDICAL PROFESSIONAL LIABILITY INSURANCE

    Physicians Insurance Company of Ohio is in "run off." Physicians obtains the
funds to pay claims from the maturity of fixed-income securities, the sale of
investments, and collections from reinsurance companies (i.e., insurance
companies who share in our claims risk). During the "run off," this segment will
shrink as the level of claims reserve liabilities and investment assets
decrease, as claims are paid with the proceeds of investment maturities and
sales. Accordingly, it is anticipated that investment income, and therefore
revenue, in this segment will decline over time. We are attempting to minimize
segment overhead expenses as much as possible. For example, in 2000 and 2001 we
reduced head count and office space. On December 21, 2001, Professionals
Insurance Company was merged into Physicians. This will simplify administration
and result in cost savings, for example, from the elimination of duplication.

    During 2001, our medical professional liability insurance claims reserves,
net of reinsurance, decreased from $51.6 million to $34.9 million. Actuarial
analysis of Physicians' loss reserves as of September 30, 2001 concluded that
Physicians' reserves against claims were significantly greater than the
actuary's projections of future claims payments. Accordingly, Physicians reduced
its claims reserves by approximately $11.2 million in the fourth quarter, which
accounts for 67% of the net decrease in reserves during 2001. It should be noted
that such actuarial analyses involves estimation of future trends in many
factors which may vary significantly from expectation, which could lead to
further reserve adjustments -- either increases or decreases -- in future years.

    We manage the Physicians investment portfolio with the objective of having
sufficient cash and maturing fixed-income securities to meet the claims payments
projected for at least the following twelve months. At December 31, 2001, the
duration of the Physicians bond portfolio was 1.6 years.


                               LONG TERM HOLDINGS

     1. HYPERFEED TECHNOLOGIES, INC.

     HyperFeed provides financial market data and data-delivery solutions to the
financial services industry.

     PICO first invested in HyperFeed in 1995 through the purchase of common
stock. We invested further capital in HyperFeed as debt, which was later
converted to equity, and received warrants for providing financing. During
December 2000 and January 2001, we purchased 245,000 shares of common stock on
the open market. In September 2001, the principal and accrued dividends on the
HyperFeed Series A and Series B preferred stock held by PICO and its
subsidiaries were converted into HyperFeed common shares at a conversion price
of $1.03 per share. PICO received 7,462,856 shares on conversion, increasing our
voting ownership of HyperFeed from approximately 35% to approximately 42.4%.

     At December 31, 2001, PICO and its subsidiaries held the following
securities in HyperFeed:

-    10,077,856 common shares, which had a carrying value of $2.1 million
     (before taxes), compared to a potential market value of $6.1 million
     (before taxes) based on the last sale price of $0.61 on December 31, 2001;
     and
-    warrants to buy 4,055,195 shares. The exercise price for the warrants to
     buy 3,106,163 shares is fixed at $1.575 per share. However, the warrants to
     buy 949,032 shares are exercisable at the lesser of the stated exercise
     price, which averages approximately $1.844, or the then market price of the
     common stock. At December 31, 2001, the warrants were carried at estimated
     fair value of $527,000 (before taxes).

     Since our initial investment in HyperFeed, the Company's revenues have
grown from $13.4 million in 1995 to $33.3 million in 2001.

     For full year 2001, HyperFeed generated revenues of $33.3 million, gross
margin of $12.9 million, EBITDA (i.e., earnings before depreciation,
amortization, interest and tax, a non-GAAP measure which investors frequently
use as a proxy for gross cash flow) of $4 million, and a net loss from
operations of $1.5 million, excluding non-cash preferred dividends of $927,000.
Net cash flow from operating activities was $2.8 million.

     In the fourth quarter of 2001, HyperFeed generated revenues of $6.2
million, gross margin of $3.8 million, EBITDA of $1.2 million, and a net loss of
$303,000. Net cash flow from operating activities was $522,000.

     We use the equity method to account for the common shares. HyperFeed
contributed an equity loss of $1.2 million to the Long Term Holdings segment in
2001.


                                       21



     The HyperFeed warrants are carried in our financial statements at estimated
fair value. Following the adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", the change in estimated fair value of warrants during an accounting
period is recorded in the Consolidated Statement of Operations for that period.
See Note 4 of Notes to Consolidated Financial Statements, "Investments."

     2. JUNGFRAUBAHN HOLDING AG

     PICO owns 112,672 shares of Jungfraubahn, which represents approximately
19.3% of the company.

     At December 31, 2001, our investment in Jungfraubahn had a cost basis of
$17.4 million, a market value of $17.7 million, and a net carrying value of
$16.4 million, after allowing for taxes.

    Jungfraubahn announced its result for the 2000 financial year on May 21,
2001, so the 2001 result will probably not be released until after this 10-K has
been filed. Jungfraubahn described 2000 as an exceptional year, whose results
"will not easily be repeated." Passenger numbers and revenues in 2000 were
unusually high due to a 100-year anniversary promotion by Raiffeisen, a Swiss
bank, which is estimated to have generated more than 50% of the increase in
passenger visits to Jungfraujoch, and due to 22.4% growth in group travel.
Revenues increased 19.7% to CHF (Swiss Francs) 110.3 million, EBITDA (i.e.,
earnings before depreciation, amortization, interest and tax, a non-GAAP measure
which investors frequently use as a proxy for gross cash flow) increased 30.4%
to CHF40.8 million, and net income increased 19.5% to CHF17.9 million, or
CHF30.6 per share. Jungfraubahn's operating activities generated net cash flow
of CHF35.2 million.

    On August 31, 2001, Jungfraubahn announced its results for the first six
months of 2001. Revenues declined by CHF5.4 million, or 10.6%, year over year to
CHF45.7 million, principally due to the absence of revenues from the Raiffeisen
promotion. Due to the CHF5.4 million reduction in revenue and a CHF2.1 million
increase in operating expenses, EBITDA declined CHF7.5 million to CHF10.3
million, and net income dropped CHF7.6 million to CHF3.3 million, or CHF5.6 per
share. In addition, the sale of art contributed an extraordinary profit of
CHF1.4 million.

     On January 23, 2002, Jungfraubahn issued a press release containing an
initial review of 2001 operations. The full text is available on Jungfraubahn's
web-site www.jungfraubahn.ch (in the "Shareholders" tab of the "Inside"
section).

     In the press release, Jungfraubahn indicated that it expected transport
revenues of approximately CHF74.5 million for 2001, an 11.6% reduction from the
record CHF84.3 million of 2000, but the second highest in the company's history.
Jungfraubahn signaled that "a satisfactory result" was anticipated, "despite the
reduction in numbers of guests from Asia and the USA in the fourth quarter,"
although the result will likely be below the previous year.

     Jungfraubahn indicated that it expects that the September 11 terrorist
attacks in the U.S. will lead to a redistribution in passenger numbers in 2002.
Visitors from Japan, the most important inbound market, are expected to be down
due to a fear of flying, compounded by the weak Japanese economy, although
Jungfraubahn noted "positive signs" suggesting that "a recovery in the travel
market may be expected as early as May 2002". Jungfraubahn expects this to be
offset, to some extent, by increased visitation from the domestic Swiss market
and nearby countries. Jungfraubahn noted that the U.S. is a "relatively small"
inbound market.

     Jungfraubahn's most recent published balance sheet is as of December 31,
2000, when book value per share was CHF485. On December 31, 2001, Jungfraubahn's
stock price was CHF270, and CHF1 equaled $US0.6034.

     During 2000, we began to use the equity method to account for our
investment in Jungfraubahn Holding AG, given that we owned approximately 19.3%
of the company, that we had a representative on the board of directors, and that
we received the necessary quarterly financial information in a timely manner.
After we adopted the equity method, we included our proportionate share of
Jungfraubahn's net income in the line "Equity Share of Investees' Net Income" in
our consolidated statement of operations, and the investment was carried in our
balance sheet at our proportionate share of Jungfraubahn's net assets.

     However, based on our inability to obtain financial information for the
second quarter of 2001, and the absence of a commitment to provide quarterly
financial statements on an on-going timely basis, we concluded that we do not
have the requisite ability to exercise "significant influence" to apply the
equity method. Accordingly, we ceased to account for the investment under the
equity method from the start of the second quarter (i.e., from April 1, 2001),
and reverted to market value accounting under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The impact of this change on our financial statements is:


                                       22


-    in our income statement for 2001, we recorded a $669,000 dividend received
     from Jungfraubahn in investment income, and $241,000 of income in the line
     "Equity Share of Investees' Net Income" for the portion of the year when
     the equity method was applied; and
-    in our balance sheet, we now record the investment at market value. At
     December 31, 2001, this was approximately $7.4 million less than our
     previous carrying value because the share price of Jungfraubahn is less
     than that company's book value per share (i.e., net assets). This caused a
     net reduction in shareholders' equity of approximately $6.8 million, or
     $0.55 per PICO share. This is a change in accounting treatment only, and
     does not reflect any change in the potential value of our investment in
     Jungfraubahn. See "Significant Accounting Policies" later in this section.

     3. AUSTRALIAN OIL & GAS CORPORATION LIMITED

     During 2001, we acquired another 1,441,347 shares in AOG, lifting our
shareholding to 9,867,391 shares, representing approximately 20.7% of the
company at December 31, 2001.

     At December 31, 2001, our investment in AOG had a cost basis of $8.2
million, a market value of $7.5 million, and a net carrying value of $7.7
million after allowing for taxes. This investment was funded in US dollars. To
this point, depreciation in the Australian dollar relative to the US dollar has
offset the unrealized gain in local Australian currency terms.

     On September 5, 2001, AOG announced that it had returned to profit in the
financial year ended June 30, 2001. AOG's revenues increased 86.1% to $A130.1
million ($A1.00 = $US0.5094), and the company reported net income of $A8
million, or $A0.17 per share. Rig utilization improved during the financial
year, from 54% in the first half, to 65% in the second half. The increase in
utilization during the year appears to have translated into profit growth, with
net income for the second half estimated at $A5 million, compared to $A3 million
in the first half. In the letter accompanying the results, AOG indicated that
rig utilization was "running at over 75%".

     On January 17, 2002, AOG announced that it was raising additional capital
to purchase a new deep capacity drilling rig and to refit two existing rigs to
perform new long term drilling contracts with ExxonMobil Indonesia and Petroleum
Development - Oman. In January 2002, PICO provided AOG with a short term $US4
million bridging facility, and was issued 333,333 shares in AOG as a loan
establishment fee. AOG is to repay the advance with the proceeds of a rights
offering which closes on March 18, 2002. PICO is underwriting part of the
offering, and has been issued with another 333,333 shares in AOG as an
underwriting fee.

     On February 27, 2002, AOG announced its results for the six months ended
December 31, 2001. Revenues increased 26.6% to $A76.1 million ($A1.00 =
$US0.5094), and net income increased 21% to $A3.7 million, or $A0.077 per share.
Net cash flow from operating activities was $A10.2 million, shareholders' equity
was $A100.7 million, and tangible book value per share was $A2.10. In the letter
to shareholders accompanying the results, AOG indicated that "the contract book
is satisfactory and the Company can look forward to continuing and increasing
profitability for the rest of this calendar year."

     AOG provides its shareholders with half-yearly financial information in
accordance with the requirements of the Australian Stock Exchange and Australian
securities laws. Given our 20.7% voting ownership at December 31, 2001, and that
our Chairman joined AOG's Board of Directors in September 2001, we asked AOG for
an on-going commitment to provide timely quarterly financial statements, so that
the equity method could potentially be applied to this investment. AOG has
declined to provide us with quarterly financial statements and other financial
information which is not publicly available to other AOG shareholders.
Consequently, we concluded that PICO does not have the ability to exercise
significant influence over AOG which is required to apply the equity method of
accounting. Instead, the investment is carried at market value, with the
unrealized after-tax gain or loss being included in shareholders' equity.

     See the next section in Item 7, "Significant Accounting Policies."

     4. DISCLOSED EUROPEAN INVESTMENTS

     ACCU HOLDING AG
     PICO owns 8,125 shares in Accu Holding, which represents a voting ownership
interest of approximately 28.3% of the company. Since PICO was not able to
obtain the necessary financial information, we do not have the ability to
exercise significant influence over Accu Holding's activities in 2001, so this
investment is not accounted for under the equity method. Instead, the investment
is carried at market value, with the unrealized after-tax gain or loss being
included in shareholders' equity.



                                       23



     At December 31, 2001, our investment in Accu Holding had a cost basis of
$4.6 million, a market value of $4.5 million, and a net carrying value of $4.5
million, after allowing for taxes.

     Accu Holding manufactures batteries at two plants in Switzerland.

     SIHL
     During 2001, we participated in a restructuring and capital raising by
Sihl, a Swiss public company. Sihl's core business is digital imaging, but the
company has surplus property assets in and around Zurich. We own 158,056 shares
in Sihl, or approximately 10.4% of the company, with a cost basis of $4.3
million, a market value of $2.1 million, and a net carrying value of $2.3
million after taxes at December 31, 2001.

     5. ALTERNATIVE INVESTMENTS

     At December 31, 2001, PICO's remaining alternative investments had an
aggregate carrying value of $3.2 million after taxes, or 1.5% of Shareholders'
Equity.

     The principal alternative investment is SISCOM, Inc., which is a
consolidated subsidiary. SISCOM is a software developer and systems integrator
for video-based content management systems for the professional broadcast,
sports, and entertainment industries. We are pursuing a number of alternatives
to realize the value of this investment, including assisting SISCOM to enter
into strategic licensing agreements with companies which have multi-national
marketing and distribution channels.


SIGNIFICANT ACCOUNTING POLICIES

     PICO's principal assets and activities comprise:
-    land, water rights, and water storage assets;
-    property and casualty insurance, and the "run off" of property and casualty
     insurance and medical professional liability insurance loss reserves; and
-    long term investment in other companies.

     Following is a description of what we believe to be the critical accounting
policies affecting our company, and how we apply these policies.

     1. ESTIMATION OF RESERVES IN INSURANCE COMPANIES

     We must estimate future claims and ensure that our loss reserves are
adequate to pay those claims. This process requires us to make estimates about
future events. The accuracy of these estimates will not be known for many years.
For example, part of our claims reserves cover "IBNR" claims (i.e., the event
giving rise to the claim has occurred, but the claim has not been reported to
us). In other words, in the case of IBNR claims, we must provide for claims
which we do not know about yet.

     At December 31, 2001, the loss reserves, net of reinsurance, of our three
insurance subsidiaries were:
-    Sequoia Insurance Company, $21.2 million;
-    Citation Insurance Company, $19.2 million; and
-    Physicians Insurance Company of Ohio, $34.9 million. Physicians wrote its
     last policy in 1995. However, under current law, claims can be made until
     2017 for events which allegedly occurred during the periods when we
     provided insurance coverage to medical professionals.

     Our medical professional liability insurance reserves are certified
annually by an independent actuary, as required by Ohio insurance law. Actuarial
estimates of our future claims obligations have been volatile. In 2001, we
reduced claims reserves by $11.2 million after actuarial studies by two
independent firms concluded that Physicians' claims reserves were significantly
greater than projected claims payments. However, based on actuarial analysis, we
increased reserves by $2 million in 2000 and by $5 million in 1999. Accordingly,
there can be no assurance that our claims reserves are adequate and there will
not be reserve increases or decreases in the future.

     As required by California insurance law, the loss reserves of Sequoia
Insurance Company and Citation Insurance Company are reviewed quarterly, and
certified annually, by an independent actuarial firm.


                                       24


     2. CARRYING VALUE OF LONG-LIVED ASSETS

     Our principal long-lived assets are land, water rights, and interests in
water storage assets owned by Vidler, and land at Nevada Land. At December 31,
2001, the total carrying value of land, water rights, and interests in water
storage assets was $126 million, or 33.7% of PICO's total assets.

     As required by GAAP (i.e., generally accepted accounting principles), our
long-lived assets are rigorously reviewed at least quarterly to ensure that the
estimated future undiscounted cash flows from these assets will at least recover
their carrying value. Our management conducts these reviews utilizing the most
recent information available. The review process inevitably involves the
significant use of estimates and assumptions.

     In our water rights and water storage business, we develop some projects
and assets from scratch. This can require cash outflows (e.g., to drill wells to
prove that water is available) in situations where there is no guarantee that
the project will ultimately be commercially viable. If we determine that it is
probable that the project will be commercially viable, the costs of developing
the asset are capitalized (i.e., recorded as an asset in our balance sheet,
rather than being charged as an expense). If the project ends up being viable,
in the case of a sale, the capitalized costs are included in the cost of land
and water rights sold and applied against the purchase price. In the case of a
lease transaction or when the asset is fully developed and ready for use, the
capitalized costs are amortized (i.e., charged as an expense in our income
statement) and match any related revenues.

     If we determine that the carrying value of an asset cannot be justified by
the forecast future cash flows of that asset, the carrying value of the asset is
written down, or written off, immediately.

     At December 31, 2001, our balance sheet contained capitalized costs of $3
million for two projects at Vidler, which require regulatory approval to
proceed.

     3. ACCOUNTING FOR INVESTMENTS AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     At December 31, 2001, PICO and its subsidiaries held equities with a
carrying value of approximately $56.4 million. These holdings are primarily
small-capitalization value stocks in the US, Switzerland, and Australia.
Depending on the circumstances, and our judgment about the level of our
involvement with the investee company, we apply one of two accounting policies.

     In the case of most holdings, we apply Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under this method, the investment is carried at market value in our
balance sheet, with unrealized gains or losses being included in shareholders'
equity, and the only income recorded is from dividends.

     In the case of investments where we have the ability to exercise
significant influence over the company we have invested in, we apply the equity
method under Accounting Principles Board No. 18, "The Equity Method of
Accounting for Investments in Common Stock."

     The application of the equity method (ABP No. 18) to an investment may
result in a different outcome in our financial statements than market value
accounting (SFAS No. 115). The most significant difference between the two
policies is that, under the equity method, we include our proportionate share of
the investee's earnings or losses in our statement of operations, and dividends
received are used to reduce the carrying value of the investment in our balance
sheet. Under market value accounting, the only income recorded is dividends.

     The assessment of what constitutes the ability to exercise "significant
influence" requires our management to make significant judgments. We look at
various factors in making this determination. These include our percentage
ownership of voting stock, whether or not we have representation on the investee
company's Board of Directors, transactions between us and the investee, the
ability to obtain timely quarterly financial information, and whether PICO
management can affect the operating and financial policies of the investee
company. When we conclude that we have this kind of influence, we adopt the
equity method and change all of our previously reported results of the investee
to show the investment as if we had applied equity accounting from the date of
our first purchase. This adds volatility to our reported results.

     While the method of accounting we use clearly has no impact on the
underlying performance of the investee, the use of market value accounting or
the equity method can result in significantly different carrying values at
discrete balance sheet dates and contributions to our statement of operations
over the course of the investment. It should be noted that the total impact of
the investment on PICO's shareholders' equity over the entire life of the
investment will be the same whichever method is adopted.



                                       25



     For example, our investment in HyperFeed is carried under the equity method
of accounting as we have determined that we have the ability to exercise
significant influence over HyperFeed. As a result, at December 31, 2001, the
carrying value of HyperFeed in our balance sheet is significantly below what it
would be if we recorded this investment at market. Also, during 2001 we ceased
accounting for our investment in Jungfraubahn Holding under the equity method
after we determined that we no longer had the ability to exercise significant
influence over Jungfraubahn. When we readopted market value accounting, we
recorded a reduction in shareholders' equity because the market value of our
investment in Jungfraubahn was significantly below the carrying value under the
equity method.


RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

SUMMARY

     PICO reported net income of $4.8 million, or $0.39 per diluted share in
2001, compared with a net loss of $9.5 million, or $0.82 per diluted share, in
2000, and a net loss of $6.8 million, or $0.76 per diluted share, in 1999. The
weighted average number of shares outstanding in 2001 and 2000 increased as a
result of the rights offering in March 2000.

     At December 31, 2001, PICO had shareholders' equity of $206.6 million, or
$16.71 per share, compared to $205.2 million, or $16.56 per share, at the end of
2000. The principal factors leading to the $1.4 million increase in
shareholders' equity were:

-    net income of $4.8 million for the year; and
-    a foreign currency translation credit of $628,000; which were partially
     offset by
-    net unrealized depreciation in investments of $3.7 million. This includes a
     $6.8 million reduction when we ceased to account for the investment in
     Jungfraubahn Holding AG under the equity method from April 1, 2001. This is
     explained in the Long Term Holdings section of the preceding "Company
     Summary, Recent Developments and Future Outlook"; and
-    a $299,000 increase in treasury stock due to the purchase of PICO shares in
     deferred compensations plans.

    Total assets at December 31, 2001 were $373.1 million, compared to $395.1
million at December 31, 2000. Most of the $22 million decrease in total assets
is attributable to the "run off" of Physicians and Citation, which reduced both
insurance liabilities and the corresponding assets. Total liabilities decreased
by $22.6 million, primarily due to a $16.7 million reduction in medical
professional liability insurance loss reserves during the year.

    The $4.8 million in net income reported in 2001 consisted of $5.8 million in
net income before an accounting change, or $0.47 per share, and a change in
accounting principle which had the cumulative effect of reducing income by
$981,000 after taxes, or $0.08 per share. The $5.8 million in net income before
an accounting change was comprised of $7.7 million in income before taxes and
minority interest, a $2.3 million provision for income tax expense, and the
addition of $359,000 in minority interest. This reflects the interest of
minority shareholders in the losses of subsidiaries which are less than
100%-owned by PICO. The accounting change was due to the adoption of the
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This non-cash charge recognized the
accumulated after-tax decline in the estimated fair value of warrants we own to
buy shares in other companies (principally HyperFeed Technologies, Inc.) from
the date we acquired the warrants through to January 1, 2001. The decline in the
estimated fair value of warrants during 2001 is recorded in the Long Term
Holdings segment.

    The $2.3 million net provision for income tax expense for 2001 consists of
several items, which are detailed in Note 7 of Notes to Consolidated Financial
Statements, "Federal Income Tax." A gross provision for tax of approximately
$2.9 million was partially offset by $630,000 in tax benefits, primarily
represented by a cash refund following a successful appeal of a prior year tax
ruling in Canada. We do not need to pay any taxes in cash for 2001 because prior
year net operating loss carry-forwards offset our tax provision for the year.

     PICO incurred a net loss of $9.5 million in 2000. The $4.5 million net loss
before an accounting change consisted of a $13.5 million pre-tax loss, which was
partially offset by $8.2 million in income tax benefits and the addition of
$717,000 in minority interest. In addition, the cumulative effect of a change in
accounting principle reduced income by $5 million after-tax. Until December 31,
1999, PICO had discounted the carrying value of its medical professional
liability claims reserves, to reflect the fact that some claims will not be paid
until many years in the future, but funds from the corresponding premiums can be
invested in the meantime. After December 31, 1999, PICO's medical professional
liability insurance subsidiaries were no longer allowed to discount claims
reserves in the statements they file with the Ohio Department of Insurance,
which are prepared on the statutory basis of accounting. With this change in
accounting principle, we have also eliminated the discounting in our financial
statements which are prepared on a GAAP basis.


                                       26



     The $8.2 million in tax benefits recorded in 2000 is made up of several
items. These include a $4.4 million cash refund resulting from the successful
appeal of a prior year tax ruling in Canada, and a $3.3 million expense which
was recognized to increase federal income tax valuation allowances recorded
against tax assets in some of our subsidiaries.

     In 1999, the $6.8 million net loss was comprised of a $20.5 million pre-tax
loss, which was partially offset by the addition of $12.5 million in income tax
benefits, $706,000 in minority interest, and a $442,000 after-tax extraordinary
gain from the early settlement of debt. The income tax benefits recognized
include an $8.4 million reduction in valuation allowances that had previously
been recorded to reduce income tax assets. Of this amount, $6.5 million became
available as a result of changes in federal income tax legislation in 1999.

     From 1998, PICO began to report comprehensive income in addition to the
income reported in the Consolidated Statement of Operations. Comprehensive
income includes items resulting in unrealized changes in shareholders' equity.
For PICO, comprehensive income includes foreign currency translation and change
in unrealized investment gains and losses on securities which are available for
sale.

     PICO reported comprehensive income of $1.7 million in 2001, consisting of
net income of $4.8 million and a foreign currency translation credit of
$628,000, which were partially offset by net unrealized depreciation in
investments of $3.7 million after-tax. In 2000, PICO incurred an $18 million
comprehensive loss. This was comprised of the $9.5 million net loss, a decrease
in net unrealized change in investments of $7.6 million after-tax, and negative
foreign currency translation of $963,000. A $3.2 million comprehensive loss was
recorded in 1999, consisting of a $6.8 million net loss, a $28,000 decrease due
to foreign currency translation, and a partially offsetting $3.7 million
increase in net unrealized change in investments.

     Detailed information on the performance of each segment is contained later
in this report; however, the principal items in the 2001 $7.7 million profit
before taxes and minority interest were:

Water Rights and Water Storage
------------------------------
-    Vidler generated $17.8 million in revenues and a $5 million pre-tax profit.
     The principal contributors to segment income were $2.3 million from the
     sale of land and related water rights in the Harquahala Valley Irrigation
     District, and $5.7 million in pre-tax gains from the sale of part of
     Vidler's interest in the Semitropic water storage facility;

Land and Related Mineral Rights & Water Rights
----------------------------------------------
-    income of $131,000 from Nevada Land on revenues of $3.2 million, which
     included $1.9 million in land sales;

Property and Casualty Insurance
-------------------------------
-    segment income of $6.2 million, consisting of a $3.3 million pre-tax profit
     from Sequoia and $2.9 million from Citation;

Medical Professional Liability Insurance
----------------------------------------
-    a pre-tax profit of $8.4 million, principally due to an $11.2 million
     reduction in claims reserves, which was partially offset by a $4 million
     realized investment loss;

 Long Term Holdings
-    a $12 million loss before taxes, primarily due to parent company overhead
     of $4.8 million, a $2.3 million provision against loans to Dominion Capital
     Pty. Ltd., a $2.5 million SFAS No. 133 decrease in the value of warrants
     during the year, and our $1.3 million share of the net losses of
     investments accounted for under the equity method.

     Revenues and income before taxes and minority interests by business
segment, were:

OPERATING REVENUES:



                                                                                YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------
                                                                2001                      2000                     1999
                                                            -------------             -------------            -------------

                                                                                                     
    Water Rights and Water Storage                          $17,763,000               $ 3,123,000             $ 1,056,000
    Land and Related Mineral Rights & Water Rights            3,221,000                 5,276,000               7,147,000
    Property and Casualty Insurance                          51,349,000                39,257,000              39,960,000
    Medical Professional Liability Insurance                 (2,122,000)                3,396,000               3,121,000
    Long Term Holdings                                         (631,000)               (5,699,000)              3,204,000

                                                            -------------             -------------            -------------
             Total Revenues                                 $69,580,000               $45,353,000              $54,488,000
                                                            =============             =============            =============



                                       27


     In 2001, total revenues were $69.6 million, compared to $45.4 million in
2000, and $54.5 million in 1999. Revenues in 2001 were $24.2 million higher than
2000, primarily due to $14.6 million higher revenues from Vidler and $12.1
million higher revenues in the Property and Casualty Insurance segment. The most
significant items in the revenue growth at Vidler were revenues of $9.4 million
from the sale of water rights and land in the Harquahala Valley, and $5.7
million from pre-tax gains on the sale of interests in Semitropic. The principal
sources of the $12.1 million revenue growth in the Property and Casualty
Insurance segment were $10 million higher earned premiums, and a $1.6 million
increase in realized investment gains. From 1999 to 2000, total revenues
declined by $9.1 million, primarily due to the recognition of a $7.6 million net
realized investment loss which reduced revenues in the Long Term Holdings
segment in 2000, as opposed to a $626,000 net realized gain in 1999.

    Total expenses in 2001 were $60.6 million, unchanged from $60.6 million in
2000, and compared to $73.9 million in 1999. The largest expense item in each of
the past 3 years was loss and loss adjustment expense in our insurance
businesses (i.e., the cost of making provision to pay claims). In 2001, loss and
loss adjustment expense was $18.3 million, compared to $24 million in 2000, and
$35.2 million in 1999. Loss and loss adjustment expense for 2001 was reduced by
favorable reserve development of $11.2 million in the Medical Professional
Liability segment. Due to the greater amount of land and water rights sold in
2001, the cost of land, water rights and water sold was higher than previous
years at $7.6 million, compared to $4 million in 2000, and $4.5 million in 1999.


INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST:



                                                                 YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------
                                                          2001            2000            1999
                                                      ------------    ------------    ------------

                                                                             
Water Rights and Water Storage                        $  4,989,000    $ (4,854,000)   $ (3,947,000)
Land and Related Mineral Rights & Water Rights             131,000       1,918,000       1,094,000
Property and Casualty Insurance                          6,178,000       2,541,000      (3,679,000)
Medical Professional Liability Insurance                 8,409,000         768,000      (4,805,000)
Long Term Holdings                                     (12,016,000)    (13,853,000)     (9,151,000)
                                                      ------------    ------------    ------------
   Income (Loss) Before Taxes and Minority Interest   $  7,691,000    $(13,480,000)   $(20,488,000)
                                                      ============    ============    ============


                         WATER RIGHTS AND WATER STORAGE
                           VIDLER WATER COMPANY, INC.



                                                                 Year Ended December 31,
                                                      ----------------------------------------------
                                                          2001             2000             1999
                                                      ------------     ------------     ------------
                                                                               
REVENUES:
Sale of Land, Water Rights, & Water                   $  9,487,000     $  1,509,000     $    270,000
Gain on sale of Semitropic Water Storage interests       5,701,000
Lease of Water                                             235,000          188,000          185,000
Lease of Agricultural Land                                 795,000          959,000          477,000
Other                                                    1,545,000          467,000          124,000
                                                      ------------     ------------     ------------
Segment Total Revenues                                $ 17,763,000     $  3,123,000     $  1,056,000
                                                      ============     ============     ============

EXPENSES:
Cost of Land, Water Rights, & Water Sold                (6,796,000)      (2,244,000)        (185,000)
Commission and Other Cost of Sales                        (553,000)
Depreciation & Amortization                             (1,285,000)        (988,000)        (810,000)
Interest                                                  (646,000)        (821,000)        (678,000)
Operations & Maintenance                                  (311,000)        (612,000)        (214,000)
Other                                                   (3,183,000)      (3,312,000)      (3,116,000)
                                                      ------------     ------------     ------------
Segment Total Expenses                                 (12,774,000)      (7,977,000)      (5,003,000)
                                                      ============     ============     ============

                                                      ------------     ------------     ------------
INCOME (LOSS) BEFORE TAX                              $  4,989,000     $ (4,854,000)    $ (3,947,000)
                                                      ============     ============     ============


     We entered the water business with the realization that most of the assets
which Vidler acquired were not ready for immediate commercial use, and that
there would be a lead-time in developing and commercializing these assets.
Vidler's water assets did not begin to generate significant revenues until the
first quarter of 2001. In 2000 and prior years, Vidler was generating modest
revenues from the lease and sale of water assets in Colorado and from leasing
agricultural land, and incurring significant costs associated with the
development of assets and expansion of the water rights portfolio. Consequently,
Vidler reported operating losses until 2001.

    Vidler generated total revenues of $17.8 million in 2001, compared to $3.1
million in 2000, and $1.1 million in 1999.



                                       28



    In 2001, Vidler's results were dominated by three transactions, which
generated $15.1 million in revenues:

-    the sale of 6,496.5 acre-feet of transferable ground water and 2,589 acres
     of land in Arizona's Harquahala Valley Irrigation District to a unit of
     Allegheny Energy, Inc. This transaction added $9.4 million to revenues,
     comprised of the $9.1 million sales price and a $300,000 option fee earned
     which is included in Other Revenues, and contributed $2.3 million to
     segment income;
-    the sale of 29.7% of Vidler's original interest in the Semitropic Water
     Banking and Exchange Program (i.e., approximately 55,000 acre-feet of
     storage capacity, out of the original 185,000 acre-feet) for $3.3 million.
     This transaction added $1.6 million to revenues and to segment income; and
-    the further sale of 54.1% of Vidler's original interest in the Semitropic
     Water Banking and Exchange Program (i.e., approximately 100,000 acre-feet
     of storage capacity) for $6.9 million. This transaction added $4.1 million
     to revenues and to segment income.

    Over the past three years, Vidler has sold water rights, water, and related
assets which were not essential to its strategy in Nevada and Arizona. In
addition to the Allegheny transaction described in the preceding paragraph, in
2001 Vidler recognized revenues of $390,000 from the sale of water rights to the
City of Golden, Colorado. In 2000, Vidler sold 3,691 acre-feet of water which
had been "banked" at the Semitropic water storage facility for $509,000, and
water rights and the related land and tunnel assets to the City of Golden for $1
million. Due to the potential for significant capital outlays for repairs and
maintenance, Vidler disposed of the land and tunnel assets in conjunction with
the water rights in 2000, even though this resulted in a loss of $1.2 million
being recognized on the sale of the land and tunnel assets. In 1999, Vidler sold
300 acre-feet of priority water rights at Wet Mountain, Colorado for $270,000.

    The leasing of agricultural land generated revenues of $795,000 in 2001,
$959,000 in 2000, and $477,000 in 1999. Agricultural land lease revenues
decreased in 2001 as a result of the sale of farm properties in the Harquahala
Valley to Allegheny, as described above. The increase from 1999 to 2000
primarily reflects the purchase of additional Harquahala Valley farm properties
during 1999.

    Vidler generated revenue of $235,000 in 2001, $188,000 in 2000, and $185,000
in 1999, from leasing some of the company's Colorado water rights. These assets
are leased in perpetuity. The lease payments are indexed for inflation, with a
minimum annual escalation of 3%.

    Other Revenues were $1.5 million in 2001, $467,000 in 2000, and $124,000 in
1999. The most significant items in Other Revenues in 2001 were a $600,000 gain
from granting an easement to El Paso Natural Gas Company in the Harquahala
Valley, interest revenue of $357,000, and various revenues from properties
farmed by Vidler (e.g., sales of hay and cattle). In 2001, Other Revenues were
reduced by a $202,000 loss on the condemnation (i.e., compulsory acquisition) of
a commercially zoned property in Mesa, Arizona due to freeway construction. This
property, which was located in greater metropolitan Phoenix, was not part of
Vidler's water business. It was acquired in conjunction with MTB Ranch in 1996,
and was being held for sale. Originally, a $442,000 provision for loss on
condemnation was recorded in the first quarter of 2001, however this was
partially offset by an additional $240,000 payment to be received from a
negotiated settlement after Vidler challenged the value at which the property
was condemned.

    Total segment expenses, including the cost of water rights and other assets
sold, increased from $5 million in 1999, to $8 million in 2000, and $12.8
million in 2001.

    Segment operating expenses (i.e., excluding the cost of water rights and
other assets sold and related selling costs, and the $40,000 Silver State
write-down described in the "Land and Related Mineral Rights & Water Rights"
section) were $4.8 million in 1999, $5.7 million in 2000, and $5.4 million in
2001. Segment operating expenses in 2000 and 2001 were higher than in 1999 due
to growth in Vidler's asset base (e.g., the acquisition of Fish Springs Ranch),
including expenses related to individual projects (e.g., depreciation and
interest) which were recognized prior to the related revenues being earned.

    The $348,000 net reduction in segment operating expenses in 2001 from 2000
was primarily attributable to decreases of $301,000 in operations and
maintenance expense, $175,000 in interest expense, and $129,000 in other
expenses. The decrease in operations and maintenance expense was primarily due
to a lower obligation to contribute to operations and maintenance expense at the
Semitropic water storage facility, as our interest in the asset reduced.
Interest expense declined due to the repayment of the non-recourse debt on the
Harquahala Valley farm properties which were sold to Allegheny. These expense
reductions were partially offset by a $297,000 increase in depreciation and
amortization expense, primarily due to the start of amortization of improvements
at the Vidler Arizona Recharge Facility. Since construction of the improvements
required to recharge water is complete and the facility is ready for use, on
March 1, 2001, Vidler began to amortize the improvements at the facility over 15
years. The annual amortization charge will be approximately $518,000. The
amortization charge for 2001 was $421,000.


                                       29


    Segment operating expenses increased $915,000 from 1999 to 2000, due to
increases of $398,000 in operations and maintenance, $178,000 in depreciation
and amortization, $143,000 in interest, and $196,000 in other expenses. The
increase in segment expenses reflected the growth in Vidler's asset base,
including the purchase of farm properties and the related water rights in the
Harquahala Valley.

    Vidler recorded segment income of $5 million in 2001, compared to segment
losses of $4.9 million in 2000, and $3.9 million in 1999.

    The principal causes of the $9.9 million improvement in the segment result
from 2000 to 2001 were the contributions to income of $5.7 million from the sale
of interests in Semitropic, $2.3 million from the Allegheny transaction, and
$600,000 from the easement granted in 2001.

    The $907,000 increase in segment loss from 1999 to 2000 was caused by the
$1.2 million realized loss on the sale of the land and tunnel assets described
above. Excluding this item, the segment loss declined by $296,000, primarily due
to a $342,000 gross profit on the sale of the water "banked" at Semitropic and
$482,000 higher agricultural lease revenues, which were partially offset by
higher charges for depreciation, interest, and other expenses.


                 LAND AND RELATED MINERAL RIGHTS & WATER RIGHTS
                       NEVADA LAND & RESOURCE COMPANY, LLC



                                                        Year Ended December 31,
                                             -------------------------------------------
                                                  2001            2000            1999
                                             -----------     -----------     -----------
                                                                    
REVENUES:
Sale of Land                                 $ 1,918,000     $ 3,725,000     $ 5,432,000
Sale of Water Rights                                             244,000         379,000
Gain on Land Exchange                                            270,000
Lease and Royalty                                734,000         716,000         980,000
Interest and Other                               569,000         321,000         356,000
                                             -----------     -----------     -----------
Segment Total Revenues                       $ 3,221,000     $ 5,276,000     $ 7,147,000
                                             ===========     ===========     ===========

EXPENSES:
Cost of Land and Water Rights Sold              (772,000)     (1,751,000)     (4,273,000)
Operating Expenses                            (1,777,000)     (1,607,000)     (1,780,000)
Write-down of Silver State Resources, LLC       (541,000)
                                             -----------     -----------     -----------
Segment Total Expenses                       $(3,090,000)    $(3,358,000)    $(6,053,000)
                                             ===========     ===========     ===========

                                             -----------     -----------     -----------
INCOME BEFORE TAX                            $   131,000     $ 1,918,000     $ 1,094,000
                                             ===========     ===========     ===========


    Nevada Land generated revenues of $3.2 million in 2001, compared to $5.3
million in 2000, and $7.1 million in 1999.

    Most of the variation in revenue from year to year is caused by fluctuations
in the level of land sales. In 2001, Nevada Land recorded revenues of $1.9
million from the sale of 15,632 acres of land. In 2000, we generated $3.7
million in revenues from the sale of 28,245 acres of land, compared to $5.4
million from the sale of 48,715 acres in 1999.

    Lease and royalty income amounted to $734,000 in 2001, compared to $716,000
in 2000, and $980,000 in 1999. Most of this revenue comes from land leases,
principally for grazing, agricultural, communications, and easements.

    Interest and other revenues contributed $569,000 in 2001, compared to
$321,000 in 2000, and $356,000 in 1999.

    Nevada Land also generated revenues from a gain on a land exchange
transaction in 2000, and the sale of water rights in 2000 and 1999.

    In the 2000 land exchange, we exchanged 25,828 acres of land for assets with
an exchange value of approximately $1.3 million, or $52 per acre. The
consideration received consisted of $430,000 in cash and 17,558 acres of land,
which we believe will be more readily marketable, with an exchange value of
$913,000, or $52 per acre. The revenue recorded as a result of this transaction
was the $270,000 net gain on the cash portion of the total exchange value (i.e.,
approximately 32%). This gain represents the difference between the cash
received and our basis in approximately 32% of the land given up in the
exchange. No gain was recognized on the portion of the exchange value for which
land was received (i.e., approximately 68%). Any gain related to the land
received will be recorded when that land is sold.


                                       30


    In 2000, Nevada Land sold 61 acre-feet of certificated water rights for
$244,000. In 1999, we sold 125 acre-feet of certificated water rights for
$379,000.

    After deducting the cost of land sold, the gross margin on land sales was
$1.1 million in 2001, $2.2 million in 2000, and $1.5 million in 1999. This
represented a gross margin percentage of 59.8% in 2001, 59.2% in 2000, and 28%
in 1999.

    Operating expenses were little changed over the three-year period, at $1.8
million in 2001, $1.6 million in 2000, and $1.8 million in 1999.

    As part of our strategy of increasing our ownership of water rights in
northern Nevada, in 1998 Nevada Land and Vidler jointly acquired a controlling
interest in Silver State Land, LLC, which had filed applications for
approximately 51,000 acre-feet of water rights in various locations that were
geographically unrelated to Nevada Land's properties. In 1999, 2000, and 2001,
our priority has been to pursue the water rights applications filed by the
Vidler/Lincoln County joint venture, and by Nevada Land on its own properties.
Accordingly, due to the uncertainty of realizing the value of these
applications, in 2001 we reduced the carrying value of Silver State to zero,
which resulted in expenses of $541,000 in this segment and $40,000 in the "Water
Rights and Water Storage" segment. The Silver State water rights applications
were the only water rights applications with a carrying value in our financial
statements.

    Nevada Land recorded income of $131,000 in 2001, compared to $1.9 million in
2000, and $1.1 million in 1999. Segment income decreased $1.8 million from 2000
to 2001, principally due to a $1.1 million reduction in the gross margin on land
sales, the $541,000 write down of Silver State, and the $270,000 land exchange
gain included in 2000. In 2000, segment income was $824,000 higher than 1999,
principally due to a $685,000 higher gross profit from land sales and the
$270,000 gain from the land exchange transaction.


                         PROPERTY AND CASUALTY INSURANCE



                                                          Year Ended December 31,
                                             -----------------------------------------------
                                                     2001             2000             1999
                                             ------------     ------------     ------------
                                                                      
P&C INSURANCE REVENUES:
Earned Premiums                              $ 42,535,000     $ 32,583,000     $ 34,439,000
Net Investment Income                           5,997,000        5,381,000        4,951,000
Realized Investment Gains                       1,818,000          172,000         (186,000)
Negative Goodwill                                 568,000          568,000          568,000
Other                                             431,000          553,000          188,000
                                             ------------     ------------     ------------
Segment Total Revenues                       $ 51,349,000     $ 39,257,000     $ 39,960,000
                                             ============     ============     ============

P&C INSURANCE EXPENSES:
Loss and Loss Adjustment Expense             $(29,460,000)    $(22,963,000)    $(28,613,000)
Underwriting Expenses                         (15,711,000)     (13,753,000)     (15,026,000)
                                             ------------     ------------     ------------
Segment Total Expenses                       $(45,171,000)    $(36,716,000)    $(43,639,000)
                                             ============     ============     ============

P&C INSURANCE INCOME (LOSS) BEFORE TAXES:
Sequoia Insurance Company                    $  3,314,000     $  1,344,000     $  2,207,000
Citation Insurance Company                      2,864,000        1,197,000       (5,886,000)
                                             ------------     ------------     ------------
Total P&C Income (Loss) Before Taxes         $  6,178,000     $  2,541,000     $ (3,679,000)
                                             ============     ============     ============



    The Property & Casualty Insurance segment generated total revenues of $51.3
million in 2001, compared to $39.3 million in 2000, and $40 million in 1999.

    Most revenues in this segment come from earned premiums. When an insurance
company writes a policy, the premium charged is referred to as "written"
premium. The "written" premium is recognized as revenue, or "earned," evenly
over the term of the policy. Therefore, there is a time lag between changes in
written premium and the resulting change in earned premium.

    As described in the Property and Casualty Insurance section of "Company
Summary, Recent Developments and Future Outlook" in Item 7, the amount of
premium "written" by Sequoia and Citation declined in 1998 and 1999. This led to
a corresponding decrease in segment "earned" premium from $34.4 million in 1999
to $32.6 million in 2000.


                                       31


    In 2000, Citation wrote only a minor amount of premium in one state, and
Sequoia was responsible for practically all written premiums in the segment.
During 2000, Sequoia experienced 33.5% growth in written premiums to $47.1
million, due to an improved pricing environment, the increase in the company's
A.M. Best rating to "A-" (Excellent), and the acquisition of Personal Express.
Due to the lag between changes in written premium and earned premium, the
increase in premium written in 2000 led to the $9.9 million increase in earned
premium, from $32.6 million to $42.5 million, in 2001.

    Segment investment income increased 8.7% to $5.4 million during 2000. The
average income yield on the bond portfolio increased throughout 2000 due to the
higher prevailing level of interest rates and the purchase of high quality
corporate bonds with 5 years or less to maturity with the proceeds of
lower-yielding treasury bills and money market funds. The increase in the income
yield was partially offset by the purchase of several small-capitalization value
stocks with lower income (i.e., dividend) yields but greater appreciation
potential than bonds.

    Investment income increased another 11.4% to $6 million in 2001. This
reflected a higher average yield to maturity in the bond portfolio, resulting
from the purchase of high quality corporate bonds with 5 to 10 years to maturity
and the sale of some shorter term securities whose yields had fallen to low
levels.

    Investment gains of $1.8 million were realized in 2001, primarily due to the
sale of bonds with 5 years or less to maturity, compared to realized gains of
$172,000 in 2000, and a net realized investment loss of $186,000 in 1999. Given
the historic drop in interest rates during 2001, particularly in shorter-term (5
years or less) interest rates, realized gains of this magnitude from bonds are
unlikely to be repeated.

     The Property and Casualty Insurance segment produced $6.2 million of
pre-tax income in 2001, consisting of a $3.3 million pre-tax profit from Sequoia
and $2.9 million from Citation. This compares to segment income of $2.5 million
in 2000, and a segment pre-tax loss of $3.7 million in 1999.

     During 1998 and 1999, Sequoia and Citation "pooled," or shared, most of
their premiums and expenses, and all business in California and Nevada was
transitioned to Sequoia. From January 1, 2000, the pooling arrangement was
terminated, and Citation only wrote a minor amount of premium in Arizona.
Citation ceased writing business in December 2000, and went into "run off" in
2001. Citation's last policy expired in December 2001. Due to these factors, as
well as the acquisition of the Personal Express book of business, the individual
results of Sequoia and Citation for 2001 cannot be directly compared to previous
years.

     In 2000, the $2.5 million segment profit was comprised of a $1.3 million
pre-tax profit from Sequoia and a $1.2 million pre-tax profit from Citation. The
$3.6 million increase in segment income in 2001 over 2000 is primarily due to
$1.6 million higher realized investment gains and a $616,000 increase in
investment income for the segment, and a $1.4 million decrease in expenses at
Citation after the company went into "run off".

     The 1999 $3.7 million segment loss consisted of $2.2 million in income from
Sequoia, which was more than offset by a $5.9 million loss from Citation. From
1999 to 2000, the segment result improved by $6.2 million, from a $3.7 million
loss in 1999 to a $2.5 million profit in 2000. The 1999 segment loss was caused
by a $10.1 million pre-tax charge to strengthen Citation's claims reserves,
principally in the artisan/contractors line of business.

     SEQUOIA INSURANCE COMPANY
     In 2001, Sequoia's revenues included earned premiums of $42.3 million,
investment income of $3.7 million, and realized gains of $1.5 million. Earned
premiums increased 29.2% from the previous year, and consisted of $34.1 million
from commercial lines and $8.2 million from personal lines. Earned premiums for
2001 reflected most, but not a full 12 months, of the annualized increase in
premium resulting from the acquisition of the Personal Express book of business.
For 2001, Sequoia reported a loss from operations (i.e., income before
investment income, realized gains, and taxes) of $1.9 million, and income before
taxes of $3.3 million. This included an additional expense of $738,000 to
recognize adverse development in prior year loss reserves.

     In 2000, Sequoia's revenues included $32.7 million in earned premiums, $2.8
million in investment income, and realized gains of $99,000. The earned premiums
were composed of $29.6 million from commercial lines and $3.1 million from
personal lines, which included some initial revenues from the Personal Express
book of business. For 2000, Sequoia reported a loss from operations of $1.5
million, which included an additional expense of $252,000 to recognize adverse
development in prior year loss reserves, and income before taxes of $1.3
million.


                                       32



     In 1999, when the pooling agreement with Citation was still in force,
Sequoia's revenues included $16.9 million in earned premium and $2.1 million in
investment income. The company earned a profit from operations of $114,000 and
income before taxes of $2.2 million, including the benefit of a $401,000 credit
from favorable development in prior year loss reserves.

    The operating performance of insurance companies is frequently analyzed
using their "combined ratio." A combined ratio below 100% indicates that the
insurance company made a profit on its base insurance business, prior to
investment income, realized gains or losses, taxes, extraordinary items, and
other non-insurance items.

     Sequoia manages its business so as to have a combined ratio of less than
100% each year; however, this is not always achieved. Sequoia's combined ratio,
determined on the basis of generally accepted accounting principles, for the
past 3 years have been:



                                              SEQUOIA'S GAAP INDUSTRY RATIOS

                -------------------------------------- ------------ ----------- ----------- ---------- ------------
                                                          2001                     2000                   1999
                                                       ------------             -----------            ------------

                                                                                                
                Loss and LAE Ratio                         69.1%                   67.6%                  53.5%
                Underwriting Expense Ratio                 36.3%                   38.6%                  46.3%
                                                       ------------             -----------            ------------
                Combined Ratio                            105.4%                  106.3%                  99.8%
                -------------------------------------- ------------ ----------- ----------- ---------- ------------


     For 2001, Sequoia's combined ratio was 105.4%, compared to 106.3% in 2000,
and 99.8% in 1999.

     Sequoia's loss and loss adjustment expense ratio (i.e., the cost of making
provision to pay claims as a percentage of earned premiums) was 69.1% in 2001
and 67.6% in 2000, compared to 53.5% in 1999. In 2001, this included an
additional expense of $738,000 to recognize adverse development in prior year
loss reserves, compared to an additional $252,000 expense in 2000, and a
$401,000 credit from favorable development in 1999.

     The higher loss ratio was partially offset by a lower underwriting expense
ratio (i.e., operating expenses as a percentage of earned premiums) of 36.3% in
2001, compared to 38.6% in 2000, and 46.3% in 1999. The reduction in the
underwriting expense ratio was due to:
o    economies of scale. Sequoia's earned premiums grew by 29.2% in 2001,
     following a 93.4% increase in 2000 after the pooling agreement with
     Citation was terminated. In 2001 and 2000, fixed underwriting expense items
     (i.e., expenses which do not change with volume) were spread over a larger
     base of revenue, and therefore reduced as a percentage of revenue; and
o    earned premiums from the Personal Express book of business. Sequoia does
     not pay commission on Personal Express business, so commission expense fell
     as a percentage of revenue in 2001 and 2000.

     CITATION INSURANCE COMPANY
     Citation went into "run off" from January 1, 2001. In future years, this
will significantly affect the company's level of revenues and expenses. It is
anticipated that the majority of Citation's future revenues will come from
investment income, which is expected to decline over time as fixed-income
investments mature or are sold to provide the funds to pay down the company's
claims reserves. Unless there is adverse development in prior year loss
reserves, typically the expenses of an insurance company in "run off" will be
lower than the expenses of an insurance company which is actively writing
business.

     In 2001, Citation's revenues included investment income of $2.3 million,
earned premiums of $225,000, and negative goodwill amortization of $568,000
(explained in the following paragraph). The $225,000 in earned premiums
represents the final premiums earned from the policies on Citation's books when
the company went into "run off." After expenses of $571,000, Citation earned
income of $2.9 million before taxes for 2001. The "run off" of Citation's loss
reserves appears to be proceeding in line with expectation. In 2001, an expense
of just $56,000 was recorded for development in prior year loss reserves.

     When Citation Insurance Group acquired Physicians in the reverse merger in
1996, a $5.7 million negative goodwill asset arose because the fair value of the
assets acquired (i.e., Physicians) exceeded the cost of the investment (i.e.,
the fair value of the shares in Citation issued to Physicians shareholders). The
negative goodwill was being recognized as income over a period of 10 years in
this segment. From January 1, 2002, PICO is adopting Statement of Financial
Accounting Standards No. 142, "Goodwill and Intangible Assets," which requires
that goodwill and intangible assets with indefinite lives be tested for
impairment annually rather than amortized over time. As a result of adopting
this standard, the remaining negative goodwill of approximately $2.8 million
will be recognized as an extraordinary gain in 2002. See Note 1 of Notes to
Consolidated Financial Statements, "Nature of Operations and Significant
Accounting Policies."



                                       33


     In 2000, Citation's revenues included investment income of $2.7 million,
earned premiums of negative $158,000, and negative goodwill amortization of
$568,000. Although Citation earned $564,000 in property and casualty premiums in
2000, this was more than offset by a $722,000 reduction in earned premium
revenues related to reinsurance. After expenses of $1.9 million, including a
partially offsetting $282,000 benefit from favorable development in prior year
loss reserves, Citation earned a $1.2 million pre-tax profit for 2000.

     From 2000 to 2001, Citation's pre-tax profit increased $1.7 million. While
revenues increased $309,000 year over year, underwriting and other expenses
declined by $1.4 million after the company went into "run off."

     During 1999, Citation was "pooling" most of its revenues and expenses with
Sequoia so revenues and expenses were significantly greater than in 2000 and
2001. In 1999, Citation's revenues included earned premiums of $17.5 million,
investment income of $2.9 million, and negative goodwill amortization of
$568,000. Following expenses of $26.7 million, which included a $10.1 million
charge to strengthen loss reserves, Citation reported a pre-tax loss of $5.9
million.

     Since Citation is in "run off," its Combined Ratio is no longer meaningful.


        PROPERTY AND CASUALTY INSURANCE - LOSS AND LOSS EXPENSE RESERVES



                                                        DECEMBER 31, 2001       DECEMBER 31, 2000         DECEMBER 31, 1999
                                                     ------------------------ ---------------------- -----------------------------
                                                                                                   
SEQUOIA INSURANCE COMPANY:
Direct Reserves                                           $36.9 million           $37.2 million             $39.4 million
Ceded Reserves                                            (15.7)                  (18.1)                    (28.9)
                                                     ------------------------ ---------------------- -----------------------------
Net Reserves                                              $21.2 million           $19.1 million             $10.5 million
                                                     ======================== ====================== =============================

CITATION INSURANCE COMPANY:
Direct Reserves                                           $21.0 million           $25.8 million             $36.6 million
Ceded Reserves                                            (1.8)                   ( 2.4)                    ( 2.0)
                                                     ------------------------ ---------------------- -----------------------------
Net Reserves                                              $19.2 million           $23.4 million             $34.6 million
                                                     ======================== ====================== =============================



                    MEDICAL PROFESSIONAL LIABILITY INSURANCE



                                                                               Year Ended December 31,
                                                        ----------------------------------------------------------------------
                                                             2001                          2000                     1999
                                                        ----------------              ---------------          ---------------
                                                                                                        
MPL REVENUES:
Net Investment Income                                     $ 1,097,000                   $1,543,000               $1,180,000
Net Realized Investment Loss                              (3,974,000)
Earned Premium                                                755,000                    1,853,000                1,941,000
                                                        ----------------              ---------------          ---------------
Segment Total Revenues                                   $(2,122,000)                   $3,396,000               $3,121,000
                                                        ================              ===============          ===============

Underwriting Recoveries (Expenses)                         10,531,000                  ( 2,628,000)              (7,926,000)
                                                        ----------------              ---------------          ---------------
SEGMENT TOTAL RECOVERIES (EXPENSES)                        10,531,000                  ( 2,628,000)              (7,926,000)
                                                        ================              ===============          ===============

                                                        ----------------              ---------------          ---------------
INCOME (LOSS) BEFORE TAXES                                $ 8,409,000                   $  768,000              $(4,805,000)
                                                        ================              ===============          ===============



    Actuarial analysis of Physicians' loss reserves as of September 30, 2001
concluded that Physicians' reserves against future claims were significantly
greater than the actuary's projections of future claims payments. This was due
to favorable trends in both the "frequency" (number) and "severity" (size) of
claims. Accordingly, Physicians took down $11.2 million of excess reserves in
the fourth quarter of 2001.

    Medical professional liability insurance segment revenues were negative $2.1
million in 2001, compared to $3.4 million in 2000, and $3.1 million in 1999.

    Segment total revenues were negative $2.1 million in 2001, due to a $4
million net realized investment loss which exceeded the positive revenue items.
The net realized investment loss consisted of a $4.1 million realized loss on
the redemption of all units held in the Rydex URSA mutual fund, which was
partially offset by $19,000 in realized gains from the sale of bonds. The Rydex
URSA Fund is designed to deliver a return which is the inverse of the return on
the S&P 500 Index, and was acquired in 1995 when Physicians had greater exposure
to listed stocks. In the first four months of 2001, the S&P 500 Index declined
sharply. This led to a corresponding increase in the price of the Rydex URSA
Fund, and we redeemed the investment. When the loss was realized, there


                                       34



was only a minor effect on book value because the unrealized depreciation, after
the related tax benefit, was already reflected in shareholders' equity.

    Investment income was $1.2 million in 2001, $1.5 million in 2000, and $1.2
million in 1999. The principal reason for the variation in investment income
from year to year is fluctuation in the amount of fixed-income securities held
in the portfolio and the prevailing level of interest rates.

    Although Physicians is in "run off" and no longer writing premiums, earned
premium does arise, for example, from "swing rated" reinsurance, where the
reinsurance premiums we pay are recalculated based on loss experience (i.e.,
number and size of claims). Under GAAP, reinsurance is recorded in the earned
premium line. Earned premiums of $755,000 were recorded in 2001, which primarily
reflects a reduction in the amount of reinsurance we need to pay in line with
the reduction in our claims reserves during 2001. Similarly, earned premiums of
$1.9 million were recorded in both 2000 and 1999.

    Underwriting expenses consist of loss and loss adjustment expense and other
operating expenses.

    In 2001, the segment reported a $10.5 million underwriting recovery, as an
$11.2 million reduction in reserves more than offset regular loss and loss
adjustment expense and operating expenses for the year. This resulted in segment
income of $8.4 million. Excluding the reserve reduction and the net realized
investment loss, segment income would have been approximately $1.2 million.

    In 2000, after underwriting expenses of $2.6 million, which included a $1.1
million net increase in reserves, segment income of $768,000 was recorded. In
addition, reserves increased by $7.5 million due to the elimination of reserve
discount included in the cumulative effect of change in accounting principle.
The elimination of discounting did not affect the segment in 2000, but resulted
in a $5 million after-tax charge to income, which is shown in the "Cumulative
Effect of Change in Accounting Principle" line in our Consolidated Statement of
Operations. See Note 21 of Notes to Consolidated Financial Statements,
"Cumulative Effect of Change in Accounting Principle." Until December 31, 1999,
we discounted our medical professional liability claims reserves to reflect the
fact that some claims will not be paid until future years, but funds from the
corresponding premiums can be invested in the meantime. In each quarter until
December 31, 1999, a portion of this discount was removed and recognized as an
expense called "reserve discount accretion." From January 1, 2000, we ceased
discounting our reserves to be consistent with the accounting treatment in our
statutory financial statements, where discounting was not permitted after
December 31, 1999.

    In 1999, underwriting expenses were $7.9 million. This included a pre-tax
charge to increase Physicians' loss reserves by $5 million, or $3.8 million
after discounting to reflect the time value of money. The addition to claims
reserves was based upon actuarial analysis which indicated some deterioration of
Physicians' loss experience in most coverage years, resulting in a greater than
expected liability to pay claims. At that time, Physicians was receiving a
higher than expected number of claims, which was compounded by the fact that
many of the claims were for smaller than expected amounts. This meant that a
greater proportion of each claim fell below our reinsurance deductible (i.e.,
the initial part of each claim which is not covered by reinsurance), so
Physicians had to pay a greater proportion of each claim, and could not recover
as much as previously anticipated from reinsurance. The negative effect of the
increased number of claims exceeded the positive effect of the smaller average
amount claimed. Medical professional liability operations reported a $4.8
million loss in 1999.

    At December 31, 2001, medical professional liability reserves totaled $34.9
million, net of reinsurance, compared to $51.6 million net of reinsurance at
December 31, 2000. At December 31, 1999, medical professional liability reserves
were $53.7 million, net of reinsurance and discount.

    MEDICAL PROFESSIONAL LIABILITY INSURANCE--LOSS AND LOSS EXPENSE RESERVES



                                                                               Year Ended December 31,
                                                             ------------------------------------------------------------
                                                                 2001                    2000                   1999
                                                             -------------           -------------          -------------
                                                                                                      
    Direct Reserves                                             $40.6 million          $58.6 million          $81.6 million
    Ceded Reserves                                               (5.7)                  (7.0)                 (20.4)
    Discount of Net Reserves                                                                                   (7.5)
                                                                -------------          -------------          -------------
    Net Medical Professional Liability Insurance Reserves       $34.9 million          $51.6 million          $53.7 million
                                                                =============          =============          =============


    Significant fluctuations in reserve levels can occur based upon a number of
variables used in actuarial projections of ultimate incurred losses and loss
adjustment expenses.


                                       35



                               LONG TERM HOLDINGS



                                                                              Year Ended December 31,
                                                            -------------------------------------------------------------
                                                                 2001                   2000                    1999
                                                            ---------------         --------------          -------------
                                                                                                   
LONG TERM HOLDINGS REVENUES (CHARGES):
Realized Investment Gains (Losses):
           On Sale or Impairment of Investments              $   (500,000)          $ (7,623,000)            $  626,000
           SFAS No. 133 Change In Warrants                     (2,453,000)
Investment Income                                               1,856,000                988,000                505,000
Other                                                             466,000                936,000              2,073,000
                                                            ---------------         --------------          -------------
Segment Total Revenues                                       $   (631,000)          $ (5,699,000)            $3,204,000
                                                            ===============         ==============          =============

SEGMENT TOTAL EXPENSES                                       (10,097,000)             (9,948,000)           (11,329,000)
                                                            ---------------         --------------          -------------
LOSS BEFORE INVESTEE INCOME                                 $(10,728,000)           $(15,647,000)           $(8,125,000)

Equity Share of Investee's Net Income                         (1,288,000)              1,794,000             (1,026,000)
                                                            ---------------         --------------          -------------
LOSS BEFORE TAXES                                           $(12,016,000)           $(13,853,000)           $(9,151,000)
                                                            ===============         ==============          =============



    The Long Term Holdings segment recorded revenues of negative $631,000 in
2001, negative $5.7 million in 2000, and positive $3.2 million in 1999. Revenues
in this segment vary considerably from year to year, primarily due to
fluctuations in net realized gains or losses on the sale of investments.
Investments are not sold on a regular basis, but when the price of an individual
security has significantly exceeded our target, or if there have been changes
which we believe limit further appreciation potential on a risk-adjusted basis.
Consequently, the amount of net realized gains or losses recognized during any
accounting period has no predictive value.

    A $3 million net realized investment loss was recorded in 2001. This was
comprised of a $500,000 write-off of the remaining carrying value of the loan to
MKG Enterprises, and a $2.5 million loss to reflect a decrease in the value of
warrants we own in other companies, principally HyperFeed Technologies, Inc.,
during 2001. Following the introduction of Statement of Financial Accounting
Standards No. 133, "Accounting For Derivative Instruments and Hedging
Activities", we are now required to recognize changes in the estimated fair
value of warrants (before taxes) during an accounting period through the
Consolidated Statement of Operations for that period. In addition, although this
did not affect the segment, a cumulative change in accounting principle reduced
income by $981,000 to reflect the after-tax decline in the estimated fair value
of warrants during the period from the acquisition of the various warrants
through to December 31, 2000. See Note 4 of Notes to Consolidated Financial
Statements, "Investments."

    In 2000, a net realized loss of $7.6 million was incurred. This primarily
represented a $4.6 million loss on the sale of Conex, a $2.5 million write-down
of the loan to MKG Enterprises, and a $526,000 loss when a former employee
exercised an option which required PICO to sell existing shares in Vidler for
less than current book value. When PICO acquired Vidler in the merger with
Global Equity Corporation, call options had already been granted to certain
employees over existing shares in Vidler. All of these call options have now
been exercised.

    On September 8, 2000, PICO sold its investment in Conex for a nominal sum.
Conex's principal asset was a 60% interest in Guizhou Jonyang Machinery Industry
Limited, a joint venture which manufactures wheeled and tracked hydraulic
excavation equipment in the Guizhou province of the People's Republic of China.
Despite significant restructuring efforts, improved product quality, and
domestic market share of over 90% for wheeled excavators, the joint venture was
unable to achieve profitability.

    In 1999, net realized gains of $626,000 were recorded when gains from the
sale of securities from the Company's European portfolio were partially offset
by the $3.2 million write-down of an oil and gas investment.

    In this segment, investment income includes interest on cash and short term
fixed-income investments, and dividends from long term holdings. Investment
income totaled $1.9 million in 2001, compared to $988,000 in 2000, and $505,000
in 1999. In 2001, investment income was $868,000 higher than in 2000,
principally due to the receipt of $391,000 in dividends from AOG in 2001 after
AOG had not paid a dividend in 2000. The $483,000 increase in investment income
from 1999 to 2000 was primarily due to interest revenue earned on the proceeds
from the rights offering in the first quarter of 2000.

    Other revenues were $466,000 in 2001, $936,000 in 2000, and $2.1 million in
1999.

    The principal expenses recognized in this segment are PICO's corporate
overhead and operating expenses from SISCOM and, in 2000 and 1999, Conex. In
2001, segment expenses were $10.1 million, compared to $9.9 million in 2000, and
$11.3 million in 1999.


                                       36



    Segment expenses in 2001 included a $2.3 million provision against the
principal and accrued interest on two loans receivable from Dominion Capital
Pty. Limited. As disclosed in the Long Term Holdings section of Item 7 in our
2000 Form 10-K, PICO made short term advances to Dominion Capital Pty. Limited,
a private Australian company. The advances consisted of two loans, which were
due to be repaid in 2001. The assets collateralizing the loans include real
estate in Australia. We have instituted legal proceedings in Australia to
realize on the collateral and to obtain additional legal remedies, if required.
Given the delays and uncertainties inherent in the legal process and in
realizing on the collateral, we have fully provided against the principal and
accrued interest on both loans.

    PICO's equity share of investees' income represents our proportionate share
of the net income and other events affecting equity in the investments which we
carry under the equity method, less any dividends received from those
investments. In 2001, an equity share of investees' loss of $1.3 million was
recorded, compared to equity income of $1.8 million in 2000, and a $1 million
equity share of investees' loss in 1999. Here is a summary of the principal
investments which we accounted for under the equity method in each of the past
three years:



         ------------------------------------- ---------------------------------- -----------------------------------
                         2001                                2000                                1999
         ------------------------------------- ---------------------------------- -----------------------------------
                                  
          Jungfraubahn - until April 1, 2001             Jungfraubahn                        Jungfraubahn
                      HyperFeed                            HyperFeed                          HyperFeed
                                                                                     Conex - until August 1, 1999
                                                  Conex's sino-foreign joint      Conex's sino-foreign joint venture
                                                           venture -
                                                    until September 8, 2000
         ------------------------------------- ---------------------------------- -----------------------------------


    The Long Term Holdings segment produced a loss before taxes of $12 million
in 2001, compared to a $13.9 million loss in 2000 and a $9.2 million loss in
1999.

    The 2001 segment loss includes investment income and other revenues of $2.3
million, which were more than offset by the $2.5 million SFAS No. 133 loss, the
$500,000 realized loss related to MKG, the $1.3 million equity share of
investees' losses, and segment expenses of $10.1 million. Segment expenses
include parent company overhead of $4.8 million, the $2.3 million provision
against loans to Dominion Capital Pty. Ltd., and SISCOM expenses of $1.7
million.

    In 2000, the segment loss included equity income of $1.8 million and
investment income and other revenues of $1.9 million. These were more than
offset by the $7.6 million in realized losses described above, and segment
expenses of $9.9 million. Segment expenses include a $2.3 million operating loss
from Conex for the period prior to its sale, and a $1.6 million operating loss
from SISCOM.

    In 1999, the segment loss included $626,000 in realized gains and $2.6
million in investment income and other revenues, which were more than offset by
segment expenses of $11.3 million and a $1 million equity share of investees'
loss. Segment expenses include a $1.8 million operating loss from Conex, and a
$672,000 operating loss from SISCOM.


                                       37



LIQUIDITY AND CAPITAL RESOURCES -- YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

     PICO Holdings, Inc. is a diversified holding company. Our assets primarily
consist of investments in our operating subsidiaries, investments in other
public companies, marketable securities, and cash and cash equivalents. On a
consolidated basis, the Company had $17.4 million in cash and cash equivalents
at December 31, 2001, compared to $13.6 million at December 31, 2000, and $36.7
million at December 31, 1999.

     Our cash flow position fluctuates depending on the requirements of our
operating subsidiaries for capital, and activity in our investment portfolios.
Our primary sources of funds include cash balances, cash flow from operations,
the sale of investments, and -- potentially -- the proceeds of borrowings or
offerings of equity and debt. We endeavor to ensure that funds are always
available to take advantage of new investment opportunities.

     In broad terms, the cash flow profile of our principal operating
subsidiaries is:

-    During the company's investment and development phase, Vidler Water
     Company, Inc. utilized cash to purchase properties with significant water
     rights, to construct improvements at the Vidler Arizona Recharge Facility,
     to maintain and develop existing assets, to pursue applications for water
     rights, and to meet financing and operating expenses. During this period,
     other group companies provided financing to meet Vidler's on-going expenses
     and to fund capital expenditure and the purchase of additional
     water-righted properties.

     Vidler's water-related assets began to generate significant cash flow in
     the first quarter of 2001. As commercial use of these assets increases, we
     expect that Vidler will start to generate free cash flow as receipts from
     leasing water or storage and the proceeds from selling land and water
     rights begin to overtake maintenance capital expenditure, financing costs,
     and operating expenses. As water lease and storage contracts are signed, we
     anticipate that Vidler may be able to monetize some of the contractual
     revenue streams, which could potentially provide another source of funds;

-    Nevada Land & Resource Company, LLC is actively selling land which has
     reached its highest and best use, and is not part of PICO's long-term
     utilization plan for the property. Nevada Land's principal sources of cash
     flow are the proceeds of cash sales, and collections of principal and
     interest on sales contracts where Nevada Land has provided vendor
     financing. Since these receipts and other revenues exceed Nevada Land's
     operating costs, Nevada Land is generating strong positive cash flow which
     provides funds to finance other group activities;

-    Sequoia Insurance Company is currently generating positive cash flow from
     increased written premium volume. Shortly after a policy is written, the
     premium is collected and the funds can be invested for a period of time
     before they are required to pay claims. Free cash flow generated by Sequoia
     is being deployed in the company's investment portfolio;

-    Citation Insurance Company has ceased writing business and is "running
     off" its existing claims reserves. Investment income more than covers
     Citation's operating expenses. Most of the funds required to pay claims are
     coming from the maturity of fixed-income investments in the company's
     investment portfolio and recoveries from reinsurance companies; and

-    As the "run off" progresses, Physicians Insurance Company of Ohio is
     obtaining funds to pay operating expenses and claims from the maturity of
     fixed-income securities, the realization of investments, and recoveries
     from reinsurance companies.

     The Departments of Insurance in Ohio and California prescribe minimum
levels of capital and surplus for insurance companies, and set guidelines for
insurance company investments. PICO's insurance subsidiaries structure the
maturity of fixed-income securities to match the projected pattern of claims
payments; however, it is possible that fixed-income and equity securities may
occasionally need to be sold at unfavorable times when the bond market and/or
the stock market are depressed.

     As shown in the Consolidated Statements of Cash Flow, there was a $3.7
million net increase in cash and cash equivalents in 2001, compared to a $23.1
million net decrease in 2000, and a $34.9 million net decrease during 1999.

     During 2001, Operating Activities used cash of $3.9 million. Operating
Activities used cash of $17.3 million in 2000, and $23.5 million in 1999. The
most significant cash inflow in 2001 was $9.4 million in total receipts from the
sale of water rights and land in the Harquahala Valley. The principal uses of
cash were claims payments by our insurance subsidiaries and operating expenses
in all three years.


                                       38



     In 2001, Investing Activities generated cash of $9 million. The most
significant cash inflow was $10.2 million from the sale of part of our interest
in Semitropic. Significant cash outflows included the investment of $3.5 million
in Sihl, a Swiss public company, and $941,000 in AOG. Most of the remaining
Investing Activities cash flow represents activity in the investment portfolios
of our insurance companies:
-    Sequoia Insurance Company, which is the only insurance company writing new
     business, has been realigning its bond portfolio through the purchase of
     high quality corporate bonds with 5 to 10 years to maturity, utilizing the
     proceeds from the sale of bonds with lower yields to maturity; and
-    the "run off" insurance companies, Physicians and Citation, structuring
     their fixed-income portfolios to match the projected pattern of claims
     payouts, utilizing the proceeds of maturing fixed-income securities, the
     sale of investments, and investment income.
In addition, Vidler and Nevada Land invested $7.5 million in high quality
corporate bonds with less than 1 year to maturity to maximize the return on the
proceeds of land and water rights sales.

     Investing Activities used $55.4 million of cash in 2000. Most of the
Investing Activities cash flow represents activity in the investment portfolios
of our insurance companies, where the proceeds of cash and cash equivalents and
maturing fixed-income securities were reinvested in longer-dated corporate bonds
and, to a lesser extent, in small-capitalization value stocks. In addition,
Vidler made a $2.3 million payment related to the Semitropic Water Banking and
Exchange Program.

     In 1999, Investing Activities used $20.2 million of cash. This primarily
represented the purchase of additional shares in Jungfraubahn and AOG, and the
$2.3 million Semitropic payment.

     Financing Activities used $1.8 million of cash in 2001. Vidler paid off
approximately $2.9 million in non-recourse borrowings collateralized by the farm
properties in the Harquahala Valley Irrigation District which it sold to
Allegheny. Global Equity SA took on an additional $1.9 million of Swiss
Franc-denominated borrowings to help finance the acquisition of investments in
Swiss public companies, principally Sihl.

     In 2000, there was a $49.5 million cash inflow from Financing Activities,
principally due to the rights offering which raised $49.8 million in new equity
capital during the first quarter. Financing Activities resulted in a $8.4
million net inflow in 1999, as Swiss franc borrowings to finance part of PICO's
portfolio of European value stocks raised $6.1 million, the exercise of PICO
warrants provided $2.9 million, and the purchase of treasury stock used
$292,000.

     At December 31, 2001, PICO had no significant commitments for future
capital expenditures, other than in the ordinary course of business.

     PICO is committed to maintaining Sequoia's capital and statutory surplus at
a minimum of $7.5 million. At December 31, 2001, Sequoia had approximately $29.3
million in capital and statutory surplus. PICO also aims to maintain Sequoia's
A.M. Best rating at or above its present "A-" (Excellent) level. At some time in
the future, this may require the injection of additional capital.


SUPPLEMENTARY DISCLOSURES At December 31, 2001:

-    PICO had no "off balance sheet" financing arrangements;
-    PICO has not provided any debt guarantees; and
-    PICO has no commitments to provide additional collateral for financing
     arrangements. PICO's Swiss subsidiary, Global Equity SA, has Swiss Franc
     borrowings which partially finance the Company's European stock holdings.
     If the market value of those stocks declines below certain levels, we could
     be required to provide additional collateral or to repay a portion of the
     Swiss Franc borrowings.

See Note 15 of Notes To Consolidated Financial Statements, "Commitments and
Contingencies."


                                       39



                                  RISK FACTORS

     In addition to the risks and uncertainties discussed in the preceding
sections of "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this document, the following risk
factors should be considered carefully in evaluating PICO and its business. The
statements contained in this Form 10-K that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Exchange
Act, including statements regarding our expectations, beliefs, intentions, plans
or strategies regarding the future. All forward-looking statements included in
this document are based on information available to us on the date thereof, and
we assume no obligation to update any such forward-looking statements.

BECAUSE OUR OPERATIONS ARE DIVERSE, ANALYSTS AND INVESTORS MAY NOT BE ABLE TO
EVALUATE OUR COMPANY ADEQUATELY, WHICH MAY NEGATIVELY INFLUENCE OUR SHARE PRICE

     PICO is a diversified holding company with operations in land and related
water rights and mineral rights; water rights and water storage; property and
casualty insurance; medical professional liability insurance; and other
long-term holdings. Each of these areas is unique, complex in nature, and
difficult to understand. In particular, water rights is a developing industry
within the western United States with very little historical data, very few
experts and a limited following of analysts. Because we are so complex, analysts
and investors may not be able to adequately evaluate our operations, and PICO in
total. This could cause them to make inaccurate evaluations of our stock, or to
overlook PICO, in general. These factors could have a negative impact on the
trading volume and price of our stock.

IF WE DO NOT SUCCESSFULLY LOCATE, SELECT AND MANAGE INVESTMENTS AND ACQUISITIONS
OR IF OUR INVESTMENTS OR ACQUISITIONS OTHERWISE FAIL OR DECLINE IN VALUE, OUR
FINANCIAL CONDITION COULD SUFFER

     We invest in businesses that we believe are undervalued or that will
benefit from additional capital, restructuring of operations or improved
competitiveness through operational efficiencies.

     Failures and/or declines in the market values of businesses we invest in or
acquire, as well as our failure to successfully locate, select and manage
investment and acquisition opportunities, could have a material adverse effect
on our business, financial condition, the results of operations and cash flows.
Such business failures, declines in market values, and/or failure to
successfully locate, select and manage investments and acquisitions could result
in inferior investment returns compared to those which may have been attained
had we successfully located, selected and managed new investments and
acquisition opportunities, or had our investments or acquisitions not failed or
declined in value. We could also lose part or all of our investments in these
businesses and experience reductions in our net income, cash flows, assets and
shareholders' equity.

     We will continue to make selective investments, and endeavor to enhance and
realize additional value to these acquired companies through our influence and
control. This could involve the restructuring of the financing or management of
the entities in which we invest and initiating and facilitating mergers and
acquisitions. Any acquisition could result in the use of a significant portion
of our available cash, significant dilution to you, and significant
acquisition-related charges. Acquisitions may also result in the assumption of
liabilities, including liabilities that are unknown or not fully known at the
time of the acquisition, which could have a material adverse effect on us.

     We do not know of any reliable statistical data that would enable us to
predict the probability of success or failure of our investments, or to predict
the availability of suitable investments at the time we have available cash. You
will be relying on the experience and judgment of management to locate, select
and develop new acquisition and investment opportunities. Sufficient
opportunities may not be found and this business strategy may not be successful.
We have made a number of investments in the past that have been highly
successful, such as Fairfield Communities, Inc., which we sold in 1996, and
Resource America, Inc., which we sold in 1997. We have also made investments
that have lost money, such as our approximate $4 million loss from the Korean
investments in 1997, an approximate $5 million write-down of investments in
1998, a $3.2 million write-down of an oil and gas investment in 1999, and $7.1
million in investment losses in the third quarter of 2000. We reported net
realized investment gains of $441,000 in 1999 and $21.4 million in 1997;
however, we reported net realized investment losses of $5.1 million in 2001,
$7.5 million in 2000 and $4.4 million for 1998. We reported a net unrealized
investment loss of $10.6 million at December 31, 2001, compared to a net
unrealized loss of $7 million at December 31, 2000, and a net unrealized gain of
$575,000 at December 31, 1999.

     Our ability to achieve an acceptable rate of return on any particular
investment is subject to a number of factors which are beyond our control,
including increased competition and loss of market share, quality of management,
cyclical or uneven financial results, technological obsolescence, foreign
currency risks and regulatory delays.


                                       40



     Our investments may not achieve acceptable rates of return and we may not
realize the value of the funds invested; accordingly, these investments may have
to be written down or sold at their then-prevailing market values.

     We may not be able to sell our investments in both private and public
companies when it appears to be advantageous to do so and we may have to sell
these investments at a discount. Investments in private companies are not as
marketable as investments in public companies. Investments in public companies
are subject to prices determined in the public markets and, therefore, values
can vary dramatically. In particular, the ability of the public markets to
absorb a large block of shares offered for sale can affect our ability to
dispose of an investment in a public company.

     We may acquire shares of stock in U.S. public companies that are not
registered with the SEC, and we may not be able to register the stock during our
period of ownership. Accordingly, this may affect our ability to dispose of an
investment in a public company or achieve the full market price quoted by the
stock exchange that the particular stock is listed on.

     To successfully manage newly acquired companies, we must, among other
things, continue to attract and retain key management and other personnel. The
diversion of the attention of management from the day-to-day operations, or
difficulties encountered in the integration process, could have a material
adverse effect on our business, financial condition, and the results of
operations and cash flows.

WE MAY MAKE INVESTMENTS AND ACQUISITIONS THAT MAY YIELD LOW OR NEGATIVE RETURNS
FOR AN EXTENDED PERIOD OF TIME, WHICH COULD TEMPORARILY OR PERMANENTLY DEPRESS
OUR RETURN ON INVESTMENTS

     We generally make investments and acquisitions that tend to be long term in
nature. We invest in businesses that we believe to be undervalued or may benefit
from additional capital, restructuring of operations or management or improved
competitiveness through operational efficiencies with our existing operations.
We may not be able to develop acceptable revenue streams and investment returns.
We may lose part or all of our investment in these assets. The negative impacts
on cash flows, income, assets and shareholders' equity may be temporary or
permanent. We make investments for the purpose of enhancing and realizing
additional value by means of appropriate levels of shareholder influence and
control. This may involve restructuring of the financing or management of the
entities in which we invest and initiating or facilitating mergers and
acquisitions. These processes can consume considerable amounts of time and
resources. Consequently, costs incurred as a result of these investments and
acquisitions may exceed their revenues and/or increases in their values for an
extended period of time until we are able to develop the potential of these
investments and acquisitions and increase the revenues, profits and/or values of
these investments. Ultimately, however, we may not be able to develop the
potential of these assets that we anticipated.

IF MEDICAL MALPRACTICE INSURANCE CLAIMS TURN OUT TO BE GREATER THAN THE RESERVES
WE ESTABLISH TO PAY THEM, WE MAY NEED TO LIQUIDATE CERTAIN INVESTMENTS IN ORDER
TO SATISFY OUR RESERVE REQUIREMENTS

     Under the terms of our medical malpractice liability policies, there is an
extended reporting period for claims. Under Ohio law, the statute of limitations
is one year after the cause of action accrues. Also, under Ohio law, a person
must make a claim within four years; however, the courts have determined that
the period may be longer in situations where the insured could not have
reasonably discovered the injury in that four-year period. Claims of minors must
be brought within one year of the date of majority. As a result, some claims may
be reported a number of years following the expiration of the medical
malpractice liability policy period.

     Physicians Insurance Company of Ohio has established reserves to cover
losses on claims incurred under the medical malpractice liability policies
including not only those claims reported to date, but also those that may have
been incurred but not yet reported. The reserves for losses are estimates based
on various assumptions and, in accordance with Ohio law, were discounted to
reflect the time value of money for years prior to 2000. These estimates are
based on actual and industry experience and assumptions and projections as to
claims frequency, severity and inflationary trends and settlement payments. In
accordance with Ohio law, Physicians Insurance Company of Ohio annually obtains
a certification from an independent actuary that its reserves for losses are
adequate. Physicians Insurance Company of Ohio also obtains a concurring
actuarial opinion. Due to the inherent uncertainties in the reserving process,
there is a risk that Physicians Insurance Company of Ohio's reserves for losses
could prove to be inadequate. This could result in a decrease in income and
shareholders' equity. If we underestimate our reserves, they could reach levels
which are lower than required by law.

     Reserves are provisions that we make to pay insurance claims. We strive to
establish a balance between maintaining adequate reserves to pay claims while at
the same time using our cash resources to invest in new companies.


                                       41



IF WE UNDERESTIMATE THE AMOUNT OF INSURANCE CLAIMS, OUR FINANCIAL CONDITION
COULD BE MATERIALLY MISSTATED AND OUR FINANCIAL CONDITION COULD SUFFER

     Our insurance subsidiaries may not have established reserves adequate to
meet the ultimate cost of losses arising from claims. It has been, and will
continue to be, necessary for our insurance subsidiaries to review and make
appropriate adjustments to reserves for claims and expenses for settling claims.
Inadequate reserves could have a material adverse effect on our business,
financial condition, and the results of operations and cash flows. Inadequate
reserves could cause our financial condition to fluctuate from period to period
and cause our financial condition to appear to be better than it actually is for
periods in which insurance claims reserves are understated. In subsequent
periods when we discover the underestimation and pay the additional claims, our
cash needs will be greater than expected and our financial results of operations
for that period will be worse than they would have been had our reserves been
accurately estimated originally.

     The inherent uncertainties in estimating loss reserves are greater for some
insurance products than for others, and are dependent on:

-    the length of time in reporting claims;
-    the diversity of historical losses among claims;
-    the amount of historical information available during the estimation
     process;
-    the degree of impact that changing regulations and legal precedents may
     have on open claims; and
-    the consistency of reinsurance programs over time.

     Because medical malpractice liability and commercial casualty claims may
not be completely paid off for several years, estimating reserves for these
types of claims can be more uncertain than estimating reserves for other types
of insurance. As a result, precise reserve estimates cannot be made for several
years following the year for which reserves were initially established.

     During the past several years, the levels of the reserves for our insurance
subsidiaries have been very volatile. We have had to significantly increase and
decrease these reserves in the past several years.

     Significant increases in the reserves may be necessary in the future, and
the level of reserves for our insurance subsidiaries may be volatile in the
future. These increases or volatility may have an adverse effect on our
business, financial condition, and the results of operations and cash flows.

THE PROPERTY & CASUALTY INSURANCE BUSINESS IS CYCLICAL, WHICH COULD HINDER OUR
ABILITY TO PROFIT FROM THIS INDUSTRY IN THE FUTURE

     The property and casualty insurance industry has been highly cyclical.
Pricing is a function of many factors, including the capacity of the property
and casualty industry as a whole to underwrite business, create policyholders'
surplus and generate positive returns on their investment portfolios. The level
of surplus in the industry varies with returns on invested capital and
regulatory barriers to withdrawal of surplus. Increases in surplus have
generally been accompanied by increased price competition among property and
casualty insurers. During the late 1990's, the industry was in a cyclical
downturn, due primarily to competitive pressures on pricing, which resulted in
lower profitability for our property and casualty insurance operations. In 2000
and 2001, competitive pressures began to ease and pricing began to improve,
which is referred to as a hardening market.

     The cyclical trends in the industry and the industry's profitability can
also be affected by volatile and unpredictable developments, including natural
disasters, fluctuations in interest rates, and other changes in the investment
environment which affect market prices of investments and the income generated
from those investments. Inflationary pressures affect the size of losses and
court decisions affect insurers' liabilities. These trends may adversely affect
our business, financial condition, the results of operations and cash flows by
reducing revenues and profit margins, by increasing ratios of claims and
expenses to premiums, and by decreasing cash receipts. Capital invested in our
insurance companies may produce inferior investment returns during periods of
downturns in the insurance cycle due to reduced profitability.

STATE REGULATORS COULD REQUIRE CHANGES TO THE OPERATIONS OF OUR INSURANCE
SUBSIDIARIES AND/OR TAKE THEM OVER IF WE FAIL TO MAINTAIN ADEQUATE RISK-BASED
CAPITAL LEVELS

     Beginning in 1994, Physicians, Professionals, Citation, and Sequoia became
subject to the provisions of the Risk-Based Capital for Insurers Model Act which
has been adopted by the National Association of Insurance Commissioners for the
purpose of helping regulators identify insurers that may be in financial
difficulty. The Model Act contains a formula which takes into account asset
risk, credit risk, underwriting risk and all other relevant risks. Under this
formula, each insurer is required to report to regulators using formulas which
measure the quality of its capital and the relationship of its modified capital
base to the level of risk assumed in


                                       42



specific aspects of its operations. The formula does not address all of the
risks associated with the operations of an insurer. The formula is intended to
provide a minimum threshold measure of capital adequacy by individual insurance
company and does not purport to compute a target level of capital. Companies
which fall below the threshold will be placed into one of four categories:
Company Action Level, where the insurer must submit a plan of corrective action;
Regulatory Action Level, where the insurer must submit such a plan of corrective
action, the regulator is required to perform such examination or analysis the
Superintendent of Insurance considers necessary and the regulator must issue a
corrective order; Authorized Control Level, which includes the above actions and
may include rehabilitation or liquidation; and Mandatory Control Level, where
the regulator must rehabilitate or liquidate the insurer. All companies'
risk-based capital results as of December 31, 2001 exceed the Company Action
Level.

WE MAY BE INADEQUATELY PROTECTED AGAINST MAN-MADE AND NATURAL CATASTROPHES,
WHICH COULD REDUCE THE AMOUNT OF CAPITAL SURPLUS AVAILABLE FOR INVESTMENT
OPPORTUNITIES

     As with other property and casualty insurers, operating results and
financial condition can be adversely affected by volatile and unpredictable
natural and man-made disasters, such as hurricanes, windstorms, earthquakes,
fires, and explosions. Our insurance subsidiaries generally seek to reduce their
exposure to catastrophic events through individual risk selection and the
purchase of reinsurance. Our insurance subsidiaries' estimates of their
exposures depend on their views of the possibility of a catastrophic event in a
given area and on the probable maximum loss created by that event. While our
insurance subsidiaries attempt to limit their exposure to acceptable levels, it
is possible that an actual catastrophic event or multiple catastrophic events
could significantly exceed the maximum loss anticipated, resulting in a material
adverse effect on our business, financial condition, and the results of
operations and cash flows. Such events could cause unexpected insurance claims
and expenses for settling claims well in excess of premiums, increasing cash
needs, reducing surplus and reducing assets available for investments. Capital
invested in our insurance companies may produce inferior investment returns as a
result of these additional funding requirements.

     We insure ourselves against catastrophic losses by obtaining insurance
through other insurance companies known as reinsurers. The future financial
results of our insurance subsidiaries could be adversely affected by disputes
with their reinsurers with respect to coverage and by the solvency of the
reinsurers.

OUR INSURANCE SUBSIDIARIES COULD BE DOWNGRADED, WHICH WOULD NEGATIVELY IMPACT
OUR BUSINESS

     Our insurance subsidiaries' ratings may not be maintained or increased, and
a downgrade would likely adversely affect our business, financial condition, and
the results of operations and cash flows. A.M. Best Company's ("A.M. Best")
ratings reflect the assessment of A.M. Best of an insurer's financial condition,
as well as the expertise and experience of its management. Therefore, A.M. Best
ratings are important to policyholders. A.M. Best ratings are subject to review
and change over time. Failure to maintain or improve our A.M. Best ratings could
have a material adverse effect on the ability of our insurance subsidiaries to
underwrite new insurance policies, as well as potentially reduce their ability
to maintain or increase market share. Management believes that many potential
customers will not insure with an insurer that carries an A.M. Best rating of
less than B+, and that customers who do so will demand lower rates.

     Our insurance subsidiaries are currently rated as follows:

-    Sequoia Insurance Company A- (Excellent)
-    Citation Insurance Company B+ (Very Good)
-    Physicians Insurance Company of Ohio NR-3 (rating procedure inapplicable)

POLICY HOLDERS MAY NOT RENEW THEIR POLICIES, WHICH WOULD UNEXPECTEDLY REDUCE OUR
REVENUE STREAM

     Insurance policy renewals have historically accounted for a significant
portion of our net revenue. We may not be able to sustain historic renewal rates
for our products in the future. A decrease in renewal rates would reduce our
revenues. It would also decrease our cash receipts and the amount of funds
available for investments and acquisitions. If we were not able to reduce
overhead expenses correspondingly, this would adversely affect our business,
financial condition, and the results of operations and cash flows.

IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, THEN WE WILL BE SUBJECT
TO A SIGNIFICANT REGULATORY BURDEN

     At all times we intend to conduct our business so as to avoid being
regulated as an investment company under the Investment Company Act of 1940.
However, if we were required to register as an investment company, our ability
to use debt would be substantially reduced, and we would be subject to
significant additional disclosure obligations and restrictions on our
operational activities. Because of the additional requirements imposed on an
investment company with regard to the distribution of earnings, operational
activities and the use of debt, in addition to increased expenditures due to
additional reporting responsibilities, our cash


                                       43



available for investments would be reduced. The additional expenses would reduce
income. These factors would adversely affect our business, financial condition,
and the results of operations and cash flows.

VARIANCES IN PHYSICAL AVAILABILITY OF WATER, ALONG WITH ENVIRONMENTAL AND LEGAL
RESTRICTIONS AND LEGAL IMPEDIMENTS COULD IMPACT PROFITABILITY FROM OUR WATER
RIGHTS

     The water rights held by us and the transferability of these rights to
other uses and places of use are governed by the laws concerning water rights in
the states of Arizona, Colorado and Nevada. The volumes of water actually
derived from the water rights applications or permitted rights may vary
considerably based upon physical availability and may be further limited by
applicable legal restrictions. As a result, the amounts of acre-feet anticipated
from the water rights applications or permitted rights do not in every case
represent a reliable, firm annual yield of water, but in some cases describe the
face amount of the water right claims or management's best estimate of such
entitlement. Legal impediments exist to the sale or transfer of some of these
water rights, which in turn may affect their commercial value. If we were unable
to transfer or sell our water rights, we will not be able to make a profit, we
will not have enough cash receipts to cover cash needs, and we may lose some or
all of our value in our water rights investments.

     Water we lease or sell may be subject to regulation as to quality by the
United States Environmental Protection Agency acting pursuant to the federal
Safe Drinking Water Act. While environmental regulations do not directly affect
us, the regulations regarding the quality of water distributed affects our
intended customers and may, therefore, depending on the quality of our water,
impact the price and terms upon which we may in the future sell our water or
water rights.

OUR FUTURE WATER REVENUES ARE UNCERTAIN AND DEPEND ON A NUMBER OF FACTORS, WHICH
MAY MAKE OUR REVENUE STREAMS AND PROFITABILITY VOLATILE

     We engage in various water rights acquisition, management, development, and
sale and lease activities. Accordingly, our long-term future profitability will
be primarily dependent on our ability to develop and sell or lease water and
water rights, and will be affected by various factors, including timing of
acquisitions, transportation arrangements, and changing technology. To the
extent we possess junior or conditional water rights, such rights may be
subordinated to superior water right holders in periods of low flow or drought.

     In addition to the risk of delays associated with receiving all necessary
regulatory approvals and permits, we may also encounter unforeseen technical
difficulties which could result in construction delays and cost increases with
respect to our water development projects.

     Our profitability is significantly affected by changes in the market price
of water. In the future, water prices may fluctuate widely as demand is affected
by climatic, demographic and technological factors.

OUR WATER ACTIVITIES MAY BECOME CONCENTRATED IN A LIMITED NUMBER OF ASSETS,
MAKING OUR GROWTH AND PROFITABILITY VULNERABLE TO FLUCTUATIONS IN LOCAL
ECONOMIES AND GOVERNMENTAL REGULATIONS

     In the future, we anticipate that a significant amount of Vidler's revenues
and asset value will come from a limited number of assets, including our water
rights in the Harquahala Valley and the Vidler Arizona Recharge Facility.
Although we continue to acquire and develop additional water assets, in the
foreseeable future we anticipate that our revenues will still be derived from a
limited number of assets.

OUR WATER SALES MAY MEET WITH POLITICAL OPPOSITION IN CERTAIN LOCATIONS, THEREBY
LIMITING OUR GROWTH IN THESE AREAS

     The transfer of water rights from one use to another may affect the
economic base of a community and will, in some instances, be met with local
opposition. Moreover, certain of the end users of our water rights, namely
municipalities, regulate the use of water in order to control or deter growth.

WE ARE DIRECTLY IMPACTED BY INTERNATIONAL AFFAIRS, WHICH DIRECTLY EXPOSES US TO
THE ADVERSE EFFECTS OF ANY FOREIGN ECONOMIC OR GOVERNMENTAL INSTABILITY

     As a result of global investment diversification, our business, financial
condition, the results of operations and cash flows may be adversely affected
by:

-    exposure to fluctuations in exchange rates;
-    the imposition of governmental controls;


                                       44



-    the need to comply with a wide variety of foreign and U.S. export laws;
-    political and economic instability;
-    trade restrictions;
-    changes in tariffs and taxes;
-    volatile interest rates;
-    changes in certain commodity prices;
-    exchange controls which may limit our ability to withdraw money;
-    the greater difficulty of administering business overseas; and
-    general economic conditions outside the United States.

     Changes in any or all of these factors could result in reduced market
values of investments, loss of assets, additional expenses, reduced investment
income, reductions in shareholders' equity due to foreign currency fluctuations
and a reduction in our global diversification.

OUR COMMON STOCK PRICE MAY BE LOW WHEN YOU WANT TO SELL YOUR SHARES

     The trading price of our common stock has historically been, and is
expected to be, subject to fluctuations. The market price of the common stock
may be significantly impacted by:
-    quarterly variations in financial performance;
-    shortfalls in revenue or earnings from levels forecast by securities
     analysts;
-    changes in estimates by such analysts;
-    product introductions;
-    our competitors' announcements of extraordinary events such as
     acquisitions;
-    litigation; and
-    general economic conditions.

     Our results of operations have been subject to significant fluctuations,
particularly on a quarterly basis, and our future results of operations could
fluctuate significantly from quarter to quarter and from year to year. Causes of
such fluctuations may include the inclusion or exclusion of operating earnings
from newly acquired or sold operations. At December 31, 2001, the closing price
of our common stock on the NASDAQ National Market was $12.50 per share, compared
to $12.3125 at December 31, 1999. On a quarterly basis between these two dates,
closing prices have ranged from a high of $14.62 at June 30, 2001 to a low of
$11.00 at September 30, 2001. During 2001, closing prices have ranged from a low
of $10.70 per share on October 9 to a high of $15.91 on July 20.

     Statements or changes in opinions, ratings, or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we do
business or relating to us specifically could result in an immediate and adverse
effect on the market price of our common stock.

WE MAY NOT BE ABLE TO RETAIN KEY MANAGEMENT PERSONNEL WE NEED TO SUCCEED, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO MAKE SOUND INVESTMENT DECISIONS

     We have several key executive officers. If they depart, it could have a
significant adverse effect. Messrs. Langley and Hart have entered into
employment agreements with us dated as of December 31, 1997, for a period of
four years. Messrs. Langley and Hart are key to the implementation of our
strategic focus, and our ability to successfully develop our current strategy is
dependent upon our ability to retain the services of Messrs. Langley and Hart.

     New employment agreements were entered into with Mr. Langley and Mr. Hart
on January 1, 2002 for a further four years. (See Part II, Item 8, Note 16,
"Related-Party Transactions").


                                       45



     THE FOREGOING FACTORS, INDIVIDUALLY OR IN AGGREGATE, COULD MATERIALLY
ADVERSELY AFFECT OUR OPERATING RESULTS AND COULD MAKE COMPARISON OF HISTORIC
OPERATING RESULTS AND BALANCES DIFFICULT OR NOT MEANINGFUL.

REGULATORY INSURANCE DISCLOSURES

Liabilities for Unpaid Loss and Loss Adjustment Expenses

    Liabilities for unpaid loss and loss adjustment expenses are estimated based
upon actual and industry experience, and assumptions and projections as to
claims frequency, severity and inflationary trends and settlement payments. Such
estimates may vary from the eventual outcome. The inherent uncertainty in
estimating reserves is particularly acute for lines of business for which both
reported and paid losses develop over an extended period of time.

    Several years or more may elapse between the occurrence of an insured
medical professional liability insurance or casualty loss, the reporting of the
loss and the final payment of the loss. Loss reserves are estimates of what an
insurer expects to pay claimants, legal and investigative costs and claims
administrative costs. PICO's insurance subsidiaries are required to maintain
reserves for payment of estimated losses and loss adjustment expenses for both
reported claims and claims which have occurred but have not yet been reported.
Ultimate actual liabilities may be materially more or less than current reserve
estimates.

    Reserves for reported claims are established on a case-by-case basis. Loss
and loss adjustment expense reserves for incurred but not reported claims are
estimated based on many variables including historical and statistical
information, inflation, legal developments, the regulatory environment, benefit
levels, economic conditions, judicial administration of claims, general trends
in claim severity and frequency, medical costs and other factors which could
affect the adequacy of loss reserves. Management reviews and adjusts incurred
but not reported claims reserves regularly.

    The liabilities for unpaid losses and loss adjustment expenses of
Physicians, Sequoia, and Citation were $98.4 million at December 31, 2001,
$121.5 million at December 31, 2000, and $139.1 million at December 31, 1999,
net of discount on medical professional liability insurance reserves in 1999,
and before reinsurance reserves, which reduce net unpaid losses and loss
adjustment expenses. Of those amounts, the liabilities for unpaid loss and loss
adjustment expenses of prior years decreased by $10.4 million in 2001, and
increased by $8.6 million in 2000, and $16.3 million in 1999. The 2000 increase
included $7.5 million of accumulated discount on reserves that was expensed as a
result of our decision to discontinue discounting reserves effective January 1,
2000. See Note 21 of Notes to Consolidated Financial Statements, "Cumulative
Effect of Change in Accounting Principle." These changes to prior years'
reserves were due to the following:




                                 CHANGE IN UNPAID LOSS AND LAE RESERVES FOR PRIOR YEARS
                                                                      2001                 2000                 1999
                                                                -----------------   -------------------   -----------------
                                                                                                     
Increase (decrease) in provision for prior year claims              $ (9,833,352)          $ 1,300,413        $ 15,878,697
Retroactive reinsurance                                                 (529,993)             (267,653)           (564,469)
Accretion of reserve discount                                                                                      994,545
Cumulative effect of change in accounting principle                                          7,520,744
                                                                -----------------   -------------------   -----------------
    Net increase (decrease) in liabilities for unpaid loss
   and LAE of prior years                                          $ (10,363,345)          $ 8,553,504        $ 16,308,773
                                                                =================   ===================   =================



    See schedule in Note 12 of Notes to PICO's Consolidated Financial
Statements, "Reserves for Unpaid Loss and Loss Adjustment Expenses" for
additional information regarding reserve changes.

    Although insurance reserves are certified annually by independent actuaries
for each insurance company as required by state law, significant fluctuations in
reserve levels can occur based upon a number of variables used in actuarial
projections of ultimate incurred losses and loss adjustment expenses.

    Physicians' liability for unpaid medical professional liability insurance
losses and loss adjustment expenses was discounted through December 31, 1999, to
reflect investment income as permitted by the Ohio Department of Insurance. The
method of discounting was based upon historical payment patterns and assumed an
interest rate at or below Physicians' investment yield, and


                                       46



was the same rate used for statutory reporting purposes. A discount rate of 4%
was used for medical professional liability insurance reserves. Discounting was
discontinued effective January 1, 2000. See Notes 12 and 21 of Notes to
Consolidated Financial Statements, "Reserves for Unpaid Loss and Loss Adjustment
Expenses" and "Cumulative Effect of Change in Accounting Principle."

    All of PICO's insurance companies seek to reduce the loss that may arise
from individually significant claims or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk with other insurance
carriers.

    Various reinsurance treaties remain in place to limit PICO's exposure
levels.


            ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT

    The following table presents the development of balance sheet liabilities
for 1991 through 2001 for all property and casualty lines of business including
medical professional liability insurance. The "Net liability as originally
estimated" line shows the estimated liability for unpaid losses and loss
adjustment expenses recorded at the balance sheet date on a discounted basis,
prior to 2000, for each of the indicated years. Reserves for other lines of
business that Physicians ceased writing in 1989, which are immaterial, are
excluded. The "Gross liability as originally estimated" represents the estimated
amounts of losses and loss adjustment expenses for claims arising in all prior
years that are unpaid at the balance sheet date on an undiscounted basis,
including losses that had been incurred but not reported.





                                                                                         YEAR ENDED DECEMBER 31,
                                       ---------------------------------------------------------------------------------------------
                                           1991             1992            1993            1994            1995            1996
                                       --------------   -------------   -------------   -------------   -------------   ------------
                                                                                              (IN THOUSANDS)
                                                                                                         
Net liability as originally estimated:      $129,768        $159,804        $179,390        $153,212        $137,523       $164,817
Discount                                      30,647          31,269          32,533          20,144          16,568         12,216
Gross liability as originally estimated:     160,415         191,073         211,923         173,356         154,091        177,033
Cumulative payments as of:
     One year later                           42,986          41,550          34,207          35,966          27,128         59,106
     Two years later                          81,489          73,012          69,037          61,263          65,062         95,574
     Three years later                       103,505         103,166          90,904          93,908          86,865        115,160
     Four years later                        120,073         116,278         118,331         110,272         100,967        129,907
     Five Years later                        127,725         139,028         128,773         119,879         111,553        138,505
     Six years later                         142,973         143,562         136,820         129,819         116,575
     Seven years later                       147,142         148,426         145,683         132,394
     Eight years later                       151,751         156,620         147,386
     Nine years later                        159,205         157,975
     Ten years later                         160,426
Liability re-estimated as of:
     One year later                          188,811         197,275         183,560         170,411         147,324        176,922
     Two years later                         184,113         179,763         184,138         163,472         146,653        192,203
     Three years later                       174,790         182,011         175,308         162,532         151,752        202,014
     Four years later                        177,811         176,304         178,544         165,696         156,482        202,767
     Five Years later                        172,431         181,721         178,584         167,145         159,266        191,728
     Six years later                         175,830         181,868         178,371         167,821         150,375
     Seven years later                       177,603         181,029         178,717         160,233
     Eight years later                       178,419         183,229         171,926
     Nine years later                        180,624         179,052
     Ten years later                         177,577
Cumulative Redundancy (Deficiency)          ($17,162)        $12,021         $39,997         $13,123          $3,716       ($14,695)



                                       47






                                                                                        YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------------------------------
                                                          1997            1998            1999            2000            2001
                                                        -----------   -------------   --------------   ------------   -------------
                                                                                             (IN THOUSANDS)
                                                                                                            
Net liability as originally estimated:                    $128,205        $102,877          $98,655        $93,997         $75,259
Discount                                                     9,159           8,515            7,521
Gross liability before discount as originally estimated:   137,364         111,392          106,176         93,997          75,259
Cumulative payments as of:
     One year later                                         44,750          31,056           25,625         21,688
     Two years later                                        69,571          51,184           41,029
     Three years later                                      85,896          62,494
     Four years later                                       95,591
     Five Years later
     Six years later
     Seven years later
     Eight years later
     Nine years later
     Ten years later
Liability re-estimated as of:
     One year later                                        144,367         127,269          107,521         83,511
     Two years later                                       160,325         127,898           97,614
     Three years later                                     160,239         117,246
     Four years later                                      149,723
     Five Years later
     Six years later
     Seven years later
     Eight years later
     Nine years later
     Ten years later
Cumulative Redundancy (Deficiency)                        ($12,359)        ($5,854)          $8,562        $10,486

RECONCILIATION TO FINANCIAL STATEMENTS
     Gross liability - end of year                                                          $148,689       $121,442         $98,409
     Reinsurance recoverable                                                                 (42,514)       (27,445)        (23,190)
                                                                                       --------------   ------------   -------------
     Net liability before discount - end of year                                             106,175         93,997          75,219
     Net discount                                                                             (7,521)
                                                                                       --------------   ------------   -------------
     Net liability - end of year (discounted for 1998 and 1999)                               98,654         93,997          75,219
     Reinsurance recoverable (discounted for 1998 and 1999)                                   40,334         27,445          23,190
                                                                                       --------------   ------------   -------------
                                                                                             138,988        121,442          98,409
     Discontinued personal lines insurance                                                       145            100              40
                                                                                       --------------   ------------   -------------
     Balance sheet liability (discounted for 1998 and 1999)                                 $139,133       $121,542         $98,449
                                                                                       ==============   ============   =============

     Gross re-estimated liability - latest                                                  $146,131       $114,299
     Re-estimated recoverable - latest                                                       (48,518)       (30,788)
                                                                                       --------------   ------------
     Net re-estimated liability before discount - latest                                      97,613         83,511
     Net re-estimated discount - latest
                                                                                       --------------   ------------
     Net re-estimated liability - latest                                                     $97,613        $83,511
                                                                                       ==============   ============
     Net cumulative redundancy before discount                                                $8,562        $10,486
                                                                                       ==============   ============



    Each decrease or increase amount includes the effects of all changes in
amounts during the current year for prior periods. For example, the amount of
the redundancy related to losses settled in 1994, but incurred in 1991, will be
included in the decrease or increase amount for 1991, 1992 and 1993. Conditions
and trends that have affected development of the liability in the past may not
necessarily occur in the future. For example, Physicians commuted reinsurance
contracts in several different years that significantly increased the estimate
of net reserves for prior years by reducing the recoverable loss and loss
adjustment expense reserves for those years. Accordingly, it may not be
appropriate to extrapolate future increases or decreases based on this table.


                                       48



    The data in the above table is based on Schedule P from each of the
insurance companies' 1991 to 2001 Annual Statements, as filed with state
insurance departments; however, the development table above differs from the
development displayed in Schedule P, Part-2, of the insurance Annual Statements
as Schedule P, Part-2, excludes unallocated loss adjustment expenses.

    LOSS RESERVE EXPERIENCE
    The inherent uncertainties in estimating loss reserves are greater for some
insurance products than for others, and are dependent on the length of the
reporting lag or "tail" associated with a given product (i.e., the lapse of time
between the occurrence of a claim and the report of the claim to the insurer),
on the diversity of historical development patterns among various aggregations
of claims, the amount of historical information available during the estimation
process, the degree of impact that changing regulations and legal precedents may
have on open claims, and the consistency of reinsurance programs over time,
among other things. Because medical professional liability insurance and
commercial casualty claims may not be fully paid for several years or more,
estimating reserves for such claims can be more uncertain than estimating
reserves in other lines of insurance. As a result, precise reserve estimates
cannot be made for several years following a current accident year for which
reserves are initially established.

    There can be no assurance that the insurance companies have established
reserves adequate to meet the ultimate cost of losses arising from such claims.
It has been necessary, and will over time continue to be necessary, for the
insurance companies to review and make appropriate adjustments to reserves for
estimated ultimate losses and loss adjustment expenses. To the extent reserves
prove to be inadequate, the insurance companies would have to adjust their
reserves and incur a charge to income, which could have a material adverse
effect on PICO's financial results.

    Reconciliation of Unpaid Loss and Loss Adjustment Expenses

    An analysis of changes in the liability for unpaid losses and loss
adjustment expenses for 2000, 1999 and 1998 is set forth in Note 12 of Notes to
PICO's Consolidated Financial Statements, "Reserves for Unpaid Loss and Loss
Adjustment Expenses."


REINSURANCE

    Medical Professional Liability Insurance

    On July 14, 1995, Physicians and Professionals entered into an Agreement for
the Purchase and Sale of Certain Assets with Mutual Assurance, Inc. This
transaction closed on August 28, 1995. Pursuant to the agreement, Physicians and
Professionals sold their professional liability insurance business and related
liability insurance business for physicians and other health care providers.

    Simultaneously with execution of the agreement, Physicians and Mutual
entered into a reinsurance treaty pursuant to which Mutual agreed to assume all
risks attaching after July 15, 1995 under medical professional liability
insurance policies issued or renewed by Physicians on physicians, surgeons,
nurses, and other health care providers, dental practitioner professional
liability insurance policies including corporate and professional premises
liability coverage issued by Physicians, and related commercial general
liability insurance policies issued by Physicians, net of applicable
reinsurance.

    Prior to July 1, 1993, Physicians ceded a portion of the risk it wrote under
numerous reinsurance treaties at various retentions and risk limits. However,
during the last two accident years that Physicians wrote premium (July 1, 1993
to July 15, 1995), Physicians ceded reinsurance contracts through TIG
Reinsurance Company (rated A [Strong] by Standard & Poors), Transatlantic
Reinsurance Company (rated AA [Very Strong] by S&P) and Cologne Reinsurance
Company of America (rated BBBpi [Good] by S&P). Physicians ceded insurance to
these carriers on an automatic basis when retention limits were exceeded.
Physicians retained all risks up to $200,000 per occurrence. All risks above
$200,000, up to policy limits of $5 million, were transferred to reinsurers,
subject to the specific terms and conditions of the various reinsurance
treaties. Physicians remains primarily liable to policyholders for ceded
insurance should any reinsurer be unable to meet its contractual obligations.

    Property and Casualty Insurance

     Effective January 1, 1998, Sequoia and Citation entered into an
inter-company reinsurance pooling agreement for business in force as of January
1, 1998 and business written thereafter. Per the agreement, Citation ceded 100%
of its net premium and losses to Sequoia and Sequoia then ceded 50% of its net
premiums and losses to Citation. Sequoia and Citation shared equally in the
underwriting expenses. This arrangement was terminated effective January 1,
2000.


                                       49



    During this period, Citation and Sequoia had the same reinsurance program.
For property business, reinsurance provided coverage of $10.4 million excess of
$150,000 per occurrence. For casualty business, excluding umbrella coverage,
reinsurance provided coverage of $4.9 million excess of $150,000 per occurrence.
Umbrella coverages were reinsured $9.9 million excess of $100,000 per
occurrence. The catastrophe treaties for 1998 and thereafter provided coverage
of 95% of $14 million excess of $1 million per occurrence. Facultative
reinsurance was placed with various reinsurers.

    Effective January 1, 2002, Sequoia increased its retention for property and
casualty losses from $150,000 to $200,000 per occurrence. Therefore, reinsurance
provides property coverage of $10.3 million excess of $200,000 per occurrence,
and casualty coverage of $4.8 million excess of $200,000 per occurrence. In
addition, Sequoia changed the umbrella reinsurance from $9.9 million excess of
$100,000 per occurrence to 98% quota share reinsurance for the first $5 million.
Therefore, Sequoia will retain 2% of each umbrella loss while the reinsurance
provides for 98% of each umbrella loss. The reinsurance for umbrella business $5
million excess of $5 million per occurrence remains at 100%. The catastrophe
treaties for 2002 provide coverage of 70% for $1.5 million excess of $1 million
per occurrence, and 95% for $12.5 million per occurrence excess of $2.5 million.
Citation does not require reinsurance from 2002 onwards, as its last policy
expired in December 2001.

    Where the reinsurers are "not admitted" for regulatory purposes, Sequoia and
Citation presently maintain sufficient collateral with approved financial
institutions to secure cessions of paid losses and outstanding reserves.

    All policy and claims liabilities of Sequoia prior to August 1, 1995 have
been 100% reinsured with Sydney Reinsurance Corporation and unconditionally
guaranteed by QBE Insurance Group Limited.

    See Note 11 of Notes to Consolidated Financial Statements, "Reinsurance",
with regard to reinsurance recoverable concentration for all property and
casualty lines of business as of December 31, 2001. PICO remains contingently
liable with respect to reinsurance contracts in the event that reinsurers are
unable to meet their obligations under the reinsurance agreements in force.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

    PICO's balance sheets include a significant amount of assets and liabilities
whose fair value are subject to market risk. Market risk is the risk of loss
arising from adverse changes in market interest rates or prices. PICO currently
has interest rate risk as it relates to its fixed maturity securities and
mortgage participation interests, equity price risk as it relates to its
marketable equity securities, and foreign currency risk as it relates to
investments denominated in foreign currencies. PICO's bank debt is short-term in
nature as PICO generally secures rates for periods of approximately one to three
years and therefore approximates fair value. At December 31, 2001, PICO had
$100.9 million of fixed maturity securities and mortgage participation
interests, $57 million of marketable equity securities that were subject to
market risk, of which $36.8 million were denominated in foreign currencies,
primarily Swiss francs and Australian dollars. PICO's investment strategy is to
manage the duration of the portfolio relative to the duration of the liabilities
while managing interest rate risk.

    PICO uses two models to analyze the sensitivity of its assets and
liabilities subject to the above risks. For its fixed maturity securities, and
mortgage participation interests, PICO uses duration modeling to calculate
changes in fair value. For its marketable securities, PICO uses a hypothetical
20% decrease in the fair value to analyze the sensitivity of its market risk
assets and liabilities. For investments denominated in foreign currencies, PICO
uses a hypothetical 20% decrease in the local currency of that investment.
Actual results may differ from the hypothetical results assumed in this
disclosure due to possible actions taken by management to mitigate adverse
changes in fair value and because the fair value of a securities may be affected
by credit concerns of the issuer, prepayment rates, liquidity, and other general
market conditions. The sensitivity analysis duration model produced a loss in
fair value of $3.5 million for a 100 basis point decline in interest rates on
its fixed securities and mortgage participation interests. The hypothetical 20%
decrease in fair value of PICO's marketable equity securities produced a loss in
fair value of $10.9 million that would impact the unrealized appreciation in
shareholders' equity. The hypothetical 20% decrease in the local currency of
PICO's foreign denominated investments produced a loss of $5.8 million that
would impact the unrealized appreciation and foreign currency translation in
shareholders' equity.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    PICO's financial statements as of December 31, 2001 and 2000 and for each of
the three years in the period ended December 31, 2001 and the independent
auditors' report is included in this report as listed in the index.


                                       50



                        SELECTED QUARTERLY FINANCIAL DATA

    Summarized unaudited quarterly financial data (in thousands, except share
and per share amounts) for 2001 and 2000 are shown below. In management's
opinion, the interim financial data contains all adjustments necessary for a
fair presentation of results for such interim periods and are of a normal
recurring nature. In the fourth quarter of 2000, the Company received
notification from the Ohio Department of Insurance that it would no longer
permit the Company to discount its MPL reserves for statutory accounting
practices. Accordingly, the Company discontinued discounting its MPL reserves in
its statutory filing with the ODI and financial statements prepared in
accordance with US GAAP for the year ended December 31, 2000. The effect for the
year ended December 31, 2000 was to increase the unpaid losses and loss
adjustment expenses reserve by $7.5 million and an cumulative effect of
accounting principle of $5 million, or $0.43 per share, net of an income tax
benefit of approximately $2.5 million.





                                                                            THREE MONTHS ENDED
                               -----------------------------------------------------------------------------------------------------
                                  March 31,   June 30,  September 30,  December 31, March 31,    June 30, September 30, December 31,
                                   2001        2001         2001          2001        2000         2000       2000          2000
                               ------------- ---------- -------------- ----------- ---------- ----------- ------------ ------------
                                                                                                     
Premium income                       $10,039     $10,536      $10,665      $12,051     $7,514       $7,678       $8,272      $10,972
Net investment income and
  net realized gain (loss)               795       2,203         (473)       2,131      1,443        1,558       (4,589)       2,301
Total revenues                        20,721      15,658       15,749       17,452     10,095       11,027        4,940       19,291
Net income (loss)                     (2,263)     (2,462)       1,364        8,134     (8,521)         121       (2,805)       1,679
                                ------------- ----------- ------------ ------------ ---------- ------------ ------------ -----------
Basic:
                                ------------- ----------- ------------ ------------ ---------- ------------ ------------ -----------
     Net income (loss) per share     $ (0.18)    $ (0.20)      $ 0.11       $ 0.66    $ (0.93)      $ 0.01      $ (0.23)      $ 0.14
                                ------------- ----------- ------------ ------------ ---------- ------------ ------------ -----------
    Weighted average common
     and equivalent shares
     outstanding                  12,390,096  12,390,096   12,390,096   12,368,616  9,200,926   12,390,070   12,390,096   12,390,096
Diluted:
     Net income (loss) per share     $ (0.18)    $ (0.20)      $ 0.11       $ 0.66    $ (0.93)      $ 0.01      $ (0.23)      $ 0.14
                                ------------- ----------- ------------ ------------ ---------- ------------ ------------ -----------
    Weighted average common
     and equivalent shares
     outstanding                  12,390,096  12,390,096   12,408,408   12,368,616  9,200,926   12,390,070   12,390,096   12,390,096
                                ------------- ----------- ------------ ------------ ---------- ------------ ------------ -----------



                                       51



                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                               AND FOR EACH OF THE
                            THREE YEARS IN THE PERIOD
                             ENDED DECEMBER 31, 2001









                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

       Independent Auditors' Report...................................    53
       Consolidated Balance Sheets as of December 31, 2001 and 2000...  54-55
       Consolidated Statements of Operations for the Years Ended
             December 31, 2001, 2000 and 1999.........................    56
       Consolidated Statements of Shareholders' Equity for the
            Years Ended December 31, 2001, 2000, and 1999.............  57-59
       Consolidated Statements of Cash Flows for the Years Ended
            December 31, 2001, 2000 and 1999..........................    60
       Notes to Consolidated Financial Statements.....................  61-88


                                       52



                          INDEPENDENT AUDITORS' REPORT

       TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PICO HOLDINGS, INC.


We have audited the accompanying consolidated balance sheets of PICO Holdings,
Inc. and its subsidiaries (collectively "the Company") as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of PICO Holdings, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 21 to the financial statements, in 2000 the Company changed
its method of accounting for medical professional liability claims reserves.



DELOITTE & TOUCHE LLP

San Diego, California

March 8, 2002







                                       53



                      PICO HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2000

                                     ASSETS




                                                             2001                        2000
                                                       ------------------          ------------------
                                                                                 
Investments (Note 3):
 Available for sale:
  Fixed maturities                                         $ 100,895,244               $ 101,895,274
  Equity securities                                           54,364,542                  36,174,505
  Investment in unconsolidated affiliates (Note 4)             2,583,590                  27,824,291
                                                       ------------------          ------------------
     Total investments                                       157,843,376                 165,894,070

Cash and cash equivalents                                     17,361,624                  13,644,312
Premiums and other receivables, net (Note 6)                  18,076,561                  19,032,603
Reinsurance receivables (Note 11)                             23,783,106                  27,594,039
Accrued investment income                                      1,595,400                   1,717,109
Land and related mineral rights and water rights (Note 5)    125,997,642                 137,235,241
Property and equipment, net (Note 8)                           2,727,931                   2,944,513
Deferred policy acquisition costs (Note 9)                     6,913,589                   6,299,819
Goodwill and intangibles, net (Note 1)                         3,487,414                   4,000,508
Net deferred income taxes (Note 7)                             7,299,015                  11,354,592
Other assets                                                   8,048,856                   5,427,828
                                                       ------------------          ------------------
     Total assets                                          $ 373,134,514               $ 395,144,634
                                                       ==================          ==================


The accompanying notes are an integral part of the consolidated financial
statements.


                                       54



                      PICO HOLDINGS, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS, CONTINUED

                           DECEMBER 31, 2001 AND 2000

                      LIABILITIES AND SHAREHOLDERS' EQUITY




                                                                                            2001                  2000
                                                                                      -----------------     ------------------
Policy liabilities and accruals:
                                                                                                       
     Unpaid losses and loss adjustment expenses (Note 12)                                 $ 98,449,053          $ 121,541,722
     Unearned premiums                                                                      28,143,296             25,505,189
     Reinsurance balance payable                                                             5,458,720              5,631,603
Deferred gain on retroactive reinsurance                                                       438,879                968,872
Other liabilities                                                                           13,553,924             13,148,093
Bank and other borrowings (Note 20)                                                         14,596,302             15,550,387
Taxes payable                                                                                                         324,837
Excess of fair value of net assets acquired over purchase price (Note 1)                     2,792,597              3,360,581
                                                                                      -----------------     ------------------
     Total liabilities                                                                     163,432,771            186,031,284
                                                                                      -----------------     ------------------
Minority interest                                                                            3,062,190              3,920,739
                                                                                      -----------------     ------------------

Commitments and Contingencies (Note 10, 11, 12, 13, 14, 15, 19 and 20)

Common stock, $.001 par value; authorized 100,000,000; 16,784,223 issued
      at December 31, 2001 and 2000                                                             16,784                 16,784
Additional paid-in capital                                                                 235,844,655            235,844,655
Accumulated other comprehensive loss (Note 1)                                              (15,759,997)           (12,732,978)
Retained earnings                                                                           64,666,746             59,893,785
                                                                                      -----------------     ------------------
                                                                                           284,768,188            283,022,246
Less treasury stock, at cost  (common shares: 4,415,607 in 2001 and 4,394,127 in 2000)     (78,128,635)           (77,829,635)
                                                                                      -----------------     ------------------
     Total shareholders' equity                                                            206,639,553            205,192,611
                                                                                      -----------------     ------------------
     Total liabilities and shareholders' equity                                          $ 373,134,514          $ 395,144,634
                                                                                      =================     ==================



The accompanying notes are an integral part of the consolidated financial
statements.


                                       55



                      PICO HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999





                                                                              2001                 2000                 1999
                                                                       -------------------   ------------------  -------------------
                                                                                                              
Revenues:
     Premium income                                                          $ 43,289,676         $ 34,435,754         $ 36,379,102
     Net investment income (Note 3)                                             9,766,893            8,238,296            6,386,887
     Net realized gain (loss) on investments (Note 3)                          (5,110,963)          (7,525,762)             440,611
     Sale of land and water rights                                             17,106,174            5,478,263            6,081,764
     Other income                                                               4,528,090            4,726,419            5,199,173
                                                                       -------------------   ------------------  -------------------
          Total revenues                                                       69,579,870           45,352,970           54,487,537
                                                                       -------------------   ------------------  -------------------
Expenses:
     Loss and loss adjustment expenses (Note 12)                               18,302,320           24,026,218           35,211,836
     Amortization of policy acquisition costs (Note 9)                         13,044,382           10,250,348           10,484,345
     Cost of land and water rights                                              7,568,229            3,995,508            4,458,694
     Insurance underwriting and other expenses                                 21,685,856           22,355,463           23,794,385
                                                                       -------------------   ------------------  -------------------
          Total expenses                                                       60,600,787           60,627,537           73,949,260
                                                                       -------------------   ------------------  -------------------
Equity in income (loss) of unconsolidated affiliates                           (1,288,460)           1,794,069           (1,026,245)
                                                                       -------------------   ------------------  -------------------
          Income (loss) before income taxes and minority interest               7,690,623          (13,480,498)         (20,487,968)
Provision (benefit) for federal, foreign and state income taxes (Note 7)        2,295,540           (8,201,176)         (12,519,374)
                                                                       -------------------   ------------------  -------------------
          Income (loss)  before minority interest                               5,395,083           (5,279,322)          (7,968,594)
Minority interest in loss of subsidiaries                                         358,449              717,076              706,076
                                                                       -------------------   ------------------  -------------------
Income (loss) before extraordinary gain and accounting change                   5,753,532           (4,562,246)          (7,262,518)
    Extraordinary gain, net of income tax expense of $227,821                                                               442,240
    Cumulative effect of change in accounting principle, net (Note 21)           (980,571)          (4,963,691)
                                                                       -------------------   ------------------  -------------------
Net income (loss)                                                             $ 4,772,961         $ (9,525,937)        $ (6,820,278)
                                                                       ===================   ==================  ===================

Net income (loss) per common share - basic and diluted:
          Income (loss) per share before extraordinary
           gain and cumulative effect                                         $      0.47         $      (0.39)        $      (0.81)
           Extraordinary gain                                                                                                  0.05
           Cumulative effect of change in accounting principle                      (0.08)               (0.43)
                                                                       -------------------   ------------------  -------------------
               Net income (loss) per common share                             $      0.39         $      (0.82)        $      (0.76)
                                                                       ===================   ==================  ===================
               Weighted average shares outstanding                             12,384,682           11,604,120            8,998,442
                                                                       ===================   ==================  ===================


The accompanying notes are an integral part of the consolidated financial
statements.


                                       56



                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999









                                                              Additional
                                                Common          Paid-In            Retained
                                                Stock           Capital            Earnings
                                              -----------  ------------------  ------------------
                                                                           
Balance, January 1, 1999                         $13,329       $ 183,154,588        $ 76,240,000

Comprehensive Loss for 1999
   Net loss                                                                           (6,820,278)
   Net unrealized appreciation on investments
       net of deferred tax of $2 million and
       reclassification adjustment of $349,000
   Foreign currency translation
           Total Comprehensive Loss

Exercise of 120,000 warrants
   at $23.80 per share                               120           2,850,239

Purchase of 13,000 PICO treasury shares
                                              -----------  ------------------  ------------------
Balance, December 31, 1999                       $13,449       $ 186,004,827        $ 69,419,722
                                              ===========  ==================  ==================





                                                        Accumulated Other
                                                       Comprehensive Loss
                                              --------------------------------------
                                               Net Unrealized
                                                Appreciation           Foreign
                                               (Depreciation)         Currency            Treasury
                                               on Investments        Translation            Stock               Total
                                              ------------------  ------------------  ------------------  ------------------
                                                                                                  
Balance, January 1, 1999                           $ (3,087,565)       $ (4,763,872)      $ (77,538,042)      $ 174,018,438

Comprehensive Loss for 1999
   Net loss
   Net unrealized appreciation on investments
       net of deferred tax of $2 million and
       reclassification adjustment of $349,000        3,662,591
   Foreign currency translation                                             (27,981)
           Total Comprehensive Loss                                                                              (3,185,668)

Exercise of 120,000 warrants
   at $23.80 per share                                                                                            2,850,359

Purchase of 13,000 PICO treasury shares                                                        (291,593)           (291,593)
                                              ------------------  ------------------  ------------------  ------------------
Balance, December 31, 1999                            $ 575,026        $ (4,791,853)      $ (77,829,635)      $ 173,391,536
                                              ==================  ==================  ==================  ==================



The accompanying notes are an integral part of the consolidated financial
statements.



                                       57



                      PICO HOLDINGS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, CONTINUED
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999




                                                              Additional
                                                Common          Paid-In            Retained
                                                Stock           Capital            Earnings
                                              -----------  ------------------  ------------------
                                                                         
Balance, December 31, 1999                       $13,449       $ 186,004,827        $ 69,419,722

Comprehensive Loss for 2000
   Net loss                                                                           (9,525,937)

   Net unrealized depreciation on investments
       net of deferred tax of $3.7  million

   Foreign currency translation
         Total Comprehensive Loss

Rights offering, net of $193,000 of expenses       3,335          49,839,828


                                              -----------  ------------------  ------------------
Balance, December 31, 2000                      $ 16,784       $ 235,844,655        $ 59,893,785
                                              ===========  ==================  ==================




                                                        Accumulated Other
                                                       Comprehensive Loss
                                              --------------------------------------
                                               Net Unrealized
                                                Appreciation           Foreign
                                               (Depreciation)         Currency            Treasury
                                               on Investments        Translation            Stock               Total
                                              ------------------  ------------------  ------------------  ------------------
                                                                                                
Balance, December 31, 1999                            $ 575,026        $ (4,791,853)      $ (77,829,635)      $ 173,391,536

Comprehensive Loss for 2000
   Net loss

   Net unrealized depreciation on investments
       net of deferred tax of $3.7  million          (7,552,774)

   Foreign currency translation                                            (963,377)
         Total Comprehensive Loss                                                                               (18,042,088)

Rights offering, net of $193,000 of expenses                                                                     49,843,163


                                              ------------------  ------------------  ------------------  ------------------
Balance, December 31, 2000                         $ (6,977,748)       $ (5,755,230)      $ (77,829,635)      $ 205,192,611
                                              ==================  ==================  ==================  ==================



The accompanying notes are an integral part of the consolidated financial
statements


                                       58



                      PICO HOLDINGS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, CONTINUED
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999








                                                            Additional
                                             Common           Paid-In           Retained
                                              Stock           Capital           Earnings
                                           ------------  ------------------  ---------------
                                                                      
Balance, December 31, 2000                    $ 16,784       $ 235,844,655     $ 59,893,785

Comprehensive Loss for 2001
   Net income                                                                     4,772,961
   Net unrealized depreciation on investments
       net of deferred tax of $1.8 and
       reclassification adjustment of $3.1 million
   Foreign currency translation
         Total Comprehensive Loss

Acquisition of 21,846 shares of
  treasury stock for deferred compensation
  plans
                                           ------------  ------------------  ---------------
Balance, December 31, 2001                    $ 16,784       $ 235,844,655     $ 64,666,746
                                           ============  ==================  ===============







                                                    Accumulated Other
                                                   Comprehensive Loss
                                            ----------------------------------
                                            Net Unrealized
                                             Appreciation         Foreign
                                            (Depreciation)        Currency         Treasury
                                            on Investments      Translation          Stock              Total
                                            ----------------   ---------------  ----------------   ----------------
                                                                                         
Balance, December 31, 2000                     $ (6,977,748)     $ (5,755,230)    $ (77,829,635)     $ 205,192,611

Comprehensive Loss for 2001
   Net income
   Net unrealized depreciation on investments
       net of deferred tax of $1.8 and
       reclassification adjustment of $3.1
       million                                   (3,655,451)
   Foreign currency translation                                       628,432
         Total Comprehensive Loss                                                                        1,745,942

Acquisition of 21,846 shares of
  treasury stock for deferred compensation
  plans                                                                                (299,000)          (299,000)
                                            ----------------   ---------------  ----------------   ----------------
Balance, December 31, 2001                    $ (10,633,199)     $ (5,126,798)    $ (78,128,635)     $ 206,639,553
                                            ================   ===============  ================   ================




The accompanying notes are an integral part of the consolidated financial
statements.


                                       59



                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999





                                                                                 2001                2000                1999
                                                                            -------------       -------------       ---------------
                                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                            $ 4,772,961        $ (9,525,937)       $ (6,820,278)
Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
    Provision for deferred taxes                                               2,925,302          (3,084,491)        (12,309,782)
    Cumulative effect of accounting change                                       980,571          (2,557,053)
    Depreciation and amortization                                              2,034,657           2,678,267           3,076,471
    (Gain) loss on sale of investments                                         5,110,963           7,525,762            (440,611)
    Gain on sale of interest in Semitropic                                    (5,700,720)
    Loss on condemnation of property                                             201,822
    Allowance for uncollectible accounts                                       2,633,204             114,812               4,963
    Extraordinary gain on early extinguishment of debt                                                                 (442,240)
    Equity in (income) loss of unconsolidated affiliates                       1,288,460          (1,794,069)          1,026,245
    Dividends received from unconsolidated affiliates                                                622,625             217,935
    Minority interest                                                           (358,449)           (717,067)           (706,076)
Changes in assets and liabilities, net of effects of acquisitions:
    Premiums and other receivables                                            (1,677,162)         (7,001,894)            938,386
    Land, water and mineral rights                                             4,922,434          (8,922,701)            329,364
    Income taxes                                                                (324,837)           (883,883)          8,049,785
    Reinsurance receivable                                                     3,810,933          17,446,329          10,584,462
    Reinsurance payable                                                         (172,883)         (2,080,999)         (4,356,288)
    Deferred policy acquisition costs                                           (613,770)         (1,478,591)            727,406
    Deferred gain on retroactive insurance                                      (529,993)           (267,653)           (564,469)
    Unpaid losses and loss adjustment expenses                               (23,092,669)        (17,591,153)        (15,887,821)
    Unearned premiums                                                          2,638,107           8,300,499          (3,599,742)
    Other adjustments, net                                                    (2,790,703)          1,927,271          (3,346,702)
                                                                          ---------------    ----------------   -----------------
  Net cash used in operating activities                                       (3,941,772)        (17,289,926)        (23,518,992)
                                                                          ---------------    ----------------   -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale investments:
    Fixed maturities                                                          68,452,287           4,690,829
    Equity securities                                                          7,818,540           1,170,169          11,817,436
Proceeds from maturity of investments                                         20,470,000          13,900,000           3,815,669
Purchases of available for sale investments:
    Fixed maturities                                                         (83,598,484)        (55,497,642)        (14,442,126)
    Equity securities                                                        (14,562,923)        (14,335,900)        (19,166,770)
Semitropic lease payment                                                        (378,429)         (2,333,640)         (2,333,333)
Proceeds from the sale of interest in Semitropic                              10,202,733
Proceeds from the condemnation of property                                     1,098,178
Proceeds from the sales of real estate                                                                                 2,741,980
Purchases of property and equipment                                             (760,095)         (1,107,898)           (739,748)
Investments in and advances to affiliates                                                         (1,390,851)           (753,928)
Other investing activities, net                                                  273,000            (537,258)         (1,094,370)
                                                                          ---------------    ----------------   -----------------
  Net cash provided by (used in) investing activities                          9,014,807         (55,442,191)        (20,155,190)
                                                                          ---------------    ----------------   -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank and other borrowings                                        (2,903,407)           (329,968)           (191,787)
Proceeds from borrowings                                                       1,949,321                               6,068,781
Cash paid to minority shareholders of partnership                               (500,000)
Proceeds from rights offering, net                                                                49,843,163
Proceeds from the sale of warrants                                                                                     2,850,359
Repurchase of treasury stock (for deferred  compensation in 2001)               (299,000)                               (291,593)
                                                                          ---------------    ----------------   -----------------
  Net cash provided by (used in) financing activities                         (1,753,086)         49,513,195           8,435,760
                                                                          ---------------    ----------------   -----------------
Effect of exchange rate changes on cash                                          397,363             124,861             322,599
                                                                          ---------------    ----------------   -----------------
    Net increase (decrease) in cash and cash equivalents                       3,717,312         (23,094,061)        (34,915,823)

Cash and cash equivalents, beginning of year                                  13,644,312          36,738,373          71,654,196
                                                                          ---------------    ----------------   -----------------
    Cash and cash equivalents, end of year                                  $ 17,361,624        $ 13,644,312        $ 36,738,373
                                                                          ===============    ================   =================
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
      Interest                                                              $    880,000        $    847,000        $    284,000
                                                                          ===============    ================   =================
      Income taxes recovered                                                $ (1,190,000)       $ (4,907,000)       $ (4,627,000)
                                                                          ===============    ================   =================



The accompanying notes are an integral part of the consolidated financial
statements.


                                       60



                      PICO HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.        NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

          Organization and Operations:

          PICO Holdings, Inc. and subsidiaries (collectively, "the Company") is
          a diversified holding company.

          Currently PICO's major activities are:
          -    owning and developing water rights & water storage operations
               through Vidler Water Company, Inc.;
          -    owning and developing land and the related mineral rights and
               water rights through Nevada Land & Resource Company, LLC;
          -    property and casualty insurance;
          -    "running off" the loss reserves of Citation Insurance Company and
               Physicians Insurance Company of Ohio; and
          -    making long term value-based investments in other public
               companies.

          PICO was incorporated in 1981 and began operations in 1982. The
       company was known as Citation Insurance Group until a reverse merger with
       Physicians Insurance Company of Ohio ("Physicians") on November 20, 1996.
       Following the reverse merger, the Company changed its name to PICO
       Holdings, Inc.

          On December 16, 1998, PICO acquired the remaining 48.8% of the
       outstanding stock of Global Equity Corporation ("Global Equity") through
       a Plan of Arrangement (the "PICO/Global Equity Combination") whereby
       Global Equity shareholders received .4628 of a newly issued PICO common
       share for each Global Equity share surrendered. Immediately following the
       close of the transaction, PICO effected a 1-for-5 reverse stock split
       (the "Reverse Stock Split").

          The Company's primary subsidiaries as of December 31, 2001 are as
       follows:

          Vidler Water Company, Inc. ("Vidler"). Vidler is a 96.2% owned
       Delaware corporation. Vidler's business involves identifying end users,
       namely water utilities, municipalities or developers, in the Southwest
       who require water, and then locating a source and supplying the demand,
       either by utilizing the company's own assets or securing other sources of
       supply. These assets comprise water rights in the states of Colorado,
       Arizona, and Nevada, and water storage facilities in Arizona and
       California.

          Nevada Land & Resource Company, LLC ("Nevada Land"). In April 1997,
       PICO acquired Nevada Land, which then owned approximately 1.4 million
       acres of deeded land in northern Nevada, together with the related water,
       mineral and geothermal rights.

           Sequoia Insurance Company ("Sequoia"). Sequoia is a California
       insurance company licensed to write insurance coverage for property and
       casualty risks ("P&C") within the states of California and Nevada.
       Sequoia writes business through independent agents and brokers. In recent
       years, Sequoia has primarily written farm and small to medium-sized
       commercial insurance in California and Nevada. During 2000, Sequoia
       significantly expanded its personal insurance business with the
       acquisition of the book of business of Personal Express Insurance
       Services, Inc.

           Citation Insurance Company ("Citation"). Citation is a
       California-domiciled insurance company licensed to write commercial
       property and casualty insurance in Arizona, California, Colorado, Nevada,
       Hawaii, New Mexico and Utah. Citation ceased writing premiums in December
       2000, and is now "running off" the loss reserves from its existing
       business.

          Physicians Insurance Company of Ohio ("Physicians"). Prior to selling
       its book of medical professional liability ("MPL") insurance business in
       1995, Physicians engaged in providing MPL insurance coverage to
       physicians and surgeons, primarily in Ohio. On August 28, 1995,
       Physicians entered into an agreement with Mutual Assurance, Inc.
       ("Mutual") pursuant to which Physicians sold its recurring MPL insurance
       business to Mutual. Physicians is in "run off."



                                       61



          SISCOM, Inc. ("SISCOM"). SISCOM is a Colorado corporation that is a
       software developer and systems integrator for video-based content
       management systems for the professional broadcast, sports, and
       entertainment industries.

       Unconsolidated Affiliates:

          Investments in which the Company owns between 20% to 50% of the voting
       interest and/or has the ability to exercise significant influence are
       accounted for under the equity method of accounting. Accordingly, the
       Company's share of income or losses are included in consolidated results.
       Currently, the only significant investment the Company classifies as an
       equity affiliate is HyperFeed Technologies, Inc. ("HyperFeed"). Hyperfeed
       provides financial market data and data delivery solutions to the
       financial services industry. PICO owns approximately 42% of the
       outstanding voting stock of HyperFeed.

       Principles of Consolidation:

          The accompanying consolidated financial statements include the
       accounts of the Company and its majority-owned and controlled
       subsidiaries, and have been prepared in accordance with accounting
       principles generally accepted in the United States of America ("US
       GAAP"). All significant intercompany balances and transactions have been
       eliminated.

       Use of Estimates in Preparation of Financial Statements:

          The preparation of financial statements in accordance with US GAAP
       requires management to make estimates and assumptions that affect the
       reported amounts of assets and liabilities and disclosure of contingent
       liabilities at the date of the financial statements and the reported
       amounts of revenues and expenses for each reporting period. The
       significant estimates made in the preparation of the Company's
       consolidated financial statements relate to the assessment of the
       carrying value of investments, unpaid losses and loss adjustment
       expenses, deferred policy acquisition costs, land and water rights,
       deferred income taxes and contingent liabilities. While management
       believes that the carrying value of such assets and liabilities are
       appropriate as of December 31, 2001 and 2000, it is reasonably possible
       that actual results could differ from the estimates upon which the
       carrying values were based.

       Investments:

          The Company's investment portfolio at December 31, 2001 and 2000 is
       comprised of investments with fixed maturities, including U.S. government
       bonds, government--sponsored enterprise bonds, and investment-grade
       corporate bonds; equity securities, including investments in common and
       preferred stocks, and warrants; convertible debt instruments and mortgage
       participation interests.

          The Company applies the provisions of Statement of Financial
       Accounting Standards ("SFAS") No. 115, "Accounting for Certain
       Investments in Debt and Equity Securities." This statement, among other
       things, requires investment securities to be divided into three
       categories: held to maturity, available for sale, and trading. The
       Company classifies all investments as available for sale. Unrealized
       gains or losses on investments recorded at fair value are recorded net of
       tax and included in accumulated other comprehensive income or loss.
       Accounting Principles Board ("APB") No. 18, "The Equity Method of
       Accounting for Investments in Common Stock," is used to account for
       investments where the Company has significant influence over the
       investee.

          The Company regularly reviews the carrying value of its investments
       for impairment. A decline in the value of any investment below cost that
       is deemed other than temporary is written down to net realizable value.
       Adjustments for write-downs are reflected in net realized gain or loss on
       investments in the consolidated statements of operations. During the two
       years ended December 31, 2001, the Company wrote off its investment in
       MKG due to impairment by expensing $500,000 in 2001, and $2.5 million in
       2000 (See Note 15). During 1999, the Company recorded an impairment loss
       of $3.2 million related to a portion of an oil and gas investment.

          Net investment income includes amortization of premium and accretion
       of discount on the level yield method relating to bonds acquired at other
       than par value. Realized investment gains and losses are included in
       income and are determined on the identified certificate basis and are
       recorded on a trade date basis.


                                       62



          The Company invests domestically and abroad. Approximately $36.8
       million and $41.2 million of the Company's investments at December 31,
       2001 and 2000, respectively, were invested internationally, including
       equity values of affiliates. The Company's most significant foreign
       currency exposure is in Swiss francs and Australian dollars.

       Cash and Cash Equivalents:

          Cash and cash equivalents include highly liquid debt instruments
       purchased with original maturities of three months or less.

       Land, Water Rights, Water Storage and Land Improvements:

          Land, water rights, water storage, and land improvements are carried
       at cost. Water rights consist of various water interests acquired
       independently or in conjunction with the acquisition of real properties.
       Water rights are stated at cost and, when applicable, consist of an
       allocation of the original purchase price between water rights and other
       assets acquired based on their relative fair values. In addition, costs
       directly related to the acquisition and development of water rights are
       capitalized. This cost includes, when applicable, the allocation of the
       original purchase price, costs directly related to acquisition, and
       interest and other costs directly related to developing land for its
       intended use. Amortization of land improvements is computed on the
       straight-line method over the estimated useful lives of the improvements
       ranging from 5 to 15 years. Provision is made for any diminution in value
       that is considered to be other than temporary.

       Property and Equipment:

          Property and equipment are carried at cost, net of accumulated
       depreciation. Depreciation is computed on the straight-line method over
       the estimated lives of the assets ranging from 3 to 15 years. Maintenance
       and repairs are charged to expense as incurred, while significant
       improvements are capitalized. Gains or losses on the sale of property and
       equipment are included in other income.

       Deferred Acquisition Costs:

          Costs of the insurance companies that vary with and are primarily
       related to the acquisition of new and renewal insurance contracts, net of
       reinsurance ceding commissions, are deferred and amortized over the terms
       of the policies for property and liability insurance. Future investment
       income has been taken into consideration in determining the
       recoverability of such costs.

       Goodwill and Intangibles:

          Goodwill represents the difference between the purchase price and the
       fair value of the net assets (including tax attributes) of companies
       acquired in purchase transactions. The Company recorded negative goodwill
       (i.e., excess of fair value of assets acquired over purchase price) as a
       result of the reverse merger between Citation and Physicians in November
       1996. Negative goodwill is amortized using the straight-line method over
       10 years. At December 31, 2001 and 2000, the Company had accumulated
       negative goodwill amortization of $2.9 million and $2.3 million,
       respectively. The Company also recorded goodwill and intangibles related
       to its acquisitions of SISCOM, Personal Express and Sequoia and amortizes
       the balances over various lives not exceeding 10 years. At December 31,
       2001 and 2000, the Company had $1.5 million and $1.3 million in
       accumulated amortization, respectively.

       Impairment of Long-Lived Assets:

          The Company applies the provisions of SFAS No. 121 "Accounting for the
       Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
       Of" and periodically evaluates whether events or circumstances have
       occurred that may affect the estimated useful life or the recoverability
       of long-lived assets. Impairment of long-lived assets is triggered when
       the estimated future undiscounted cash flows, excluding interest charges,
       for the lowest level for which there are identifiable cash flows that are
       independent of the cash flows of other groups of assets do not exceed the
       carrying amount. The Company prepares and analyzes cash flows at various
       levels of grouped assets. The Company reviews cash flows for significant
       individual assets held within a subsidiary, and for a subsidiary taken as
       a whole. If the events or circumstances indicate that the remaining
       balance may be permanently impaired, such potential impairment will be
       measured based upon the difference between the carrying amount and the
       fair value of such assets determined using the estimated future
       discounted cash flows, excluding interest charges, generated from the use
       and ultimate disposition of the respective long-lived asset.


                                       63



       Reinsurance:

          The Company records all reinsurance assets and liabilities on the
       gross basis, including amounts due from reinsurers and amounts paid to
       reinsurers relating to the unexpired portion of reinsured contracts
       (prepaid reinsurance premiums).

       Unpaid Losses and Loss Adjustment Expenses:

          Reserves for MPL and property and casualty insurance unpaid losses and
       loss adjustment expenses include amounts determined on the basis of
       actuarial estimates of ultimate claim settlements, which include
       estimates of individual reported claims and estimates of incurred but not
       reported claims. The methods of making such estimates and for
       establishing the resulting liabilities are continually reviewed and
       updated based on current circumstances, and any adjustments are reflected
       in current operations. (See Note 21).

       Recognition of Premium Revenue:

          MPL and other property and casualty insurance premiums written are
       earned principally on a monthly pro rata basis over the terms of the
       policies. The premiums applicable to the unexpired terms of the policies
       are included in unearned premiums.

       Income Taxes:

          The Company's provision for income tax expense includes federal,
       state, local and foreign income taxes currently payable and those
       deferred because of temporary differences between the income tax and
       financial reporting bases of the assets and liabilities. The liability
       method of accounting for income taxes also requires the Company to
       reflect the effect of a tax rate change on accumulated deferred income
       taxes in income in the period in which the change is enacted.

          In assessing the realization of deferred income taxes, management
       considers whether it is more likely than not that any deferred income tax
       assets will be realized. The ultimate realization of deferred income tax
       assets is dependent upon the generation of future taxable income during
       the period in which temporary differences become deductible. If future
       income does not occur as expected, a deferred income tax valuation
       allowance may be established or modified.

       Earnings per Share:

          Basic earnings per share are computed by dividing net earnings by the
       weighted average shares outstanding during the period. Diluted earnings
       per share are computed similar to basic earnings per share except the
       weighted average shares outstanding are increased to include additional
       shares from the assumed exercise of stock options and warrants, if
       dilutive. The number of additional shares is calculated by assuming that
       the outstanding options and warrants were exercised, and that the
       proceeds were used to acquire shares of common stock at the average
       market price during the period.

          For the year ended December 31, 2001, there was no difference between
       basic and diluted earnings per share because the average stock price of
       PICO stock during the year was less than the strike prices of the options
       outstanding and to include those options would be anti-dilutive to the
       calculation. Similarly, in 2000 and 1999, the calculation of diluted
       earnings per share excludes the options and warrants outstanding in those
       years because the Company reported a loss from operations and
       consequently the impact of those options and warrants would be
       anti-dilutive. Stock options of 1.8 million in 2001, 1.1 million in 2000,
       and 1 million in 1999 were excluded from the calculation of the diluted
       weighted average shares outstanding.


                                       64



      Comprehensive Loss

          Comprehensive income or loss includes foreign currency translation,
      and unrealized holding gains and losses on available for sale securities.
      The components of accumulated other comprehensive loss are as follows:



                                                      December 31,
                                                2001               2000
                                           ----------------   ----------------

     Net unrealized loss on securities       $ (10,633,199)      $ (6,977,748)
     Foreign currency translation               (5,126,798)        (5,755,230)
                                           ----------------   ----------------
     Accumulated other comprehensive loss    $ (15,759,997)     $ (12,732,978)
                                           ================   ================


          Accumulated other comprehensive loss is net of deferred income tax
       asset of $1.5 million and $3.2 million at December 31, 2001 and 2000,
       respectively.

       Translation of Foreign Currency:

          Financial statements of foreign operations are translated into U.S.
       dollars using average rates of exchange in effect during the year for
       revenues, expenses, gains and losses, and the exchange rate in effect at
       the balance sheet date for assets and liabilities. Unrealized exchange
       gains and losses arising on translation are reflected within accumulated
       other comprehensive loss.

       Reclassifications:

          Certain amounts in the financial statements for prior periods have
       been reclassified to conform to the current year presentation.

       Recent Accounting Pronouncements:

         In June 2001, the FASB approved SFAS No. 141, "Business Combinations,"
     and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
     prospectively prohibits the pooling of interest method of accounting for
     business combinations initiated after June 30, 2001. The provisions of this
     Statement are required to be applied starting with fiscal years beginning
     after December 15, 2001. However, as an exception, any goodwill resulting
     from acquisitions completed after June 30, 2001 will not be amortized. SFAS
     No. 142 also establishes a new method of testing goodwill for impairment on
     an annual basis or on an interim basis if an event occurs or circumstances
     change that would reduce the fair value of a reporting unit below its
     carrying value. At December 31, 2001, PICO's balance sheet included
     goodwill and intangible assets of $5.8 million, $2.3 million of which is
     included within the investment balances of the unconsolidated affiliates,
     and negative goodwill ("excess of fair value of net assets acquired over
     purchase price") of $2.8 million.

         Management has estimated that the adoption of SFAS 142 will have the
     following effects. The initial consequence will be reflected in the
     Company's consolidated financial statements for the quarter ending March
     31, 2002:

          1)   The write-off of negative goodwill of $2.8 million;
          2)   The write-off of goodwill of $1 million.

         The net effect of the above of $1.8 million addition to net income or
     reduction in net loss will be reported as a cumulative effect of a change
     in accounting principle. The remaining balance of $2.5 million will be
     classified as an intangible asset with a finite life. Accordingly, it will
     be amortized over its remaining life of 8 years and tested for impairment
     at least annually.

         In August 2001, the FASB adopted SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets." This statement supersedes
     SFAS NO. 121, "Accounting for the Impairment of Long-Lived Assets and for
     Long-Lived Assets to Be Disposed of" and defines an impairment as "the
     condition that exists when the carrying amount of a long-lived asset (asset
     group)


                                       65



     is not recoverable and exceeds its fair value." Based on the SFAS No. 121
     framework, this statement develops a single accounting model for the
     disposal of long-lived assets, whether previously held or newly acquired.
     The statement will be effective for financial statements issued for fiscal
     years beginning after December 15, 2001, and interim periods within those
     fiscal years, with initial application as of the beginning of the fiscal
     year. Management does not believe this statement will have a material
     impact on the consolidated financial statements.

2.   DISPOSITIONS:

          On September 8, 2000, the Company sold its investment in Conex for
      nominal consideration, and recorded a pretax loss on the sale of $4.6
      million ($1.8 million after tax).

          Prior to the sale, on November 3, 1999, the Company increased its
      ownership of Conex from 66% to 83% through the redemption of its remaining
      preferred shares and conversion of intercompany loans into common stock.
      On August 2, 1999, the Company increased its ownership of Conex from 32%
      to 66% through the redemption of preferred shares, the proceeds from which
      were used to exercise warrants for common shares. The consolidated results
      of operations for the year ended December 31, 1999 reflect the
      consolidation of Conex for the period August 3 to December 31. Previous to
      consolidation, the investment was accounted for using the equity method.
      Consequently, the results of operations for the year ended December 31,
      1999 include 32% of the losses in the unconsolidated affiliate for the
      period January 1 to August 2, 1999. The reported results in 2000 include
      Conex as a consolidated subsidiary until September 8, 2000. Conex's
      primary asset was a 60% sino-foreign joint venture that manufactures
      wheeled and tracked excavators in The People's Republic of China.

          Conex accounted for its 60% interest in the sino-foreign joint venture
      using the equity method of accounting due the fact that it did not have
      majority financial control over the policies and procedures of the joint
      venture. The functional currency for the joint venture is the Chinese
      Renminbi.

          Under the terms of the joint venture agreement between Conex and the
      sino-foreign joint venture in The People's Republic of China, Conex had a
      commitment to fund a third round of financing in the amount of $5 million.
      This liability was included in the consolidated financial statements at
      December 31, 1999, but following the sale of Conex, this liability, as
      well as all the other assets and liabilities of Conex, are no longer
      included in PICO's consolidated financial statements.

          The following is the results of operations of Conex for the year ended
       December 31, 1999 and for the period in 2000 prior to its disposition:

                                                2000            1999
                                           ---------------  --------------
                 Expenses                      $1,393,721     $ 1,114,938
                 Equity in losses of
                 unconsolidated affiliates        889,627       1,873,874
                                           ---------------  --------------
                 Loss from operations           2,283,348       2,988,812
                 Minority interest               (168,988)     (1,491,417)
                                           ---------------  --------------
                 Net loss                      $2,114,360     $ 1,497,395
                                           ===============  ==============

          On January 31, 2000, PICO sold its interest in Summit Global
       Management for $100,000, and recorded a pretax loss on sale of $75,400.


                                       66



3.       INVESTMENTS:

          At December 31, the cost and carrying value of investments were as
follows:




                                                                       Gross               Gross
                                                                     Unrealized          Unrealized            Carrying
2001:                                               Cost               Gains               Losses               Value
                                              -----------------    ---------------    -----------------    -----------------
                                                                                                   
Fixed maturities:
     U.S. Treasury securities
          and obligations of U.S.
          government - sponsored enterprises      $ 12,179,670        $   326,884         $    (90,457)       $  12,416,097
     Corporate securities                           83,172,507          1,247,644             (614,004)          83,806,147
     Mortgage participation interests                4,673,000                                                    4,673,000
                                              -----------------    ---------------    -----------------    -----------------
                                                   100,025,177          1,574,528             (704,461)         100,895,244
Equity securities                                   67,321,873          3,662,114          (16,619,445)          54,364,542
Investment in unconsolidated affiliates              2,583,590                                                    2,583,590
                                              -----------------    ---------------    -----------------    -----------------
          Total                                   $169,930,640        $ 5,236,642         $(17,323,906)       $ 157,843,376
                                              =================    ===============    =================    =================



                                                                        Gross              Gross
                                                                     Unrealized          Unrealized            Carrying
2000:                                                Cost               Gains              Losses               Value
                                               -----------------    --------------    -----------------    -----------------
                                                                                                   
Fixed maturities:
     U.S. Treasury securities
          and obligations of U.S.
          government - sponsored enterprises       $ 20,774,818        $  186,444         $    (22,329)       $  20,938,933
     Corporate securities                            67,621,386         1,026,850              (41,895)          68,606,341
         Mortgage participation interests            12,350,000                                                  12,350,000
                                               -----------------    --------------    -----------------    -----------------
                                                    100,746,204         1,213,294              (64,224)         101,895,274
Equity securities                                    47,482,543         1,471,978          (12,780,016)          36,174,505
Investment in unconsolidated affiliates              27,824,291                                                  27,824,291
                                               -----------------    --------------    -----------------    -----------------
          Total                                   $ 176,053,038        $2,685,272         $(12,844,240)       $ 165,894,070
                                               =================    ==============    =================    =================




                                       67



          The amortized cost and carrying value of investments in fixed
       maturities at December 31, 2001, by contractual maturity, are shown
       below. Expected maturity dates may differ from contractual maturity dates
       because borrowers may have the right to call or prepay obligations with
       or without call or prepayment penalties.


                                         Amortized              Carrying
                                            Cost                  Value
                                     -------------------    ------------------

Due in one year or less                     $19,272,532           $19,308,867
Due after one year through five years        41,193,744            41,903,362
Due after five years                         34,885,901            35,010,015
Mortgage participation interests              4,673,000             4,673,000
                                     -------------------    ------------------
                                           $100,025,177          $100,895,244
                                     ===================    ==================


          Investment income is summarized as follows for each of the years ended
December 31:


                                   2001              2000             1999
                              ---------------   ---------------  ---------------
Investment income from:
     Available for sale:
          Fixed maturities       $ 6,171,014       $ 5,196,831      $ 1,593,052
          Equity securities        1,795,248           343,211          252,693
          Other                    1,871,738         2,884,099        4,809,821
                              ---------------   ---------------  ---------------
     Total investment income       9,838,000         8,424,141        6,655,566
Investment expenses                  (71,107)         (185,845)        (268,679)
                              ---------------   ---------------  ---------------
     Net investment income       $ 9,766,893       $ 8,238,296      $ 6,386,887
                              ===============   ===============  ===============


          Pre-tax net realized gain (loss) on investments is as follows for each
of the years ended December 31:


                                         2001          2000           1999
                                      -------------- ------------- -------------
Gross realized gains:
     Available for sale:
          Fixed maturities              $ 1,788,474   $   110,708
          Equity securities and other
           investments                       74,675        15,127   $ 3,395,323
          Real estate                                                   670,451
                                      -------------- ------------- -------------
     Total gain                           1,863,149       125,835     4,065,774
                                      -------------- ------------- -------------
Gross realized losses:
     Available for sale:
          Fixed maturities                  (84,446)                       (123)
          Equity securities and other
           investments                   (6,889,666)   (7,651,597)   (3,625,040)
          Real estate
                                      -------------- ------------- -------------
     Total loss                          (6,974,112)   (7,651,597)   (3,625,163)
                                      -------------- ------------- -------------
     Net realized gain (loss)          $ (5,110,963)  $(7,525,762)  $   440,611
                                      ============== ============= =============


                                       68



          During 2001, 2000 and 1999, the Company recorded $500,000, $2.5
       million and $3.2 million, respectively, in permanent write downs of
       investments to recognize what is expected to be other than temporary
       declines in the value of securities.

          At December 31, 2001, the Company owned 9,867,391 shares, representing
       a 20.7% interest in Australian Oil and Gas ("AOG"). During 2001, the
       Company purchased 1,026,732 shares of AOG for $941,000 and received
       414,615 shares as a dividend valued at $333,000. During 2000, the Company
       purchased 981,584 shares of AOG for $858,000. During 1999, the Company
       purchased 6,166,657 shares of Australian Oil and Gas for $6.6 million and
       received 420,494 shares as a dividend valued at $452,000. Generally, with
       a voting ownership percentage of 20% or more, the investment may be
       recorded under the equity method unless the investor lacks the ability to
       exercise significant influence. PICO lacks the ability to exercise
       significant influence based on the inability to obtain the financial
       information necessary to apply equity accounting and is accounting for
       this investment at cost and has recorded an unrealized loss under SFAS
       115.

          During the fourth quarter of 2000, the Company increased its voting
       ownership in Accu Holding AG, a Swiss corporation, to 28.3%. As is the
       case with AOG, PICO lacks the ability to exercise significant influence
       based on the inability to obtain the financial information necessary to
       apply equity accounting and is accounting for this investment at cost and
       has recorded an unrealized loss under SFAS 115.

          JUNGFRAUBAHN HOLDING AG:

          Jungfraubahn Holding AG ("Jungfraubahn") is a Swiss corporation
       engaged in the transportation, tourism and recreation sectors in
       Switzerland. During 2000, PICO increased ownership to 19.3%, obtained a
       board seat, and adopted the equity method of accounting due to
       management's assessment that the Company had significant influence over
       Jungfraubahn. Previously, the investment was held at cost and marked to
       market under SFAS 115. All prior year results were adjusted to reflect
       the investment at equity. The difference between the cost of the
       investment and underlying equity in the net assets of the company of
       approximately $18 million was considered negative goodwill and was
       allocated to the non-current assets of Jungfraubahn. Under the equity
       method of accounting, the carrying value before tax of the Company's
       investment in Jungfraubahn was $23.7 million at December 31, 2000. The
       market value of the investment at December 31, 2000 was approximately
       $18.9 million.

          Management determined that use of the equity method was appropriate as
       we determined we had the ability to exercise significant influence based
       on the Company's ability to obtain quarterly financial data from
       Jungfraubahn for inclusion in the Company's consolidated financial
       statements. PICO also had the expectation of receiving such information
       for the Company's future financial periods. However, during the second
       quarter of 2001 and after several discussions between Jungfraubahn and
       the Company, Jungfraubahn decided that, for various reasons, they would
       no longer provide quarterly financial data to the Company and that the
       sole source of financial information available to the Company would be
       their semi-annual filings provided to the Swiss Stock Exchange.
       Management believes, based on the guidelines of Accounting Principles
       Board ("APB") No. 18, that the inability to get quarterly financial
       information indicates the Company no longer has significant influence,
       and, accordingly, discontinued use of the equity method of accounting for
       its investment in Jungfraubahn, at April 1, 2001. At December 31, 2001,
       the Company accounts for the investment under SFAS No. 115 and, as a
       result of applying SFAS 115, recorded an unrealized loss net of tax of
       approximately $6.8 million in other comprehensive loss for the year.

          During 2000, the Company purchased 3,472 shares of Jungfraubahn for
       $493,000. During 1999, the Company purchased 76,600 shares of
       Jungfraubahn for $11.8 million. The acquisition was financed with $7
       million in cash and the remaining balance in debt. At December 31, 2001
       and 2000, the Company owns 112,672 shares, or 19.3% of the Jungfraubahn.

4.     INVESTMENTS IN UNCONSOLIDATED AFFILIATES:

          HYPERFEED TECHNOLOGIES, INC.:

          At December 31, 2001, the Company's investment in HyperFeed consisted
       of 10,077,856 shares of common stock, representing 42.4% of the common
       shares outstanding; and 4,055,195 common stock warrants which on a
       diluted basis would represent an additional 14.5% voting interest if
       exercised. The common stock is recorded using the equity method of
       accounting and has a carrying value of $2.1 million at December 31, 2001.
       The difference between the carrying value of the investment and the
       underlying equity in the net assets or liabilities of HyperFeed is
       considered goodwill and is being amortized over 10 years on a
       straight-line basis. At December 31, 2001, the common stock warrants are
       valued at an estimated fair value of $527,000, prior to a $1.2 million
       deferred tax asset, using the Black Scholes option-pricing model. The
       warrants are reported as a derivative instrument under the provisions of
       SFAS 133 and consequently the loss for the 2001 year is reflected in the


                                       69



       caption "Realized Loss on Investments" in the Statement of Operations.
       The cumulative change in fair value from the date of acquisition to
       January 1, 2001 was a decline of $1.3 million and is recorded net of a
       deferred tax benefit on the Statement of Operations.

          The Black Scholes pricing model incorporates assumptions in
       calculating an estimated fair value. The following assumptions were used
       in the computations: no dividend yield for all years; a risk-free
       interest rate of 2% - 5.6%; a one year expected life; and a historical 5
       year cumulative volatility of 109% to 119%.

          At December 31, 2000, the Company's investment in HyperFeed consisted
       of 2,602,000 shares of common stock, representing 16.5% of the common
       shares outstanding; 4,786,547 shares of preferred stock, representing a
       23% diluted voting interest; and an additional 4,055,195 common stock
       warrants which on a diluted basis would represent an additional 20.5%
       voting interest. The common and preferred stock are recorded using the
       equity method of accounting for investments in common stock, and have a
       combined carrying value of $3.3 million at December 31, 2000. The
       difference between the carrying value of the investment and the
       underlying equity in the net assets or liabilities of HyperFeed is
       considered goodwill and is being amortized over 10 years on a
       straight-line basis. At December 31, 2000, the common stock warrants are
       carried in accordance with SFAS No. 115 at an estimated fair value of
       $2.9 million, prior to a $435,000 deferred tax asset, using the Black
       Scholes option-pricing model. The pre-tax unrealized loss on the warrants
       is $1.3 million.

          During the three years ended December 31, 2001, HyperFeed recorded
       various capital transactions that affected PICO's voting ownership
       percentage. In 2001, HyperFeed issued 491,000 shares of common stock
       related to an acquisition which resulted in a dilution gain of $352,000
       to PICO. In 2000, HyperFeed issued 164,000 shares of common stock related
       to conversion of stock options, which resulted in a dilution gain to PICO
       of approximately $208,000. Deferred taxes are provided on each dilution
       transaction. In 1999, HyperFeed issued common stock related to the
       conversion of options and warrants and stock in a private placement.
       These transactions diluted PICO's ownership percentage approximately 1%
       to 35% at June of 2001 and through the conversion of preferred shares
       PICO increased ownership to 42.4% by the end of December 31, 2001.

          In September 2001, the Company converted its HyperFeed Series A voting
       convertible preferred shares, and its Series B voting convertible
       preferred shares into 7,462,856 newly issued common shares. After the
       conversion, PICO owned 42.4% of the outstanding voting interest.

          The following is the market value of the common shares and preferred
       shares (preferred shares existed in 2000 only) based on the December 31,
       2001 and 2000 closing price of HyperFeed common stock:


                                           2001                 2000
                                     ------------------   -----------------
              Common stock                 $ 6,147,492        $  4,065,625
              Preferred stock                                    7,478,980
                                     ------------------   -----------------
                                           $ 6,147,492        $ 11,544,605
                                     ==================   =================


                                       70



5.     LAND AND RELATED MINERAL RIGHTS AND WATER RIGHTS:

         Through its subsidiary Nevada Land, the Company owns land and the
       related mineral rights and water rights. Through its subsidiary Vidler,
       the Company owns water rights and water storage assets consisting of
       various real properties in California, Arizona, Colorado and Nevada. The
       costs assigned to the various components at December 31, were as follows:

                                                    2001            2000
                                                ---------------  ---------------
            NLRC:
            Land and related mineral rights and
              water rights                         $ 45,249,039    $ 42,799,043
                                                ---------------  ---------------

            Vidler:
            Water and water rights                   24,530,412      25,743,707
            Land                                     46,803,276      55,960,544
            California water storage                  1,206,737       5,740,483
            Land improvements, net                    8,208,178       6,991,464
                                                ---------------  ---------------
                                                     80,748,603      94,436,198
                                                ---------------  ---------------
                                                   $125,997,642    $137,235,241
                                                ===============  ===============


          At December 31, 2001 and 2000, the book value of Vidler's interest in
       the Semitropic Water Storage facility was $1.2 million and $5.7 million,
       respectively. During the first ten years of the agreement through
       November 2008, Vidler is required to make a minimum annual payment. These
       payments are being capitalized and the asset is being amortized over its
       useful life of thirty-five years. In May 2001, Vidler sold 29.73% of its
       right, title and interest under the lease to Newhall Land and Farming
       Company. In September 2001, Vidler sold an additional 54.05% of its
       right, title and interest under the lease to Alameda County Water
       District. As a result, at December 31, 2001, Vidler owns the right to
       store 30,000 acre-feet of water and is required to make a minimum annual
       payment of $373,000. At December 31, 2000, Vidler owned the right to
       store 185,000 acre-feet and was required to make a minimum annual payment
       of $2.3 million. The amortization expense in 2001 and 2000 was $438,000
       and $667,000, respectively. In addition, Vidler is required to pay annual
       operating and maintenance costs. In 2001, 2000 and 1999, operating costs
       of $146,000, $889,000 and $863,000, respectively, were expensed.

          In July of 2000, Vidler purchased a 51% interest in Fish Springs
       Ranch, LLC for $4.5 million and a commitment to invest an additional
       $500,000 in July 2001, and also purchased a 50% interest in V&B, LLC for
       $1.2 million. These companies own the 8,628-acre Fish Springs Ranch, and
       the associated water rights. The purchase price was allocated based on
       estimated fair values at the date of acquisition. Vidler acts as manager
       and effectively controls both companies. Consequently, the companies are
       included in the accompanying consolidated financial statements as of the
       date of the investment in the companies. As a result of consolidation,
       water rights increased approximately $6.6 million, land increased
       approximately $306,000, various other assets increased $2.1 million and
       liabilities increased $184,000 and minority interest of $3.8 million.
       Also during the year, Vidler purchased Spring Valley Ranches (formerly,
       Robison Ranch), for approximately $4.5 million. Approximately $3.7
       million of the purchase price was recorded as land.


                                       71



6.     PREMIUMS AND OTHER RECEIVABLES:

       Premiums and other receivables consisted of the following at December 31:

                                                   2001             2000
                                               ---------------  ---------------
        Agents' balances and unbilled premiums   $ 11,081,153     $ 10,008,197
        Finance receivables                         5,961,567        3,329,670
        Trade receivables                              49,288          263,400
        Other accounts receivable                   3,535,157        5,645,636
                                               ---------------  ---------------
                                                   20,627,165       19,246,903
        Allowance for doubtful accounts            (2,550,604)        (214,300)
                                               ---------------  ---------------
                                                 $ 18,076,561     $ 19,032,603
                                               ===============  ===============

          Other accounts receivable include $2.3 million due from Dominion
       Capital Pty. Ltd ("Dominion"), which is affiliated with the Company
       through a mutual ownership in Solpower Corporation. During 2001, an
       allowance for the total outstanding balance owed by Dominion of $2.3
       million was recorded due to the uncertainty surrounding the recovery of
       the balance. Also included in other accounts receivable is a $187,000
       note receivable from the President and CEO of Summit Global Management
       for the purchase of Summit in January 2000.

7.       FEDERAL INCOME TAX:

         The Company and its U.S. subsidiaries file a consolidated federal
       income tax return. Non-U.S. subsidiaries file tax returns in various
       foreign countries. Deferred income taxes reflect the net tax effects of
       temporary differences between the carrying amounts of assets and
       liabilities for financial reporting purposes and the amounts used for
       income tax purposes.

          Significant components of the Company's deferred tax assets and
liabilities are as follows at December 31:




                                                                      2001                2000
                                                                 ----------------    ----------------
                                                                                  
              Deferred tax assets:
                Net operating loss carryforwards                    $ 12,155,883        $ 20,598,362
                Capital loss carryforwards                             2,947,945
                Loss reserves                                          7,100,265           9,023,860
                Unearned premium reserves                              1,913,744           1,734,353
                Unrealized depreciation on securities                  2,531,767           3,648,678
                Deferred gain on retroactive reinsurance                 149,219             329,417
                Write down of securities                               3,809,825           3,457,381
                Deferred loss on SFAS 133                                505,144
                Other, net                                             1,157,672             550,044
                                                                 ----------------    ----------------
                          Total deferred tax assets                   32,271,464          39,342,095
                                                                 ----------------    ----------------
                Deferred tax liabilities:
                Reinsurance receivables                                2,823,237           2,823,237
                Deferred policy acquisition costs                      2,350,620           2,141,939
                Unrealized appreciation on securities                    960,432             435,151
                Equity in unconsolidated affiliates                      658,385           1,344,250
                Revaluation of surface, water and mineral rights      12,991,330          14,880,795
                NLRC land sales                                        1,065,315           1,065,315
                Accretion of bond discount                               109,664              61,795
                Capitalized lease                                        279,313           1,133,434
                                                                 ----------------    ----------------
                          Total deferred tax liabilities              21,238,296          23,885,916
                                                                 ----------------    ----------------
                     Net deferred tax assets before
                          valuation allowance                         11,033,168          15,456,179
                     Less valuation allowance                         (3,734,153)         (4,101,587)
                                                                 ----------------    ----------------
                          Net deferred tax asset                     $ 7,299,015        $ 11,354,592
                                                                 ================    ================



                                       72



         The deferred tax asset valuation allowance as of December 31, 2001 and
2000 relates primarily to the net operating loss carryforwards (NOL's) of Global
Equity, a Canadian company. Global Equity is subject to rules that limit the
ability to utilize their NOL's. Due to these limitations and the uncertainty of
future taxable income, a valuation allowance has been recorded for the deferred
tax asset that may not be realized. Prior to the enactment, in 1999, of U.S. tax
legislation that removed certain limitations on the Company's ability to utilize
its U.S. NOL's, the Company carried a valuation allowance on a portion of its
U.S. NOL's. As a result of this legislation, in 1999 most of the valuation
allowance for U.S. NOL's was removed. Deferred tax assets and liabilities, the
recorded valuation allowance, and federal income tax expense in future years can
be significantly affected by changes in circumstances that would influence
management's conclusions as to the ultimate realization of deferred tax assets.

          Pre-tax loss from continuing operations for the years ended December
31 was under the following jurisdictions:

                           2001                2000                 1999
                     -----------------    ----------------    -----------------
          Domestic        $ 8,671,794       $ (11,129,866)       $ (14,593,039)
          Foreign            (981,171)         (2,350,632)          (5,894,929)
                     -----------------    ----------------    -----------------
              Total       $ 7,690,623       $ (13,480,498)       $ (20,487,968)
                     =================    ================    =================




          Income tax expense (benefit) from continuing operations for each of
       the years ended December 31 consists of the following:




                                                  2001                2000                 1999
                                             ----------------    ----------------    -----------------
                                                                                  
Current tax benefit:
U.S. federal                                       $ (15,373)         $ (450,123)          $ (729,136)
Foreign                                             (614,389)         (4,666,562)             519,544
                                             ----------------    ----------------    -----------------
    Total current tax benefit                       (629,762)         (5,116,685)            (209,592)
                                             ----------------    ----------------    -----------------
Deferred tax expense (benefit):
U.S. federal                                     $ 3,060,868        $ (3,775,785)        $ (9,351,935)
Foreign                                             (135,566)            691,294           (2,957,847)
                                             ----------------    ----------------    -----------------
    Total deferred tax expense (benefit)           2,925,302          (3,084,491)         (12,309,782)
                                             ----------------    ----------------    -----------------
    Total income tax expense (benefit)           $ 2,295,540        $ (8,201,176)       $ (12,519,374)
                                             ================    ================    =================



         The difference between income taxes provided at the Company's federal
statutory rate and effective tax rate is as follows:





                                                              2001               2000                1999
                                                         ----------------   ----------------   -----------------
                                                                                          
Federal income tax provision (benefit) at statutory rate     $ 2,614,812        $(4,583,369)       $ (6,965,909)
Book tax difference on sale of securities                                        (1,247,596)
Settlement of tax appeal                                        (495,976)        (4,398,731)
Change in valuation allowance                                   (367,434)         3,285,416          (8,448,347)
Amortization of goodwill                                         (63,165)           208,268             217,934
Non-deductible capital loss                                                        (166,750)            294,188
Investment valuation                                                               (971,105)            171,115
Accrued liabilities                                                                                   1,578,000
Extraordinary gain                                                                                      227,821
Permanent differences                                            607,303           (327,309)            405,824
                                                         ----------------   ----------------   -----------------
     Federal income tax provision (benefit)                  $ 2,295,540        $(8,201,176)       $(12,519,374)
                                                         ================   ================   =================



                                       73



          Provision has not been made for U.S. or additional foreign tax on the
       undistributed earnings of foreign subsidiaries. It is not practical to
       estimate the amount of additional tax that might be payable. At December
       31, 2001, the Company had no income tax payable or receivable, and at
       December 31, 2000 the Company had an income tax payable of $324,000. As
       of December 31, 2001, the company has net operating loss carryforwards of
       $35 million. The Company has $2.2 million, $620,000, and $6.7 million of
       consolidated NOL's that expire in 2014, 2016, and 2020, respectively. In
       addition certain subsidiaries have $25.5 million of NOL's subject to
       certain limitations that restrict their use and have valuation allowances
       established.

8.     PROPERTY AND EQUIPMENT:

       The major classifications of the Company's fixed assets are as follows
at December 31:


                                                     2001               2000
                                               --------------    ---------------
Office furniture, fixtures and equipment         $ 6,833,972        $ 6,834,381
Building and leasehold improvements                1,135,071          1,192,123
                                               --------------    ---------------
                                                   7,969,043          8,026,504
Accumulated depreciation                          (5,241,112)        (5,081,991)
                                               --------------    ---------------
Property and equipment, net                      $ 2,727,931        $ 2,944,513
                                               ==============    ===============

          Depreciation expense was $969,000, $1.1 million and $1 million in
2001, 2000, and 1999, respectively.


9.    DEFERRED POLICY ACQUISITION COSTS:

          Changes in deferred policy acquisition costs were as follows:




                                                2001               2000               1999
                                           ----------------   ----------------   ----------------
                                                                           
Balance, January 1                             $ 6,299,819        $ 4,821,228        $ 5,548,634
     Additions:
          Commissions                            7,884,474          7,232,606          5,559,587
          Other                                  5,903,573          4,613,034          3,966,560
          Ceding commissions                      (129,895)          (116,701)           230,792
                                           ----------------   ----------------   ----------------
               Deferral of expense              13,658,152         11,728,939          9,756,939
                                           ----------------   ----------------   ----------------
     Amortization to expense                   (13,044,382)       (10,250,348)       (10,484,345)
                                           ----------------   ----------------   ----------------
Balance, December 31                           $ 6,913,589        $ 6,299,819        $ 4,821,228
                                           ================   ================   ================


10.      SHAREHOLDERS' EQUITY:

          At the Annual Meeting of Shareholders on October 19, 2000, our
       shareholders voted to amend the Articles of Incorporation to eliminate
       the Company's preferred shares. This amendment became effective January
       16, 2001.

          On February 9, 2000, PICO registered on Form S-3 with the U. S.
       Securities and Exchange Commission to offer 6,546,497 shares of PICO
       stock at a price of $15 per share through a rights offering. Shareholders
       were offered 1 right to buy 1 new share at $15 for every 2 common shares
       held at March 1, 2000.

          In March 2000, an investment partnership registered as PICO Equity
       Investors, L.P. acquired 3,333,333 shares of PICO stock for approximately
       $50 million. PICO Equity Investors, an entity managed by PICO Equity
       Investors Management, LLC, which is owned by three of PICO's current
       directors (including PICO's chairman of the board and PICO's president
       and chief executive officer), will exercise all voting and investment
       decisions with respect to these shares for up to 10 years. There is no
       monetary compensation for the management of the LLC. PICO used the $49.8
       million net proceeds to develop existing water and water storage assets,
       acquire additional water assets, acquire investments, and for general
       working capital needs.


                                       74



       Stock Option Plans

          PICO Holdings 1995 Non-Qualified Stock Option Plan. PICO was
       authorized to issue 521,030 shares of common stock pursuant to awards
       granting non-qualified stock options to full-time employees (including
       officers) and directors. The options granted to employees vest at a rate
       of 33% upon grant and 33% per year on each of the first two anniversaries
       of the date of grant. A total of 512,005 options have been issued from
       this plan. The Company granted stock options in 1996 and 1995 under this
       plan in the form of incentive stock options and non-qualified stock
       options. All issued options from this plan are fully vested.

          PICO Holdings 1998 Stock Option Agreement. PICO was authorized to
       issue 100,000 shares of common stock pursuant to awards granted in
       various forms, including incentive stock options (intended to qualify
       under Section 422 of the Internal Revenue Code of 1986, as amended),
       non-qualified stock options, and other similar stock-based awards. On
       October 22, 1998, PICO granted 100,000 non-qualified common stock options
       to an officer of the Company at an exercise price of $15.625 per share.
       The options granted vest monthly over three years, expiring October 22,
       2008. During 1999, 61,111 of these options expired when the officer left
       the Company. The remaining options expired during 2001. None of these
       stock options were exercised.

          PICO Holdings 1998 Global Equity/PICO Stock Option Plan. As discussed
       above, PICO assumed 484,967 options to existing Global Equity option
       holders pursuant to the acquisition of the remaining shares of Global
       Equity by exchanging PICO options for Global Equity options. The options
       granted from this plan placed the participants in an economically
       equivalent position regarding the number of shares, exercise price, and
       with vesting according to their original terms.

          PICO Holdings 1999 Stock Option Agreement. PICO is authorized to issue
       10,665 shares of common stock pursuant to awards granted as non-qualified
       stock options and other similar stock-based awards. On January 1, 1999,
       PICO granted 10,665 non-qualified common stock options to an officer of
       the Company at an exercise price of $13.25 per share. The options were
       immediately vested and expire in 10 years.

          PICO Holdings 2000 Non-Statutory Stock Option Plan. PICO is authorized
       to issue 1,200,000 shares of common stock to employees and non-employee
       directors of and consultants to the Company, pursuant to awards granted
       as non-qualified stock options. On April 7, 2000, PICO granted, subject
       to approval by the Company's shareholders obtained on October 19, 2000,
       1,091,223 non-qualified common stock options to employees and
       non-employee directors of the Company (1,082,223 to employees and 9,000
       to directors) at an exercise price of $15.00 per share. Of the options
       granted to employees, one-third vested upon grant, one-third vest April
       7, 2001 and one-third vest April 7, 2002. The options granted to
       non-employee directors were fully vested on the grant date.

          On July 9, 2001, PICO granted 100,000 non-statutory stock options to
       an employee at an exercise price of $15.00 per share. 66,000 of these
       stock options vested on July 9, 2001 and the remaining 34,000 stock
       options will vest on July 9, 2002. These stock options expire on July 9,
       2021.

          On August 2, 2001, PICO granted 8,777 non-statutory stock options to
       an employee at an exercise price of $15.00 per share. 2,925 of those
       stock options vested on August 2, 2001, 2,926 stock options will vest on
       August 2, 2002, and 2,926 stock options will vest on August 2, 2003. They
       expire on August 2, 2021.

          PICO Holdings 2001 Stock Option Agreements. PICO is authorized to
       issue 46,223 shares of common stock pursuant to awards granted in
       individual non-qualified stock option agreements. In August 2001, PICO
       granted a total of 46,223 non-qualified stock options to three employees
       of the Company. The exercise price for all these non-statutory stock
       options is $15.00 per share. One-third of these stock options vested in
       August 2001, one-third will vest in August 2002, and the remaining
       one-third will vest in August 2003. All of these non-statutory stock
       options expire in August 2021.


                                       75



         A summary of the status of the Company's stock options is presented
below for the years ended December 31:





                                              2001                      2000                        1999
                                   ------------------------  -------------------------  --------------------------
                                                 Weighted                   Weighted                    Weighted
                                     Shares       Average      Shares        Average       Shares       Average
                                   Underlying    Exercise    Underlying     Exercise     Underlying     Exercise
                                     Options      Prices       Options       Prices       Options        Prices
                                   ------------  ----------  ------------   ----------  -------------  -----------
                                                                                        
Outstanding at beginning of year     1,834,599      $14.93     1,046,575      $ 15.83      1,097,021      $ 15.89
Granted                                155,000       15.00     1,091,223        15.00         10,665        13.25
Canceled - expired                    (208,879)      17.72      (303,199)       18.31        (61,111)       15.63
Outstanding at end of year           1,780,720       14.60     1,834,599        14.93      1,046,575        15.83
Exercisable at end of year           1,349,312       14.48     1,113,117        14.88      1,046,575        15.83
Weighted-average fair value
     of options granted during
     the year                                       $ 8.52                     $ 7.15                      $ 9.02
                                                 ==========                 ==========                 ===========


         The following table summarizes information about stock options
outstanding at December 31, 2001:




                            Options Outstanding                     Options Exercisable
--------------------------------------------------------------    ---------------------------
                                       Weighted
                                       Average      Weighted
                          Number       Remaining    Average          Number       Weighted
     Range of          Outstanding    Contractual   Exercise      Exercisable      Average
  Exercise Prices      at 12/31/01       Life        Price        at 12/31/01    Exercise Price
--------------------   -------------  -----------  -----------    -------------  ------------
                                                                  
$13.45 to $23.80            522,672         3.71       $13.45          522,672        $13.45
$15.63 to $23.95          1,258,048        18.19       $15.08          826,640        $15.13
                       -------------                              -------------
$13.25 to $23.95          1,780,720        13.94       $14.60        1,349,312        $14.48
                       =============                              =============



         The fair value of each stock option granted is estimated on the date of
   grant using the Black-Scholes option-pricing model with the following
   weighted-average assumptions for grants in each year: no dividend yield;
   risk-free interest rates are different for each grant and range from 4.9% to
   6.97%; expected lives of options are estimated at 10 years for 2001, 10 years
   for 2000 and 7 years for 1999; and volatility of 42% for the 2001 grants, 51%
   for the 2000 grants, and 54% for the 1999 grants.

         Had compensation cost for the Company's stock-based compensation plans
   been determined consistent with SFAS No. 123, the Company's net loss and net
   loss per share would approximate the following pro forma amounts for the
   years ended December 31:




                                                                 2001             2000             1999
                                                            --------------- ----------------- ----------------
                                                                                        
Reported net income (loss)                                     $ 4,772,961      $ (9,525,937)    $ (6,820,278)
SFAS No. 123 charge                                               (711,521)       (2,616,496)         (96,249)
                                                            --------------- ----------------- ----------------
Pro forma net income (loss)                                    $ 4,061,440     $ (12,142,433)    $ (6,916,527)
                                                            =============== ================= ================
Pro forma net income (loss) per share: basic and diluted            $ 0.33           $ (1.05)         $ (0.77)
                                                            =============== ================= ================


         The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts.


                                       76



11.    REINSURANCE:

           In the normal course of business, the Company's insurance
       subsidiaries have entered into various reinsurance contracts with
       unrelated reinsurers. The Company's insurance subsidiaries participate in
       such agreements for the purpose of limiting their loss exposure and
       diversifying their risk. Reinsurance contracts do not relieve the
       Company's insurance subsidiaries from their obligations to policyholders.

           All reinsurance assets and liabilities are shown on a gross basis in
       the accompanying consolidated financial statements. Amounts recoverable
       from reinsurers are estimated in a manner consistent with the claim
       liability associated with the reinsured policy. Such amounts are included
       in "reinsurance receivables" in the consolidated balance sheets as
       follows:




                                                               2001              2000
                                                          ---------------   ----------------
                                                                          
Estimated reinsurance recoverable on:
Unpaid losses and loss adjustment expense                    $23,190,015        $27,444,846
Reinsurance recoverable on paid losses and loss expenses         593,091            149,193
                                                          ---------------   ----------------
     Reinsurance receivables                                 $23,783,106        $27,594,039
                                                          ===============   ================



           Unsecured reinsurance risk is concentrated in the companies shown in
       the table below. The Company remains continently liable with respect to
       reinsurance contracts in the event that reinsurers are unable to meet
       their obligations under the reinsurance agreements in force.

                          CONCENTRATION OF REINSURANCE





                                           Unearned          Reported        Unreported        Reinsurer
                                           Premiums           Claims           Claims           Balances
                                         --------------   ---------------  ---------------   ---------------
                                                                                    
Sydney Reinsurance Corporation                               $ 4,662,052      $ 2,390,600       $ 7,052,652
Continental Casualty Company                                   1,647,722        2,165,000         3,812,722
American Reinsurance Corp.                   $ 170,308            37,400                            207,708
Hartford Steam & Boiler                        100,105            34,000                            134,105
TIG Reinsurance Group                                            312,612          (10,612)          302,000
Transatlantic Reinsurance Company                                                 958,151           958,151
Cologne Reinsurance Company of America                                            103,601           103,601
Gerling Global Reinsurance                                        53,574          195,000           248,574
Mutual Assurance, Inc.                                         3,236,656          218,446         3,455,102
GE Reinsurance Corp.                                             203,928        1,500,000         1,703,928
General Reinsurance                             38,291         1,209,135           10,000         1,257,426
National Reinsurance Corporation                                 299,877                            299,877
PXRE Reinsurance Company                                         749,474        1,130,000         1,879,474
Hartford Fire Insurance Company                                  117,746           80,000           197,746
Partner Reinsurance                                              302,775          330,000           632,775
Lumberman's Mutual Casualty Company                              219,553                            219,553
North Star Reinsurance Corp.                                     137,818                            137,818
Swiss American Reinsurance Corporation                           137,818                            137,818
                                         --------------   ---------------  ---------------   ---------------
                                             $ 308,704       $13,362,140      $ 9,070,186       $22,741,030
                                         ==============   ===============  ===============   ===============



           Immediately prior to the sale of Sequoia to Physicians by Sydney
       Reinsurance Corporation ("SRC") in 1995, Sequoia and SRC entered into a
       reinsurance treaty whereby all policy and claims liabilities of Sequoia
       prior to the date of purchase by Physicians are the responsibility of
       SRC. Payment of SRC's reinsurance obligations under this treaty has been
       unconditionally and irrevocably guaranteed by QBE Insurance Group Limited
       should SRC be unable to meet its obligations under the reinsurance
       agreement.


                                       77



           The Company entered into a reinsurance treaty in 1995 with Mutual
       Assurance Inc. ("Mutual") in connection with the sale of Physicians' MPL
       business to Mutual. This treaty is a 100% quota share treaty covering all
       claims arising from policies issued or renewed with an effective date
       after July 15, 1995. At the same time, Physicians terminated two treaties
       entered into in 1994 and renewed in 1995. The first of these was a
       claims-made agreement under which Physicians' retention was $200,000, for
       both occurrence and claims-made insurance policies. Claims are covered up
       to $1 million. The second treaty reinsured claims above $1 million up to
       policy limits of $5 million on a true occurrence and claims-made basis,
       depending on the underlying insurance policy.

           In 1994, the Company entered into a retroactive reinsurance
       arrangement with respect to its MPL business. As a result, Physicians
       initially recorded a deferred gain on retroactive reinsurance of $3.4
       million in 1994. Deferred gains are being amortized into income over the
       expected payout of the underlying claims using the interest method. The
       unamortized gain at December 31, 2001 and 2000 was $439,000 and $969,000,
       respectively.

           The following is a summary of the net effect of reinsurance activity
       on the consolidated financial statements for each of the years ended
       December 31:




                                                    2001               2000              1999
                                              -----------------   ----------------  ----------------
                                                                              
Direct premiums written                           $ 54,110,160       $ 47,620,431      $ 36,558,158
Reinsurance premiums assumed                           282,541             (3,020)          120,185
Reinsurance premiums ceded                          (8,464,918)        (3,573,715)       (3,019,059)
                                              -----------------   ----------------  ----------------
     Net premiums written                         $ 45,927,783       $ 44,043,696      $ 33,659,284
                                              =================   ================  ================

Direct premiums earned                              51,355,206         39,987,563        39,162,077
Reinsurance premiums assumed                           267,215              2,967           144,499
Reinsurance premiums ceded                          (8,332,745)        (5,554,776)       (2,927,474)
                                              -----------------   ----------------  ----------------
     Net premiums earned                          $ 43,289,676       $ 34,435,754      $ 36,379,102
                                              =================   ================  ================
Losses and loss adjustment expenses incurred:
     Direct                                         29,442,055         25,883,270        47,939,738
     Assumed                                           164,500           (681,716)         (825,369)
     Ceded                                         (11,304,235)        (1,175,336)      (12,897,078)
                                              -----------------   ----------------  ----------------
                                                    18,302,320         24,026,218        34,217,291
     Effect of discounting on losses and
         loss adjustment expenses (Note 12)                                                 994,545
                                              -----------------   ----------------  ----------------
Net losses and loss adjustment expenses           $ 18,302,320       $ 24,026,218      $ 35,211,836
                                              =================   ================  ================



12.    RESERVES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES:

           Reserves for unpaid losses and loss adjustment expenses on MPL and
       property and casualty business represent management's estimate of
       ultimate losses and loss adjustment expenses and fall within an
       actuarially determined range of reasonably expected ultimate unpaid
       losses and loss adjustment expenses.

           Reserves for unpaid losses and loss adjustment expenses are estimated
       based on both company-specific and industry experience, and assumptions
       and projections as to claims frequency, severity, and inflationary trends
       and settlement payments. Such estimates may vary significantly from the
       eventual outcome. In management's judgment, information currently
       available has been appropriately considered in estimating the loss
       reserves and reinsurance recoverable of the insurance subsidiaries.

           Physicians prepares its statutory financial statements in accordance
       with accounting practices prescribed or permitted by the Ohio Department
       of Insurance ("Ohio Department"). Citation and Sequoia prepare their
       statutory financial statements in accordance with accounting practices
       prescribed or permitted by the California Department of Insurance.
       Prescribed statutory accounting practices include guidelines contained in
       various publications of the National Association of Insurance
       Commissioners ("NAIC"), as well as state laws, regulations, and general
       administrative rules. Permitted statutory accounting practices encompass
       all accounting practices not so prescribed. The Ohio Department's
       prescribed accounting practices do not allow for discounting of claim
       liabilities. However, for years prior to 2000, the Ohio Department
       permitted Physicians to discount its losses and loss adjustment expenses
       related to its MPL claims to reflect anticipated investment income.
       Permission was granted due primarily to the longer claims settlement
       period related to MPL business as compared to most other types of


                                       78



       property and casualty insurance lines of business. In 2000 the Ohio
       Department of Insurance withdrew permission to discount MPL claims
       reserves in Physicians' statutory financial statements. In addition,
       Physicians no longer discounts MPL reserves in its GAAP financials.

           Prior to 2000, Physicians used a discount rate of 4% for financial
       reporting purposes. The method of determining the discount was based on
       historical payment patterns and assumed an interest rate at or below
       Physicians' own investment yield. The carrying value of MPL reserves
       gross as to reinsurance and undiscounted was approximately $40.6 million
       at December 31, 2001 and $58.6 million at December 31, 2000.

           Activity in the reserve for unpaid claims and claim adjustment
       expenses was as follows for each of the years ended December 31:




                                                    2001                2000                1999
                                              -----------------   -----------------   ------------------
                                                                              
Balance at January 1                             $ 121,541,722       $ 139,132,875        $ 155,020,696
     Less reinsurance recoverable                  (27,444,846)        (40,333,000)         (52,000,444)
                                              -----------------   -----------------   ------------------
          Net balance at January 1                  94,096,876          98,799,875          103,020,252
                                              -----------------   -----------------   ------------------
Incurred loss and loss adjustment expenses
     for current accident year claims               28,665,664          22,993,457           18,903,062
Incurred loss and loss adjustment expenses
     for prior accident year claims                 (9,833,352)          1,300,414           15,878,697
Retroactive reinsurance                               (529,993)           (267,653)            (564,469)
Accretion of discount                                                                           994,545
                                              -----------------   -----------------   ------------------
     Total incurred                                 18,302,319          24,026,218           35,211,835
                                              -----------------   -----------------   ------------------
Effect of retroactive reinsurance                      529,993             267,653              564,469
                                              -----------------   -----------------   ------------------
Cumulative effect of accounting change                                   7,520,744
                                              -----------------   -----------------   ------------------
Payments for claims occurring during:
     Current accident year                         (15,269,960)        (10,880,842)          (8,940,341)
     Prior accident years                          (22,400,190)        (25,636,772)         (31,056,340)
                                              -----------------   -----------------   ------------------
          Total paid                               (37,670,150)        (36,517,614)         (39,996,681)
                                              -----------------   -----------------   ------------------
Net balance at December 31                          75,259,038          94,096,876           98,799,875
Plus reinsurance recoverable                        23,190,015          27,444,846           40,333,000
                                              -----------------   -----------------   ------------------
Balance at December 31                            $ 98,449,053       $ 121,541,722        $ 139,132,875
                                              =================   =================   ==================


         During 2001, our medical professional liability insurance claims
       reserves, net of reinsurance, decreased from $51.6 million to $34.9
       million. Actuarial analysis of Physicians' loss reserves as of September
       30, 2001 concluded that Physicians' reserves against claims were
       significantly greater than the actuary's projections of future claims
       payments. Accordingly, Physicians reduced its claims reserves by
       approximately $11.2 million in the fourth quarter of 2001.


13.    EMPLOYEE BENEFIT PLAN:

          PICO maintains a 401(k) Defined Contribution Plan covering
       substantially all employees of the Company. Matching contributions are
       based on a percentage of employee compensation. In addition, the Company
       may make a discretionary contribution at the end of the Plan's fiscal
       year within limits established by the Employee Retirement Income
       Securities Act. Total contribution expense incurred by the Company was
       $855,000 in 2001, $864,000 in 2000, and $862,000 in 1999.

  14.  REGULATORY MATTERS:

          The regulations of the Departments of Insurance in the states where
       the Company's insurance subsidiaries are domiciled generally restrict the
       ability of insurance companies to pay dividends or make other
       distributions. Based upon statutory financial statements filed with the
       insurance departments as of December 31, 2001, $5.4 million was available
       for distribution by the Company's wholly-owned insurance subsidiaries to
       the parent company without the prior approval of the Department of
       Insurance in the states in which the Company's insurance subsidiaries are
       domiciled.


                                       79



15.      COMMITMENTS AND CONTINGENCIES:

           The Company leases some of its offices under non-cancelable operating
       leases that expire at various dates through October 2008. Total rent
       expense was $1 million, $1 million, and $1.3 million for the years ended
       December 31, 2001, 2000 and 1999, respectively.

           Future minimum rental payments required under the leases for the
years ending December 31, are as follows:

                 2002                 1,450,605
                 2003                   815,851
                 2004                   639,928
                 2005                   586,942
                 2006                   544,928
                 Thereafter           3,837,728
                                ---------------
                 Total               $7,875,982
                                ===============


           In November 1998, Vidler Water Company, Inc., a PICO subsidiary,
       entered into an operating lease to acquire 185,000 acre-feet of
       underground water storage privileges and associated rights to recharge
       and recover water located near the California Aqueduct, northwest of
       Bakersfield. The agreement required Vidler to pay a minimum of $2.3
       million per year for 10 years beginning October 1998. On October 7, 1998,
       PICO signed a Limited Guarantee agreement with Semitropic Water Storage
       District ("Semitropic") that required PICO to guarantee a maximum
       obligation of $3.2 million, adjusted annually by the engineering price
       index. In May 2001, Vidler permanently assigned 29.73% of its right,
       title and interest under the operating lease to Newhall Land and Farming
       Company. As a result of the permanent assignment by Vidler, PICO entered
       into an amended Limited Guarantee agreement effective May 21, 2001. Under
       the amended Limited Guarantee, the maximum obligation of PICO was revised
       to $2.2 million adjusted annually by the engineering price index. In
       September 2001, Vidler permanently assigned a further 54.05% of its
       right, title and interest under the operating lease to Alameda County
       Water District. Accordingly, PICO entered into a second amendment to the
       Limited Guarantee effective September 28, 2001. Under the second
       amendment to the Limited Guarantee, the maximum obligation of PICO was
       revised to $519,000 adjusted annually by the engineering price index. The
       guarantee expires October 7, 2008.

           On January 10, 1997, Global Equity Corporation ("Global Equity"), a
       wholly owned PICO subsidiary at December 31, 2001, commenced an action in
       British Columbia against MKG Enterprises Corp. ("MKG") to enforce
       repayment of a loan made by Global Equity to MKG. On the same day, the
       Supreme Court of British Columbia granted an order preventing MKG from
       disposing of certain assets pending resolution to the action. In March
       1999, Global Equity filed an action in the Supreme Court of British
       Columbia against a third party. This action states the third party had
       fraudulently entered into loan agreements with MKG. Accordingly, under
       this action Global Equity is claiming damages from the third party and
       restraining the third party from further action.

           During 2000 and 2001, Global Equity entered into settlement
       negotiations with a third party to dispose of the remaining assets of
       MKG. Due to the protracted nature of these discussions and the increasing
       uncertainty of whether the remaining asset can be realized, Global Equity
       wrote off the remaining balance of $500,000 of the investment during
       2001. (See Long Term Holdings in "Management's Discussion and Analysis of
       Financial Condition" and "Results of Operations".) Global Equity is
       currently reviewing its legal options before deciding if it will continue
       pursuing the outstanding legal actions.

           In connection with the sale of their interests in Nevada Land by the
       former members, a limited partnership agreed to act as consultant to
       Nevada Land in connection with the maximization of the development,
       sales, leasing, royalties or other disposition of land, water, mineral
       and oil and gas rights with respect to the Nevada property. In exchange
       for these services, the partnership was to receive from Nevada Land a
       consulting fee calculated as 50% of any net proceeds that Nevada Land
       actually receives from the sale, leasing or other disposition of all or
       any portion of the Nevada property or refinancing of the Nevada property
       provided that Nevada Land has received such net proceeds in a threshold
       amount equal to the aggregate of: (i) the capital investment by Global
       Equity and the Company in the Nevada property, (ii) a 20% cumulative
       return on such capital investment, and (iii) a sum sufficient to pay the
       United States federal income tax liability, if any, of Nevada Land in
       connection with such capital investment. Either party could terminate
       this consulting agreement in April 2002 if the partnership had not
       received or become entitled to receive by that time any amount of the
       consulting fee. No payments have been made under this agreement through
       December 31, 2001. By letter dated March 13, 1998, Nevada Land gave
       notice of termination of the consulting agreement based on Nevada Land's
       determination of default by the partnership under the terms of the
       agreement. In


                                       80


       November 1998, the partnership sued Nevada Land for wrongful
       termination of the consulting contract. On March 12, 1999, Nevada Land
       filed a cross-complaint against the partnership for breach of written
       contract, breach of fiduciary duty and seeking declaratory relief.
       Effective September 1, 1999, the parties entered into a settlement
       agreement wherein they agreed that the lawsuit would be dismissed
       without prejudice, and that Nevada Land would deliver a report on or
       before June 30, 2002 to the limited partnership of the amount of the
       consulting fee which would be owed by Nevada Land to the limited
       partnership if the consulting agreement were in effect. At December 31,
       2001, Nevada Land has no liability to the partnership.

           BSND, Inc. ("BSND"), a wholly-owned subsidiary of Vidler Water
       Company, has resolved a partnership dispute relating to Big Springs
       Associates, a partnership which owned real property and water rights in
       Nevada (the "Partnership"). Under the terms of an agreement resolving the
       dispute, BSND, Inc. is now the sole owner and manager of all the
       partnership's assets.

           In September and December 2000, PICO Holdings loaned a total of $2.2
       million to Dominion Capital Pty. Ltd. ("Dominion Capital"), a private
       Australian Company. In May 2001, one of the loans for $1.2 million became
       overdue. Negotiations between PICO and Dominion Capital to reach a
       settlement agreement on both the overdue loan of $1.2 million and the
       other loan of $1 million proved unsuccessful. Accordingly, PICO has
       commenced a legal action through the Australian courts against Dominion
       Capital to recover the total amount due to PICO Holdings. Due to the
       inherent uncertainty involved in pursuing a legal action and our ability
       to realize the assets collateralizing the loans, PICO recorded an
       allowance for the total outstanding balance of $2.3 million for the loans
       and interest. PICO has been awarded summary judgment in relation to the
       principal and interest on the $1.2 million loan and, as a result,
       Dominion Capital has been placed in receivership. The court appointed
       receiver is in the process of ascertaining Dominion Capital's assets and
       liabilities. The court trial in connection with PICO's $1 million loan
       (with interest) has been adjourned pending the receiver's investigations.
       In addition, PICO has commenced proceedings in Australia to secure the
       proceeds from the sale of real estate in Australia offered as collateral
       under the $1.2 million loan.

           In January 2002, AOG announced that it was raising additional capital
       to purchase a drilling rig and to refit two existing rigs. PICO
       subsequently provided AOG with a short term bridge loan of $4 million,
       and was issued 333,333 shares in AOG as a loan establishment fee. AOG is
       to repay the loan with the proceeds of a rights offering which is
       expected to close in March of 2002. PICO has made a commitment to
       underwrite part of the offering, and was issued another 333,333 shares of
       AOG in March 2002, as an underwriting fee. The maximum commitment to PICO
       is just over $4 million.

          The Company is subject to various other litigation that arises in the
       ordinary course of its business. Based upon information presently
       available, management is of the opinion that such litigation will not
       have a material adverse effect on the consolidated financial position,
       results of operations or cash flows of the Company.

16.    RELATED-PARTY TRANSACTIONS:

           The employment agreements entered into with Ronald Langley and John
       R. Hart in 1997 for annual base salaries of $800,000 also entitled each
       to an incentive award based on the growth of the Company's book value per
       share in excess of a threshold that is calculated as 80% of the previous
       five year average return for the S&P 500. No award was paid during 2001,
       2000 or 1999 under this program. New employment agreements were entered
       into with Mr. Langley and Mr. Hart on January 1, 2002 for a further four
       years. The terms of these new employment agreements are substantially
       similar to the agreements entered into in 1997. The base salary in each
       agreement is $800,000, subject to annual adjustment in January of each
       year in the same percentage applicable to PICO's other staff members in
       an amount deemed adequate to provide for inflation, cost of living, and
       merit increases based on the CPI and major compensation studies.

           On March 27, 2000, PICO sold 3,333,333 shares of common stock to PICO
       Equity Investors, LP ("PEI") in a rights offering. PEI is managed by PICO
       Equity Investors Management, LLC, which is owned by three of PICO's
       current directors (including PICO's chairman of the board and PICO's
       president and chief executive officer). The LLC will exercise all voting
       and investment decisions with respect to these shares for up to 10 years.
       There is no monetary compensation for management of the LLC.

          Summit Global Management, Inc. is a Registered Investment Advisor
       providing investment advisory services to managed accounts including the
       Company's subsidiaries, until June 30, 2000. In January 2000, PICO sold
       its interest in Summit to its chief executive officer in exchange for a
       note receivable of $100,000 bearing interest at 7% per annum, and due
       2002. In addition, Summit owed PICO approximately $65,000 for operating
       expenses.


                                       81



          On March 6, 1996, Charles E. Bancroft, the President and Chief
       Executive Officer of Sequoia entered into an incentive agreement with
       Sequoia after its acquisition by Physicians. Under the terms of this
       incentive agreement, Mr. Bancroft is to receive a payment equal to ten
       percent of the increase in Sequoia's value upon his retirement, removal
       from office for reasons other than cause, or the sale of Sequoia to a
       third party. For purposes of the incentive agreement, the increase in
       Sequoia's value is to be measured from August 1, 1995; the date
       Physicians acquired Sequoia. Mr. Bancroft was not eligible to receive any
       incentive payment, until he was continuously employed by Sequoia from
       August 1, 1995 through August 1, 1998. On March 20, 1998, this incentive
       agreement was clarified to include the combined increase in value of
       Sequoia and Citation. The increase in value of Citation will be measured
       from January 1, 1998. The Company recorded compensation expense related
       to this arrangement of $250,000, $160,000, and $210,000 during the years
       ended December 31, 2001, 2000 and 1999, respectively.

          Certain of the Company's subsidiaries have stock option arrangements
       with officers and other employees for stock of the respective subsidiary.
       Options are granted under these arrangements at the estimated fair value
       of the subsidiary's stock at the time of grant. Therefore, no
       compensation has been recorded by the Company related to these
       arrangements. During 2000, 19,037 options to acquire 1.9% of the existing
       shares of Vidler were exercised for $109,000 and a loss, calculated in
       accordance with Staff Accounting Bulletin No. 51, of $526,000 before tax
       was recorded on the sale.

          In 1998, the Company entered into an agreement with its president and
       chief executive officer to defer a portion of his 1998 regular
       compensation in a deferred compensation Rabbi Trust account held in the
       name of the Company. The deferrals are included within the Company's
       consolidated balance sheet. Salary deferrals to the trust amounted to
       $316,000 for 1998. There were no deferrals into this trust in 1999, 2000
       or 2001. During 2001, two other Directors elected to defer their fees
       into a Rabbi Trust account. Combined deferrals to these two accounts were
       $17,000 for the year. All PICO stock purchased in the Rabbi Trust
       accounts is subject to the claims of outside creditors and is reported as
       treasury stock in the consolidated financial statements.

          In August 1998, the Company acquired 412,846 shares of its common
       stock at a cost of $1.6 million, and assumed call option obligations for
       the delivery of these shares when the options are exercised. These call
       options expire on December 30, 2003 and are held by the chairman of
       PICO's board and its chief executive officer. On December 31, 1998,
       57,307 of these options were exercised for a total of $200,000.

          During 2000, the Company sold its interest in Conex Continental Inc.
       to Dominion Japan, a Japanese corporation. PICO and Dominion, through its
       parent, Dominion Capital Pty. Ltd., each have an ownership interest in
       the common stock of Solpower Corporation. PICO accounts for Solpower at
       cost and records unrealized gains or losses under SFAS 115. PICO loaned
       Solpower $500,000 to purchase its 50% interest in Protocol Resource
       Management, Inc. and PICO acquired the other 50% of Protocol. The loan
       bears interest at 10.8% and PICO received a warrant to purchase 1 million
       shares of Solpower common stock. PICO records its interest in Protocol
       using the equity method of accounting. During 2000, PICO loaned
       approximately $2.2 million to Dominion Capital Pty. Limited. The loans
       bear interest at a weighted rate of 10.2% and were due in 2001. In May
       2001, one of the loans for $1.2 million became overdue. Negotiations
       between PICO and Dominion Capital to reach a settlement agreement on both
       the overdue loan of $1.2 million and the other loan of $1 million proved
       unsuccessful. Accordingly, PICO has commenced legal actions through the
       Australian courts against Dominion Capital to recover the total amount
       due to PICO Holdings. Due to the inherent uncertainty involved in
       pursuing a legal action and our ability to realize the assets
       collateralizing the loans, PICO recorded an allowance for the total
       outstanding balance of $2.3 million for the loans and interest during
       2001.

17.    STATUTORY INFORMATION:

          The Company and its insurance subsidiaries are subject to regulation
       by the insurance departments of the states of domicile and other states
       in which the companies are licensed to operate and file financial
       statements using statutory accounting practices prescribed or permitted
       by the respective Departments of Insurance. Prescribed statutory
       accounting practices include a variety of publications of the National
       Association of Insurance Commissioners, as well as state laws,
       regulations and general administrative rules. Permitted statutory
       accounting practices encompass all accounting practices not so
       prescribed. Physicians had received written approval from the Ohio
       Department of Insurance to discount its medical professional liability
       unpaid loss and loss adjustment expense reserves, including related
       reinsurance recoverable using a 4% discount rate through December 31,
       1999. Effective January 1, 2000, the Ohio Department of Insurance
       withdrew its permission for Physicians to discount reserves. Statutory
       practices vary in certain respects from generally accepted accounting
       principles. The principal variances are as follows:


                                       82



     (1)  Certain assets are designated as "non-admitted assets" and charged to
          shareholders' equity for statutory accounting purposes (principally
          certain agents' balances and office furniture and equipment).

     (2)  Deferred policy acquisition costs are expensed for statutory
          accounting purposes.

     (3)  Equity in net income of subsidiaries and affiliates is credited
          directly to shareholders' equity for statutory accounting purposes.

     (4)  Fixed maturity securities are carried at amortized cost.

     (5)  Loss and loss adjustment expense reserves and unearned premiums are
          reported net of the impact of reinsurance for statutory accounting
          purposes.

           The Company and its wholly-owned insurance subsidiaries'
       policyholders' surplus and net income (loss) as of and for the years
       ended December 31, 2001, 2000 and 1999 on the statutory accounting basis
       are as follows:




                                              2001               2000              1999
                                         ----------------    --------------    --------------
                                                                       
Physicians Insurance Company of Ohio:      (Unaudited)
     Statutory net income (loss)             $ 5,412,626      $ 10,212,601      $ (6,578,611)
     Policyholders' surplus                   42,859,837        33,996,556        35,022,961
The Professionals Insurance Company: (1)
     Statutory net income                                     $    130,790      $    158,012
     Policyholders' surplus                                      3,773,247         3,437,580
Sequoia Insurance Company:
     Statutory net income (loss)             $   (50,861)     $ (2,660,660)     $    497,523
     Policyholders' surplus                   29,271,877        23,442,970        25,389,791
Citation Insurance Company:
     Statutory net income (loss)             $ 2,317,209      $  4,549,292      $ (5,519,801)
     Policyholders' surplus                   16,629,106        14,328,017        16,502,888


               (1) The Professionals Insurance Company was merged with
          Physicians Insurance Company of Ohio on December 21, 2001.

          Sequoia Insurance Company is a wholly owned subsidiary of Physicians
       Insurance Company of Ohio. In the table above, the statutory surplus of
       Sequoia ($29.3 million in 2001, $23.4 million in 2000, and $25.4 million
       in 1999) is also reflected in statutory surplus of Physicians.

18.    SEGMENT REPORTING:

          The Company is a diversified holding company engaged in five major
       operating segments: Water Rights and Water Storage; Land and Related
       Mineral Rights and Water Rights; Property and Casualty Insurance; Medical
       Professional Liability ("MPL") Insurance; and Long Term Holdings.

           Segment performance is measured by revenues and segment profit before
       tax. In addition, assets identifiable with segments are disclosed as well
       as capital expenditures, and depreciation and amortization. The Company
       has operations and investments both in the U.S. and abroad. Information
       by geographic region is also similarly disclosed.

       Water Rights and Water Storage

            Vidler is engaged in the following water rights and water storage
       activities:

       -    acquiring water rights, redirecting the water to its highest and
            best use, and then generating cash flow from either leasing the
            water or selling the right;

       -    development of storage and distribution infrastructure; and

       -    purchase and storage of water for resale in dry years.


                                       83



       Land and Related Mineral Rights and Water Rights

          PICO is engaged in land and related mineral rights and water rights
       operations through its subsidiary Nevada Land. Nevada Land owns
       approximately 1.2 million acres of land and related mineral and water
       rights in northern Nevada. Revenue is generated by land sales, land
       exchanges and leasing for grazing, agricultural and other uses. Revenue
       is also generated from the development of water rights and mineral rights
       in the form of outright sales and royalty agreements.

       Property and Casualty Insurance

          PICO's Property and Casualty Insurance operations are conducted by our
       California-based subsidiaries Sequoia and Citation.

          Sequoia writes property and casualty insurance in California and
       Nevada, focusing on the niche markets of farm insurance and small to
       medium-sized commercial insurance. Sequoia also writes personal
       insurance, and expanded this line of business through the acquisition of
       Personal Express Insurance Services, Inc. during 2000.

          In the past, Citation wrote commercial property and casualty insurance
       in California and Arizona. Sequoia now directly writes all business in
       California and Nevada. Citation ceased writing business in December 2000,
       and is now "running-off" the loss reserves from its existing business.

          In this segment, revenues come from premiums earned on policies
       written and investment income on the assets held by the insurance
       companies.

       MPL Operations

          Until 1995, Physicians and Professionals wrote medical professional
       liability insurance, mostly in the state of Ohio. Professionals merged
       with and into Physicians on December 21, 2001. Physicians has stopped
       writing new business and is being "run off". This means that it is
       handling claims arising from historical business, and selling investments
       when funds are needed to pay claims.

          As expected during the run-off process, the bulk of this segment's
       revenues come from investment income. The Physicians' portfolio contains
       some of the Company's long term holdings.

       Long Term Holdings

          The Long Term Investments segment comprises investments where we own
       less than 50% of the company, or the company is too small to constitute a
       segment of its own.

          PICO invests in companies, which our management identifies as
       undervalued based on fundamental analysis. Typically, the stocks will be
       selling for less than tangible book value or appraised intrinsic value
       (i.e., what we assess the company to be worth). Often the stocks will
       also be trading for low ratios of earnings and cash flow, or on high
       dividend yields. Additionally, the company must have special qualities,
       such as unique assets, potential catalysts for change, or attractive
       industry characteristics.

          We also have a small portfolio of alternative investments, where we
       have deviated from our traditional value criteria in an attempt to
       capitalize on areas of potentially greater growth without incurring undue
       risk.


                                       84



        Investments directly related to the insurance operations are included
        within those segments.

          Segment information by major operating segment follows (in thousands):




                                   Land and Related    Water Rights    Property                     Long-
                                    Mineral Rights       and Water        and                        Term
                                   and Water Rights       Storage      Casualty        MPL       Investments    Consolidated
                                 ------------------------------------------------------------------------------ --------------
                                                                                                   
2001:
Revenues (charges)                            $ 3,221        $ 17,763    $ 51,349      $ (2,122)        $ (631)      $ 69,580
Income (loss) before income taxes                 131           4,989       6,178         8,409        (12,016)         7,691
Identifiable assets                            59,682          97,216     152,751        28,782         34,704        373,135
Depreciation and amortization                      58           1,285         346            99            247          2,035
Capital expenditures                               43             277         364                           76            760

2000:
Revenues                                      $ 5,276         $ 3,123    $ 39,257       $ 3,396       $ (5,699)      $ 45,353
Income (loss) before income taxes               1,918          (4,854)      2,541           768        (13,853)       (13,480)
Identifiable assets                            52,002         108,215     137,808        30,155         66,965        395,145
Depreciation and amortization                      28             988         253           396          1,013          2,678
Capital expenditures                                           15,029         321             8            151         15,509

1999:
Revenues                                      $ 7,147         $ 1,056    $ 39,960       $ 3,121        $ 3,204       $ 54,488
Income (loss) before income taxes               1,094          (3,947)     (3,679)       (4,805)        (9,151)       (20,488)
Identifiable assets                            53,810          80,313     136,589        39,827         69,510        380,049
Depreciation and amortization                      33             810                       971          1,255          3,069
Capital expenditures                                              355                       147             75            577



                                       85



Segment information by geographic region follows (in thousands):




                                     United
                                     States         Canada        Europe     Australia       Asia               Consolidated
                                 ---------------------------------------------------------------------    --------------------------
                                                                                           
2001
----
Revenues                                $ 68,252                    $   937        $ 391                       $ 69,580
Income before income taxes                 7,478                        213                                       7,691
Identifiable assets                      337,272                     28,374      $ 7,489                        373,135
Depreciation and amortization              2,035                                                                  2,035
Capital expenditures                         760                                                                    760

2000
----
Revenues                                $ 47,688      $ (2,482)     $   147                                    $ 45,353
Income (loss) before income taxes        (12,815)     $ (2,616)       1,951                                     (13,480)
Identifiable assets                      354,609         2,115       30,269      $ 8,151                        395,144
Depreciation and amortization              2,544                                                $ 134             2,678
Capital expenditures                      15,509                                                                 15,509

1999:
-----
Revenues                                $ 51,148                    $ 2,672                     $ 668          $ 54,488
Income (loss) before income taxes        (23,094)                     4,383                    (1,777)          (20,488)
Identifiable assets                      332,830                     29,901      $ 8,280        9,038           380,049
Depreciation and amortization              2,770                                                  299             3,069
Capital expenditures                         577                                                                    577



19.      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

          The following methods and assumptions were used to estimate the fair
       value of each class of financial instruments for which it is practicable
       to estimate that fair value:

       -  CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, RECEIVABLES,
          PAYABLES AND ACCRUED LIABILITES: Carrying amounts for these items
          approximate fair value because of the short maturity of these
          instruments.

       -  INVESTMENTS: Fair values are estimated based on quoted market prices,
          or dealer quotes for the actual or comparable securities. Fair value
          of warrants to purchase common stock of publicly traded companies is
          estimated based on values determined by the use of accepted valuation
          models at the time of acquisition. Fair value for equity securities
          that do not have a readily determinable fair value is estimated based
          on the value of the underlying common stock. The Company regularly
          evaluates the carrying value of securities to determine whether there
          has been any diminution in value that is other than temporary and
          adjusts the value accordingly.

       -  DEPOSITS WITH REINSURERS AND REINSURANCE RECOVERABLES: The carrying
          amounts of deposits with reinsurers and reinsurance recoverable with
          fixed amounts due are reasonable estimates of fair value.

       -  INVESTMENT IN AFFILIATE: Investments in which the Company owns between
          20% and 50%, and/or has the ability to significantly influence the
          operations and policies of the investee, are carried at equity. The
          balance of the investment is regularly evaluated for impairment.

       -  BANK AND OTHER BORROWINGS: Carrying amounts for these items
          approximate fair value because current interest rates and, therefore,
          discounted future cash flows for the terms and amounts of loans
          disclosed in Note 20, are not significantly different from the
          original terms.


                                       86





                                                               December 31, 2001                          December 31, 2000
                                             --------------------------------------     --------------------------------------
                                                 Carrying             Estimated            Carrying             Estimated
                                                  Amount             Fair Value             Amount              Fair Value
                                             -----------------     ----------------     ----------------     -----------------
                                                                                                    
Financial assets:
  Fixed maturities                              $ 100,895,244        $ 100,895,244        $ 101,895,274         $ 101,895,274
  Equity securities                                54,364,542           54,364,542           36,174,505            36,174,505
  Investment in unconsolidated affiliates           2,583,590            6,602,760           27,824,291            23,016,375
  Cash and cash equivalents                        17,361,624           17,361,624           13,644,312            13,644,312

Deposits with reinsurers and
reinsurance recoverables                            6,745,010            6,745,010            7,604,288             7,604,288
Financial liabilities:
     Bank and other borrowings                     14,596,302           14,596,302           15,550,387            15,550,387




20.      BANK AND OTHER BORROWINGS:

           At December 31, 2001 and 2000, bank and other borrowings consisted of
       loans and promissory notes incurred to finance the purchase of land and
       investment securities. The weighted average interest rate on these
       borrowings was approximately 7.2% and 7.4% at December 31, 2001 and 2000,
       respectively with principal and interest due throughout the term.


                                             2001                 2000
                                       ------------------   -----------------
5.58% (5.58% in 2000) Swiss loans            $ 7,844,084         $ 5,894,838
8% Notes due:
  2007 - 2008                                    208,280             455,957
  2012                                                               359,218
8.5% Notes due:
  2004                                         1,155,120           1,540,354
  2008 - 2009                                  3,141,837           3,772,131
  2019                                         1,563,063           2,774,894
9% Notes due:
  2003                                           171,277             188,356
  2008                                           512,641             564,639
                                       ------------------   -----------------
                                            $ 14,596,302        $ 15,550,387
                                       ==================   =================


           At December 31, 2001, Global Equity SA has a loan facility with a
       Swiss bank for a maximum of 15 million CHF based on a margin not higher
       than 30% of the securities deposited with the bank. The actual amount
       available is dependent on the value of the collateral held after a safety
       margin established by the bank. It may be used as an overdraft or for
       payment obligations arising from securities transactions. At December 31,
       2001, CHF 13 million (approximately $7.8 million) is outstanding bearing
       interest at approximately 6%.

           At December 31, 2001, $6.8 million of the total outstanding debt is
       within Vidler, incurred with the acquisition of land in the Harquahala
       Valley. The weighted average rate of interest on these notes is 8.5% and
       is collateralized by the purchased properties.

           Nevada Land & Resource Company issued a $5 million promissory note,
       maturing on October 1, 2000 in connection with the acquisition of lands.
       The note was collateralized by 9.4 acres of land, which held geothermal
       leases. The notes bore interest at 9% and were paid monthly to the extent
       that payment was received on four geothermal leases associated with the
       land. In April 1999, Nevada Land & Resource Company settled the note
       payable by exchanging the particular land deed, which was collateral for
       the note. As a result of this settlement the Company recognized a net
       extraordinary gain of $442,000.


                                       87



          The Company's future minimum principal debt repayments for the years
ending December 31, are as follows:


2002                $8,199,865
2003                   518,749
2004                 1,376,519
2005                   362,652
2006                   393,826
Thereafter           3,744,691
----------------------------------
  Total            $14,596,302
               ================


21.       CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:

           In the fourth quarter of 2000, the Company received notification from
       the Ohio Department of Insurance that it would no longer permit the
       Company to discount its MPL reserves for statutory accounting practices.
       Accordingly, the Company discontinued discounting its MPL reserves in its
       statutory filing with the Ohio Department of Insurance and financial
       statements prepared in accordance with US GAAP for the year ended
       December 31, 2000. The effect of this change was to increase the unpaid
       losses and loss adjustment expenses reserve by $7.5 million and an
       cumulative effect of accounting principle of $5 million, or $0.43 per
       share, net of an income tax benefit of approximately $2.5 million. Had
       the change been made as of the first day of the earliest period
       presented, the net loss and loss per share for 1999 and 1998 would have
       been reduced by $995,000 and $0.11 per share and $643,000, and $0.11 per
       share, respectively.

           Effective January 1, 2001, the Company adopted SFAS No. 133,
       "Accounting for Derivative Instruments and Hedging Activities," as
       amended by SFAS 138, "Accounting for Certain Derivative Instruments and
       Hedging Activities." As amended, SFAS 133 requires that an entity
       recognize all derivatives as either assets or liabilities in the
       statement of financial position, measure those instruments at fair value
       and recognize changes in fair value in earnings for the period of change
       unless the derivative qualifies as an effective hedge that offsets
       certain exposure. As a result of this adoption, the Company recorded a
       transition adjustment in the first quarter of 2001 that decreased net
       income by approximately $1 million, net of a $500,000 tax benefit and
       increased other comprehensive income by the same amount (no effect on
       shareholders' equity). These adjustments are reported as a cumulative
       effect of change in accounting principle in the accompanying consolidated
       financial statements.

           The current impacts of SFAS 133, are included in realized investment
       gains and losses on the statement of operations and primarily includes
       the fluctuation in the value of the warrants to purchase shares of
       HyperFeed Technologies, Inc. The value of the warrants is determined each
       period using the Black Scholes option pricing model. The model uses the
       current market price of the common stock of HyperFeed, and the following
       assumptions in calculating an estimated fair value: no dividend yield; a
       risk-free interest rate of 2% - 5.6%; a one year expected life; and a
       historical 5 year cumulative volatility of 109% to 119%. The value of our
       4.1 million warrants derived from the model was $527,000 and $2.9 million
       at December 31, 2001 and 2000, respectively. The change in value is
       reported within the realized investment gain/loss in the consolidated
       statement of operations. Future effects on net income will depend on
       market conditions.

22.      SUBSEQUENT EVENT:

           On March 1, 2002, Vidler closed a sale for 1,215 acres of land, and
       the related 3,645 acre-feet of water rights, to developers near the city
       of Scottsdale for approximately $5.3 million. The transaction resulted in
       a gross profit of approximately $2.3 million, which will be recorded in
       the first quarter of 2002.


ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.



                                       88



                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The information required by this item will be set forth in our
definitive proxy statement with respect to our 2002 annual meeting of
shareholders, to be filed on or before April 10, 2002 and is incorporated herein
by reference.


ITEM 11.      EXECUTIVE COMPENSATION

         The information required by this item will be set forth in our 2002
proxy statement and is incorporated herein by reference.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will be set forth in our 2002
proxy statement and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be set forth in our 2002
proxy statement and is incorporated herein by reference.




                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)   FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS.

               1.    FINANCIAL STATEMENTS.

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                             
                     Independent Auditors' Report...................................            53
                     Consolidated Balance Sheets as of December 31, 2001 and 2000              54-55
                     Consolidated Statements of Operations for the Years
                           Ended December 31, 2001, 2000 and 1999 ..................            56
                     Consolidated Statements of Shareholders' Equity
                           for the Years Ended December 31, 2001, 2000, and 1999 ...           57-59
                     Consolidated Statements of Cash Flows for the Years
                           Ended December 31, 2001, 2000 and 1999...................            60
                     Notes to Consolidated Financial Statements.....................           61-88

               2.    FINANCIAL STATEMENT SCHEDULES.

                      Independent Auditors' Report..................................            90
                     Schedule I - Condensed Financial Information of Registrant.....           91-92
                     Schedule II - Valuation and Qualifying Accounts................            93
                     Schedule V - Supplementary Insurance Information...............           94-96



                                       89



          INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES


To the Shareholders and Board of Directors of
         PICO Holdings, Inc.:


We have audited the consolidated financial statements of PICO Holdings, Inc. and
subsidiaries (the "Company") as of December 31, 2001 and 2000, and for the three
years in the period ended December 31, 2001, and our report thereon (which
expresses an unqualified opinion, and includes an explanatory paragraph
concerning the change in accounting for medical professional liability claims
reserves in 2000). Our audits of the consolidated financial statements also
included the 2001, 2000, and 1999 financial statement schedules of the Company,
listed in Item 14. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, based on our audits, such 2001, 2000, and 1999,
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.



DELOITTE & TOUCHE LLP


San Diego, California
March 8, 2002



                                       90





                                   SCHEDULE I

       CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)

                            CONDENSED BALANCE SHEETS




                                                                         December 31,       December 31,
                                                                             2001               2000
                                                                        ----------------   ---------------
ASSETS
                                                                                        
Cash and cash equivalents                                                   $ 1,559,584       $ 4,331,102
Investments in subsidiaries                                                 133,698,408       126,892,188
Equity securities and other investments                                      29,279,888        31,464,151
Deferred income taxes                                                        10,486,309         5,670,439
Other assets                                                                 32,690,726        38,546,947
                                                                        ----------------   ---------------
     Total assets                                                          $207,714,915     $ 206,904,827
                                                                        ================   ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

Accrued expense and other liabilities                                      $  1,075,362       $ 1,712,216
                                                                        ----------------   ---------------

Common stock, $.001 par value, authorized 100,000,000 shares:
     issued 16,784,223 at December 31, 2001 and 2000, respectively               16,784            16,784
Additional paid-in capital                                                  235,844,655       235,844,655
Accumulated other comprehensive loss                                        (15,759,997)      (12,732,978)
Retained earnings                                                            64,666,746        59,893,785
                                                                        ----------------   ---------------
                                                                            284,768,188       283,022,246
Less treasury stock, at cost (2001: 4,415,607 shares and 2000:
     4,394,127 shares                                                       (78,128,635)      (77,829,635)
                                                                        ----------------   ---------------
     Total shareholders' equity                                             206,639,553       205,192,611
                                                                        ----------------   ---------------
     Total liabilities and shareholders' equity                            $207,714,915     $ 206,904,827
                                                                        ================   ===============


This statement should be read in conjunction with the notes to the consolidated
          financial statements included in the Company's 2001 Form 10-K



                                       91



                                   SCHEDULE I

       CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,



                                                                         2001              2000              1999
                                                                      -----------      -------------    -------------
                                                                                               
Investment income (loss), net                                         $ 3,946,033      $ (4,067,068)    $    659,312
Equity in income (loss) of subsidiaries                                 9,815,081         3,085,082       (3,939,199)
                                                                      -----------      -------------    -------------
     Total revenues (charges)                                          13,761,114          (981,986)      (3,279,887)
Expenses                                                                8,587,153         6,055,643        5,024,583
                                                                      -----------      -------------    -------------
Income (loss) from continuing operations before income taxes            5,173,961        (7,037,629)      (8,304,470)
Benefit for income taxes                                                 (579,571)       (2,475,383)      (1,484,192)
                                                                      -----------      -------------    -------------
Income (loss) before cumulative effect                                  5,753,532        (4,562,246)      (6,820,278)
Cumulative effect of accounting change, net                              (980,571)       (4,963,691)
                                                                      -----------      -------------    -------------
Net income (loss)                                                     $ 4,772,961      $ (9,525,937)    $ (6,820,278)
                                                                      ===========      =============    =============

                CONDENSED STATEMENTS OF CASH FLOWS
Cash flow from operating activities:
     Net income (loss)                                                $ 4,772,961      $ (9,525,937)    $ (6,820,278)
     Adjustments to reconcile net income (loss) to net cash
       used or provided by operating activities:
               Equity in (income) loss of subsidiaries                 (9,815,081)       (3,085,082)       3,939,199
               Cumulative effect of accounting change, net                980,571         4,963,691
          Changes in assets and liabilities:
               Accrued expenses and other liabilities                    (636,854)      (15,765,565)       4,709,660
               Other assets                                             1,040,351       (37,926,455)       8,144,827
                                                                      -----------      -------------    -------------

          Net cash provided by (used in) operating activities          (3,658,052)      (61,339,348)       9,973,408
                                                                      -----------      -------------    -------------

Cash flow from investing activities:
     Sale of investments                                                1,185,534        12,910,084
     Purchase of investments                                                                             (10,052,274)
                                                                      -----------      -------------    -------------
          Net cash provided by (used in) investing activities           1,185,534        12,910,084      (10,052,274)

Cash flow from financing activities:
     Cash received from exercise of warrants                                                               2,850,359
     Cash received from rights offering, net                                             49,843,163
     Purchase of treasury shares                                         (299,000)                          (291,593)
                                                                      -----------      -------------    -------------
          Net cash provided by (used in) financing activities            (299,000)       49,843,163        2,558,766
                                                                      -----------      -------------    -------------

          Increase in cash and cash equivalents                        (2,771,518)        1,413,899        2,479,900
Cash and cash equivalents, beginning of year                            4,331,102         2,917,203          437,303
                                                                      -----------      -------------    -------------
Cash and cash equivalents, end of year                                $ 1,559,584       $ 4,331,102      $ 2,917,203
                                                                      ===========      =============    =============








This statement should be read in conjunction with the notes to the consolidated
            financial statements included in the Company's Form 10-K




                                       92



                                   SCHEDULE II

                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS






                                                                    Additions
                                                                -------------------
                                             Balance at             Charged to                                  Balance
                                             Beginning              Costs and                                     End
                 Description                 of Period               Expenses             Deductions           of Period
                 -----------
                                           ----------------     -------------------     ---------------     -----------------
                                                                                                 
Year-end December 31, 2001
     Allowance for Doubtful Accounts, net   $    214,300         $ 2,633,20400           $ (296,900)3         $  2,550,604

     Valuation Allowance for
          Deferred Federal Income Taxes     $  4,101,587         $   (367,434)                                $  3,734,153

Year-end December 31, 2000
     Allowance for Doubtful Accounts, net   $     99,488         $    114,812                                 $    214,300

     Valuation Allowance for
          Deferred Federal Income Taxes     $    816,171         $  3,285,416                                 $  4,101,587

Year-end December 31, 1999
     Allowance for Doubtful Accounts, net   $     94,525         $      4,963                                 $     99,488

     Valuation Allowance for
          Deferred Federal Income Taxes     $ 12,184,507         $(11,368,336)                                $    816,171





                                       93


                                   SCHEDULE V

                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
                                 (In thousands)
                                December 31, 1999



                                        Losses,                                                  Amortization
                           Deferred     Claims                                        Losses      of Deferred
                            Policy     and Loss                            Net         and          Policy        Other        Net
                         Acquisition    Expense   Unearned   Premium    Investment     Loss       Acquisition   Operating   Premiums
                            Costs      Reserves   Premiums   Revenue      Income     Expenses        Costs       Expenses    Written
                         -----------   --------   ---------  --------   ----------   ----------   -----------   ---------  ---------
                                                                                                  
Medical
professional
liability                              $ 40,543                 $ 755     $ 1,097    $ (11,158)                     $ 524     $ 755

Other property
and casualty                $ 6,914      57,906    $ 28,143    42,535       5,997       29,460      $ 13,044        2,667    45,173
                         -----------   --------   ---------  --------   ----------   ----------   -----------   ---------  ---------

Total medical
professional
liability and property
and casualty                  6,914      98,449      28,143    43,290       7,094       18,302        13,044        3,191    45,928

Other operations                                                            2,673                                  26,063
                         -----------   --------   ---------  --------   ----------   ----------   -----------   ---------  ---------

Total continuing            $ 6,914    $ 98,449    $ 28,143   $43,290     $ 9,767     $ 18,302      $ 13,044     $ 29,254  $ 45,928
                         ===========   ========   =========  ========   ==========   ==========   ===========   =========  =========




                                       94



                                   SCHEDULE V

                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
                                 (In thousands)
                                December 31, 2001






                                      Future
                                      Policy
                                      Benefits,                                               Amortization
                          Deferred     Losses,                                       Losses    of Deferred
                          Policy       Claims                             Net         and        Policy        Other         Net
                        Acquisition   and Loss   Unearned    Premium  Investment      Loss     Acquisition   Operating     Premiums
                           Costs      Expenses   Premiums    Revenue    Income      Expenses      Costs       Expenses     Written
                        -----------   ---------  --------   --------  ----------   ---------   -----------   ----------   ----------
                                                                                                 
Medical
professional
liability                              $ 58,610              $ 1,853    $ 1,543     $ 1,063                    $ 1,580      $ 1,853

Other property
and casualty               $ 6,300       62,932  $ 25,505     32,583      5,381      22,963      $ 10,250        3,514       42,191
                        -----------   ---------  --------   --------  ----------   ---------   -----------   ----------   ----------

Total medical
professional
liability and property
and casualty                 6,300      121,542    25,505     34,436      6,924      24,026        10,250        5,094       44,044

Other operations                                                          1,314                                 21,257
                        -----------   ---------  --------   --------  ----------   ---------   -----------   ----------   ----------

Total continuing           $ 6,300    $ 121,542  $ 25,505    $34,436    $ 8,238    $ 24,026      $ 10,250     $ 26,351     $ 44,044
                        ===========   =========  ========   ========  ==========   =========   ===========   ==========   ==========



                                       95



                                   SCHEDULE V

                      PICO HOLDINGS, INC. AND SUBSIDIARIES
                CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
                                 (In thousands)
                                December 31, 2000




                                        Losses,                                                Amortization
                         Deferred       Claims                                       Losses     of Deferred
                          Policy       and Loss                            Net        and          Policy         Other       Net
                        Acquisition     Expense   Unearned   Premium   Investment     Loss      Acquisition     Operating   Premiums
                           Costs       Reserves   Premiums   Revenue     Income     Expenses       Costs        Expenses    Written
                        -----------   ---------   ---------  ---------  ----------  ---------   -------------   ---------  ---------
                                                                                                
Medical
professional
liability                             $  71,859                $ 1,941     $ 1,180    $ 6,599                    $   857    $ 1,934

Other property
and casualty                $ 4,821      67,274    $ 17,205     34,439       4,951     28,613       $ 10,484       4,528     31,719
                        -----------   ---------   ---------  ---------  ----------  ---------   -------------   ---------  --------

Total medical
professional
liability and property
and casualty                  4,821     139,133      17,205     36,380       6,131     35,212         10,484       5,385     33,653

Other operations                                                               256                                22,868
                        -----------   ---------   ---------  ---------  ----------  ---------   -------------   ---------  --------

Total continuing            $ 4,821   $ 139,133    $ 17,205   $ 36,380     $ 6,387   $ 35,212       $ 10,484    $ 28,253   $ 33,653
                        ===========   =========   =========  =========  ==========  =========   =============   =========  ========




                                       96


3. EXHIBITS




Exhibit
Number                              Description

      + 2.2   Agreement and Plan of Reorganization, dated as of May 1, 1996,
              among PICO, Citation Holdings, Inc. and Physicians and amendment
              thereto dated August 14, 1996 and related Merger Agreement.

  +++++ 2.3   Second Amendment to Agreement and Plan of Reorganization dated
              November 12, 1996.

      # 2.4   Agreement and Debenture, dated November 14, 1996 and November 27,
              1996, Respectively, by and between Physicians and HyperFeed.
              Purchase and Sale Agreement by, between and among Nevada Land &
              Resource Company, LLC,

      # 2.5   Global Equity, Western Water Company and Western Land Joint
              Venture dated April 9, 1997.

  +++++ 3.1   Amended and Restated Articles of Incorporation of PICO.

    + 3.2.2   Amended and Restated By-laws of PICO.

     * 10.8   Flexible Benefit Plan

   ++ 10.57   PICO 1995 Stock Option Plan

 -+++ 10.58   Key Employee Severance Agreement and Amendment No. 1 thereto, each
              made as of November 1, 1992, between PICO and Richard H. Sharpe
              and Schedule A identifying other substantially identical Key
              Employee Severance Agreements between PICO and certain of the
              executive officers of PICO.

  +++ 10.59   Agreement for Purchase and Sale of Shares, dated May 9, 1996,
              among Physicians, Guinness Peat Group plc and Global Equity.

   ++ 10.60   Agreement for the Purchase and Sale of Certain Assets, dated
              July 14, 1995 between Physicians, PRO and Mutual Assurance, Inc.

   ++ 10.61   Stock Purchase Agreement dated March 7, 1995 between Sydney
              Reinsurance Corporation and Physicians.

   ++ 10.62   Letter Agreement, dated September 5, 1995, between Physicians,
              Christopher Ondaatje and the South East Asia Plantation
              Corporation Limited.

 ++++ 10.63   Amendment No. 1 to Agreement for Purchase and Sale of Certain
              Assets, dated July 30, 1996 between Physicians, PRO and Mutual
              Assurance, Inc.

+++++ 16.1.   Letter regarding change in Certifying Accountant from Deloitte &
              Touche LLP, Independent auditors

      # 21.   Subsidiaries of PICO.

      23.1.   Independent Auditors' Consent - Deloitte & Touche LLP.

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

*        Incorporated by reference to exhibit of same number filed with
         Registration Statement on Form S-1 (File No. 33-36383).

***      Incorporated by reference to exhibit of same number filed With 1992
         Form 10-K.

****     Incorporated by reference to exhibit of same number filed with 1994
         Form 10-K.

*****    Incorporated by reference to exhibit bearing the same number filed with
         Registration Statement on Form S-4 (File No. 33-64328).

+        Filed as Appendix to the prospectus in Part I of Registration Statement
         on Form S-4 (File No. 333-06671)

++       Incorporated by reference to exhibit filed with Physicians'
         Registration Statement No. 33-99352 on Form S-1 filed with the SEC on
         November 14, 1995.



                                       97



+++      Incorporated by reference to exhibit filed with Registration Statement
         on Form S-4 (File no. 333-06671).

++++     Incorporated by reference to exhibit filed with Amendment No. 1 to
         Registration Statement No. 333-06671 on Form S-4.

+++++    Incorporated by reference to exhibit of same number filed with Form 8-K
         dated December 4, 1996.

-        Executive Compensation Plans and Agreements.

#        Incorporated by reference to exhibit of same number filed with Form
         10-K dated April 15, 1997.

##       Incorporated by reference to exhibit of same number filed with 10-K/A
         dated April 30, 1997.

###      Incorporated by reference to Form S-8 filed with the Securities and
         Exchange Commission (File No. 333-36881).

####     Incorporated by reference to Form S-8 filed with the Securities and
         Exchange Commission (File No. 333-32045).

#####    Incorporated by reference to Form S-8 filed with the Securities and
         Exchange Commission (File No. 333-51688).

######   Incorporated by reference to Form S-8 filed with the Securities and
         Exchange Commission (File No. 333-74072).

(B)      REPORTS ON FORM 8-K.

                  On March 19, 2001, PICO filed a form 8-K announcing that its
         water rights and water storage subsidiary, Vidler Water Company, Inc.,
         had sold a portion of its land and water rights in Arizona's Harquahala
         Valley ground water basin to a unit of Allegheny Energy, Inc.



                                       98



                                   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.

Date:  March 18, 2002
                                                  PICO Holdings, Inc.


                                                  By:     /s/ John R. Hart
                                                     ---------------------------
                                                            John R. Hart
                                                      Chief Executive Officer
                                                      President and Director

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 18, 2002 the following persons in the
capacities indicated.




/s/ Ronald Langley                        Chairman of the Board
-------------------------------------
Ronald Langley



/s/ John R. Hart                          Chief Executive Officer, President and
-------------------------------------      Director
John R. Hart



/s/ Maxim C. W. Webb                      Chief Financial Officer and Treasurer
-------------------------------------     (Chief Accounting Officer)
Maxim C. W. Webb



/s/ S. Walter Foulkrod, III, Esq.         Director
-------------------------------------
S. Walter Foulkrod, III, Esq.



/s/ Richard D. Ruppert, MD                Director
-------------------------------------
Richard D. Ruppert, MD



/s/ Carlos C. Campbell                    Director
-------------------------------------
Carlos C. Campbell



/s/ Robert R. Broadbent                   Director
-------------------------------------
Robert R. Broadbent



/s/ John D. Weil                          Director
-------------------------------------
John D. Weil




                                       99