May 7, 1997


              USF&G CORPORATION 1997 ANNUAL MEETING OF SHAREHOLDERS

Dear Investor:

         You have already received a copy of the 1997 Proxy Statement, Annual
Report and Proxy Card in connection with USF&G's Annual Meeting to be held on
May 21, 1997. I am writing to ask you to vote FOR the adoption of the Stock
Incentive Plan of 1997.

         Stock based compensation is and has been an integral component of
USF&G's compensation strategy. This strategy has been successful in
incentivizing and rewarding management based upon increases in USF&G's stock
price. As noted on page 18 of the Proxy Statement, over the past five years
USF&G has outperformed the S&P 500 Index, the Standard & Poor's
Property/Casualty Insurance Index and the Moody's P&C Insurance Group.

         Additional stock is needed to continue USF&G's stock based compensation
programs and we strongly believe that the Plan will ensure that management's
interests continue to be aligned with the interests of shareholders.
Historically, options granted to management under USF&G's stock compensation
plans vest ratably over a three year period, thus encouraging management
continuity and linking executive compensation to growth in value of USF&G's
stock.

         Mindful of our duty to manage the dilutive impact of any new
compensation plan, the Plan has been designed to include a share repurchase
feature to offset dilution to existing shareholders. The number of shares
issuable under the Plan during its ten (10) year term is limited to 5,000,000
shares, unless shares are repurchased during the term of the Plan.

         The Board of Directors believes that the share repurchase/nondilution
feature of the Plan provides a safeguard for existing shareholders. Yet the Plan
gives the Board the ability to reward and incent management for superior
performance. I trust you will take these positive features into consideration
and vote FOR this proposal.

         If you wish to discuss this further, please contact either Larry
Walters, Vice President-Investor Relations (410-205-5300), Jack Hoffen,
Corporate Secretary (410-205-6329), or me for more information.

                                Very truly yours,


                                /s/DAN L. HALE
                                Dan L. Hale
                                Executive Vice President and
                                Chief Financial Officer